Amended in Senate June 29, 2016

Amended in Senate March 10, 2016

Amended in Assembly April 28, 2015

Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 565

Introduced by Assembly Member Cooley

February 24, 2015

An act to amend Sections begin delete 10203.4, 10270.6, end delete begin insert 10203.4 end insert and 10271.1 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 565, as amended, Cooley. Group life begin delete and disability end delete insurance: required provisions.

Existing law provides for the regulation of specified insurance products, including group life begin delete and disability end delete insurance, by the Insurance Commissioner. Existing law provides that insurance under a group life insurance policy may be extended to insure the dependents of each insured employee under the group policy, as specified. Existing law defines a dependent for these purposes as including the employee’s spouse and all children from birth until 26 years of age, or a child 26 years of age or older who is both incapable of self-sustaining employment by reason of intellectual disability or physical handicap and chiefly dependent upon the employee for support and maintenance, as specified.

This bill would clarify that begin delete the group policyholder would be authorized to elect coverage for dependent children under a group life insurance policy based on factors, including marital status, student status, residency, or support requirements, and, end delete for dependent children over the age of begin delete majority, end delete begin insert majority end insert the group policyholder would be authorized to elect coverage at age variations up to the limiting age.

begin delete

Existing law requires a group disability master insurance policy to include a provision that the insurer will issue to the policyholder for delivery to an individual insured under the policy an individual certificate that sets forth a statement as to the insurance protection to which he or she is entitled and to whom it is payable.

end delete begin delete

This bill would provide that instead the insurer may include in the master insurance policy a provision that the insurer will issue the certificate directly to the insured individual. This bill would make other technical, nonsubstantive changes.

end delete

Existing law defines a waiver of premium benefit or a waiver of monthly deduction benefit under a life insurance contract as a supplemental benefit that operates to safeguard a life insurance contract against lapse when the insured becomes totally disabled, as defined by the supplemental benefit, and continues until the end of the insured’s disability or the period specified by the supplemental benefit, consistent with specified restrictions. Existing law requires, if the insured’s total disability begins before the insured attains 60 years of age, the insurer to waive all premiums or monthly deductions due for the period that the insured continues to be totally disabled. Existing law requires, if the insured’s total disability begins when the insured is 60 years of age or older, the insurer to waive all premiums or monthly deductions due for the period that the insured continues to be totally disabled up to 65 years of age.

This bill would require an insurer, for an insured who becomes totally disabled before attaining 60 years of age and is covered by a group life insurance policy that includes a supplemental benefit, to waive all premiums or monthly deductions due for the period of total disability up to the time the insured attains 65 years of age. The bill would also permit an begin delete insurer, for end delete begin insert insurer to collect premiums or monthly deductions from end insert an insured who becomes totally disabled on or after 60 years of age and is covered by a group life insurance policy that includes a supplemental begin delete benefit, to collect premiums as long as the insurer offers the group policyholder the option of having the insurer waive premiums up to 65 years of age. end delete begin insert benefit. The bill would require an insurer offering a renewal for a group life insurance policy issued prior to January 1, 2017, that contains a supplemental benefit to offer the employer a continuation of the in-force supplemental benefit, and would authorize the insurer to concurrently offer the group policyholder the option to change the supplemental benefit to either waive or collect premiums or monthly deductions as described above. end insert

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 10203.4 of the Insurance Code is
amended to read:

10203.4.  

(a) Insurance under a group life insurance policy
issued pursuant to Sections 10202, 10202.8, 10203, 10203.1, and
10203.7 may be extended to insure the dependents, or any class
or classes thereof, of each insured employee who so elects, in
amounts in accordance with some plan that precludes individual
selection and that shall not be in excess of 100 percent of the
insurance on the life of the insured employee. begin delete The group
policyholder may elect coverage for dependent children based on
factors, including marital status, student status, residency, or
support requirements, and, for end delete begin insert For end insert dependent children over the
age of majority, the group policyholder may elect coverage at age
variations up to the limiting age.

(b) “Dependent” includes the member’s spouse or a minor child,
as well as a child older than the age of majority up to a maximum
of 26 years of age, or begin delete an older child end delete begin insert any child over the age of
majority end insert who is both incapable of self-sustaining employment by
reason of an intellectual disability or physical handicap and chiefly
dependent upon the employee for support and maintenance if proof
of the incapacity and dependency is furnished to the insurer by the
employee within 31 days of the child’s attainment of the limiting
age and subsequently as may be required by the insurer, but not
more frequently than annually after the two-year period following
the child’s attainment of the limiting age.

(c) The premiums for the insurance on the dependents may be
paid by the employer, the employee, or the employer and the
employee jointly.

begin delete

SEC. 2.  

Section 10270.6 of the Insurance Code is amended to
read:

10270.6.  

Every group disability master policy shall contain
the following provisions:

(a) A provision that the policy, the application of the
policyholder, and the individual applications, if any, of the
individuals insured shall constitute the entire contract between the
parties, and that all statements made by the policyholder, or by the
individuals insured shall, in the absence of fraud, be deemed
representations and not warranties, and that no such statement shall
be used in defense to a claim under the policy, unless it is contained
in a written application.

(b) A provision that the insurer will issue to the policyholder
for delivery to the individuals insured under that policy, or a
provision that the insurer will issue directly to the insured, an
individual certificate setting forth a statement as to the insurance
protection to which he or she is entitled and to whom payable.

(c) A provision that to the group or class thereof originally
insured shall be added from time to time all new employees,
members or pupils of the policyholder eligible to and applying for
insurance in that group or class.

(d) A statement that the policy is not in lieu of and does not
affect any requirement for coverage by workmen’s compensation
insurance.

end delete

begin delete SEC. 3. end delete

begin insert SEC. 2. end insert   

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, except begin delete in the case of coverage under end delete begin insert as
follows: end insert

begin insert (i) end insert begin insert   end insert begin insert For end insert group life insurance begin delete policies where, end delete begin insert policies, end insert 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 total disability up to 65 years of age. Nothing
in this subdivision shall preclude the insurer from extending a
supplemental benefit for longer periods.

begin insert

(ii) When a renewal is offered for a group life insurance policy
that was issued prior to January 1, 2017, and contains a
supplemental benefit described in this subparagraph, the insurer
shall offer to renew the policy with a continuation of the in-force
supplemental benefit, and may concurrently offer the group
policyholder the option to change the supplemental benefit as
described in clause (i).

end insert

(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, except begin delete in the case of
coverage under end delete begin insert as follows: end insert

begin insert (i) end insert begin insert   end insert begin insert For end insert group life insurance begin delete policies where, subject to the insurer
offering the group policyholder the option to have the insurer waive
premiums up to 65 years of age, end delete begin delete premiums are not required to be
waived for a disability that begins on or after the date the insured
attains 60 years of age. end delete begin insert policies, if the insured’s total disability
begins on or after the date the insured attains 60 years of age, the
insurer is not required to waive premiums or monthly deductions. end insert
Nothing in this subdivision shall preclude the insurer from
extending a supplemental benefit for longer periods.

begin insert

(ii) When a renewal is offered for a group life insurance policy
that was issued prior to January 1, 2017, and contains a
supplemental benefit described in this subparagraph, the insurer
shall offer to renew the policy with a continuation of the in-force
supplemental benefit, and may concurrently offer the group
policyholder the option to change the supplemental benefit as
described in clause (i).

end insert

(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.