BILL ANALYSIS UNFINISHED BUSINESS SB 1505 Calderon (D) 6/30/94 27 - Urgency Page 5104, 5/27/94 72-0, 8/23/94 SUBJECT: Life insurance: senior citizen policies SOURCE: Association of California Life Insurance Companies ____________________________________________________________________________ DIGEST: This bill makes various changes in the law governing senior šcitizen life insurance relative to cancellation procedures and notice šrequirements. In addition, for variable annuity contracts, variable life šinsurance contracts, and modified guaranteed contracts, a cancelling špurchaser will be entitled to a refund of any policy fee paid, as well as špayment for the value of the account. Assembly Amendments: 1. Add individual annuity contracts to the bill. 2. Clarify where the disclosing of information concerning surrender periods and penalty regarding senior insurance be placed. 3. Clarify that the Department of Insurance's modified guarantee annuity regulation does not apply to certain group annuity products. It would be retroactive to January 1, 1987, to the extent that the assets indemnifying the groups contracts have not been maintained in separate accounts. 4. Add an urgency clause. ANALYSIS: Existing law: 1. Provides that a senior citizen purchasing a life insurance policy is entitled to notice-of-cancellation rights and 30 days from purchase to cancel the policy. 2. Provides that a senior citizen, purchasing a life insurance policy that may be cancelled within the 30-day period, is entitled to a refund of all premiums and fees paid. 3. Existing law allows the owner of an individual life insurance contract or an individual annuity contract, wishing to cancel the contract, to return the policy within the 30-day period to the agent or insurer. 4. Requires that all life insurance policies for senior citizens containing a surrender charge period shall disclose this period in bold face type on the cover sheet of the policy. This bill: 1. Adds the cancellation rights and mandatory notices for senior citizens who purchase an individual annuity contract, but exempts variable contracts and modified guaranteed contracts from the provision which declares that return of the policy during the cancellation period has the effect of voiding the policy from the beginning. 2. States that in the case of variable annuity contracts, variable life insurance contracts, and modified guaranteed contracts, return of the contract during the cancellation period entitles the owner to a refund of the account value and any policy fee paid for the policy. 3. Adds clarifying language that the mandatory notice on the cover page or policy jacket applies only to individual policies. 4. Exempts contributory and non-contributory employer group life insurance, employer group annuity contracts and group term life insurance. 5. Requires insurers and agents that collect more than one month's premium from a senior citizen at the time of application for, or delivery of, a group term life insurance policy or certificate, to provide the senior citizen a prorated refund of the premium, if the senior citizen delivers a cancellation request to the insurer during the first 30 days of the policy period. FISCAL EFFECT: Appropriation: No Fiscal Committee: No Local: No SUPPORT: (Verified 8/25/94) Association of California Life Insurance Companies (source) California Association of Life Underwriters American Council of Life Insurance ARGUMENTS IN SUPPORT: This bill is a clean-up measure to SB 1065 š(Mello) of 1993. The Mello legislation provided a 30-day free look and š CONTINUED SB 1505 Page 3 warning period to seniors purchasing life insurance policies. A Department of Insurance Bulletin (93-7) interpreted the statute to apply što both variable insurance policies as well as contributory group policies. According to the life insurance industry, it is not feasible to provide the š30 day free look to equity type investments as the investment needs to be štimely. Failure to allow the timely investment (unless the risk is shifted šfully to the insurer), would deprive seniors "timely participation in šattractive equity situations." The bill is also intended to reconfirm that group deferred annuity šcontracts designed and sold t pension plans, retirement plans, profit šsharing plans, etc., can continue to provide for investment of these funds šin general account obligations without violating the modified guarantee šannuity regulations. DLW:ctl 8/25/94 Senate Floor Analyses CONTINUED