BILL NUMBER: SB 1212 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 21, 2012
AMENDED IN SENATE MARCH 26, 2012
INTRODUCED BY Senator Calderon
FEBRUARY 22, 2012
An act to amend add Section
10110.1 of 10271.2 to the Insurance Code,
relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 1212, as amended, Calderon. Insurance.
Existing law governs the business of insurance, and defines
various types of insurance for these purposes, including life
insurance and disability insurance. Existing law generally makes the
requirements imposed on disability insurance contracts inapplicable
to life insurance, endowment, and annuity contracts, or supplemental
contracts thereto, that provide additional benefits in case of death
or dismemberment or loss of sight by accident, operate to safeguard
contracts against lapse, or give a special surrender value, a special
benefit, or an annuity if the insured or annuitant becomes totally
or permanently disabled.
This bill would specify that the term "special benefit" for
purposes of those provisions includes an accelerated death benefit if
some of all of the death benefit of a life insurance contract is
paid to the insured upon the occurrence of certain qualifying events,
including if the insured requires continuous confinement in an
eligible institution.
Existing law requires supplemental contracts or, if a supplemental
contract is an integral part of a life insurance contract, life
insurance contracts to be submitted for approval by the Insurance
Commissioner before the contracts are delivered or issued for
delivery in this state.
This bill would require a life insurance contract or supplemental
contract that includes an accelerated death benefit that is
submitted for approval by the Insurance Commissioner to be submitted
for approval with specified additional information, including a
statement of the types of policy forms with which the benefit will be
offered.
Existing law provides that an individual has an unlimited
insurable interest in his or her own life, health, and bodily safety
and may lawfully take out a policy of insurance on his or her own
life, health, or bodily safety and have the policy made payable to
whomsoever he or she pleases, regardless of whether the beneficiary
designated has an insurable interest, as specified.
Existing law defines "stranger-originated life insurance," also
referred to as "STOLI," as an act, practice, or arrangement to
initiate the issuance of a life insurance policy in this state for
the benefit of a third-party investor who, at the time of policy
origination, has no insurable interest, under the laws of this state,
in the life of the insured.
This bill would exclude "stranger-originated life insurance" from
the provision authorizing an individual to lawfully take out a policy
of insurance on his or her own life, health, or bodily safety and
have the policy made payable to whomsoever he or she pleases,
regardless of whether the beneficiary designated has an insurable
interest.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10271.2 is added to the
Insurance Code , to read:
10271.2. (a) The term "special benefit," as used in this chapter,
includes an accelerated death benefit if some or all of the death
benefit of a life insurance contract is paid to the insured upon the
occurrence of any of the following qualifying events:
(1) The insured develops a medical condition that is reasonably
expected to result in a drastically limited life span, as defined in
the contract or supplemental contract, but not defined in a way to
require a life span of less than six months but not providing
benefits for a life span of more than 24 months.
(2) The insured requires continuous confinement in an eligible
institution, as defined in the contract or supplemental contract, and
is expected to remain there for the rest of his or her life.
(3) The insured requires extraordinary medical intervention, such
as a major organ transplant or continuous artificial life support,
without which he or she would die.
(4) The insured has a medical condition that, in the absence of
extensive or extraordinary medical treatment, would result in a
drastically reduced life span.
(5) The insured has a chronic illness, defined in the contract or
supplemental contract as a permanent inability to perform, without
substantial assistance from another individual, more than three out
of six activities of daily living, or permanent severe cognitive
impairment or similar forms of dementia.
(b) A life insurance contract or supplemental contract submitted
for approval of the commissioner pursuant to Section 10292 shall be
submitted with the following additional information if the contract
includes an accelerated death benefit:
(1) A statement of the types of policy forms with which this
benefit will be offered, any underwriting restrictions involving face
amount or age, and whether the benefit is intended for use with new
issues or in force business.
(2) A specimen issue of the statement regarding the effect of
accelerated death benefit payment on other benefit provisions, to be
provided to the owner prior to, or concurrent with, the election of
the accelerated death benefit option, and an explanation of how and
when the statement will be provided. The statement shall demonstrate
the effect of the acceleration of the death benefit on the policy
cash value, death benefit, premium, cost of insurance charges, and
loans and liens, as applicable. The statement shall be based only on
guaranteed values. The statement shall also include a disclosure that
receipt of an accelerated death benefit may affect eligibility for
Medicaid or other governmental benefits or entitlements and may have
tax consequences.
(3) An actuarial memorandum prepared, dated, and signed by the
member of the American Academy of Actuaries that includes the
following information:
(A) A description of the accelerated death benefit, including the
effects of payment of the accelerated death benefit on all policy
benefits, premium payments, cost of insurance rates, and values,
including any outstanding loan, if applicable, for all types of forms
with which the accelerated death benefit will be used.
(B) A description of, and justification for, expense charges
associated with the accelerated death benefit and the maximum expense
charges.
(C) A description of the interest rate or interest rate
methodology used in any present value calculation or in accruing
interest on the amount of the accelerated death benefit, which shall
not exceed the greater of: (i) The current yield on 90-day treasury
bills, or (ii) A variable rate determined in accordance with the
National Association of Insurance Commissioners (NAIC) Model Policy
Loan Interest Rate Bill No. 590.
(D) A description of the mortality basis and methodology,
including the period of time applicable to any mortality discount,
used in any present value calculation of the accelerated death
benefit.
(E) A description of the mortality and morbidity basis and
methodology used in the determination of any separate premium or
costs of insurance for the accelerated death benefit.
(F) The formula used to determine the accelerated death benefit,
including any limitations on the amount of the benefit, and the
formula used to determine the postacceleration premium.
(G) A sample calculation of the accelerated death benefit. If the
policy contains a loan provision, the example shall assume that there
is an outstanding loan at date of acceleration. All policy benefits,
premium payments, cost of insurance charges and values, including
the outstanding loan, if applicable, immediately before and
immediately after acceleration shall be shown in the example.
(H) If an accelerated death benefit may be paid in installments,
the basis used in the calculation of the minimum periodic payment for
the payment period and a sample calculation of a minimum periodic
payment, and the basis used and a sample calculation of the lump sum
payable if the insured dies before all periodic payments for the
payment period are made.
(I) For any accelerated death benefit of the type other than a
terminal illness, a certification that the value and premium of the
accelerated death benefit is incidental to the life coverage.
SECTION 1. Section 10110.1 of the Insurance
Code is amended to read:
10110.1. (a) An insurable interest, with reference to life and
disability insurance, is an interest based upon a reasonable
expectation of pecuniary advantage through the continued life,
health, or bodily safety of another person and consequent loss by
reason of that person's death or disability or a substantial interest
engendered by love and affection in the case of individuals closely
related by blood or law.
(b) An individual has an unlimited insurable interest in his or
her own life, health, and bodily safety and may lawfully take out a
policy of insurance on his or her own life, health, or bodily safety
and have the policy made payable to whomsoever he or she pleases,
regardless of whether the beneficiary designated has an insurable
interest, except for a policy that qualifies as "stranger-originated
life insurance" as defined in Section 10113.1.
(c) Except as provided in Section 10110.4, an employer has an
insurable interest, as referred to in subdivision (a), in the life or
physical or mental ability of any of its directors, officers, or
employees or the directors, officers, or employees of any of its
subsidiaries or any other person whose death or physical or mental
disability might cause financial loss to the employer; or, pursuant
to any contractual arrangement with any shareholder concerning the
reacquisition of shares owned by the shareholder at the time of his
or her death or disability, on the life or physical or mental ability
of that shareholder for the purpose of carrying out the contractual
arrangement; or, pursuant to any contract obligating the employer as
part of compensation arrangements or pursuant to a contract
obligating the employer as guarantor or surety, on the life of the
principal obligor. The trustee of an employer or trustee of a
pension, welfare benefit plan, or trust established by an employer
providing life, health, disability, retirement, or similar benefits
to employees and retired employees of the employer or its affiliates
and acting in a fiduciary capacity with respect to those employees,
retired employees, or their dependents or beneficiaries has an
insurable interest in the lives of employees and retired employees
for whom those benefits are to be provided. The employer shall obtain
the written consent of the individual being insured.
(d) Trusts and special purpose entities that are used to apply for
and initiate the issuance of policies of insurance for investors,
where one or more beneficiaries of those trusts or special purpose
entities do not have an insurable interest in the life of the
insured, violate the insurable interest laws and the prohibition
against wagering on life.
(e) Any device, scheme, or artifice designed to give the
appearance of an insurable interest where there is no legitimate
insurable interest violates the insurable interest laws.
(f) An insurable interest shall be required to exist at the time
the contract of life or disability insurance becomes effective, but
need not exist at the time the loss occurs.
(g) Any contract of life or disability insurance procured or
caused to be procured upon another individual is void unless the
person applying for the insurance has an insurable interest in the
individual insured at the time of the application.
(h) Notwithstanding subdivisions (a), (f), and (g), a charitable
organization that meets the requirements of Section 214 or 23701d of
the Revenue and Taxation Code may effectuate life or disability
insurance on an insured who consents to the issuance of that
insurance.
(i) This section shall not be interpreted to define all instances
in which an insurable interest exists.