BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 2279 (Hagman) Hearing Date: June 11, 2014
As Amended: March 28, 2014
Fiscal: No
Urgency: No
VOTES: Asm. Floor (05/15/14)78-00/Pass
Asm. Ins. (05/07/14) 12-00/Pass
SUMMARY Increases from $15,000 to $20,000 the coverage amount
that can be sold by limited-license life insurance agents for
benefits designated to be used to cover funeral expenses.
DIGEST
Existing law
1. Prohibits any person to sell or offer for sale a funeral
insurance contract in this state unless he or she is properly
licensed as a life agent.
2. Defines a "funeral insurance contract" as a life insurance
policy embodying an agreement, for a valuable consideration, to
embalm or dispose of, or expressly to procure or pay or to
provide funds for, in whole or in part, the embalming or
disposal of the remains of any person living at the time of the
issuance of such policy.
3. Requires applicants for a permanent license to comply with
prelicensing education standards, but exempts those life agents
who are limited by written agreement with appointing insurers to
transact only specific life insurance policies or annuities
having an initial face amount of $15,000 or less that are
designated by the purchaser for the payment of funeral and
burial expenses ("limited life licensees").
AB 2279 (Hagman), Page 2
4. Requires applicants for a permanent license to comply with
prelicensing examination requirements, but exempts limited life
licensees from taking the same examination as full lines life
licensees and provides that those applicants be required to take
an examination developed to test only those topics relevant to
the type of policies that they are restricted to sell.
AB 2279 (Hagman), Page 3
This bill
Would allow limited life licensees to transact funeral and
burial life insurance policies up to $20,000 without being
subject to the same licensing requirements as full line life
licensees.
COMMENTS
1. Purpose of the bill . According to the author, it has been
years since California has increased the funeral policy
coverage limit. Since these types of policies are used to
pay for funeral and burial services, by increasing the limit
we can accommodate a population that has limited options
when it comes to life insurance. California's seniors
deserve no less.
2. Background
a. Funding Funeral and Burial Expenses. Consumers may
lock in the pricing of funeral expenses by prearranging
services and merchandise and pre-funding for those
services and merchandise when arrangements are completed.
Consumers have several options including preneed trust
contracts based on selected services that are funded
through a trust account administered by the funeral
establishment or cemetery and pre-need life insurance
purchased to pay for services, merchandise, and cemetery
costs.
b. Pre-need Life Insurance. Life insurance policies
designed to pay for funeral and burial expenses are
sometimes referred to as pre-need life insurance. These
policies are structured like regular whole life insurance
policies (they do not expire based on a term) with
benefits measured to pay for pre-selected funeral and
burial expenses.
According to the Cemetery and Mortuary Association of
California (CMAC), most pre-need policies can be paid off
over 3, 5, 7 or 10 years. CMAC also explains that these
AB 2279 (Hagman), Page 4
products may appeal to seniors because they involve
little, if any, underwriting, and that policyholders tend
to keep their policies; over 95% of customers do not
surrender their policies.
c. Limited Life Licensees. Pre-need policies are sold
by producers who have a full line life license or a
limited life license. In order to avoid the more
extensive education and examination standards required of
a full line life license, existing law provides for a
limited life license subject to a narrowly tailored
examination, to sell policies designated to pay for
funeral and burial expenses with a face value of less
than $15,000. In practical terms, this allows providers
of funeral services to employ sales counselors who hold
these limited licenses so that consumers may select
funeral and burial services while at the same time
purchase a small life insurance policy to fund those
services.
The current cap set in 2002 would be the equivalent of
$19,766.98 in 2014 dollars, adjusted for inflation
according to the Consumer Price Index. This bill raises
the cap to $20,000.
1. Arguments in Support
The Cemetery and Mortuary Association of California writes
that the maximum funeral policy coverage limitation has not
been increased since 2003, and the modest increase proposed
by AB 2279 reflects the increase in the cost-of-living since
that date. This is both justified and necessary to serve a
population that has limited life insurance options.
Funeral policies have long been used by consumers to buy
peace of mind by ensuring that their family is not burdened
by the costs of a funeral or burial after they pass away.
While non-insurance pre-funding arrangements are available,
they do not work for all consumers, and these limited
funeral policies have filled this gap in the market.
2. Arguments in Opposition
None received.
AB 2279 (Hagman), Page 5
3. Prior and Related Legislation
a. SB 2281 (Robbins), Chapter 1418, Statutes of 1990,
narrowed the licensing requirements for limited life
licensees who only sold life insurance policies with a
value of $10,000 or less that cover funeral or burial
expenses.
b. AB 2778 (Calderon), Chapter 347, Statutes of 2002,
raised the cap on life insurance policies covering
funeral or burial expenses sold by limited life licensees
from $10,000 to $15,000.
POSITIONS
Support
California Mortuary and Cemetery Association
Oppose
None received.
Consultant: Hugh Slayden (916) 651-4773