BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2279|
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THIRD READING
Bill No: AB 2279
Author: Hagman (R)
Amended: 3/28/14 in Assembly
Vote: 21
SENATE INSURANCE COMMITTEE : 10-0, 6/11/14
AYES: Monning, Gaines, Corbett, Correa, DeSaulnier, Mitchell,
Nielsen, Roth, Torres, Vidak
NO VOTE RECORDED: Lieu
ASSEMBLY FLOOR : 78-0, 5/15/14 (Consent) - See last page for
vote
SUBJECT : Insurance: life agents
SOURCE : California Mortuary and Cemetery Association
DIGEST : This bill 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.
ANALYSIS : 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,
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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").
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.
This bill allows 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.
Background
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.
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.
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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 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.
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.
Prior Legislation
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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/12/14)
California Mortuary and Cemetery Association (source)
ARGUMENTS IN SUPPORT : The Cemetery and Mortuary Association
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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.
ASSEMBLY FLOOR : 78-0, 5/15/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hern�ndez,
Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, John A. P�rez, V.
Manuel P�rez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas,
Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron,
Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Mansoor, Vacancy
AL:nl 6/12/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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