Amended in Assembly April 7, 2014

California Legislature—2013–14 Regular Session

Assembly BillNo. 2578


Introduced by Assembly Member Dababneh

February 21, 2014


An act to amendbegin delete Section 10203.8end deletebegin insert Sections 10271 and 10295.6end insert of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2578, as amended, Dababneh. Insurance:begin delete group life insurance.end deletebegin insert disability insurance: life insurance: accelerated death benefit.end insert

begin insert

Existing law governs the business of insurance, and defines various types of insurance for these purposes, including life insurance and disability insurance. Existing law generally makes the requirements imposed on disability insurance contracts inapplicable to life insurance, endowment, and annuity contracts, or supplemental contracts thereto, that provide supplemental benefits in case of death or dismemberment or loss of sight by accident, operate to safeguard contracts against lapse, or give a special surrender benefit or an accelerated death benefit, as specified. Existing law requires that supplemental benefits specify any applicable exclusions and limits those exclusions to, among other things, a condition or loss caused by engaging in an illegal occupation.

end insert
begin insert

This bill would include a condition or loss caused or substantially contributed to by engaging in aviation, other than as a fare-paying passenger, to the list of allowable exclusions to supplemental benefits.

end insert
begin insert

Existing law defines an accelerated death benefit as a provision, endorsement, or rider added to a life insurance policy that provides for the advance payment of any part of the death proceeds, payable upon the occurrence of a qualifying event, as provided. The insurer is required to provide the policyholder or certificate holder with a report, at least monthly, of any accelerated death benefits paid out during the prior month, an explanation of any changes to the policy or certificate, death benefits, and cash values on account of the benefits being paid out, and the amount of the remaining benefits that can be accelerated at the end of the prior month.

end insert
begin insert

This bill would delete the requirement that the report be provided on a monthly basis.

end insert
begin delete

Existing law authorizes a life insurer to issue life, disability, term, and endowment insurance on the group plan with rates less than the usual rates for those insurance types. Existing law prescribes the permissible forms of group life insurance. Existing law provides that one of those forms of group life insurance is a policy covering the lives of every eligible member of a group of persons who become or are named depositors under an eligible savings account plan if, among other conditions, the total amount of insurance under the policy on any one depositor does not exceed $1,500 on any one life.

end delete
begin delete

This bill would increase the maximum amount of insurance on any one life under the policy to $3,000.

end delete

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 10271 of the end insertbegin insertInsurance Codeend insertbegin insert is amended
2to read:end insert

3

10271.  

(a) Except as set forth in this section, this chapter shall
4not apply to, or in any way affect, provisions in life insurance,
5endowment, or annuity contracts, or contracts supplemental thereto,
6that provide additional benefits in case of death or dismemberment
7or loss of sight by accident, or that operate to safeguard those
8contracts against lapse, as described in subdivision (a) of Section
910271.1, or give a special surrender benefit, as defined in
10subdivision (b) of Section 10271.1, or an accelerated death benefit
11as defined in Article 2.1 (commencing with Section 10295), in the
12event that the owner, insured, or annuitant, as applicable, meets
13the benefit triggers specified in the life insurance or annuity
14contract or supplemental contract.

P3    1(b) For the purposes of this section, the term “supplemental
2benefit” means a rider to or provision in a life insurance policy,
3certificate, or annuity contract that provides a benefit as set forth
4in subdivision (a).

5(c) A supplemental benefit described in subdivision (a) shall
6contain all of the following provisions. However, an insurer, at its
7option, may substitute for one or more of the provisions a
8corresponding provision of different wording approved by the
9commissioner that is not less favorable in any respect to the owner,
10insured, or annuitant, as applicable. The required provisions shall
11be preceded individually by the appropriate caption, or, at the
12option of the insurer, by the appropriate individual or group
13captions or subcaptions as the commissioner may approve.

14(1) A life insurance policy or annuity contract that contains a
15supplemental benefit shall provide that the contract, supplemental
16contract, and any papers attached thereto by the insurer, including
17the application if attached, constitute the entire insurance or annuity
18contract and shall also provide that no agent has the authority to
19change the contract or to waive any of its provisions. This provision
20shall be preceded individually by a caption stating “ENTIRE
21CONTRACT; CHANGES:” or other appropriate caption as the
22commissioner may approve.

23(2) The supplemental benefit shall provide that reinstatement
24of the supplemental benefit shall be on the same or more favorable
25terms as reinstatement of the underlying life insurance policy or
26annuity contract. Following reinstatement, the insured and insurer
27shall have the same rights under reinstatement as they had under
28the supplemental benefit immediately before the due date of the
29defaulted premium, subject to any provisions endorsed in the rider
30or endorsement or attached to the rider or endorsement in
31 connection with the reinstatement. This reinstatement provision
32shall be preceded individually by a caption stating
33“REINSTATEMENT:” or other appropriate caption as the
34commissioner may approve.

35(3) A supplemental benefit subject to underwriting shall include
36an incontestability statement that provides that the insurer shall
37not contest the supplemental benefit after it has been in force during
38the lifetime of the insured for two years from its date of issue, and
39that the supplemental benefit may only be contested based on a
40statement made in the application for the supplemental benefit, if
P4    1the statement is attached to the contract and if the statement was
2material to the risk accepted or the hazard assumed by the insurer.
3This provision shall be preceded individually by a caption stating
4“INCONTESTABILITY:” or other appropriate caption as the
5commissioner may approve.

6(4) The supplemental benefit shall provide either that the insurer
7may accept written notice of claim at any time or that the insurer
8may require that written notice of claim be submitted by a due date
9that is no less than 20 days after an occurrence covered by the
10supplemental benefit, or commencement of any loss covered by
11the supplemental benefit, or as soon after the due date as is
12reasonably possible. Notice given by or on behalf of the insured
13or the beneficiary, as applicable, to the insurer at the insurer’s
14address or telephone number, or to any authorized agent of the
15insurer, with information sufficient to identify the insured, shall
16be deemed notice to the insurer. This provision shall be preceded
17individually by a caption stating “NOTICE OF CLAIM:” or other
18appropriate caption as the commissioner may approve.

19(5) The supplemental benefit shall provide that the insurer, upon
20receipt of a notice of claim, shall furnish to the claimant those
21 forms as are usually furnished by it for filing a proof of occurrence
22or a proof of loss. If the forms are not furnished within 15 days
23after giving notice, the claimant shall be deemed to have complied
24with the requirements of the supplemental benefit as to proof of
25occurrence or proof of loss upon submitting, within the time fixed
26by the supplemental benefit for filing proof of occurrence or proof
27of loss, written proof covering the character and the extent of the
28occurrence or loss. This provision shall be preceded individually
29by a caption stating “CLAIM FORMS:” or other appropriate
30caption as the commissioner may approve.

31(6) The supplemental benefit shall provide that the insurer may
32require that the insured provide written proof of occurrence or
33proof of loss no less than 90 days after the termination of the period
34for which the insurer is liable, and, in the case of claim for any
35other occurrence or loss, within 90 days after the date of the
36occurrence or loss. Failure to furnish proof within the time required
37shall not invalidate or reduce the claim if it was not reasonably
38possible to give proof within the time, provided proof is furnished
39as soon as reasonably possible and, except in the absence of legal
40capacity, no later than one year from the time proof is otherwise
P5    1required. This provision shall be preceded individually by a caption
2stating “PROOF OF LOSS:” or other appropriate caption as the
3commissioner may approve.

4(7) The supplemental benefit shall provide that the insurer, at
5its own expense, shall have the right and opportunity to examine
6the person of the insured when and as often as the insurer may
7reasonably require during the pendency of a claim and to make an
8autopsy in case of death where it is not forbidden by law. This
9provision shall be preceded individually by a caption stating
10“PHYSICAL EXAMINATIONS:” or other appropriate caption
11as the commissioner may approve.

12(d) The commissioner shall not approve any contract or
13supplemental contract for insurance or delivery in this state if the
14commissioner finds that the contract or supplemental contract does
15any of the following:

16(1) Contains any provision, label, description of its contents,
17title, heading, backing, or other indication of its provisions that is
18unintelligible, uncertain, ambiguous, or abstruse, or likely to
19mislead a person to whom the supplemental benefit is offered,
20delivered, or issued.

21(2) Constitutes fraud, unfair trade practices, or insurance
22economically unsound to the owner, insured, or annuitant, as
23applicable.

24(3) Contains any actuarial information that is materially
25incomplete, incorrect, or inadequate.

26(e) A supplemental benefit described in subdivision (a) shall
27not contain any title, description, or any other indication that would
28describe or imply that the supplemental benefit provides long-term
29care coverage.

30(f) Commencing two years from the date of the issuance of the
31supplemental benefit, no claim for loss incurred or disability, as
32defined by the supplemental benefit, may be reduced or denied on
33the grounds that a disease or physical condition not excluded from
34coverage by name or specific description effective on the date of
35loss had existed prior to the effective date on the coverage of the
36supplemental benefit.

37(g) With regard to supplemental benefits set forth in subdivision
38(a), the supplemental benefit shall specify any applicable
39exclusions, which shall be limited to the following:

P6    1(1) Condition or loss caused or substantially contributed to by
2any attempt at suicide or intentionally self-inflicted injury, while
3sane or insane.

4(2) Condition or loss caused or substantially contributed to by
5war or an act of war, as defined in the exclusion provisions of the
6contract.

7(3) Condition or loss caused or substantially contributed to by
8active participation in a riot, insurrection, or terrorist activity.

9(4) Condition or loss caused or substantially contributed to by
10committing or attempting to commit a felony.

11(5) Condition or loss caused or substantially contributed to by
12voluntary intake of either:

13(A) Any drug, unless prescribed or administered by a physician
14and taken in accordance with the physician’s instructions.

15(B) Poison, gas, or fumes, unless they are the direct result of an
16occupational accident.

17(6) Condition or loss in consequence of the insured being
18intoxicated, as defined by the jurisdiction where the condition or
19loss occurred.

20(7) Condition or loss caused or substantially contributed to by
21engaging in an illegal occupation.

begin insert

22(8) Condition or loss caused or substantially contributed to by
23engaging in aviation, other than as a fare-paying passenger.

end insert

24(h) If the commissioner notifies the insurer, in writing, that the
25filed form or actuarial information does not comply with the
26requirements of law and specifies the reasons for his or her opinion,
27it is unlawful for an insurer to issue any policy in that form.

28begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 10295.6 of the end insertbegin insertInsurance Codeend insertbegin insert is amended to
29read:end insert

30

10295.6.  

(a) When a policyholder or certificate holder requests
31an acceleration of death benefits, the insurer shall send a statement
32to the policyholder or certificate holder and irrevocable beneficiary
33showing any effect that the payment of the accelerated death benefit
34would have on the policy’s cash value, accumulation account,
35death benefit, premium, policy loans, and policy liens. The
36statement shall disclose that receipt of accelerated death benefit
37payments may adversely affect the recipient’s eligibility for
38Medicaid or other government benefits or entitlements. In addition,
39receipt of an accelerated death benefit payment may be taxable
40and assistance should be sought from a personal tax adviser. When
P7    1a previous disclosure statement becomes invalid as a result of an
2acceleration of the death benefit, the insurer shall send a revised
3disclosure statement to the policyholder or certificate holder and
4irrevocable beneficiary.

5(b) The accelerated death benefit shall be effective not more
6than 30 days following the effective date of the policy provision,
7rider, endorsement, or certificate.

8(c)  If the insurer charges a separate premium for the accelerated
9death benefit, then the insurer may also offer a waiver of premium
10benefit as defined in subdivision (a) of Section 10271.1. At the
11time the waiver of the accelerated death benefit premium benefit
12is claimed, the insurer shall explain any continuing premium
13requirement to keep the underlying policy in force.

14(d) An insurer shall not unfairly discriminate among insureds
15with different qualifying events covered under the policy or among
16insureds with similar qualifying events covered under the policy.
17An insurer shall not apply further conditions on the payment of
18the accelerated death benefits other than those conditions specified
19in the accelerated death benefit.

20(e) The insurer shall provide the policyholder or certificate
21holder with a reportbegin delete, at least monthly,end delete of any accelerated death
22benefits paid out during the prior month, an explanation of any
23changes to the policy or certificate, death benefits, and cash values
24on account of the benefits being paid out, and the amount of the
25remaining benefits that can be accelerated at the end of the prior
26month. The insurer may use a calendar month or policy or
27certificate month.

28(f) The conversion benefit available to group certificate holders
29on termination of employment pursuant to paragraph (2) of
30subdivision (a) of Section 10209 shall include a benefit comparable
31to the accelerated death benefit. This requirement may be satisfied
32by an individual policy or certificate. This requirement, subject to
33the approval of the commissioner, may be satisfied by arrangement
34with another insurer to provide the required coverage.

35(g) When payment of an accelerated death benefit results in a
36pro rata reduction in cash value, the payment may be applied
37toward repaying a portion of the loan equal to a pro rata portion
38of any outstanding policy loans if disclosure of the effect of
39acceleration upon any remaining death benefit, cash value or
40accumulation account, policy loan, and premium payments,
P8    1including a statement of the possibility of termination of any
2remaining death benefit, is provided to the policyholder or
3certificate holder. The policyholder or certificate holder shall
4provide written consent authorizing any other arrangement for the
5repayment of outstanding policy loans.

begin delete
6

SECTION 1.  

Section 10203.8 of the Insurance Code is
7amended to read:

8

10203.8.  

Life insurance conforming to all of the following
9conditions is another form of group life insurance:

10(a) Covering the lives of every eligible member of a group of
11persons who become or are named depositors under a savings
12account plan, established by a financial institution including
13subsidiary or affiliated persons, which plan provides for periodic
14deposits of like amounts.

15(b) The period during which the deposits may be made under
16the plan does not exceed 60 consecutive months, and the total
17amount of insurance under the policy on any one depositor does
18not exceed the difference between the amounts deposited and the
19maximum amount that may be deposited under the plan and does
20 not exceed three thousand dollars ($3,000) on any one life.

21(c) The group numbers 100 new entrants yearly.

22(d) The policy is issued upon application of and made payable
23to the financial institution as beneficiary, and the premiums are
24paid by or through the financial institution.

25(e) The policy of insurance conforming to this section is not
26subject to Section 10209 of this code or Section 704.100 of the
27Code of Civil Procedure.

end delete


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