By Ratliff S.B. No. 598
74R5005 PB-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the settlement of claims on certain life insurance
1-3 policies or annuity contracts and to payment of interest on those
1-4 claims.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Article 3.44, Insurance Code, is amended to read
1-7 as follows:
1-8 Art. 3.44. POLICIES SHALL CONTAIN CERTAIN PROVISIONS. No
1-9 policy of life insurance shall be issued or delivered in this
1-10 State, or be issued by a life insurance company organized under the
1-11 laws of this State, unless the same shall contain provisions
1-12 substantially as follows:
1-13 1. That all premiums shall be payable in advance
1-14 either at the home office of the company or to an agent of the
1-15 company upon delivery of a receipt signed by one or more of the
1-16 officers who are designated in the policy.
1-17 2. For a grace period of at least one month, for the
1-18 payment of every premium after the first, which may be subject to
1-19 an interest charge, during which month the insurance shall continue
1-20 in force, which may stipulate that if the insured shall die during
1-21 the period of grace the overdue premium will be deducted in any
1-22 settlement under the policy, provided, however, the State Board of
1-23 Insurance may, by rule, provide for a longer grace period for
1-24 policies issued under Subsection (b), Section 1, Article 22.23A,
2-1 Insurance Code.
2-2 3. That the policy, or policy and application, shall
2-3 constitute the entire contract between the parties and shall be
2-4 incontestable after it has been in force during the lifetime of the
2-5 insured for two (2) years from its date, except for non-payment of
2-6 premiums, and which provisions may, at the option of the company,
2-7 contain an exception for violation of the conditions of the policy
2-8 relating to naval and military service in time of war.
2-9 4. That all statements made by the insured shall, in
2-10 the absence of fraud, be deemed representations and not warranties.
2-11 5. That if the age of the insured has been
2-12 understated, the amount payable under the policy shall be such as
2-13 the premium paid would have purchased at the correct age.
2-14 6. That after three (3) full years' premiums have been
2-15 paid, the company, at any time while the policy is in force, will
2-16 advance upon proper assignment of the policy and upon the sole
2-17 security thereof at a specified rate of interest a sum equal to, or
2-18 at the option of the owner of the policy less than, the cash value
2-19 of the policy and of any dividend additions thereto; and that the
2-20 company may deduct from such loan value any existing indebtedness
2-21 on the policy and any unpaid balance of the premiums for the
2-22 current policy year, and may collect interest in advance on the
2-23 loan to the end of the current policy year, which provision may
2-24 also provide that such loans may be deferred for not exceeding six
2-25 (6) months after the application therefor is made. It shall also
2-26 be stipulated in the policy that failure to repay any such advance,
2-27 or to pay interest, shall not void the policy until the total
3-1 indebtedness thereon to the company shall equal or exceed the cash
3-2 value. No condition other than as herein provided shall be exacted
3-3 as a prerequisite to any such advance. This provision shall not be
3-4 required in term insurance, nor in pure endowments issued or
3-5 granted as original policies, or in exchange for lapsed or
3-6 surrendered policies or for policies not providing for cash values
3-7 or non-forfeiture values meeting the requirements of Subsection
3-8 (b), Section 1, Article 22.23A, Insurance Code.
3-9 7. Provisions for non-forfeiture benefits in the event
3-10 of default in premium payments and for cash surrender values in
3-11 accordance with the provisions of this Section 7 and Section 8 of
3-12 this Article 3.44 in the case of policies issued prior to the
3-13 operative date of Article 3.44a (the Standard Non-forfeiture Law),
3-14 and in accordance with provisions of Article 3.44a in the case of
3-15 policies issued on or after said date. Policies issued prior to
3-16 the operative date of Article 3.44a shall contain a provision
3-17 substantially as follows: a provision which, in the event of
3-18 default in the premium payments after premiums shall have been paid
3-19 for three (3) full years, shall secure a stipulated form of
3-20 insurance on the life of the Insured, the net value of which shall
3-21 be equal to the reserve (exclusive of any reserve for disability or
3-22 accidental death benefits) at the date of default on the policy,
3-23 and on any dividend additions thereto, according to the mortality
3-24 table, rate of interest and method adopted for computing such
3-25 reserve, less a sum of not more than two and one-half per cent
3-26 (2-1/2%) of the amount insured by the policy and of any existing
3-27 dividend additions thereto, and less any existing indebtedness to
4-1 the company on the policy; provided, however, that if the mortality
4-2 table adopted for computing such reserve is either the American Men
4-3 Ultimate Table of Mortality or the Commissioners 1941 Standard
4-4 Ordinary Mortality Table, then in calculating the value of paid-up
4-5 term insurance with accompanying pure endowment, if any, a rate of
4-6 mortality may be assumed which is not more than one hundred thirty
4-7 per cent (130%) of the rate of mortality according to such adopted
4-8 table or, in case of sub-standard policies, the adopted multiple
4-9 thereof; provided further, that if the mortality table adopted for
4-10 computing such reserve is the Commissioners 1958 Standard Ordinary
4-11 Mortality Table, then in calculating the value of paid-up term
4-12 insurance with accompanying pure endowment, if any, a rate of
4-13 mortality may be assumed which is not more than that shown in the
4-14 Commissioners 1958 Extended Term Insurance Table, or, in case of
4-15 sub-standard policies, the adopted multiple thereof; and provided
4-16 further as respects policies on female risks, other than policies
4-17 of industrial insurance, the net value of any such stipulated form
4-18 of insurance may be calculated according to an age not more than
4-19 three (3) years younger than the actual age of the insured,
4-20 provided the same age differential has been used in computing the
4-21 policy reserves under such policies. The policy shall state: (1)
4-22 the amount and term of the stipulated form of insurance calculated
4-23 upon the assumption of no indebtedness on the policy and no
4-24 dividend additions thereto; and (2) the method, rate of interest,
4-25 and mortality table (including any age differential applicable in
4-26 making such computations on policies issued to female risks) for
4-27 computing the policy reserve, which must be such as may be
5-1 authorized by law for use in computing the reserve liability of the
5-2 company on such policy. Such provision shall also stipulate that
5-3 the policy may be surrendered to the company at its home office
5-4 within one month from the due date of any premium for its cash
5-5 value, which shall be specified in the policy and which shall be at
5-6 least equal to the sum which would otherwise be available for the
5-7 purchase of insurance, as aforesaid, but not more than the reserve
5-8 on the policy, and may stipulate that the company may defer payment
5-9 for not more than six (6) months after application therefor is
5-10 made. This provision shall not be required in term insurance.
5-11 8. In the case of policies issued prior to the
5-12 operative date of Article 3.44a, a table showing in figures the
5-13 cash values, and the options available under the policy each year,
5-14 upon default in premium payments during the first twenty (20) years
5-15 of the policy or the period during which premiums are payable,
5-16 beginning with the year in which such values and options become
5-17 available.
5-18 9. That if, in event of default in premium payments,
5-19 the value of the policy shall be applied to the purchase of other
5-20 insurances; and if such insurance shall be in force and the
5-21 original policy shall not have been surrendered to the company and
5-22 canceled, the policy may be reinstated within three (3) years from
5-23 such default upon evidence of insurability satisfactory to the
5-24 company and payments of arrears of premiums with interest.
5-25 10. That when a policy shall become a claim by the
5-26 death of the insured, settlement shall be made <upon receipt of or>
5-27 not later than the fifth business day <two (2) months> after the
6-1 date on which the insurer receives due proof of death and the right
6-2 of the claimant to the proceeds.
6-3 11. A table showing the amounts of installments in
6-4 which the policy may provide its proceeds may be payable.
6-5 Any foregoing provision, not applicable to single
6-6 premium policies shall, to that extent, not be incorporated
6-7 therein.
6-8 12. In all family group life insurance policies there
6-9 shall be clearly stated the maximum amount which is payable to the
6-10 payee in the policy in the case of the death of any insured person
6-11 or persons. Regardless of what the maximum amount of said policy
6-12 is or may be, any provision for payment other than the full amount
6-13 of said policy shall be clearly stated in the policy.
6-14 SECTION 2. Section 2, Article 3.52, Insurance Code, is
6-15 amended to read as follows:
6-16 Sec. 2. REQUIRED POLICY PROVISIONS. No policy of industrial
6-17 life insurance shall be delivered or issued for delivery in this
6-18 State, unless the same shall contain in substance the following
6-19 provisions:
6-20 (a) A provision that the insured is entitled to a
6-21 stated period of grace of at least four (4) weeks within which the
6-22 payment of any premium after the first may be made. During such
6-23 period of grace the policy shall continue in full force, but in
6-24 case the policy becomes a claim during the grace period, before the
6-25 overdue premiums are paid, the amount of overdue premiums may be
6-26 deducted in any settlement under the policy.
6-27 (b) A provision that the policy shall constitute the
7-1 entire contract between the parties, but if the insurer desires to
7-2 make the application a part of the contract it may do so, provided
7-3 a copy of such application shall be endorsed upon or attached to
7-4 the policy when issued, and in such case the policy shall contain a
7-5 provision that the policy and the application therefor shall
7-6 constitute the entire contract between the parties. The policy
7-7 shall also contain a provision that all statements made by the
7-8 insured or on his behalf shall in the absence of fraud be deemed
7-9 representations and not warranties.
7-10 (c) A provision that the policy shall be incontestable
7-11 after it has been in force during the lifetime of the insured for
7-12 two (2) years from its date, except for non-payment of premiums,
7-13 and except for violation of the conditions of the policy, if any,
7-14 relating to naval or military service in time of war, and except as
7-15 to provisions and conditions granting or relating to benefits in
7-16 the event of total or permanent disability as defined in the
7-17 policy, and those granting or relating to additional insurance
7-18 specifically against death by accident or by accidental means, or
7-19 to additional insurance against loss of, or loss of use of,
7-20 specific members of the body.
7-21 (d) A provision that if the age of the insured has
7-22 been misstated, the amount payable under the policy shall be such
7-23 as the premium would have purchased at the correct age.
7-24 (e) Provisions for non-forfeiture benefits in event of
7-25 default in premium payments and for cash surrender values in
7-26 accordance with the provisions of subsections (e), (f) and (g) of
7-27 this Section in the case of policies issued prior to the operative
8-1 date of Article 3.44a (the Standard Non-forfeiture Law), and in
8-2 accordance with provisions of Article 3.44a in the case of policies
8-3 issued on or after said date. Policies issued prior to the
8-4 operative date of Article 3.44a shall contain a provision
8-5 substantially as follows: a provision that in event of default in
8-6 premium payments after premiums shall have been paid for three (3)
8-7 full years there shall be available a stipulated form of insurance
8-8 effective from the due date of the defaulted premium; and in event
8-9 of default in premium payments after premiums shall have been paid
8-10 for five (5) full years there shall be available, in lieu of the
8-11 stipulated form of insurance, at the option of the insured, a
8-12 specified cash surrender value. The net value of the stipulated
8-13 form of insurance, and the specified cash surrender value, shall
8-14 not be less than the reserve on the policy at the end of the last
8-15 completed quarter of the policy year for which premiums shall have
8-16 been paid, including the reserve for any paid-up additions thereto
8-17 and the amount of any dividends standing to the credit of the
8-18 policy, and excluding any reserve on total and permanent
8-19 disability, as defined in the policy, and additional accidental
8-20 death benefits, less a sum of not more than:
8-21 (1) Two and one-half per cent (2-1/2%) of the
8-22 maximum amount insured by the policy and dividend additions
8-23 thereto, if any, when the issue age is under ten (10) years;
8-24 (2) Two and one-half per cent (2 1/2 %) of the
8-25 current amount insured by the policy and dividend additions
8-26 thereto, if any, when the issue age is ten (10) years or older; and
8-27 less any existing indebtedness to the insurer on or secured by the
9-1 policy.
9-2 If the mortality table adopted for computing such
9-3 reserve is the 1941 Standard Industrial Mortality Table or the 1941
9-4 Sub-standard Industrial Mortality Table, then in calculating the
9-5 value of the paid-up term insurance with accompanying pure
9-6 endowment, if any, a rate of mortality may be assumed which is not
9-7 more than one hundred thirty per cent (130%) of the rate of
9-8 mortality according to the table used. If the mortality table
9-9 adopted for computing such reserve is the Commissioners 1961
9-10 Standard Industrial Mortality Table, then in calculating the value
9-11 of paid-up term insurance with accompanying pure endowment, if any,
9-12 a rate of mortality may be assumed which is not more than that
9-13 shown in the Commissioners 1961 Industrial Extended Term Insurance
9-14 Table, or, in the case of sub-standard policies, such other table
9-15 of mortality as may be specified by the company and approved by the
9-16 State Board of Insurance. The policy shall state the amount and
9-17 term of the stipulated form of insurance calculated upon the
9-18 assumption of no indebtedness on the policy and no dividend
9-19 additions thereto.
9-20 The policy may be surrendered to the insurer at its
9-21 home office within the period of grace after the due date of the
9-22 defaulted premium for the specified cash surrender value, provided
9-23 that the insurer may defer payment for not more than six (6) months
9-24 after the application therefor is made. In the event that
9-25 application, which must be in writing, for a stipulated form of
9-26 insurance or the specified cash surrender value when the same are
9-27 available, is not made within the grace period, it shall be
10-1 provided that a stipulated form of insurance shall automatically
10-2 become effective.
10-3 (f) In the case of policies issued prior to the
10-4 operative date of Article 3.44a, a provision specifying the
10-5 mortality table, rate of interest, and method of valuation if other
10-6 than net level premium, adopted for computing the life insurance
10-7 reserves on the contract.
10-8 (g) In the case of policies issued prior to the
10-9 operative date of Article 3.44a, a table showing in figures the
10-10 non-forfeiture options available under the policy at the end of
10-11 each year upon default in premium payments during the premium
10-12 paying period, but not to exceed the first twenty (20) years of the
10-13 policy. Such table is to begin with the year in which such values
10-14 become available. At the expiration of the period for which such
10-15 values are shown in the policy, the insurer will furnish upon
10-16 request an extension of such table.
10-17 (h) A provision that the policy may be reinstated
10-18 within one (1) year, or, at the option of the insurer, within
10-19 fifty-two (52) weeks from the date of default in payment of
10-20 premiums, unless the cash surrender value has been paid or the
10-21 period of extended insurance has expired, upon payment of all
10-22 overdue premiums, the payment or reinstatement of any other
10-23 indebtedness due to the insurer upon said policy, and upon the
10-24 presentation of evidence of insurability satisfactory to the
10-25 insurer. The overdue premiums may, at the option of the insurer,
10-26 be subject to interest at a rate not exceeding six (6%) per cent
10-27 per annum as may be specified in the policy.
11-1 (i) A provision that when a policy shall become a
11-2 claim by the death of the insured, settlement shall be made <upon
11-3 receipt of, at the insurer's home office, or> not later than the
11-4 fifth business day <two (2) months> after the date on which the
11-5 insurer receives <such receipt of,> proof of death satisfactory to
11-6 the insurer and the right of the claimant to the proceeds.
11-7 (j) A title on the face of the policy briefly
11-8 describing its form.
11-9 (k) In the case of an insurer issuing participating
11-10 policies in this State, a provision that the insurer shall annually
11-11 ascertain and apportion any divisible surplus accruing on the
11-12 policy.
11-13 (l) A provision that no agent shall have the power or
11-14 authority to waive, change, or alter any of the terms or conditions
11-15 of any application or any policy delivered or issued for delivery
11-16 pursuant to the terms of this Article.
11-17 Any of the provisions of Section 2, or portions
11-18 thereof, not applicable to nonparticipating or term policies shall,
11-19 to that extent, not be incorporated therein.
11-20 The provisions of Section 2 shall not apply to policies
11-21 issued or granted pursuant to the nonforfeiture provisions
11-22 prescribed in clause (e) of said Section, nor shall clauses (e) and
11-23 (g) of said Section be required in term insurances of twenty (20)
11-24 years or less.
11-25 SECTION 3. Article 10.05-1(a), Insurance Code, is amended to
11-26 read as follows:
11-27 (a) No life insurance certificate as specified in Article
12-1 10.05 of this code shall be issued or delivered in this state
12-2 unless the same shall contain provisions substantially as follows:
12-3 (1) For a grace period of at least one month, for the
12-4 payment of every premium after the first, which may be subject to
12-5 an interest charge, during which month the insurance shall continue
12-6 in force. The terms of such certificate may stipulate that if the
12-7 insured shall die during the period of grace the overdue premium
12-8 will be deducted in any settlement under the certificate.
12-9 (2) That the certificate shall be incontestable after
12-10 it has been in force during the lifetime of the insured for two
12-11 years from its date, except for nonpayment of premiums, and which
12-12 provisions may, at the option of the society, contain an exception
12-13 for violation of the conditions of the certificate relating to
12-14 naval and military service in time of war.
12-15 (3) That all statements made by the insured shall, in
12-16 the absence of fraud, be deemed representations and not warranties.
12-17 (4) That if the age of the insured has been
12-18 understated, the amount payable under the certificate shall be such
12-19 as the premium paid would have purchased at the correct age.
12-20 (5) That, in event of default in premium payments, the
12-21 certificate may be reinstated in accordance with the provisions of
12-22 the certificate and the constitution and bylaws of the society.
12-23 (6) That when a certificate shall become a claim by
12-24 the death of the insured, settlement shall be made <upon receipt of
12-25 or> not later than the fifth business day <two months> after the
12-26 date on which the insurer receives due proof of death and the right
12-27 of the claimant to the proceeds.
13-1 (7) In all family group-type life insurance
13-2 certificates there shall be clearly stated the maximum amount which
13-3 is payable to the payee in the certificate in the case of the death
13-4 of any insured person or persons.
13-5 SECTION 4. Subchapter E, Chapter 21, Insurance Code, is
13-6 amended by adding Article 21.55A to read as follows:
13-7 Art. 21.55A. INTEREST PAYMENTS TO BENEFICIARIES. (a) In
13-8 this article, "insurer" means:
13-9 (1) a life insurance company, including a company that
13-10 issues a group life policy, an industrial life policy, or a
13-11 variable life policy;
13-12 (2) a stipulated premium company; or
13-13 (3) a fraternal benefit society.
13-14 (b) Each insurer that delivers, issues for delivery, or
13-15 renews a life insurance policy in this state or offers an annuity
13-16 contract that includes death benefits in this state shall pay, in
13-17 addition to any other interest and penalties authorized by law,
13-18 interest to the designated beneficiaries from the date on which the
13-19 insurer receives proof of the death of the insured or annuitant
13-20 until the date that the claim under the policy or contract is paid
13-21 in full.
13-22 (c) Interest under this article shall be paid at 18 percent
13-23 a year.
13-24 SECTION 5. (a) This Act takes effect September 1, 1995.
13-25 (b) This Act applies only to an insurance policy that is
13-26 delivered, issued for delivery, or renewed on or after January 1,
13-27 1996. A policy that is delivered, issued for delivery, or renewed
14-1 before January 1, 1996, is governed by the law as it existed
14-2 immediately before the effective date of this Act, and that law is
14-3 continued in effect for that purpose.
14-4 (c) This Act applies only to an annuity contract that is
14-5 entered into or renewed on or after January 1, 1996. A contract
14-6 that is entered into or renewed before January 1, 1996, is governed
14-7 by the law as it existed immediately before the effective date of
14-8 this Act, and that law is continued in effect for that purpose.
14-9 SECTION 6. The importance of this legislation and the
14-10 crowded condition of the calendars in both houses create an
14-11 emergency and an imperative public necessity that the
14-12 constitutional rule requiring bills to be read on three several
14-13 days in each house be suspended, and this rule is hereby suspended.