HOUSE BILL REPORT
HB 2698
This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent. |
As Reported by House Committee On:
Business & Financial Services
Title: An act relating to notice given to owners of life insurance policies about alternative transactions.
Brief Description: Addressing the notice given to owners of life insurance policies about alternative transactions.
Sponsors: Representatives Kelley and Rivers.
Brief History:
Committee Activity:
Business & Financial Services: 1/27/12, 1/31/12 [DP].
Brief Summary of Bill |
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HOUSE COMMITTEE ON BUSINESS & FINANCIAL SERVICES |
Majority Report: Do pass. Signed by 11 members: Representatives Kirby, Chair; Kelley, Vice Chair; Bailey, Ranking Minority Member; Buys, Assistant Ranking Minority Member; Blake, Hudgins, Hurst, Kretz, Pedersen, Rivers and Ryu.
Minority Report: Do not pass. Signed by 1 member: Representative Condotta.
Staff: Jon Hedegard (786-7127).
Background:
The Insurance Commissioner (Commissioner) regulates insurance transactions in Washington. This includes life insurance policies that are issued or delivered in Washington. Insurance rates and insurance forms are filed with the Commissioner. The Commissioner ensures that those rates and forms comply with the Insurance Code.
Term Life Insurance.
Term insurance provides coverage for a specific period of time, usually a year or a limited number of years. Premiums generally rise over time because the risk of dying increases with age. Term insurance does not have a cash value. Once the term ends, the policy no longer provides coverage.
Cash Value Life Insurance.
Whole life, universal life, and variable life are all types of cash value life insurance. Premiums may be fixed or may vary. Cash value life insurance coverage often requires higher premiums at the beginning of the policy. Generally, part of the premium is invested and the policy gains value over time. The policyholder may be able to use the increased value to pay for premiums or borrow against the value of the policy.
Accelerated Death Benefits.
Insurers may have a provision in the policy that allows an insured to "accelerate" the death benefits if the insured person is terminally ill. If the insured meets certain criteria, the insurer will pay a specified percentage of the death benefit. This may allow the terminally ill insured to receive a greater amount of money than the cash value.
Life Settlements.
A third-party may purchase the right to receive the death benefits of policyholders. This is not only true of ill policyholders but also of healthy policyholders. A bill establishing a regulatory framework for life settlements was enacted in 2009.
Disclosure by Life Insurers.
In addition to any other disclosure requirements required by law, the Commissioner must approve a document calculated to appraise the consumer of his or her rights as an owner of a life insurance policy. The document must be made available to all insurance companies and life insurance producers and written in lay terms. The document must:
advise the consumer that life insurance is a critical part of a broader financial plan, and that the consumer is encouraged, and has a right, to seek additional financial advice and opinions;
advise the consumer that possible alternatives to lapse exist;
provide the consumer with definitions of common industry terms; and
contain a specific statement.
The document approved by the Commissioner is part of the notice by insurers to policyholders in specific circumstances. A life insurer must notify a policyholder that is 60 years old or older, or is known to be terminally ill, that there may be alternative transactions available:
if the owner makes a request to surrender the policy;
if the owner requests an accelerated life insurance benefit;
if the insurer is sending out a lapse notice; and
at other times required by rule of the Commissioner.
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Summary of Bill:
The statutory notice requirements do not apply to term life insurance policies, except when in the process of converting into a policy other than a term life policy.
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Appropriation: None.
Fiscal Note: Not requested.
Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.
Staff Summary of Public Testimony:
(In support) The bill continues to be discussed with the stakeholders. The bill looks to address some issues that were created in previous legislation. There is a need to inform consumers of their options, but the existing law may create some unnecessary expenses. The 2009 legislation on life settlements was supported by life insurers. There was a national attempt to create consumer protections in this area. During that national effort, this was a subject of negotiation. The context of the debate at that time was the cash value type of insurance policies. There is no cash value in a term life policy. Term life policies may be paid for on an annual, quarterly, or monthly basis. Under the current law, these notices must be provided if a term life owner is late on a payment. The options that are addressed in these notices rarely apply to a term life policy. There is no cash value, a loan cannot be taken out against the value of a policy, and there is not a life settlement option. The notices confuse policyholders, particularly if they must be sent to the same policyholder on several occasions. The bill provides clarity. If a policy is going to be converted to a cash value policy, then the notice requirements should apply. This has not been an issue in other states. Policyholders who do not pay their bill on time get a lapse notice. That is different than the notice that is being discussed here. Insurers want appropriate notice for policyholders.
(Neutral) The Commissioner is willing to consider a rule-making that might address this issue.
(Opposed) Term policyholders should receive appropriate disclosure notices. Perhaps a different type of notice requirement is required but policyholders need to know all of their options. Term life insurance policies are property that can be assigned or sold to a third-party. An Office of the Insurance Commissioner rule-making on this subject would be useful.
Persons Testifying: (In support) Representative Kelley, prime sponsor; Mel Sorensen, National Association of Insurance and Financial Advisors and the American Council of Life Insurers; and Jessica Harbin, Farmers New World Life Insurance Company.
(Neutral) Drew Bouton, Office of the Insurance Commissioner.
(Opposed) Carrie Tellefson, Coventry.
Persons Signed In To Testify But Not Testifying: None.