BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 565|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 565
Author: Cooley (D)
Amended: 6/29/16 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE: 8-0, 6/22/16
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez,
Mitchell, Wieckowski
NO VOTE RECORDED: Liu
ASSEMBLY FLOOR: Not relevant
SUBJECT: Group life and disability insurance: required
provisions
SOURCE: Association of California Life and Health Insurance
Companies
DIGEST: This bill revises the standards for group life
insurance related to dependent coverage and waiver of premium
benefits.
ANALYSIS:
Existing law:
1)Establishes standards for life and disability insurance and
subjects life and disability insurers to regulation by
California Department of Insurance (CDI).
2)Authorizes life insurers to issue a master group life
insurance policy to employers, unions, credit unions and other
qualified associations, so that individual members of the
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group may obtain coverage through that master policy.
3)Permits insurers to cover dependents of an insured employee.
4)Defines "dependent" to include the insured's spouse, all
children from birth until 26 years of age, or a child 26 years
of age or older that suffers from a qualifying disability and
is incapable of self-sustaining employment.
5)Authorizes insurers to include a benefit that waives premium
charges on life insurance policies when the insured suffers a
total disability ("waiver of premium benefit").
6)Requires an insurer, offering a waiver of premium benefit, to
waive all premiums due for the entire period of total
disability if the insured develops a total disability before
age 60.
7)Requires an insurer, offering a waiver of premium benefit, to
waive all premiums until the insured reaches age 65 if the
insured develops a total disability after attaining age 60.
This bill:
1)Revises the definition of "dependent" for the purpose of
issuing dependent coverage, to include children up to the age
of 26.
2)Authorizes an insurer offering a waiver of premium benefit in
a group master policy to waive all premiums due for the period
of total disability until the insured attains 65 years of age
if the insured develops a total disability before age 60.
3)Authorizes an insurer offering a waiver of premium benefit in
a group master policy to offer a policy that excludes
disabilities developed once the insured reaches age 60 or
older.
4)Requires an insurer to offer to renew a policy that continues
an in-force waiver of premium benefit for group policies
issued prior to January 1, 2017 (this ensures that the
policyholders the option to keep the more generous benefits if
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the policy provides those benefits at the time of renewal).
Background
Group life insurance policies provide coverage to group members
under a master policy usually issued to an employer or
association. These policies are less expensive than individual
counterparts. Premiums for group policies are tied to the
claims experience of the group and higher utilization may result
in an increase in premium for the entire group. The master
policyholder selects a standard set of benefits and some
policyholders, such as employers, may pay the premium.
Coverage typically ends when the member leaves the group or the
employment ends, although employees may convert a group
certificate to a permanent, individual policy at that time.
According to the sponsor, most group insurance is renewed on an
annual term basis and offered to active employees. This bill
addresses special types of benefits that attach to group life
insurance policies.
Dependent life insurance covers a member's spouse or qualified
child and pays the benefit to the member when a covered
dependent dies. In 2011, SB 220 (Price, Chapter 126, Statutes
of 2011) authorized insurers to cover children "from birth until
26 years of age." This bill clarifies that an insurer may
permit a policyholder to choose a maximum age limit at or
between 18 and 26. The changes made by SB 220 also created some
confusion as to whether coverage may be limited based on factors
related to dependency including marital status, student status,
residency, or whether the group member is supporting the child.
On that point, this bill is intended to return the law to what
it was prior to SB 220 so that an insurer may limit dependent
coverage on actuarially justified factors or factors that truly
relate to whether a child is a "dependent."
Life insurers may waive premium during periods when the insured
can no longer work so that coverage remains in force until the
end of the disability or the insured reaches an age specified by
the policy. SB 1449 (Calderon, 2012, Chapter 567, Statutes of
2012) established specific standards for these benefits
including minimum waiver periods based on whether the insured
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develops a disability before or after reaching the age of 60.
SB 1449 was based on standards developed by the Interstate
Insurance Product Regulation Commission (IIPRC) designed for
individual life insurance policies that had no connection to
retirement or termination of employment. (The IIPRC establishes
a uniform set of standards and a single policy approval process
for its 44 participating states.) In 2013, the IIPRC adopted
standards specific to group policies, and members of the
insurance industry began raising concerns that California's
standards were misaligned with group coverage typically offered
to employers and would significantly increase premium. The
following year, AB 2578 (Dababneh, Chapter 360, Statutes of
2014) made minor adjustments to California's standards, but did
not fully address concerns related to cost. AB 565 more closely
aligns California law to the IIPRC standards applicable to group
policies by permitting the insurer to limit the waiver of
premium benefit period to a retirement proxy age no younger than
age 65 and to exclude disabilities that develop after age 60.
However, insurers must give policyholders the option to keep the
more generous benefits at renewal.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified6/29/16)
Association of California Life and Health Insurance Companies
(source)
American Council of Life Insurers
OPPOSITION: (Verified6/29/16)
California Department of Insurance
ARGUMENTS IN SUPPORT: ACLHIC points out that unlike the
federal Affordable Care Act that provides coverage that benefits
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dependent children, dependent life insurance coverage pays the
benefit the parent/group member. A requirement that forces
coverage for all children under age 26 unduly restricts options
for employers and affinity groups.
ACLHIC also argues that group life insurance is usually provided
during an insured's span of employment with the group
policyholder or with a known set of limitations as part of
affinity group coverage. Treating group coverage like
individual coverage could lead employers and groups to forego
the waiver of premium benefit due to the added expense. As a
result, employees would be deprived of the ability to have their
premium paid while disabled, at a time they most need financial
help.
ARGUMENTS IN OPPOSITION: CDI raised a concern regarding the
March 10, 2016 version of the bill that policyholders currently
holding the more generous benefits will be forced to take less
generous benefits authorized by this bill. Amendments adopted
on June 29, 2016, addressed that and other concerns and CDI will
reconsider its position once it reviews the current version of
the bill.
Prepared by:Hugh Slayden / INS. / (916) 651-4110
6/29/16 15:56:23
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