BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
AB 1747 (Feuer) Hearing Date: June 13, 2012
As June 7, 2012
Fiscal: No
Urgency: No
VOTES: Asm. Floor(05/14/12)51-24/Pass
Asm. Ins. (05/02/12)08-03/Pass
SUMMARY Would establish a statutory minimum 60 day grace period
for nonpayment of premium on life insurance policies. Also
would require that life insurers permit policy owners to
designate at least one other person to receive notice of a
missed payment and prohibits termination until that notice has
been mailed 30 days prior to the effective date of termination
for nonpayment of premium.
DIGEST
Existing law
1. Requires that life insurance policies contain certain
provisions, including, but not limited to, an individual life
insurance policy notice of the right to cancel a policy;
2. Requires life insurers to provide certain notices to individual
life insurance policy holders, including, but not limited to, a
notice of premium increases.
This bill
1. Would require that every life insurance policy issued or
delivered in this state contain a provision for a grace
period of not less than 60 days from the premium due date
AB 1747 (Feuer), Page 2
that provides that where the premium owed is paid fully
within the grace period the policy remains in force;
2. Would also require an insurer to give the applicant for an
individual life insurance policy the right to designate at
least one person, in addition to the applicant, to receive
notice of lapse or termination of a policy for nonpayment of
premium;
3. Would require an insurer to provide each applicant with a
form, as specified, to make the designation and to notify
the insured annually of the right to change the designation;
4. Would prohibit a notice of pending lapse and termination
from being effective unless mailed by the insurer to the
named insured, a named designee, and a known assignee or
other person having an interest in the policy at least 30
days prior to the effective date of termination if
termination is for nonpayment of premium;
5. Would also make conforming changes.
COMMENTS
1. Purpose of the bill To provide consumer safeguards from
which people who have purchased life insurance coverage,
especially seniors, would benefit. Under existing law,
individuals can easily lose the critical protection of life
insurance if a single premium is accidentally missed (even
if they have been paying premiums on time for many years).
The protections provided by AB 1747 are intended to make
sure that policy owners have sufficient warning that their
premium may lapse due to nonpayment.
2. Background and Discussion An insurer may not terminate a
life insurance policy for nonpayment until 31 days from the
date the payment is due. This 30 day grace period is set in
regulation, but not in statute. (10 CCR � 2534.3.) This
bill intends to add additional procedural protections to a
AB 1747 (Feuer), Page 3
policy owner in order to avoid lapse.
a. Insured vs. Policy Owner. The insured and the
policy owner (or policy holder) is frequently, but not
always, the same person. If Spouse A purchases a policy
measured by the life of Spouse B, than Spouse A is the
policy owner and Spouse B is the insured. The author
has explained that the intent of the bill is to provide
policy owners additional protections.
b. Sixty Day Grace Period. This bill provides for a
minimum grace period of 60 days after the date the
premium was due.
c. Option to Provide Additional Notice of Nonpayment
to Designated Recipient and Separate 30 Day Grace Period
Triggered by Notice. The bill is based on a long-term
care insurance statute and requires insurers to provide
a notification of a policy owner's right to designate at
least one other person to receive a notice of
nonpayment. (Ins. Code � 10235.40.) An insurer would
not be able to terminate the policy for nonpayment until
30 days after a notice of nonpayment has been mailed to
the insured and a designee (if named) and other person
having an interest in the policy (such as an assignee).
The insurer would have to notify the insured annually of
the right to designate or change the designation of the
additional recipient.
d. Extends Period of Notice Required to Assignees.
Existing law provides protections to assignees, such as
creditors who are to receive the benefits of life
insurance policy to ensure the debt is covered. An
insurer must notify the assignee at least 10 days before
the final lapse of the policy. This bill requires that
the creditor be notified not less than 30 days prior to
the final lapse of the policy.
1. Summary of Arguments in Support
a. The Author explains that codifying a grace period
AB 1747 (Feuer), Page 4
that provides a longer window of time to pay bill will
help reduce the likelihood that policy will lapse. In
some instances, people who faithfully paid their life
insurance policies for years accidentally let their
policy lapse (in some cases, because they were being
hospitalized when the bill came, in others, as a result
of a mail mix-up or forgetfulness, etc.). Once the
policy lapses, the individual must be re-underwritten
with a new exam, which may cause the quoted premium to
skyrocket or the policy owner to abandon the policy.
b. Consumer Federation of California states that by
providing the option for a policy owner to name at least
one designee to receive a copy of a pending lapse
notice, the bill ensures that a trusted friend or
relative can make sure the bill is paid in the event the
policy owner is unable to respond or simply does not
realize the bill has gone unpaid.
2. Summary of Arguments in Opposition
None received.
3. Suggested Amendments
a. The Committee may wish to consider amendments that
replace the term insured with policy owner where the
bill refers to the person responsible for making
payments or selecting a designee.
b. Amend page 2, lines 3 to 7, to read:
10113.71. (a) Every life insurance policy issued or
delivered in this state shall contain a provision for a
grace period of not less than 60 days from the premium
due date. The 60 day grace period shall not run
concurrently with the period of paid coverage. The
provision shall provide that the policy shall remain in
force during the grace period. The provision shall
provide that if the premium owed is fully paid within
the grace period the policy shall remain in force.
AB 1747 (Feuer), Page 5
The California Department of Insurance suggested these
amendments and explained that:
i. Without clarification that the grace
period may be read to run concurrently with paid
coverage.
ii. Under existing law, if the insured dies
during the grace period, the premiums owed will be
deducted from the benefit paid. Without the
amendments, AB 1747 could be read as saying that there
is no coverage during the grace period unless the
premium is paid.
c. Amend page 3, lines 25, to page 3, line 6, to
read:
10113.72. (a) An individual life insurance policy shall
not be issued or delivered in this state until the
applicant has been given the right to designate at least
one person, in addition to the applicant, to receive
notice of lapse or termination of a policy for
nonpayment of premium. The insurer shall provide each
applicant with a form to make the designation. That form
shall include provide the opportunity for the applicant
to submit the name, address, and telephone number of at
least one person, in addition to the applicant, who is
to receive notice of lapse or termination of the policy
for nonpayment of premium.
POSITIONS
Support
California Department of Insurance
California Alliance of Retired Americans
California Advocates for Nursing Home Reform
Congress of California Seniors
California Retired County Employees Association
Consumer Federation of California
National Association of Insurance and Financial Advisors of
AB 1747 (Feuer), Page 6
California (NAIFA-California)
Opposition
None received.
Consultant: Hugh Slayden, (916) 651-4773