SB 281, as amended, Calderon. Life insurance.
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 additional benefits in case of death or dismemberment or loss of sight by accident, that operate to safeguard contracts against lapse, or give a special surrender benefit, or a special benefit, as specified.
This bill would specify that the term “special benefit” for purposes of those provisions means an accelerated death benefit that is added to a life insurance contract to provide for the advance payment of any part of the death proceeds to the insured upon the occurrence of certain qualifying events, including if the insured requires continuous confinement in an eligible institution and is expected to remain there for the rest of his or her life.
Existing law requires supplemental contracts or, if a supplemental contract is an integral part of a life insurance contract, life insurance contracts to be submitted for approval by the Insurance Commissioner before the contracts are delivered or issued for delivery in this state.
This bill would require a life insurance contract or supplemental contract that includes an accelerated death benefit and that is submitted for approval by the Insurance Commissioner to be submitted for approval with specified additional information, including a statement of the types of policy forms with which the benefit will be offered.
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
Section 10271.1 of the Insurance Code is
2amended to read:
(a) (1) Provisions or supplemental contracts that
4operate to safeguard life insurance contracts against lapse are
5defined as a waiver of premium benefit or a waiver of monthly
6deduction benefit, as applicable, in which the insurer waives the
7premium or monthly deduction for a life insurance contract when
8the insured becomes totally disabled, as defined in the contract or
9supplemental contract, and where the waiver continues until the
10end of the insured’s disability, or until the attainment of an age
11established by the insurer.
12(2) For purposes of this subdivision, total disability shall not be
13less favorable to the insured than the following:
14(A) During the first 24 months of
total disability, the insured is
15unable to perform with reasonable continuity the substantial and
16material duties of his or her job due to sickness or bodily injury.
17(B) After the first 24 months of total disability, the insured, due
18to sickness or bodily injury, is unable to engage with reasonable
19continuity in any other job in which he or she could reasonably be
20expected to perform satisfactorily in light of his or her age,
21education, training, experience, station in life, or physical and
P3 1(3) The definition of total disability may also include
2presumptive total disability, such as the insured’s total and
3permanent loss of sight of both eyes, hearing of both ears, speech,
4the use of both hands, both feet, or one hand and one foot.
5(4) The insurer may require total disability to continue for an
6 uninterrupted period of time specified in the contract or
7supplemental contract, or the insurer may allow separate periods
8of disability to be combined.
9(5) The waiver of premium or monthly deduction benefit shall
10continue for the period specified in the contract or supplemental
11contract, but shall not be less favorable to the insured than the
13(A) If the insured’s total disability begins before the insured
14attains 60 years of age, the insurer shall waive all premiums or
15monthly deductions due for the period of the total disability, and
16if the total disability extends to the insured’s attainment of 65 years
17of age, the insurer shall waive all further premiums or monthly
19(B) If the insured’s total disability begins after the age specified
20in subparagraph (A), the insurer shall waive all premiums or
21monthly deductions due for the period that the insured continues
22to be totally disabled up to 65 years of age.
23(b) “Special surrender benefit” is defined as a “waiver of
24surrender charge benefit” wherein the insurer waives the surrender
25charge usually charged for a withdrawal of funds from the cash
26value of a life insurance contract or the account value of an annuity
27contract if the owner, insured, or annuitant, as applicable, meets
28any of the following criteria:
29(1) Develops any medical condition where the owner’s,
30insured’s, or annuitant’s life expectancy is expected to be less than
31or equal to a limited period of time that shall not be restricted to
32a period of less than 12 months or greater than 24 months.
33(2) Is receiving, as prescribed by a physician, registered nurse,
34or licensed social worker, home care or community-based services,
35as defined in subdivision (a) of Section 10232.9, or is confined in
36a skilled nursing facility, convalescent nursing home, or extended
37care facility, which shall not be defined more restrictively than as
38in the Medicare program, or is confined in a residential care facility
39or residential care facility for the elderly, as defined in the Health
40and Safety Code. Out-of-state providers of services shall be defined
P4 1as comparable in licensure and staffing requirements to California
3(3) Has any medical condition that would, in the absence of
4treatment, result in death within a limited period of time, as defined
5in the provision or supplemental contract, but that shall not be
6restricted to a period of less than six months.
7(4) Is totally disabled, as follows:
8(A) During the
first 24 months of total disability, the owner,
9insured, or annuitant, as applicable, is unable to perform with
10reasonable continuity the substantial and material duties of his or
11her job due to sickness or bodily injury.
12(B) After the first 24 months of total disability, the owner,
13insured, or annuitant, as applicable, due to sickness or bodily injury,
14is unable to engage with reasonable continuity in any other job in
15which he or she could reasonably be expected to perform
16satisfactorily in light of his or her age, education, training,
17experience, station in life, or physical and mental capacity.
18(C) The definition of total disability may also include
19presumptive total disability, such as the insured’s total and
20permanent loss of sight of both eyes, hearing of both ears, speech,
21the use of both hands, both feet, or one hand and one foot.
22(D) The insurer may require the total disability to continue for
23an uninterrupted period of time specified in the contract or
24supplemental contract, or the insurer may allow separate periods
25of disability to be combined.
26(5) Has a chronic illness as defined pursuant to either
27subparagraph (A) or (B):
28(A) Either of the following:
29(i) Impairment in performing two out of seven activities of daily
30living, as set forth in subdivisions (a) and (g) of Section 10232.8,
31meaning the insured needs human assistance, or needs continual
33(ii) The insured has an impairment of cognitive ability, meaning
34a deterioration or loss of intellectual capacity due to mental illness
35or disease, including Alzheimer’s disease or related illnesses, that
36requires continual supervision to protect oneself or others.
37(B) Either of the following:
38(i) Impairment in performing two out of six activities of daily
39living as described in subdivisions (b), (d), (e), and (f) of Section
4010232.8 due to a loss of functional capacity to perform the activity.
P5 1(ii) Impairment of cognitive ability, meaning the insured needs
2substantial supervision due to severe cognitive impairment, as
3described in subdivisions (b) and (e) of Section 10232.8.
4(6) Has become involuntarily or voluntarily unemployed.
5(c) (1) “Special benefit,” as used in this chapter, means an
6accelerated death benefit that is added to a life insurance policy
7to provide for the advance payment of any part of the death
8proceeds payable upon the occurrence of a qualifying event.
9(2) For the purposes of this section, “qualifying event” means
10any one the following:
11(A) A medical condition that is reasonably expected to result
12in a drastically limited life span for the insured.
13(B) A medical condition that requires extraordinary medical
14intervention, such as major organ transplant or continuous artificial
15life support, without which the insured would die.
16(C) A condition that usually requires continuous confinement
17in a qualified institution and the insured is expected to remain there
18for the rest of his or her life.
19(D) A specified medical condition that, in the absence of
20extensive or extraordinary medical treatment, would result in a
21drastically limited life.
begin deleteA chronic illness or permanent severe
23and similar forms of dementia. end delete
13 A life insurance contract or supplemental contract submitted
14for the approval of the commissioner pursuant to Section 10292
15shall be submitted with the following additional information if the
16contract includes an accelerated death benefit:
17(A) A statement of the types of policy forms with which this
18benefit will be offered, any underwriting restrictions involving
19face amount or age, and whether the benefit is intended for use
20with new issues or in force business.
21(B) A specimen issue of the statement regarding the effect of
22the accelerated death benefit payment on other benefit provisions,
23to be provided to the owner prior to, or concurrent with, the election
24of the accelerated death benefit option, and an explanation of how
25and when the statement will be provided. The statement shall
26demonstrate the effect of the acceleration of the death benefit on
27the policy cash value, death benefit, premium, cost of insurance
28charges, and loans and liens, as applicable. The statement shall be
29based only on guaranteed values. The statement shall also include
30a disclosure that receipt of an accelerated death benefit may affect
31eligibility for Medicaid or other governmental benefits or
32entitlements and may have tax consequences.
33(C) An actuarial memorandum prepared, dated, and signed by
34a member of the American Academy of Actuaries that includes
35the following information:
36(i) A description of the accelerated death benefit, including the
37effects of payment of the accelerated death benefit on all policy
38benefits, premium payments, cost of insurance rates, and values,
39including any outstanding loan, if applicable, for all types of forms
40with which the accelerated death benefit will be used.
P7 1(ii) A description of, and justification for, expense charges
2associated with the accelerated death benefit and the maximum
4(iii) A description of the interest rate or interest rate
5methodology used in any present value calculation or in accruing
6interest on the amount of the accelerated death benefit, which shall
7not exceed the greater of: (I) the current yield on 90-day Treasury
8bills, or (II) a variable rate determined in accordance with the
9National Association of Insurance Commissioners (NAIC) Model
10Policy Loan Interest Rate Bill No. 590.
11(iv) A description of the mortality basis and methodology,
12including the period of time applicable to any mortality discount,
13used in any present value calculation of the accelerated death
15(v) A description of the mortality and morbidity basis and
16methodology used in the determination of any separate premium
17or costs of insurance for the accelerated death benefit.
18(vi) The formula used to determine the accelerated death benefit,
19including any limitations on the amount of the benefit, and the
20formula used to determine the postacceleration premium.
21(vii) A sample calculation of the accelerated death benefit. If
22the policy contains a loan provision, the example shall assume that
23there is an outstanding loan on the date of acceleration. All policy
24benefits, premium payments, cost of insurance charges and values,
25including the outstanding loan, if applicable, immediately before
26and immediately after acceleration shall be shown in the example.
27(viii) If an accelerated death benefit may be paid in installments,
28the basis used in the calculation of the minimum periodic payment
29for the payment period and a sample calculation of a minimum
30periodic payment, and the basis used and a sample calculation of
31the lump sum payable if the insured dies before all periodic
32payments for the payment period are made.
33(ix) For any accelerated death benefit of the type other than a
34terminal illness, a certification that the value and premium of the
35accelerated death benefit is incidental to the life coverage.
Section 10292 of the Insurance Code is amended to
(a) A supplemental contract described in Section 10271
39shall not be delivered or issued for delivery to any person in this
40state until a copy of the form thereof is submitted to, and approved
P8 1by, the commissioner. If the supplemental contract is an integral
2part of a contract of life insurance or annuity, the entire contract
3shall be submitted to the commissioner, but his or her power of
4approval or disapproval is limited to the supplemental portion and
5any other portions that relate to the supplemental portion.
6(b) A supplemental contract described in Section 10271.1 shall
7be considered an integral part of a contract for purposes of this
8section. To facilitate the review of a supplemental contract, the
9insurer shall submit, for informational purposes, a sample copy of
10the life insurance or annuity contract with which the supplemental
11contract will be used. To facilitate the location of the required
12provisions as stated in paragraph (2) of subdivision (b) of Section
1310271, the insurer shall provide the sample copy page reference
14for the provisions that appear in the contract.
15(c) The commissioner may adopt reasonable rules and
16regulations as are necessary to administer and carry out the
17purposes of Sections 10271 and 10271.1, and this section.