BILL NUMBER: AB 2578 ENROLLED
BILL TEXT
PASSED THE SENATE JULY 3, 2014
PASSED THE ASSEMBLY AUGUST 19, 2014
AMENDED IN SENATE JUNE 19, 2014
AMENDED IN ASSEMBLY APRIL 7, 2014
INTRODUCED BY Assembly Member Dababneh
FEBRUARY 21, 2014
An act to amend Sections 10271, 10271.1, 10295.6, and 10295.15 of
the Insurance Code, relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 2578, Dababneh. Insurance: disability insurance: life
insurance: accelerated death benefit.
Existing law governs the business of insurance, and defines
various types of insurance for these purposes, including life
insurance and disability insurance. Existing law generally makes the
requirements imposed on disability insurance contracts inapplicable
to life insurance, endowment, and annuity contracts, or supplemental
contracts thereto, that provide supplemental benefits in case of
death or dismemberment or loss of sight by accident, operate to
safeguard contracts against lapse, or give a special surrender
benefit or an accelerated death benefit, as specified. Existing law
requires that the supplemental benefit provide that the insurer may
require that the insured provide written proof of occurrence or loss
no less than 90 days after the termination of the period for which
the insurer is liable, and, in the case of claim for any other
occurrence or loss, within 90 days after the date of the occurrence
or loss. Existing law also requires that supplemental benefits
specify any applicable exclusions and limits those exclusions to,
among other things, a condition or loss caused by engaging in an
illegal occupation.
This bill would instead require that the supplemental benefit
provide that the insurer may require, in the case of a claim for
which the supplemental benefit provides any periodic payment
contingent upon continuing occurrence or loss, that the insured
provide written proof of occurrence or loss no less than 90 days
after the termination of the period for which the insurer is liable,
and, in the case of claim for any other occurrence or loss, that the
insured provide written proof of occurrence or loss within 90 days
after the date of the occurrence or loss. The bill would also include
a condition or loss caused or substantially contributed to by
engaging in aviation, other than as a fare-paying passenger, to the
list of allowable exclusions to supplemental benefits.
Existing law provides that supplemental benefits that operate to
safeguard life insurance contracts against lapse are defined as a
waiver of premium benefit or a waiver of monthly deduction benefit,
as applicable, in which the insurer waives the premium or monthly
deduction for a life insurance contract when the insured becomes
totally disabled, as defined by the supplemental benefit, and in
which the waiver continues until the end of the insured's disability,
or for the period specified by the supplemental benefit, consistent
with specified requirements. Under those requirements, the waiver of
premium or monthly deduction benefit continues for the period
specified by the supplemental benefit, but may not be less favorable
to the insured than certain terms, including that if the insured's
total disability begins before the insured attains 60 years of age,
that the insurer waive all premiums or monthly deductions due for the
period of the total disability, and if the total disability extends
to the insured's attainment of 65 years of age, that the insurer
waive all further premiums or monthly deductions due.
This bill would change the above terms by instead requiring the
insurer, if the insured's total disability begins before the insured
attains 60 years of age, to waive all premiums or monthly deductions
due for the period that the insured continues to be totally disabled.
Existing law defines an accelerated death benefit as a provision,
endorsement, or rider added to a life insurance policy that provides
for the advance payment of any part of the death proceeds, payable
upon the occurrence of a qualifying event, as provided. The insurer
is required to provide the policyholder or certificate holder with a
report, at least monthly, of any accelerated death benefits paid out
during the prior month, an explanation of any changes to the policy
or certificate, death benefits, and cash values on account of the
benefits being paid out, and the amount of the remaining benefits
that can be accelerated at the end of the prior month.
This bill would require the insurer to provide the report no less
than one month after the payment of the benefit, and would delete the
requirement that the report be provided on a monthly basis.
Existing law requires term life insurance policies to include a
prominent statement on page one that the accelerated death benefit
terminates with the policy.
This bill would instead require, if an accelerated death benefit
is offered with an underlying term life insurance policy, that the
accelerated death benefit include the required statement that the
benefit terminates with the policy.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10271 of the Insurance Code is amended to read:
10271. (a) Except as set forth in this section, this chapter
shall not apply to, or in any way affect, provisions in life
insurance, endowment, or annuity contracts, or contracts supplemental
thereto, that provide additional benefits in case of death or
dismemberment or loss of sight by accident, or that operate to
safeguard those contracts against lapse, as described in subdivision
(a) of Section 10271.1, or give a special surrender benefit, as
defined in subdivision (b) of Section 10271.1, or an accelerated
death benefit as defined in Article 2.1 (commencing with Section
10295), in the event that the owner, insured, or annuitant, as
applicable, meets the benefit triggers specified in the life
insurance or annuity contract or supplemental contract.
(b) For the purposes of this section, the term "supplemental
benefit" means a rider to or provision in a life insurance policy,
certificate, or annuity contract that provides a benefit as set forth
in subdivision (a).
(c) A supplemental benefit described in subdivision (a) shall
contain all of the following provisions. However, an insurer, at its
option, may substitute for one or more of the provisions a
corresponding provision of different wording approved by the
commissioner that is not less favorable in any respect to the owner,
insured, or annuitant, as applicable. The required provisions shall
be preceded individually by the appropriate caption, or, at the
option of the insurer, by the appropriate individual or group
captions or subcaptions as the commissioner may approve.
(1) A life insurance policy or annuity contract that contains a
supplemental benefit shall provide that the contract, supplemental
contract, and any papers attached thereto by the insurer, including
the application if attached, constitute the entire insurance or
annuity contract and shall also provide that no agent has the
authority to change the contract or to waive any of its provisions.
This provision shall be preceded individually by a caption stating
"ENTIRE CONTRACT; CHANGES:" or other appropriate caption as the
commissioner may approve.
(2) The supplemental benefit shall provide that reinstatement of
the supplemental benefit shall be on the same or more favorable terms
as reinstatement of the underlying life insurance policy or annuity
contract. Following reinstatement, the insured and insurer shall have
the same rights under reinstatement as they had under the
supplemental benefit immediately before the due date of the defaulted
premium, subject to any provisions endorsed in the rider or
endorsement or attached to the rider or endorsement in connection
with the reinstatement. This reinstatement provision shall be
preceded individually by a caption stating "REINSTATEMENT:" or other
appropriate caption as the commissioner may approve.
(3) A supplemental benefit subject to underwriting shall include
an incontestability statement that provides that the insurer shall
not contest the supplemental benefit after it has been in force
during the lifetime of the insured for two years from its date of
issue, and that the supplemental benefit may only be contested based
on a statement made in the application for the supplemental benefit,
if the statement is attached to the contract and if the statement was
material to the risk accepted or the hazard assumed by the insurer.
This provision shall be preceded individually by a caption stating
"INCONTESTABILITY:" or other appropriate caption as the commissioner
may approve.
(4) The supplemental benefit shall provide either that the insurer
may accept written notice of claim at any time or that the insurer
may require that written notice of claim be submitted by a due date
that is no less than 20 days after an occurrence covered by the
supplemental benefit, or commencement of any loss covered by the
supplemental benefit, or as soon after the due date as is reasonably
possible. Notice given by or on behalf of the insured or the
beneficiary, as applicable, to the insurer at the insurer's address
or telephone number, or to any authorized agent of the insurer, with
information sufficient to identify the insured, shall be deemed
notice to the insurer. This provision shall be preceded individually
by a caption stating "NOTICE OF CLAIM:" or other appropriate caption
as the commissioner may approve.
(5) The supplemental benefit shall provide that the insurer, upon
receipt of a notice of claim, shall furnish to the claimant those
forms as are usually furnished by it for filing a proof of occurrence
or a proof of loss. If the forms are not furnished within 15 days
after giving notice, the claimant shall be deemed to have complied
with the requirements of the supplemental benefit as to proof of
occurrence or proof of loss upon submitting, within the time fixed by
the supplemental benefit for filing proof of occurrence or proof of
loss, written proof covering the character and the extent of the
occurrence or loss. This provision shall be preceded individually by
a caption stating "CLAIM FORMS:" or other appropriate caption as the
commissioner may approve.
(6) The supplemental benefit shall provide that the insurer may
require, in the case of a claim for which the supplemental benefit
provides any periodic payment contingent upon continuing occurrence
or loss, that the insured provide written proof of occurrence or
proof of loss no less than 90 days after the termination of the
period for which the insurer is liable, and, in the case of claim for
any other occurrence or loss, that the insured provide written proof
of occurrence or proof of loss within 90 days after the date of the
occurrence or loss. Failure to furnish proof within the time required
shall not invalidate or reduce the claim if it was not reasonably
possible to give proof within the time, provided proof is furnished
as soon as reasonably possible and, except in the absence of legal
capacity, no later than one year from the time proof is otherwise
required. This provision shall be preceded individually by a caption
stating "PROOF OF LOSS:" or other appropriate caption as the
commissioner may approve.
(7) The supplemental benefit shall provide that the insurer, at
its own expense, shall have the right and opportunity to examine the
person of the insured when and as often as the insurer may reasonably
require during the pendency of a claim and to make an autopsy in
case of death where it is not forbidden by law. This provision shall
be preceded individually by a caption stating "PHYSICAL EXAMINATIONS:"
or other appropriate caption as the commissioner may approve.
(d) The commissioner shall not approve any contract or
supplemental contract for insurance or delivery in this state if the
commissioner finds that the contract or supplemental contract does
any of the following:
(1) Contains any provision, label, description of its contents,
title, heading, backing, or other indication of its provisions that
is unintelligible, uncertain, ambiguous, or abstruse, or likely to
mislead a person to whom the supplemental benefit is offered,
delivered, or issued.
(2) Constitutes fraud, unfair trade practices, or insurance
economically unsound to the owner, insured, or annuitant, as
applicable.
(3) Contains any actuarial information that is materially
incomplete, incorrect, or inadequate.
(e) A supplemental benefit described in subdivision (a) shall not
contain any title, description, or any other indication that would
describe or imply that the supplemental benefit provides long-term
care coverage.
(f) Commencing two years from the date of the issuance of the
supplemental benefit, no claim for loss incurred or disability, as
defined by the supplemental benefit, may be reduced or denied on the
grounds that a disease or physical condition not excluded from
coverage by name or specific description effective on the date of
loss had existed prior to the effective date on the coverage of the
supplemental benefit.
(g) With regard to supplemental benefits set forth in subdivision
(a), the supplemental benefit shall specify any applicable
exclusions, which shall be limited to the following:
(1) Condition or loss caused or substantially contributed to by
any attempt at suicide or intentionally self-inflicted injury, while
sane or insane.
(2) Condition or loss caused or substantially contributed to by
war or an act of war, as defined in the exclusion provisions of the
contract.
(3) Condition or loss caused or substantially contributed to by
active participation in a riot, insurrection, or terrorist activity.
(4) Condition or loss caused or substantially contributed to by
committing or attempting to commit a felony.
(5) Condition or loss caused or substantially contributed to by
voluntary intake of either:
(A) Any drug, unless prescribed or administered by a physician and
taken in accordance with the physician's instructions.
(B) Poison, gas, or fumes, unless they are the direct result of an
occupational accident.
(6) Condition or loss in consequence of the insured being
intoxicated, as defined by the jurisdiction where the condition or
loss occurred.
(7) Condition or loss caused or substantially contributed to by
engaging in an illegal occupation.
(8) Condition or loss caused or substantially contributed to by
engaging in aviation, other than as a fare-paying passenger.
(h) If the commissioner notifies the insurer, in writing, that the
filed form or actuarial information does not comply with the
requirements of law and specifies the reasons for his or her opinion,
it is unlawful for an insurer to issue any policy in that form.
SEC. 2. Section 10271.1 of the Insurance Code is amended to read:
10271.1. (a) (1) Supplemental benefits that operate to safeguard
life insurance contracts against lapse are defined as a waiver of
premium benefit or a waiver of monthly deduction benefit, as
applicable, in which the insurer waives the premium or monthly
deduction for a life insurance contract when the insured becomes
totally disabled, as defined by the supplemental benefit, and where
the waiver continues until the end of the insured's disability, or
for the period specified by the supplemental benefit, consistent with
paragraph (5).
(2) For purposes of this subdivision, total disability shall not
be less favorable to the insured than the following:
(A) During the first 24 months of total disability, the insured is
unable to perform with reasonable continuity the substantial and
material duties of his or her job due to sickness or bodily injury.
(B) After the first 24 months of total disability, the insured,
due to sickness or bodily injury, is unable to engage with reasonable
continuity in any other job in which he or she could reasonably be
expected to perform satisfactorily in light of his or her age,
education, training, experience, station in life, or physical and
mental capacity.
(3) The definition of total disability may also include
presumptive total disability, such as the insured's total and
permanent loss of sight of both eyes, hearing of both ears, speech,
the use of both hands, both feet, or one hand and one foot.
(4) The insurer may require total disability to continue for an
uninterrupted period of time specified by the supplemental benefit,
or the insurer may allow separate periods of disability to be
combined.
(5) The waiver of premium or monthly deduction benefit shall
continue for the period specified by the supplemental benefit, but
shall not be less favorable to the insured than the following:
(A) If the insured's total disability begins before the insured
attains 60 years of age, the insurer shall waive all premiums or
monthly deductions due for the period that the insured continues to
be totally disabled.
(B) If the insured's total disability begins after the age
specified in subparagraph (A), the insurer shall waive all premiums
or monthly deductions due for the period that the insured continues
to be totally disabled up to 65 years of age.
(6) In addition to the permissible exclusions listed in
subdivision (g) of Section 10271, the insurer may exclude a total
disability occurring after the policy anniversary or supplemental
contract anniversary, as applicable and as defined by the
supplemental benefit, on which the insured attains a specified age of
no less than 65 years.
(b) "Special surrender benefit" is defined as a "waiver of
surrender charge benefit" wherein the insurer waives the surrender
charge usually charged for a withdrawal of funds from the cash value
of a life insurance contract or the account value of an annuity
contract if the owner, insured, or annuitant, as applicable, meets
any of the following criteria:
(1) Develops any medical condition where the owner's, insured's,
or annuitant's life expectancy is expected to be less than or equal
to a limited period of time that shall not be restricted to a period
of less than 12 months or greater than 24 months.
(2) Is receiving, as prescribed by a physician, registered nurse,
or licensed social worker, home care or community-based services, as
defined in subdivision (a) of Section 10232.9, or is confined in a
skilled nursing facility, convalescent nursing home, or extended care
facility, which shall not be defined more restrictively than as in
the Medicare program, or is confined in a residential care facility
or residential care facility for the elderly, as defined in the
Health and Safety Code. Out-of-state providers of services shall be
defined as comparable in licensure and staffing requirements to
California providers.
(3) Has any medical condition that would, in the absence of
treatment, result in death within a limited period of time, as
defined by the supplemental benefit, but that shall not be restricted
to a period of less than six months.
(4) Is totally disabled, as follows:
(A) During the first 24 months of total disability, the owner,
insured, or annuitant, as applicable, is unable to perform with
reasonable continuity the substantial and material duties of his or
her job due to sickness or bodily injury.
(B) After the first 24 months of total disability, the owner,
insured, or annuitant, as applicable, due to sickness or bodily
injury, is unable to engage with reasonable continuity in any other
job in which he or she could reasonably be expected to perform
satisfactorily in light of his or her age, education, training,
experience, station in life, or physical and mental capacity.
(C) The definition of total disability may also include
presumptive total disability, such as the insured's total and
permanent loss of sight of both eyes, hearing of both ears, speech,
the use of both hands, both feet, or one hand and one foot.
(D) The insurer may require the total disability to continue for
an uninterrupted period of time specified by the supplemental
benefit, or the insurer may allow separate periods of disability to
be combined.
(5) Has a chronic illness as defined pursuant to either
subparagraph (A) or (B):
(A) Either of the following:
(i) Impairment in performing two out of seven activities of daily
living, as set forth in subdivisions (a) and (g) of Section 10232.8,
meaning the insured needs human assistance, or needs continual
substantial supervision.
(ii) The insured has an impairment of cognitive ability, meaning a
deterioration or loss of intellectual capacity due to mental illness
or disease, including Alzheimer's disease or related illnesses, that
requires continual supervision to protect oneself or others.
(B) Either of the following:
(i) Impairment in performing two out of six activities of daily
living as described in subdivisions (b), (d), (e), and (f) of Section
10232.8 due to a loss of functional capacity to perform the
activity.
(ii) Impairment of cognitive ability, meaning the insured needs
substantial supervision due to severe cognitive impairment, as
described in subdivisions (b), (d), and (e) of Section 10232.8.
(6) Has become involuntarily or voluntarily unemployed.
(c) The term "supplemental benefit" means a rider to or provision
in a life insurance policy, certificate, or annuity contract that
provides a benefit as set forth in subdivision (a) of Section 10271.
SEC. 3. Section 10295.6 of the Insurance Code is amended to read:
10295.6. (a) When a policyholder or certificate holder requests
an acceleration of death benefits, the insurer shall send a statement
to the policyholder or certificate holder and irrevocable
beneficiary showing any effect that the payment of the accelerated
death benefit would have on the policy's cash value, accumulation
account, death benefit, premium, policy loans, and policy liens. The
statement shall disclose that receipt of accelerated death benefit
payments may adversely affect the recipient's eligibility for
Medicaid or other government benefits or entitlements. In addition,
receipt of an accelerated death benefit payment may be taxable and
assistance should be sought from a personal tax adviser. When a
previous disclosure statement becomes invalid as a result of an
acceleration of the death benefit, the insurer shall send a revised
disclosure statement to the policyholder or certificate holder and
irrevocable beneficiary.
(b) The accelerated death benefit shall be effective not more than
30 days following the effective date of the policy provision, rider,
endorsement, or certificate.
(c) If the insurer charges a separate premium for the accelerated
death benefit, then the insurer may also offer a waiver of premium
benefit as defined in subdivision (a) of Section 10271.1. At the time
the waiver of the accelerated death benefit premium benefit is
claimed, the insurer shall explain any continuing premium requirement
to keep the underlying policy in force.
(d) An insurer shall not unfairly discriminate among insureds with
different qualifying events covered under the policy or among
insureds with similar qualifying events covered under the policy. An
insurer shall not apply further conditions on the payment of the
accelerated death benefits other than those conditions specified in
the accelerated death benefit.
(e) No less than one month after payment of an accelerated death
benefit, the insurer shall provide the policyholder or certificate
holder with a report of any accelerated death benefits paid out
during the prior month, an explanation of any changes to the policy
or certificate, death benefits, and cash values on account of the
benefits being paid out, and the amount of the remaining benefits
that can be accelerated at the end of the prior month. The insurer
may use a calendar month or policy or certificate month.
(f) The conversion benefit available to group certificate holders
on termination of employment pursuant to paragraph (2) of subdivision
(a) of Section 10209 shall include a benefit comparable to the
accelerated death benefit. This requirement may be satisfied by an
individual policy or certificate. This requirement, subject to the
approval of the commissioner, may be satisfied by arrangement with
another insurer to provide the required coverage.
(g) When payment of an accelerated death benefit results in a pro
rata reduction in cash value, the payment may be applied toward
repaying a portion of the loan equal to a pro rata portion of any
outstanding policy loans if disclosure of the effect of acceleration
upon any remaining death benefit, cash value or accumulation account,
policy loan, and premium payments, including a statement of the
possibility of termination of any remaining death benefit, is
provided to the policyholder or certificate holder. The policyholder
or certificate holder shall provide written consent authorizing any
other arrangement for the repayment of outstanding policy loans.
SEC. 4. Section 10295.15 of the Insurance Code is amended to read:
10295.15. (a) Except at the request of the policyholder or
contractholder, all accelerated death benefit provisions or
supplemental contracts shall be renewable for the life of the
underlying life insurance policy, provided the premiums are timely
paid. The statement shall be prominently displayed on the first page
of the accelerated death benefit policy or rider.
(b) If an accelerated death benefit is offered with an underlying
term life insurance policy, the accelerated death benefit shall
include a prominent statement on page one that the accelerated death
benefit terminates with the policy.