BILL ANALYSIS
SB 397
Page 1
Date of Hearing: July 8, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 397 (Calderon) - As Amended: May 5, 2009
SENATE VOTE : 32-3
SUBJECT : Life insurance.
SUMMARY : Exempts the sale of certain life insurance policies
for funeral and burial expenses from the requirement that the
agent provide the senior with a notice at least 24 hours prior
to their initial meeting when certain disclosures are made, and
increases the cancellation period for insurance policies with a
face value of less than $15,000. Specifically, this bill :
1)Specifies that the 24-hour prior notice requirement to seniors
(see existing law section) shall not apply to the sale of life
insurance policies that are designated by the purchaser as
payment for funeral and burial expenses when the life
insurance policy has an initial face amount of $15,000 or
less, and contains a "free look" period in which the purchaser
has 60 days to cancel the policy and be refunded payments.
2)Requires the issuer of a policy for funeral and burial
expenses, meeting the conditions of 1), above, to mail a
written notice within 14 days to 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 statement that the recipient of the notice is
authorized to call the insurer to inquire about the policy
on behalf of the policyholder.
c) A form suitable for the senior's use in exercising that
right.
d) Information on how to contact the California Department
of Insurance (CDI) for information or to file a complaint,
including the telephone number of the department's customer
assistance office.
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3)Specifies that the 24-hour prior notice requirement to seniors
shall be deemed satisfied with respect to life insurance
policies designated for payment of funeral and burial
expenses, meeting the conditions of 1), above, if both of the
following requirements are met:
a) The notice was provided at the time of the meeting to
the prospective purchaser by a licensee who holds a
life-only license or a life-only license limited to the
payment of funeral and burial expenses in which the
policies are limited to $15,000.
b) The licensee retains in his or her files a copy of the
notice signed by the purchaser.
4)Requires every policy of individual life insurance with a face
value of less than $15,000 that is issued after January 1,
2010, to have a printed notice informing the owner that the
policy may be returned for cancellation. The return period
shall be no less than 60 days. The notice requirement does
not apply to policies issued in connection with a credit
transaction or issued under a contractual policy change or
conversion privilege provision contained in a policy.
EXISTING LAW :
1)Requires a person who meets with a senior in the senior's home
for the purpose of selling life insurance, including
annuities, to deliver to the senior a written notice at least
24 hours prior to their initial meeting. If the senior has an
existing insurance relationship with an agent and requests a
meeting with the agent in the senior's home the same day, the
agent must provide a notice prior to the meeting.
2)The written notice delivered to the senior shall include the
following information in 14-point type:
a) There will be a sales presentation on life insurance,
including annuities, and/or other insurance products at the
meeting.
b) The senior has the right to have other persons present
at the meeting, including family members, financial
advisors or attorneys.
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c) The senior has the right to end the meeting at any time.
d) The senior has the right to contact the Department of
Insurance for information, or to file a complaint. The
notice shall include the consumer assistance telephone
numbers at the department.
e) A listing of the individuals who will attend the
meeting.
3)Requires each person attending a meeting with a senior for the
purpose of selling life insurance at the senior's home to end
all discussions and leave the senior's home immediately after
being asked to leave by the senior.
4)Prohibits a person from soliciting a sale of an annuity or
life insurance policy at the residence of a senior, in person
or by telephone, by using any plan, scheme, or ruse that
misrepresents the true status or mission of the contact.
5)Requires every policy of individual life insurance with a face
value of less than $10,000 to have a printed notice informing
the owner that the policy may be returned for cancellation.
The return period shall be no less than 10 days nor more than
30 days. The notice requirement does not apply to policies
issued in connection with a credit transaction or issued under
a contractual policy change or conversion privilege provision
contained in a policy.
FISCAL EFFECT : Pursuant to the Senate Appropriations
Committee, this bill is expected to result in negligible costs.
COMMENTS :
1)Purpose of bill . The purpose of this bill is to allow the
sale of small life insurance policies to pay for funeral and
burial expenses without a 24-hour prior delivery of a notice
concerning senior rights that now applies across-the-board to
all sales of individual life insurance policies. The bill
waives the 24-hour waiting period if all the following
conditions are met:
a) The purchaser is informed he or she has the right to
cancel the policy;
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b) The purchaser is given a 60-day "free-look" period
during which he or she can cancel the policy for a full
refund;
c) A copy of the notice is provided to the senior in their
home and a signed copy is kept in the licensee's files;
d) A notice is mailed to the purchaser and any family
member or financial advisor whom the purchaser requests to
provide advice regarding funeral and burial insurance;
e) The purchaser is notified of the telephone number for
the Department of Insurance to obtain information or file a
complaint.
2)Prior Legislation . This bill is similar to AB 608 (Calderon)
of the 2005-06 Session and SB 739 (Calderon) of the 2007-08
Session. Both of those bills were passed by the Legislature
and vetoed by the Governor. 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."
3)Arguments in support . The Author states that the 60-day "free
look" is a significant improvement over current law which can
now be as short as 10 days and not more than 30 days. This
expanded "free look" plus the notice that informs the
purchaser and, at the buyer's option, their family members
and/or financial advisors of the right to cancel and how to
exercise that right are intended to establish a new "bright
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line" for how door to door sales of funeral and burial expense
policies are to be conducted, and thus meet the Governor's
objections as stated in his veto message.
The American Bankers Insurance Company (ABIC) states that the
original law that established the 24-hour prior notice to
seniors (SB 620, Chapter 547, Statutes of 2003) was based on
2,500 complaints received by the CDI indicating that seniors
were losing their life savings in investment schemes involving
insurance. However, pre-need funeral policies did not receive
any complaints. According to ABIC:
a) Pre-need policies are small face amount life policies
sold to address funeral expenses and these policies are
purchased for peace of mind to cover funeral expenses
rather than as an investment product.
b) This bill maintains the integrity of the law by
requiring that any agent selling pre-need policies to
deliver a notice to the senior prior to the start of the
meeting and by increasing the free-look period to 60 days.
4)Technical amendment . The bill requires that an insurer that
issues a subject insurance policy mail a notice within 14 days
of the purchase of the policy informing the purchaser of his
or her right of cancellation, that the recipient of the notice
(family members and financial advisors) is authorized to call
the insurer to inquire about the policy on behalf of the
policyholder, and a "form suitable for the senior's use in
exercising that right." The meaning of the latter phrase is
vague. It is recommended that the bill be amended as follows
on page 4, line 8:
(C) A form suitable for the senior's use in exercising that
right the right to cancel the policy .
REGISTERED SUPPORT / OPPOSITION :
Support
American Bankers Insurance Company
Cemetary and Mortuary Association of California
Opposition
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None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086