BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
SB 397 (Calderon) Hearing Date: April 29, 2009
As Amended April 27, 2009
Fiscal: Yes
Urgency: No
SUMMARY For the specially licensed line of life insurance
for funeral and burial expenses, would exempt sales in a
senior's home from an advance notice requirement if the
policy's initial face amount is $15,000 dollars or less, it
includes a "free look" period of 60 days during which the
purchaser can cancel the policy and be refunded all
payments, the seller provides an equivalent notice at the
time of the sales meeting, a signed copy of which is
retained, and also provides a post-sale notice of the
purchase to the buyer, their family and other interested
parties specified by the buyer.
DIGEST
Existing law
1. Provides special limited licensing procedures for life
insurance for funeral or burial expenses.
2. For sales of life insurance generally, requires persons who
wish to meet with a senior in the senior's home to sell or
generate leads for life insurance sales to deliver a written
notice to the senior at least 24 hours before the first meeting
in that home.
3. This notice informs the senior of their rights in such in
home meetings. The law:
a. Requires the notice to contain various matters
including the senior's right to have other persons present
at the meeting, the right to end the meeting at any time,
the right to file a complaint with the Department of
Insurance and the phone numbers for use in reaching the
Department's consumer assistance office, and the right to
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know in advance the names of the individuals who will be
coming to the senior's home.
b. Provides that immediately upon contacting the
senior on the premises of their home, the person is
required, before making any statement other than a
greeting, to state that the purpose of the contact is to
talk about insurance and to state the names and titles of
all persons arriving at the senior's home and the name of
the insurer represented by the person, if known.
c. Requires each person attending such a meeting with
a senior is required to provide the senior with written
identification.
d. Specifies that all persons attending a meeting
with a senior are required to immediately end all
discussions and leave the home of the senior after being
asked to leave by the senior.
e. Prohibits persons seeking to sell life insurance
at the home of a senior, whether in person or by
telephone, from using any plan, scheme, or ruse that
misrepresents the true status or mission of the contact.
4. Additionally, other provisions of law applicable to the sale
of individual life insurance policies specify that every such
policy must contain or have attached a notice informing the
policy owner of their right to cancel the policy by delivering
it or mailing it to the insurer or their agent within a
specified period. Under current law, such policies with an
initial face value of less than $10,000 dollars are subject to
a similar notice by means of a separate but related provision
of law, although the policies with a $10,000 dollar or greater
initial face amount carry an express right to refund within 30
days of the owner giving notice of cancellation.
5. Under both of these provisions of law, insurers are required
to disclose how long the right of cancellation is available to
the new policy owner under the policy they have purchased; the
existing law permits the insurer to specify this time period
upon policy issuance, subject to the requirement that it shall
be not less than 10 days nor more than 30 days.
This bill
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1. Will exempt from the above pre-notification law and its
accompanying duties the in-home sale to a senior of policies
of life insurance designated by the purchaser for funeral or
burial expense, if the life insurance policy:
a. Has an initial face amount of fifteen thousand
dollars or less ($15,000), and
b. Provides a "free look" period in which the purchaser
has 60 days to cancel the policy and be refunded payments
made to the insurer prior to the cancellation of the
policy.
2. Will require that within 14 days of a transaction of the
type described above, the issuer shall provide by
first-class mail written notice of the purchase and the
60-day right of cancellation to the senior, any family
member designated by the senior, and any financial, estate
planning, or other advisor of the senior's choosing at
addresses provided by the senior. The notice shall include
all of the following:
a. Information on the right of cancellation,
b. A form suitable for the senior's use in exercising
that right, and
c. Information on how to contact the department for
information or to file a complaint, including the
telephone number of the department's customer assistance
office.
3. Authorizes, but does not require, the Department of
Insurance to adopt, by regulation, a standardized form for
use in complying with the requirements of paragraph (3)
above.
4. Specifies that the 24 hour advance notice requirement shall
be deemed satisfied with respect to policies exempt pursuant
to this bill provided:
a. the licensee making an in-home sale to a senior
pursuant to this bill provides a copy of the 24-hour
advance notice otherwise required to the senior at the
time of the meeting in the senior's home, and
b. The licensee retains in his or her files a copy of
the notice signed by the purchaser.
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5. Modifies current law applicable to sales of individual life
insurance policies of less than $10,000 by making it
applicable to policies with an initial face amount of
$15,000 dollars or less delivered or issued for delivery in
this state on or after January 1, 2010.
6. Revises the law governing the sale of individual life
insurance policies to specify that for the sale of small
face amount policies (Less than $10,000 policy in current
law, revised to $15,000 dollars by this bill) policy owners
have a statutory right to 60 days in which to return a
policy for cancellation and a refund of all premiums and
policy fee paid, rather than the 10 to 30 day time frame
current law allows their insurer to specify. Refunds are
required to be provided not later than 30 days after the
date the insurer is notified that the insured has cancelled
the policy.
COMMENTS
1. Purpose of the bill According to the author, "final
expense" and "pre-need" policies are distinctly different
from the insurance products targeted by California's 24
hour notice law. The author believes that, in an attempt to
protect seniors from unscrupulous insurance agents who were
selling unneeded and ill-advised annuities and other
insurance products to seniors and bilking them of their
life savings, currently captured every class of annuity and
life insurance policy, regardless of size, amount and
purpose. Given the average size of a burial or pre-need
policy, there is no chance that a senior will lose their
life savings with the purchase of a final expense or
pre-need policy.
2. According to the Cemetery and Mortuary Association of
California, final expense and pre-need insurance policies
provide consumers with beneficial peace of mind through the
funding of funeral services and merchandise selections in
advance. The face amount of life insurance policies to
address final and funeral expenses is typically $15,000 or
less. These insurance products are not purchased as an
investment product and do not involve high face amounts.
They believe that the application of the 24 hour notice
requirement to final expense and pre-need insurance
policies has had a detrimental effect on the planning that
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takes place in the customer's home for final and funeral
expenses, and confuses customers.
3. California law governing the in-home sales of life
insurance has the purpose of safeguarding senior consumers
from undue influence and mistakes of judgment. Currently,
for all classes of life insurance and annuities, this is
accomplished by providing structured rules for these
transactions that support the independent judgment of the
senior and recognize the possibility that it may make sense
to have family members or other advisors present and able
to assist the senior in their decision-making process.
This provision of current law recognizes that for seniors,
knowledge of their life insurance arrangements by family
members and other trusted advisors can assist the conduct
of the senior's financial affairs, subject to their
approval.
4. SB 387 presents the question of whether for funeral and
burial expense insurance, a specialized life insurance
vehicle for a very specific need all families anticipate, a
mandatory post-purchase notice to family and advisors might
constitute a more apt and effective consumer protection
than that which is currently mandated. The sponsor states
such a post transaction notice, coupled to the new right of
cancellation, will work to make the right of cancellation
more effective by enabling family members to identify in a
timely fashion any possible duplication of resources,
while, secondarily, ensuring those individuals know what
resources are available and what steps they can take in
planning for funeral and burial arrangements when
confronted by a loss.
5. Support The Cemetery and Mortuary Association supports
SB 397 to strengthen the consumer protections that aply to
the purchase of final expense and preneed insurance
policies. The Association states such policies "provide
consumers with beneficial peace of mind through the funding
of funeral services and merchandise selections in advance".
They note the face amount of such life insurance sales is
typically $15,000 or less. Finally, the Cemetery and
Mortuary Association notes that "these policies are quite
different than the annuity sales which were the subject of
2,500 complaints and were addressed" by existing law. They
note that such final expense and preneed insurance policies
are not purchased as an investment product and they do not
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involve high premiums, whereas the application of the
24-hour notice requirement to the sale of such policies has
a detrimental impact to the planning that takes place in a
customer's home for final and funeral expenses.
6. Opposition None
7. Prior Legislation This measure's subject matter is
closely related to that of AB 608 of the 2005-2006 Session
and SB 739 of the 2007-2008 Session. Both of these
measures were passed by the Legislature and subsequently
vetoed. In the veto message of SB 739, the Governor
stated:
"Last year, I vetoed similar legislation that would have
granted an exemption from the current requirement that
seniors be given 24-hour notice in advance of any attempt
to meet in a senior's home to discuss the sale of a burial
or funeral policy. I stated my belief that this notice
requirement creates an important "bright line" test that
insurance agents know not to cross and is a sound consumer
protection practice.
Although this measure provides additional notice
requirements to attempt to protect against fraud, I remain
unconvinced of the need to deviate from the current 24-hour
notice requirement. Asking an agent to wait one day before
meeting in someone's home is a minor request in order to
protect seniors against fraud."
POSITIONS
Support
The California Funeral Directors Association
The Cemetery and Mortuary Association of California
American Bankers Insurance Company
Oppose
None Received
SB 397, Page 7
Consultant: Kenneth Cooley (916) 651-4772