BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 2578 (Dababneh) Hearing Date: June 25, 2014
As Amended: June 19, 2014
Fiscal: No
Urgency: No
VOTES: Asm. Floor (05/15/14)78-0/Pass
Asm. Ins. (05/07/14) 12-0/Pass
SUMMARY Would add a condition or loss caused or substantially
contributed to by engaging in civil aviation, other than as a
fare paying passenger, to the list of allowable exclusions for
supplemental or accelerated death benefits in a life insurance
policy; would require the insurer to provide the policyholder a
report no less than one month after payment of any accelerated
death benefits; and would make other technical and clarifying
changes.
DIGEST
Existing law
1. Provides for "supplemental benefits" to be added to life
insurance policies that waive the payment of premium when a
policyholder becomes totally disabled;
2. Defines "accelerated death benefit" as part of a life insurance
policy that permits the advance payment of part of the death
benefit based on a catastrophic or chronic illness that meets
specified requirements;
3. Permits insurers to require the opinion of a qualified health
care practitioner that the applicant meets the federal
definition of a chronically ill individual before paying the
accelerated death benefit;
4. Requires supplemental or accelerated death benefit life
insurance policies to specify any applicable exclusions, and
limits those exclusions to those specifically listed in statute,
including a condition or loss caused by engaging in war, illegal
AB 2578 (Dababneh), Page 2
activity or suicide;
5. Allows group life insurance policies to exclude losses arising
from war or acts of war, military service, or relating to
aviation;
6. Requires an insurer to provide the policyholder with a report,
at least monthly, of any accelerated death benefits or other
benefits paid out during the prior month, and the amount of
remaining benefits that can be accelerated, as specified.
Existing Regulations
1. Lists allowed exclusions in individual disability insurance
policies, including war; service in armed forces; workers'
compensation; participation in a riot or insurrection;
suicide or attempted suicide; intentionally self-inflicted
injury; mental or emotional disorders or functional nervous
disorders; pregnancy or childbirth; treatment on or to the
teeth or gums except when necessitated by accident;
hallucinatory drugs; while a passenger other than a
fare-paying passenger in any aircraft or while passenger in
a military aircraft or acting as pilot or crew in any
aircraft; and others, as specified. (10 CCR Section 2220.8)
This bill
2. Would permit an insurer to require, in the case of a claim
for a supplemental benefit providing periodic payments
contingent upon a continuing catastrophic or chronic
condition, that the insured provide written proof of the
illness or condition within 90 days of the first period when
the insurer is liable to pay benefits;
3. Would add a condition or loss caused or substantially
contributed to by engaging in civil aviation, other than as
a fare paying passenger, to the list of allowable exclusions
for supplemental or accelerated death benefits;
4. Would specify that if an insured's total disability begins
before age 60, the insurer is required to waive all premium
payments due only as long as the insured continues to be
totally disabled;
AB 2578 (Dababneh), Page 3
5. Would clarify that the insurer is to provide a report on
accelerated payments made, and other details, including any
changes to the policy or certificate and the amount of the
remaining benefits that can be accelerated, no later than
one month after payment of an accelerated death benefit.
COMMENTS
1. Purpose of the bill To clean up and make minor fixes to
several provisions of legislation passed last year that
allows life insurers to offer policies with accelerated
benefits in the case of chronic illness or total disability.
2. Background SB 281 (Ch. 345, Statutes of 2013) was enacted
last year to permit life insurers to sell policies that
allow policy holders with terminal, catastrophic or chronic
illness to access their policy death benefits to pay for
current expenses. The amount of money provided is capped by
the dollar value of the policy's death benefit. Unlike long
term care policies, there are no restrictions on the
insured's use of the benefit proceeds.
Accelerated death benefits may also allow consumers to take
advantage of federal tax law that permits the income from
life insurance policies paid based on a chronic illness to
receive favorable tax treatment (referred to as "tax
qualified" benefits). Tax qualified benefits must be paid
based on a determination by an appropriately licensed health
care practitioner that the consumer has a chronic illness
with an expected duration of greater than 90 days. Tax
qualified benefits are also subject to limitations on the
amount and timing of benefit payments.
The supplemental benefit policy must specify any applicable
exclusions, which are limited to only those specifically
enumerated in statute, including a condition of loss caused
by engaging in acts of war, illegal activity or suicide.
According to the Association of California Life and Health
Insurance Companies (ACLHIC), sponsor of SB 281, an
exclusion for civil aviation activities, other than as a
fare paying passenger, was inadvertently left out of the
bill, and is consistent with policy language approved in all
states, including California (California Insurance Code
Section 10206.5 allows group life insurance policies to
AB 2578 (Dababneh), Page 4
exclude losses arising from aviation and Section 10223
allows its exclusion from blanket life insurance policies).
In addition, this bill clarifies that insurers should only
send out reports to insureds after a benefit has been paid.
3. Support . According to the Association of California Life
and Health Insurance Companies and the American Council of
Life Insurers, AB 2578 addresses a few areas that were
unresolved or inadvertently left out of the discussions that
created the operative statute last year. The clarifications
reflect our ongoing cooperative discussions with CDI
regarding nationally recognized policy provisions, as well
as other technical issues we all wanted to see clarified in
the new law.
4. Opposition None received.
5. Prior and Related Legislation
SB 281 (Calderon, Ch. 345, Statutes of 2013) authorized the
sale of life insurance policies with "accelerated death
benefits" that allow policy owners to access death benefits
when they experience a catastrophic or chronic illness.
SB 1449 (Calderon, Ch. 567, Statutes of 2012) streamlined
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 time,
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.
POSITIONS
Support
Association of California Life and Health Insurance Companies
American Council of Life Insurers
Oppose
None received
AB 2578 (Dababneh), Page 5
Consultant: Erin Ryan (916) 651-4110