BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE INSURANCE COMMITTEE
                          Senator William W. Monning, Chair


          AB 2279 (Hagman)    Hearing Date:  June 11, 2014  

          As Amended: March 28, 2014
          Fiscal:             No
          Urgency:       No

          VOTES:              Asm. Floor          (05/15/14)78-00/Pass
                         Asm. Ins.      (05/07/14)     12-00/Pass
                         

           SUMMARY   Increases from $15,000 to $20,000 the coverage amount  
          that can be sold by limited-license life insurance agents for  
          benefits designated to be used to cover funeral expenses.
          
           
          DIGEST
            
          Existing law


            1.  Prohibits any person to sell or offer for sale a funeral  
              insurance contract in this state unless he or she is properly  
              licensed as a life agent. 


           2.  Defines a "funeral insurance contract" as a life insurance  
              policy embodying an agreement, for a valuable consideration, to  
              embalm or dispose of, or expressly to procure or pay or to  
              provide funds for, in whole or in part, the embalming or  
              disposal of the remains of any person living at the time of the  
              issuance of such policy. 


           3.  Requires applicants for a permanent license to comply with  
              prelicensing education standards, but exempts those life agents  
              who are limited by written agreement with appointing insurers to  
              transact only specific life insurance policies or annuities  
              having an initial face amount of $15,000 or less that are  
              designated by the purchaser for the payment of funeral and  
              burial expenses ("limited life licensees").   






                                               AB 2279 (Hagman), Page 2




            4.  Requires applicants for a permanent license to comply with  
              prelicensing examination requirements, but exempts limited life  
              licensees from taking the same examination as full lines life  
              licensees and provides that those applicants be required to take  
              an examination developed to test only those topics relevant to  
              the type of policies that they are restricted to sell.  












































                                               AB 2279 (Hagman), Page 3




          This bill

               Would allow limited life licensees to transact funeral and  
              burial life insurance policies up to $20,000 without being  
              subject to the same licensing requirements as full line life  
              licensees.


           COMMENTS

          1.  Purpose of the bill  .  According to the author, it has been  
              years since California has increased the funeral policy  
              coverage limit. Since these types of policies are used to  
              pay for funeral and burial services, by increasing the limit  
              we can accommodate a population that has limited options  
              when it comes to life insurance. California's seniors  
              deserve no less.


           2.  Background  


               a.     Funding Funeral and Burial Expenses.  Consumers may  
                 lock in the pricing of funeral expenses by prearranging  
                 services and merchandise and pre-funding for those  
                 services and merchandise when arrangements are completed.  
                   Consumers have several options including preneed trust  
                 contracts based on selected services that are funded  
                 through a trust account administered by the funeral  
                 establishment or cemetery and pre-need life insurance  
                 purchased to pay for services, merchandise, and cemetery  
                 costs.


               b.     Pre-need Life Insurance.  Life insurance policies  
                 designed to pay for funeral and burial expenses are  
                 sometimes referred to as pre-need life insurance.   These  
                 policies are structured like regular whole life insurance  
                 policies (they do not expire based on a term) with  
                 benefits measured to pay for pre-selected funeral and  
                 burial expenses.  


                 According to the Cemetery and Mortuary Association of  
                 California (CMAC), most pre-need policies can be paid off  
                 over 3, 5, 7 or 10 years.  CMAC also explains that these  




                                               AB 2279 (Hagman), Page 4




                 products may appeal to seniors because they involve  
                 little, if any, underwriting, and that policyholders tend  
                 to keep their policies; over 95% of customers do not  
                 surrender their policies.


               c.     Limited Life Licensees.  Pre-need policies are sold  
                 by producers who have a full line life license or a  
                 limited life license.  In order to avoid the more  
                 extensive education and examination standards required of  
                 a full line life license, existing law provides for a  
                 limited life license subject to a narrowly tailored  
                 examination, to sell policies designated to pay for  
                 funeral and burial expenses with a face value of less  
                 than $15,000.  In practical terms, this allows providers  
                 of funeral services to employ sales counselors who hold  
                 these limited licenses so that consumers may select  
                 funeral and burial services while at the same time  
                 purchase a small life insurance policy to fund those  
                 services.  


                 The current cap set in 2002 would be the equivalent of  
                 $19,766.98 in 2014 dollars, adjusted for inflation  
                 according to the Consumer Price Index.  This bill raises  
                 the cap to $20,000.

           1.  Arguments in Support  
               
               The Cemetery and Mortuary Association of California writes  
              that the maximum funeral policy coverage limitation has not  
              been increased since 2003, and the modest increase proposed  
              by AB 2279 reflects the increase in the cost-of-living since  
              that date. This is both justified and necessary to serve a  
              population that has limited life insurance options.

              Funeral policies have long been used by consumers to buy  
              peace of mind by ensuring that their family is not burdened  
              by the costs of a funeral or burial after they pass away.  
              While non-insurance pre-funding arrangements are available,  
              they do not work for all consumers, and these limited  
              funeral policies have filled this gap in the market.

           2.  Arguments in Opposition  

              None received.




                                               AB 2279 (Hagman), Page 5





           
          3.  Prior and Related Legislation  


               a.     SB 2281 (Robbins), Chapter 1418, Statutes of 1990,  
                 narrowed the licensing requirements for limited life  
                 licensees who only sold life insurance policies with a  
                 value of $10,000 or less that cover funeral or burial  
                 expenses.


               b.     AB 2778 (Calderon), Chapter 347, Statutes of 2002,  
                 raised the cap on life insurance  policies covering  
                 funeral or burial expenses sold by limited life licensees  
                 from $10,000 to $15,000.
           

          POSITIONS
          
          Support
           
          California Mortuary and Cemetery Association
           
          Oppose
           
          None received.


          Consultant:   Hugh Slayden (916) 651-4773