as amended, Calderon. Life
begin delete insurance.end delete
Existing law governs the business of insurance, and defines various types of insurance for these purposes, including life insurance and disability insurance. Existing law
begin delete generallyend delete 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, or 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. The bill would require that any life insurance provision or supplemental contract that provides for a special benefit comply with specified requirements, including, but not limited to, that the provision or supplemental contract specify that the accelerated death benefit is fixed at the time the insurer approves the request for the benefit, and that the provision or supplemental contract is prohibited from restricting the use of the proceeds of the accelerated death benefit.end delete
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.end delete
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.end delete
Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.
The people of the State of California do enact as follows:
(a) A policy or endorsement issued by an admitted
4life and disability insurer may contain a provision for a waiver of
5premium payments in the event of involuntary unemployment of
6the insured. Insurers issuing policies or endorsements
begin delete which that provision shall establish any additional
8reserves and file any additional financial reports that the
9commissioner may require.
10(b) A contract or supplemental contract issued by an admitted
11life and disability insurer may contain a provision for a waiver of
begin delete specialend delete
surrender benefit for a life insurance or annuity
2contract in the event of voluntary or involuntary unemployment
3of the owner, insured, or annuitant, as applicable. Insurers issuing
4contracts or supplemental contracts
begin delete which containend delete that
5provision shall establish any additional reserves and file any
6additional financial reports that the commissioner may require.
(a) Except as set forth in this section, this chapter shall
9not apply to, or in any way affect, provisions in life insurance,
10endowment, or annuity contracts, or contracts supplemental thereto,
11that provide additional benefits in case of death or dismemberment
12or loss of sight by accident, or that operate to safeguard those
13contracts against lapse, as described in subdivision (a) of Section
1410271.1, or give a special surrender benefit, as defined in
15subdivision (b) of Section 10271.1, or a special benefit, in the
16event that the owner, insured, or annuitant, as applicable, meets
17the benefit triggers specified in the life insurance or annuity
18contract or supplemental contract.
19(b) (1) A provision or supplemental contract described in
20subdivision (a) shall contain all of the provisions set forth in
21paragraph (2). However, an insurer, at its option, may substitute
22for one or more of the provisions a corresponding provision of
23different wording approved by the commissioner that is not less
24favorable in any respect to the owner, insured, or annuitant, as
25applicable. The provisions required by paragraph (2) shall be
26preceded individually by the appropriate caption, or, at the option
27of the insurer, by the appropriate individual or group captions or
28subcaptions as the commissioner may approve.
29(2) With respect to the benefit standards described in
30subdivisions (a) and (b) of Section 10271.1, the following
31requirements apply to the supplemental contracts with these
33(A) Either the contract or supplemental contract
34that the contract and the supplemental contract constitute the entire
35insurance or annuity contract consistent with paragraph (7) of
36subdivision (c) of Section 2534.3 of Title 10 of the California Code
37of Regulations, and shall also provide that no agent has the
38authority to change the contract or to waive any of its provisions.
39This requirement applies without regard to whether the contract
40is a variable or nonvariable contract, or a group or individual
P5 1contract. This provision shall be preceded individually by a caption
2stating “ENTIRE CONTRACT; CHANGES:” or other appropriate
3caption as the commissioner may approve.
4(B) Either the contract or supplemental contract shall provide
5for reinstatement consistent with paragraph (3) of subdivision (c)
6of Section 2534.3 of Title 10 of the California Code of Regulations.
7This requirement applies without regard to whether the contract
8is a variable or nonvariable contract, or a group or individual
9contract. This provision shall be preceded individually by a caption
10stating “REINSTATEMENT:” or other appropriate caption as the
11commissioner may approve.
12(C) Supplemental contracts subject to underwriting shall include
13an incontestability statement that provides that the insurer shall
14not contest the supplemental contract after it has been in force
15during the lifetime of the insured for two years from its date of
16issue, and may only be contested based on a statement made in
17the application for the supplemental contract, if the statement is
18attached to the contract. The statement upon which the contest is
19made shall be material to the risk accepted or the hazard assumed
20by the insurer. This provision shall be preceded individually by a
21caption stating “INCONTESTABLE:” or other appropriate caption
22as the commissioner may approve.
23(D) A provision or supplemental
contract described in
24subdivision (a) shall also include:
25(i) NOTICE OF CLAIM: The insurer may require written notice
26of claim no less than 20 days after an occurrence covered by the
27provision or supplemental contract, or commencement of any loss
28covered by the provision or supplemental contract. Notice given
29by or on behalf of the insured or the beneficiary, as applicable to
30the insurer at the insurer’s address or telephone number, or to any
31authorized agent of the insurer, with information sufficient to
32identify the insured, shall be deemed notice to the insurer.
33(ii) CLAIM FORMS: The insurer, upon receipt of a notice of
34claim, shall furnish to the claimant such forms as are usually
35furnished by it for filing a proof of occurrence or a proof of loss.
36If the forms are not furnished within 15 days after giving notice,
37the claimant shall be deemed to have complied with the
38 requirements of the provision or supplemental contract as to proof
39of occurrence or proof of loss upon submitting, within the time
40fixed in the provision or supplemental contract for filing proof of
P6 1occurrence or proof of loss, written proof covering the character
2and the extent of the occurrence or loss.
3(iii) PROOF OF LOSS: The insurer may require that the insured
4provide written proof of occurrence or proof of loss no less than
590 days after the termination of the period for which the insurer
6is liable, and, in the case of claim for any other occurrence or loss,
7within 90 days after the date of the occurrence or loss. Failure to
8furnish proof within the time required shall not invalidate or reduce
9the claim if it was not reasonably possible to give proof within the
10time, provided proof is furnished as soon as reasonably possible
11and, except in the absence of legal capacity, no later than one year
12from the time proof is otherwise required.
13(iv) PHYSICAL EXAMINATIONS: The insurer, at its own
14expense, shall have the right and opportunity to examine the person
15of the insured when and as often as the insurer may reasonably
16require during the pendency of a claim.
17(c) The commissioner shall review contracts and supplemental
18contracts to ensure that the language can be readily understood
19and interpreted, and shall not approve any contract or supplemental
20contract for insurance or delivery in this state if the commissioner
21finds that the contract or supplemental contract does any of the
23(1) Contains any provision, label, description of its contents,
24title, heading, backing, or other indication of its provisions that is
25unintelligible, uncertain, ambiguous, or abstruse, or likely to
26mislead a person to whom the contract or supplemental contract
27is offered, delivered, or issued.
28(2) Constitutes fraud, unfair trade practices, and insurance
29economically unsound to the owner, insured, or annuitant, as
31(d) A provision or supplemental contract described in
32subdivision (a) shall not contain any title, description, or any other
33indication that would describe or imply that the policy or
34supplemental contract provides long-term care coverage.
35(e) Commencing two years from the date of the issuance of the
36provision or supplemental contract, no claim for loss incurred or
37disability, as defined in the provision or supplemental contract,
38may be reduced or denied on the grounds that a disease or physical
39condition not excluded from coverage by name or specific
40description effective on the date of loss had existed prior to the
P7 1effective date on the coverage of the provision or supplemental
3(f) With regard to benefits set forth in Section 10271.1, the
4provisions and supplemental contracts shall specify any applicable
5exclusions, which shall be limited to the following:
6(1) Total disability caused or substantially contributed to by any
7attempt at suicide or intentionally self-inflicted injury, while sane
9(2) Total disability caused or substantially contributed to by
10war or an act of war, as defined in the exclusion provisions of the
12(3) Total disability caused or substantially contributed to by
13active participation in a riot, insurrection, or terrorist activity.
14(4) Total disability caused or substantially contributed to by
15committing or attempting to commit a felony.
16(5) Total disability caused or substantially contributed to by
17voluntary intake of either:
18(A) Any drug, unless prescribed or administered by a physician
19and taken in accordance with the physician’s instructions.
20(B) Poison, gas, or fumes, unless they are the direct result of an
22(6) Total disability occurring after the policy anniversary or
23supplemental contract anniversary, as applicable and as defined
24in the policy or supplemental contract, on which the insured attains
25a specified age of no less than 65.
26(7) Total disability in consequence of the
27intoxicated, as defined by the jurisdiction where the total disability
29(8) Total disability caused or materially contributed to by
30engaging in an illegal occupation.
31(g) If the commissioner notifies the insurer, in writing, that the
32filed form does not comply with the requirements of law and
33specifies the reasons for his or her opinion, it is unlawful for an
34insurer to issue any policy in that form.
Section 10271.1 of the Insurance Code is amended to
begin deleteProvisions or supplemental contracts end delete
31that operate to safeguard life insurance
32contracts against lapse are defined as a waiver of premium benefit
33or a waiver of monthly deduction benefit, as applicable, in which
34the insurer waives the premium or monthly deduction for a life
35insurance contract when the insured becomes totally disabled, as
begin delete in the contract or supplemental contractend delete, and where the waiver continues until the end
38of the insured’s disability, or
begin delete until the attainment of an age .
39established by the insurerend delete
P12 1(2) For purposes of this subdivision, total disability shall not be
2less favorable to the insured than the following:
3(A) During the first 24 months of total disability, the insured is
4unable to perform with reasonable continuity the substantial and
5material duties of his or her job due to sickness or bodily injury.
6(B) After the first 24 months of total disability, the insured, due
7to sickness or bodily injury, is unable to engage with reasonable
8continuity in any other job in which he or she could reasonably be
9expected to perform satisfactorily in light of his or her age,
10education, training, experience, station in life, or physical and
12(3) The definition of total disability may also include
13presumptive total disability, such as the insured’s total and
14permanent loss of sight of both eyes, hearing of both ears, speech,
15the use of both hands, both feet, or one hand and one foot.
16(4) The insurer may require total disability to continue for an
17 uninterrupted period of time specified
begin delete in the contract or , or the insurer
18supplemental contractend delete
19may allow separate periods of disability to be combined.
20(5) The waiver of premium or monthly deduction benefit shall
21continue for the period specified
begin delete in the contract or supplemental , but shall not be less favorable
23to the insured than the following:
24(A) If the
insured’s total disability begins before the insured
25attains 60 years of age, the insurer shall waive all premiums or
26monthly deductions due for the period of the total disability, and
27if the total disability extends to the insured’s attainment of 65 years
28of age, the insurer shall waive all further premiums or monthly
30(B) If the insured’s total disability begins after the age specified
31in subparagraph (A), the insurer shall waive all premiums or
32monthly deductions due for the period that the insured continues
33to be totally disabled up to 65 years of age.
34(b) “Special surrender benefit” is defined as a “waiver of
35surrender charge benefit” wherein the insurer waives the surrender
36charge usually charged for a withdrawal of funds from the cash
37value of a life insurance contract or the account value of an annuity
38contract if the owner, insured, or annuitant, as applicable, meets
39any of the following criteria:
P13 1(1) Develops any medical condition where the owner’s,
2insured’s, or annuitant’s life expectancy is expected to be less than
3or equal to a limited period of time that shall not be restricted to
4a period of less than 12 months or greater than 24 months.
5(2) Is receiving, as prescribed by a physician, registered nurse,
6or licensed social worker, home care or community-based services,
7as defined in subdivision (a) of Section 10232.9, or is confined in
8a skilled nursing facility, convalescent nursing home, or extended
9care facility, which shall not be defined more restrictively than as
10in the Medicare program, or is confined in a residential care facility
11or residential care facility for the elderly, as defined in the Health
12and Safety Code. Out-of-state providers of services shall be defined
13as comparable in licensure and staffing requirements to California
15(3) Has any medical condition that would, in the absence of
16treatment, result in death within a limited period of time, as defined
begin delete in the provision or supplemental contract,end delete but that shall not be restricted to a period of less than six
20(4) Is totally disabled, as follows:
21(A) During the first 24 months of total disability, the owner,
22insured, or annuitant, as applicable, is unable to perform with
23reasonable continuity the substantial and material duties of his or
24her job due to sickness or bodily injury.
25(B) After the first 24 months of total disability, the owner,
26insured, or annuitant, as applicable, due to sickness or bodily injury,
27is unable to engage with reasonable continuity in any other job in
28which he or she could reasonably be expected to perform
29satisfactorily in light of his or her age, education, training,
30experience, station in life, or physical and mental capacity.
31(C) The definition of total disability may also include
32presumptive total disability, such as the insured’s total and
33permanent loss of sight of both eyes, hearing of both ears, speech,
34the use of both hands, both feet, or one hand and one foot.
35(D) The insurer may require the total disability to continue for
36an uninterrupted period of time specified
begin delete in the contract or , or the insurer
37supplemental contractend delete
38may allow separate periods of disability to be combined.
39(5) Has a chronic illness as defined pursuant to either
40subparagraph (A) or (B):
P14 1(A) Either of the following:
2(i) Impairment in performing two out of seven
activities of daily
3living, as set forth in subdivisions (a) and (g) of Section 10232.8,
4meaning the insured needs human assistance, or needs continual
6(ii) The insured has an impairment of cognitive ability, meaning
7a deterioration or loss of intellectual capacity due to mental illness
8or disease, including Alzheimer’s disease or related illnesses, that
9requires continual supervision to protect oneself or others.
10(B) Either of the following:
11(i) Impairment in performing two out of six activities of daily
12living as described in subdivisions (b), (d), (e), and (f) of Section
1310232.8 due to a loss of functional capacity to perform the activity.
14(ii) Impairment of cognitive ability, meaning the insured needs
15substantial supervision due to severe cognitive impairment, as
16described in subdivisions (b) and (e) of Section 10232.8.
17(6) Has become involuntarily or voluntarily unemployed.
18(c) (1) “Special benefit,” as used in this chapter, means an
19accelerated death benefit that is added to a life insurance policy
20to provide for the advance payment of any part of the death
21proceeds payable upon the occurrence of a qualifying event.
22(2) For the purposes of this section, “qualifying event” means
23any one of the following:
24(A) A medical condition that is reasonably expected to result
25in a drastically limited life span for the insured.
26(B) A medical condition that requires extraordinary medical
27intervention, such as major organ transplant or continuous artificial
28life support, without which the insured would die.
29(C) A condition that usually requires continuous confinement
30in a qualified institution and the insured is expected to remain there
31for the rest of his or her life.
32(D) A specified medical condition that, in the absence of
33extensive or extraordinary medical treatment, would result in a
34drastically limited life.
35(E) A chronic illness, defined as either of the following:
36(i) Impairment in performing two out of six activities of daily
37living as described in subdivisions (b), (d), (e), and (f) of Section
3810232.8 due to a loss of functional capacity to perform the activity.
P15 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(3) Any life insurance provision or supplemental contract that
5provides a special benefit as defined in paragraph (1) shall comply
6with all of the following:
7(A) The provision or supplemental contract shall specify that
8the accelerated death benefit is fixed at the time the insurer
9approves the request for the accelerated death benefit.
10(B) The provision or supplemental contract shall specify that
11the payment of the accelerated death benefit is not conditioned on
12the receipt of long-term care or medical services.
13(C) The provision or supplemental contract shall include the
14option to take the accelerated death benefit in a lump sum on the
15occurrence of a single qualifying event and may include an option
16to receive the benefit in periodic payments for a certain period
17only. Periodic payments shall not be based on the continued
18survival or institutional confinement of the insured.
19(D) The provision or supplemental contract shall not restrict the
20use of the proceeds of the accelerated death benefit.
21(E) The provision or supplemental contract shall specify that
22the payment of the accelerated death benefit is due immediately
23upon receipt of the due written proof of eligibility.
24(4) A life insurance contract or supplemental contract submitted
25for the approval of the commissioner pursuant to Section 10292
26shall be submitted with the following additional information if the
27contract includes an accelerated death benefit:
28(A) A statement of the types of policy forms with which this
29benefit will be offered, any underwriting restrictions involving
30face amount or age, and whether the benefit is intended for use
31with new issues or in force business.
32(B) A specimen issue of the statement regarding the effect of
33the accelerated death benefit payment on other benefit provisions,
34to be provided to the owner prior to, or concurrent with, the election
35of the accelerated death benefit option, and an explanation of how
36and when the statement will be provided. The statement shall
37demonstrate the effect of the acceleration of the death benefit on
38the policy cash value, death benefit, premium, cost of insurance
39charges, and loans and liens, as applicable. The statement shall be
40based only on guaranteed values. The statement shall also include
P16 1a disclosure that receipt of an accelerated death benefit may affect
2eligibility for Medicaid or other governmental benefits or
3entitlements and may have tax consequences.
4(C) An actuarial memorandum prepared, dated, and signed by
5a member of the American Academy of Actuaries that includes
6the following information:
7(i) A description of the accelerated death benefit, including the
8effects of payment of the accelerated death benefit on all policy
9benefits, premium payments, cost of insurance rates, and values,
10including any outstanding loan, if applicable, for all types of forms
11with which the accelerated death benefit will be used.
12(ii) A description of, and justification for, expense charges
13associated with the accelerated death benefit and the maximum
15(iii) A description of the interest rate or interest rate
16methodology used in any present value calculation or in accruing
17interest on the amount of the accelerated death benefit, which shall
18not exceed the greater of: (I) the current yield on 90-day Treasury
19bills, or (II) a variable rate determined in accordance with the
20National Association of Insurance Commissioners (NAIC) Model
21Policy Loan Interest Rate Bill No. 590.
22(iv) A description of the mortality basis and methodology,
23including the period of time applicable to any mortality discount,
24used in any present value calculation of the accelerated death
26(v) A description of the mortality and morbidity basis and
27methodology used in the determination of any separate premium
28or costs of insurance for the accelerated death benefit.
29(vi) The formula used to determine the accelerated death benefit,
30including any limitations on the amount of the benefit, and the
31formula used to determine the postacceleration premium.
32(vii) A sample calculation of the accelerated death benefit. If
33the policy contains a loan provision, the example shall assume that
34there is an outstanding loan on the date of acceleration. All policy
35benefits, premium payments, cost of insurance charges and values,
36including the outstanding loan, if applicable, immediately before
37and immediately after acceleration shall be shown in the example.
38(viii) If an accelerated death benefit may be paid in installments,
39 the basis used in the calculation of the minimum periodic payment
40for the payment period and a sample calculation of a minimum
P17 1periodic payment, and the basis used and a sample calculation of
2the lump sum payable if the insured dies before all periodic
3payments for the payment period are made.
4(ix) For any accelerated death benefit of the type other than a
5terminal illness, a certification that the value and premium of the
6accelerated 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
11shall not be delivered or issued for delivery to any person in this
12state until a copy of the form thereof is submitted to, and approved
13by, the commissioner. If the supplemental contract is an integral
14part of a contract of life insurance or annuity, the entire contract
15shall be submitted to the commissioner, but his or her power of
16approval or disapproval is limited
17to the supplemental portion and any other portions that relate to
18the supplemental portion.
19(b) A supplemental contract described in Section
shall be considered
21an integral part of a contract for purposes of this section. To
22facilitate the review of a supplemental contract, the insurer shall
23submit, for informational purposes, a sample copy of the life
24insurance or annuity contract with which the supplemental contract
25will be used. To facilitate the location of the required provisions
26as stated in paragraph (2) of subdivision (b) of Section 10271, the
27insurer shall provide the sample copy page reference for the
28provisions that appear in the contract.
29(c) The commissioner may adopt reasonable rules and
30regulations as are necessary to administer and carry out the
31purposes of Sections 10271 and 10271.1, and this section.