BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1449|
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UNFINISHED BUSINESS
Bill No: SB 1449
Author: Calderon (D)
Amended: 8/20/12
Vote: 21
SENATE INSURANCE COMMITTEE : 8-0, 4/25/12
AYES: Calderon, Gaines, Anderson, Corbett, Correa, Lieu,
Lowenthal, Wyland
NO VOTE RECORDED: Price
SENATE FLOOR : 37-0, 5/30/12
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De Le�n, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Harman,
Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio,
Steinberg, Vargas, Walters, Wolk, Wright, Wyland, Yee
NO VOTE RECORDED: Runner, Simitian, Strickland
ASSEMBLY FLOOR : 79-0, 8/27/12 - See last page for vote
SUBJECT : Life insurance and annuities
SOURCE : Association of California Life & Health
Insurance Companies
DIGEST : This bill permits life insurance policies to
include premium and surrender charge waivers triggered by
specified medical conditions, disability, and unemployment.
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SB 1449
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2
Assembly Amendments revise and recast the bill with a
similar intent as it left the Senate.
ANALYSIS :
This bill:
1. Permits life insurance policies and annuities to include
provisions that waive surrender charges when the owner,
insured or annuitant becomes unemployed.
2. Requires insurers to establish additional reserves when
offering a waiver of surrender charge benefit triggered
by unemployment.
3. Requires provisions waiving premium or surrender charges
to include specified provisions relating to the scope of
the contract, reinstatement, incontestability, claim
submission, claim forms, physical examinations, and
proof of loss.
4. Requires the Insurance Commissioner (Commissioner) to
review contracts including waiver of premium or
surrender charges to ensure they are clearly worded and
are not unfair or economically unsound to the owner,
insured, or annuitant.
5. Prohibits contracts containing premium waiver or
surrender charge waivers from containing any language
that implies that the policy provides long-term care
coverage.
6. Prohibits the insurer from denying any claim for a
premium or surrender charge waive under these provisions
based on a pre-existing condition after the policy has
been in effect for two years.
7. Specifies the exclusions that may apply to these
provisions.
8. Allows a life insurance policy owner who is totally
disabled to qualify for a waiver of premium on a life
insurance policy.
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9. Defines total disability as:
A. Inability to perform with reasonable continuity
the substantial and material duties of the job due to
sickness or bodily injury in the first 24 months of
disability.
B. Inability to perform with reasonable continuity
the duties of any other suitable job after the first
24 months of disability.
10.Permits life insurance contracts to include definitions
of total disability that include presumptive total
disability for the total loss of sight, hearing, speech,
use of hands or feet.
11.Permits insurers to require that total disability to
continue for an uninterrupted period of time to qualify
for a premium waiver.
12.Establishes the following minimum standards for the
duration of a premium waiver for total disability:
A. If the disability begins before the age of 60, the
premium waiver must continue for the duration of
total disability. If total disability continues to
the age of 65, then all future premiums are waived.
B. If the disability begins after the age of 60, the
premium waiver must continue until the age of 65.
13.Permits life insurance and annuity contracts to include
provisions for waiving surrender charges if the owner,
insured, annuitant, or beneficiary:
A. Develops a terminal condition.
B. Receives home or community based services on
prescription of a physician.
C. Becomes confined in a skilled nursing or other
residential care facility.
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D. Becomes totally disabled.
E. Has a medical condition that would result in death
in the absence of treatment.
F. Develops a chronic illness that results in a
permanent inability to perform activities of daily
living.
G. Becomes unemployed.
14.Requires insurers seeking to offer these provisions give
the Commissioner a copy of the entire contract to
facilitate the Commissioner's review.
Comments
According to the author's office, this bill streamlines the
process for approval of special features for life insurance
and annuity products that may provide consumers with
much-needed resources during difficult and trying times,
including a waiver of premium during periods of disability
and a waiver of the surrender charge if the insured suffers
specified serious medical conditions, disability, or
unemployment. These features are commonly available in
other states, but there have been challenges obtaining
approval to offer these features in California under
existing law.
Permanent life insurance, such as a whole life policy,
accrues a cash value (which is different than the amount
paid to a beneficiary if the insured dies) over time and
provides life insurance protection as long as the premiums
are paid. The policy owner can surrender a life insurance
policy for cash value, but generally must pay a surrender
charge for doing so if the surrender occurs within a time
period established in the policy (commonly 7-10 years from
the issuance of the policy or annuity). Annuity contracts
also have cash value and impose surrender charges on a
similar basis.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
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According to the Assembly Appropriations Committee,
increased costs to the Insurance Fund based on workload for
the Department of Insurance to conduct reviews and
re-filings from insurers. Increased costs of approximately
$135,000 in 2012-13, growing to $195,000 in 2013-14.
Ongoing costs would likely be in the range of $140,000 per
year.
SUPPORT : (Verified 8/27/12)
Association of California Life & Health Insurance Companies
American Council of Life Insurers
ASSEMBLY FLOOR : 79-0, 8/27/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth
Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell, Grove,
Hagman, Halderman, Hall, Harkey, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Jeffries, Jones,
Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor,
Mendoza, Miller, Mitchell, Monning, Morrell, Nestande,
Nielsen, Norby, Olsen, Pan, Perea, V. Manuel P�rez,
Portantino, Silva, Skinner, Smyth, Solorio, Swanson,
Torres, Valadao, Wagner, Wieckowski, Williams, Yamada,
John A. P�rez
NO VOTE RECORDED: Donnelly
JJA:m 8/28/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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