BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2279| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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, CONTINUED AB 2279 Page 2 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. CONTINUED AB 2279 Page 3 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 CONTINUED AB 2279 Page 4 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 **** END **** CONTINUED