BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2578|
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CONSENT
Bill No: AB 2578
Author: Dababneh (D)
Amended: 6/19/14 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 10-0, 6/25/14
AYES: Monning, Corbett, Correa, DeSaulnier, Lieu, Mitchell,
Nielsen, Roth, Torres, Vidak
NO VOTE RECORDED: Gaines
ASSEMBLY FLOOR : 78-0, 5/15/14 (Consent) - See last page for
vote
SUBJECT : Insurance: accelerated death benefit
SOURCE : Association of California Life and Health Insurance
Companies
DIGEST : This bill adds 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; requires the insurer to provide the
policyholder a report no less than one month after payment of
any accelerated death benefits; and makes other technical and
clarifying changes.
ANALYSIS :
Existing law:
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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 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.
7. Existing regulations allow 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.
This bill:
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1. Permits 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.
2. Adds 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.
3. Specifies 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.
4. Clarifies 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.
Background
SB 281 (Calderon, Chapter 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
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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, 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 exclude losses arising from aviation and
Section 10223 allows its exclusion from blanket life insurance
policies).
Prior/Related Legislation
SB 281 (Calderon, Chapter 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, Chapter 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 7/1/14)
Association of California Life and Health Insurance Companies
(source)
American Council of Life Insurers
ARGUMENTS IN SUPPORT : According to the Association of
California Life and Health Insurance Companies the sponsor of
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this bill, this 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 Department of Insurance
regarding nationally recognized policy provisions, as well as
other technical issues we all wanted to see clarified in the new
law.
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:d 7/2/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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