BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 2279
          Author:   Hagman (R)
          Amended:  3/28/14 in Assembly
          Vote:     21

           
           SENATE INSURANCE COMMITTEE  :  10-0, 6/11/14
          AYES:  Monning, Gaines, Corbett, Correa, DeSaulnier, Mitchell,  
            Nielsen, Roth, Torres, Vidak
          NO VOTE RECORDED:  Lieu

           ASSEMBLY FLOOR  :  78-0, 5/15/14 (Consent) - See last page for  
            vote


           SUBJECT  :    Insurance:  life agents

           SOURCE  :     California Mortuary and Cemetery Association


           DIGEST  :    This bill 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.

           ANALYSIS  :    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,  
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            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").  

          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.

          This bill allows 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.

           Background

          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.

           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.  

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          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 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.

           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.

           Prior Legislation

           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.

          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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  6/12/14)

          California Mortuary and Cemetery Association (source) 

           ARGUMENTS IN SUPPORT  :    The Cemetery and Mortuary Association  

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          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.


           ASSEMBLY FLOOR  :  78-0, 5/15/14
          AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,  
            Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian  
            Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,  
            Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,  
            Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,  
            Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández,  
            Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,  
            Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian,  
            Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, V.  
            Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas,  
            Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron,  
            Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
          NO VOTE RECORDED: Mansoor, Vacancy


          AL:nl  6/12/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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