Bill Text: CA SB281 | 2013-2014 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Life insurance: accelerated death benefits.

Spectrum: Bipartisan Bill

Status: (Passed) 2013-09-24 - Chaptered by Secretary of State. Chapter 345, Statutes of 2013. [SB281 Detail]

Download: California-2013-SB281-Amended.html

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BILL NUMBER: SB 281	AMENDED
	BILL TEXT

	AMENDED IN SENATE  MAY 1, 2013
	AMENDED IN SENATE  APRIL 1, 2013

INTRODUCED BY   Senator Calderon

                        FEBRUARY 14, 2013

   An act to amend Sections 10271.1 and 10292 of the Insurance Code,
relating to life insurance.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 281, as amended, Calderon. Life insurance.
   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 additional benefits in case of death
or dismemberment or loss of sight by accident,  or  that
operate to safeguard contracts against lapse, or give a special
surrender benefit, or a special benefit, as specified.
   This bill would specify that the term "special benefit" for
purposes of those provisions means an accelerated death benefit that
is added to a life insurance contract to provide for the advance
payment of any part of the death proceeds to the insured upon the
occurrence of certain qualifying events, including if the insured
requires continuous confinement in an eligible institution and is
expected to remain there for the rest of his or her life.  The
bill would require that any life insurance provision or supplemental
contract that provides for a special benefit comply with specified
requirements, including, but not limited to, that the provision or
supplemental contract specify that the accelerated death benefit is
fixed at the time the insurer approves the request for the benefit,
and that the provision or supplemental contract is prohibited from
restricting the use of the proceeds of the accelerated death benefit.

   Existing law requires supplemental contracts or, if a supplemental
contract is an integral part of a life insurance contract, life
insurance contracts to be submitted for approval by the Insurance
Commissioner before the contracts are delivered or issued for
delivery in this state.
   This bill would require a life insurance contract or supplemental
contract that includes an accelerated death benefit and that is
submitted for approval by the Insurance Commissioner to be submitted
for approval with specified additional information, including a
statement of the types of policy forms with which the benefit will be
offered.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 10271.1 of the Insurance Code is amended to
read:
   10271.1.  (a) (1) Provisions or supplemental contracts 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 in the contract or
supplemental contract, and where the waiver continues until the end
of the insured's disability, or until the attainment of an age
established by the insurer.
   (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 in the contract or
supplemental contract, 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 in the contract or supplemental
contract, 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 of the total disability, and if
the total disability extends to the insured's attainment of 65 years
of age, the insurer shall waive all further premiums or monthly
deductions due.
   (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.
   (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 in the provision or supplemental contract, 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 in the contract or
supplemental contract, 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) and (e) of Section 10232.8.
   (6) Has become involuntarily or voluntarily unemployed.
   (c) (1) "Special benefit," as used in this chapter, means an
accelerated death benefit that is added to a life insurance policy to
provide for the advance payment of any part of the death proceeds
payable upon the occurrence of a qualifying event.
   (2) For the purposes of this section, "qualifying event" means any
one  of  the following:
   (A) A medical condition that is reasonably expected to result in a
drastically limited life span for the insured.
   (B) A medical condition that requires extraordinary medical
intervention, such as major organ transplant or continuous artificial
life support, without which the insured would die.
   (C) A condition that usually requires continuous confinement in a
qualified institution and the insured is expected to remain there for
the rest of his or her life.
   (D) A specified medical condition that, in the absence of
extensive or extraordinary medical treatment, would result in a
drastically limited life.
   (E)  A chronic illness or permanent severe cognitive
impairment and similar forms of dementia.   A chronic
illness, defined as 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) and (e) of Section 10232.8.  
   (3) Any life insurance provision or supplemental contract that
provides a special benefit as defined in paragraph (1) shall comply
with all of the following:  
   (A) The provision or supplemental contract shall specify that the
accelerated death benefit is fixed at the time the insurer approves
the request for the accelerated death benefit.  
   (B) The provision or supplemental contract shall specify that the
payment of the accelerated death benefit is not conditioned on the
receipt of long-term care or medical services.  
   (C) The provision or supplemental contract shall include the
option to take the accelerated death benefit in a lump sum on the
occurrence of a single qualifying event and may include an option to
receive the benefit in periodic payments for a certain period only.
Periodic payments shall not be based on the continued survival or
institutional confinement of the insured.  
   (D) The provision or supplemental contract shall not restrict the
use of the proceeds of the accelerated death benefit.  
   (E) The provision or supplemental contract shall specify that the
payment of the accelerated death benefit is due immediately upon
receipt of the due written proof of eligibility.  
   (3) 
    (4)  A life insurance contract or supplemental contract
submitted for the approval of the commissioner pursuant to Section
10292 shall be submitted with the following additional information if
the contract includes an accelerated death benefit:
   (A) A statement of the types of policy forms with which this
benefit will be offered, any underwriting restrictions involving face
amount or age, and whether the benefit is intended for use with new
issues or in force business.
   (B) A specimen issue of the statement regarding the effect of the
accelerated death benefit payment on other benefit provisions, to be
provided to the owner prior to, or concurrent with, the election of
the accelerated death benefit option, and an explanation of how and
when the statement will be provided. The statement shall demonstrate
the effect of the acceleration of the death benefit on the policy
cash value, death benefit, premium, cost of insurance charges, and
loans and liens, as applicable. The statement shall be based only on
guaranteed values. The statement shall also include a disclosure that
receipt of an accelerated death benefit may affect eligibility for
Medicaid or other governmental benefits or entitlements and may have
tax consequences.
   (C) An actuarial memorandum prepared, dated, and signed by a
member of the American Academy of Actuaries that includes the
following information:
   (i) A description of the accelerated death benefit, including the
effects of payment of the accelerated death benefit on all policy
benefits, premium payments, cost of insurance rates, and values,
including any outstanding loan, if applicable, for all types of forms
with which the accelerated death benefit will be used.
   (ii) A description of, and justification for, expense charges
associated with the accelerated death benefit and the maximum expense
charges.
   (iii) A description of the interest rate or interest rate
methodology used in any present value calculation or in accruing
interest on the amount of the accelerated death benefit, which shall
not exceed the greater of: (I) the current yield on 90-day Treasury
bills, or (II) a variable rate determined in accordance with the
National Association of Insurance Commissioners (NAIC) Model Policy
Loan Interest Rate Bill No. 590.
   (iv) A description of the mortality basis and methodology,
including the period of time applicable to any mortality discount,
used in any present value calculation of the accelerated death
benefit.
   (v) A description of the mortality and morbidity basis and
methodology used in the determination of any separate premium or
costs of insurance for the accelerated death benefit.
   (vi) The formula used to determine the accelerated death benefit,
including any limitations on the amount of the benefit, and the
formula used to determine the postacceleration premium.
   (vii) A sample calculation of the accelerated death benefit. If
the policy contains a loan provision, the example shall assume that
there is an outstanding loan on the date of acceleration. All policy
benefits, premium payments, cost of insurance charges and values,
including the outstanding loan, if applicable, immediately before and
immediately after acceleration shall be shown in the example.
   (viii) If an accelerated death benefit may be paid in
installments, the basis used in the calculation of the minimum
periodic payment for the payment period and a sample calculation of a
minimum periodic payment, and the basis used and a sample
calculation of the lump sum payable if the insured dies before all
periodic payments for the payment period are made.
   (ix) For any accelerated death benefit of the type other than a
terminal illness, a certification that the value and premium of the
accelerated death benefit is incidental to the life coverage.
  SEC. 2.  Section 10292 of the Insurance Code is amended to read:
   10292.  (a) A supplemental contract described in Section 10271
shall not be delivered or issued for delivery to any person in this
state until a copy of the form thereof is submitted to, and approved
by, the commissioner. If the supplemental contract is an integral
part of a contract of life insurance or annuity, the entire contract
shall be submitted to the commissioner, but his or her power of
approval or disapproval is limited to the supplemental portion and
any other portions that relate to the supplemental portion.
   (b) A supplemental contract described in Section 10271.1 shall be
considered an integral part of a contract for purposes of this
section. To facilitate the review of a supplemental contract, the
insurer shall submit, for informational purposes, a sample copy of
the life insurance or annuity contract with which the supplemental
contract will be used. To facilitate the location of the required
provisions as stated in paragraph (2) of subdivision (b) of Section
10271, the insurer shall provide the sample copy page reference for
the provisions that appear in the contract.
   (c) The commissioner may adopt reasonable rules and regulations as
are necessary to administer and carry out the purposes of Sections
10271 and 10271.1, and this section.