BILL ANALYSIS Ó
AB 565
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CONCURRENCE IN SENATE AMENDMENTS
AB
565 (Cooley)
As Amended June 29, 2016
Majority vote
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|ASSEMBLY: |78-0 |(May 14, 2015) |SENATE: |39-0 |(August 16, |
| | | | | |2016) |
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Original Committee Reference: INS.
SUMMARY: The bill revises the standards for group life
insurance related to dependent coverage and waiver of premium
benefits. Specifically, this bill:
1)Revises the definition of "dependent" for the purpose of
issuing dependent coverage, to clarify that coverage for
dependents over 18 is optional at any age up to 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
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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 have the option to keep the more generous
benefits if the policy provides those benefits at the time of
renewal).
The Senate amendments delete the provision governing the mailing
of notice to group life insurance certificate holders passed by
the Assembly, and add the current contents of the bill.
EXISTING LAW:
1)Establishes standards for life and disability insurance, and
subjects life and disability insurers to regulation by
Department of Insurance (DOI).
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
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
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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.
FISCAL EFFECT: None
COMMENTS:
1)Purpose. This bill more closely aligns California law to
national standards for group life insurance 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. The bill also clarifies that
the owner of a group life insurance policy may choose whether
to offer coverage for adult dependents with a maximum age of
26.
2)Background. Group life insurance policies provide term life
coverage to group members (commonly a benefit provided to
employees by their employer or by associations as a benefit to
their members) under a master policy owned by the employer or
association. Individual members can then opt to purchase the
coverage during a defined enrollment period (typically within
a number of months of being hired or joining the association).
Employers offering group life coverage as a benefit commonly
pay for $50,000 of coverage for all employees and the
individual employees can opt to pay for a higher benefit
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amount individually. These policies are typically less
expensive than individual life insurance policies and members
can obtain coverage without medical underwriting. The master
policyholder (employer or association) selects a standard set
of benefits offered to all group members. Coverage typically
ends when the member leaves the group or the employment ends,
although employees may convert their group policy to a
permanent, individual policy at that time.
3)Dependents. Some group life insurance policies allow group
members to purchase coverage on their dependents (spouses and
children up to the age of 26 generally). This bill clarifies
that the employer or association may choose to limit dependent
coverage to any age between 18 and 26.
4)Waiver of Premium. Life insurers may offer a "waiver of
premium" benefit that prevents a policy from lapsing during
periods when the insured can no longer work by waiving the
premium otherwise required to maintain the policy. This
benefit will pay premium until either the disability ends or
the insured attains a specific age. Prior legislation, SB
1449 (Calderon), Chapter 567, Statutes of 2012, established
specific standards for minimum waiver periods based on whether
the insured develops a disability before or after reaching the
age of 60. SB 1449 was based on national standards designed
for individual life insurance policies. The standards were
revised for group policies in 2013 and the insurance industry
began raising concerns that California law was misaligned with
these standards resulting in increased premium charges for
group coverage. AB 2578 (Dababneh), Chapter 360, Statutes of
2014, made some adjustments to California's law, but did not
fully address those factors driving premium increases. This
bill is designed to correct the remaining misalignment and
prevent further cost increases for group life insurance.
Analysis Prepared by:
Paul Riches / INS. / (916) 319-2086 FN:
0004373
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