BILL ANALYSIS �
SB 599
Page 1
Date of Hearing: August 17, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 599 (Kehoe) - As Amended: June 28, 2011
Policy Committee: InsuranceVote:11
- 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill allows life insurance companies to place benefits in a
retained-asset account (RAA) only if the beneficiary does not
choose one of the other available settlement options, such as a
lump sum payment. In addition, an RAA can only be used if a
prominent disclosure has been provided on the claim form.
FISCAL EFFECT
There are no significant costs associated with this legislation.
COMMENTS
1)Rationale . The purpose of this bill is to assure that life
insurers cannot require beneficiaries to receive death
benefits in the form of a RAA, and to provide that the
beneficiary will have the option to choose how the benefits
will be paid.
2)Background . According to the Department of Insurance (DOI),
which is the sponsor of this bill, existing law permits
insurers to require beneficiaries to be paid life insurance
proceeds only via an RAA. DOI also states that existing law
enables insurers to provide information to beneficiaries
regarding their life insurance proceeds in a manner that can
result in the insurers automatically establishing an RAA.
Beneficiaries are not always emotionally prepared to determine
a secure place to deposit life insurance payouts following the
loss of a loved one. Recognizing that situation, several life
SB 599
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insurance companies automatically deposit beneficiaries'
payouts into an RAA, where in recent years interest rates paid
often exceeded the rates available from banking institutions.
The author and the DOI state that while an RAA provides some
favorable options for beneficiaries, there are some causes for
concern as well. One concern is that RAAs allow insurers to
use their proceeds to accrue investment benefits for
themselves in excess of the benefits distributed to the
beneficiaries.
3)Contingency enactment . The bill becomes operative only if SB
713 (Calderon) of the current session is enacted and becomes
effective. SB 713 (Calderon) proposes a set of disclosures
that insurers must follow when they use RAAs to pay death
claims to beneficiaries. In 2010, the National Association of
Insurance Commissioners (NAIC) developed an informational
bulletin on RAAs. SB 713 is based on the NAIC bulletin, and
includes some enhanced disclosures to help life insurance
beneficiaries obtain the information needed to make an
informed decision on whether an RAA is the appropriate option
for them.
SB 599 guarantees beneficiaries are afforded the opportunity
to choose how they want to receive their benefits. Together,
these two bills create a consumer protection package.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081