SRC-TAG S.B. 12 78(1) BILL ANALYSIS
Senate Research Center S.B. 12
78S10053 PB-DBy: Ellis, Rodney
State Affairs
7/3/2003
As Filed
DIGEST AND PURPOSE
Small face amount life insurance (SFALI) generally refers to whole life
policies with a death benefit of less than $15,000, that includes
industrial life, home service, burial insurance and similar products which
historically have been sold to working class and poor people. According
to the commissioner of insurance, SFALI policies are frequently marketed
to the most vulnerable Texans, primarily the poor, uneducated, and the
elderly, who have been abused by some insurers' practices. As proposed,
S.B. 12 sets forth reforms in the field of small face amount life
insurance.
RULEMAKING AUTHORITY
Rulemaking authority is expressly granted to the commissioner of insurance
in SECTION 1 (Section 1101.212, Insurance Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 1101, Insurance Code, is amended by adding
Subchapters E and F, as follows:
SUBCHAPTER E. CERTAIN POLICIES WITH SMALL FACE AMOUNT
Sec. 1101.201. APPLICABILITY. (a) Provides that this subchapter applies
to each insurer authorized to write life insurance under Chapter 841, 882,
884, or 982. This subchapter does not apply to an insurer operating under
Chapter 881, 885, 886, 887, or 888 or an insurer exempt under Section
887.102.
(b) Establishes that except as otherwise provided by this subchapter, this
subchapter applies to any individual life insurance policy issued in this
state, including an industrial insurance policy offered under Chapter
1151. Provides that this subchapter does not apply to certain insurance
policies.
Sec. 1101.202. FACE AMOUNT. (a) Provides that this subchapter applies
only to a life insurance policy issued in this state with a face amount
of $15,000 or less.
(b) Establishes for the purposes of this subchapter, the face amount of
a policy issued with an increasing graded death benefit is the face
amount at the end of the graded death benefit period.
Sec. 1101.203. REQUIRED INCREASE IN COVERAGE. (a) Establishes that
except as provided by Section 884.302, a life insurance policy with a face
amount of $2,000 or less must include an option for the insured to
increase the coverage under the policy to not more than $15,000.
(b) Authorizes the insurer to require that the insured meet the insurer's
current evidence of insurability for the same or similar policy forms the
insurer currently offers in the market.
(c) Requires the insurer to provide the additional coverage required by
this section at the insurer's current applicable underwriting standards,
rates, and contestability period for issuance of the same or a similar
policy to the insured at the insured's age at the time the option is
exercised.
(d) Prohibits the exercise of an option under Subsection (a) from
resulting in a reduction of the cash value of the life insurance policy.
Sec. 1101.204. PROHIBITION: ISSUANCE OF SUBSEQUENT POLICY. Prohibits an
insurer that issues a life insurance policy that provides a face amount of
$2,000 or less and that includes the option to increase coverage required
by Section 1101.203 from issuing a subsequent life insurance policy of the
same type that provides a face amount of $2,000 or less to the same
insured unless the insured has exercised the option required by Section
1101.203 and has increased the coverage under the insured's life insurance
policy to $15,000 or more or the policy owner rejects in writing
additional coverage under the original policy and opts for a different
policy type.
Sec. 1101.205. REQUIRED ALTERNATIVE PREMIUM PAYMENT OPTIONS. (a)
Provides that unless otherwise prohibited by law, an insurer that offers a
life insurance policy that provides a face amount of $15,000 or less must
offer the applicant alternative premium payment options if, at any point
in time over the term of the policy, the cumulative premiums paid, less
estimated dividends, might exceed 250 percent of the face amount of the
policy.
(b) Requires the insurer, for purposes of this section, to offer
alternative premium payment options that include a payment schedule that
allows for shorter payment periods.
Sec. 1101.206. DISCLOSURE REQUIREMENTS--APPLICANT FOR INSURANCE COVERAGE.
(a) Requires an insurer subject to this subchapter to disclose certain
information to the applicant, with respect to a life insurance policy
applied for.
(b) Requires the insurer, for a guaranteed issue life insurance policy,
to provide in the disclosure statement, in addition to the information
required under Subsection (a), a statement to the applicant that there may
be advantages under alternative insurance policies, including the cost of
coverage, if the applicant is in good health.
Sec. 1101.207. POLICYHOLDER'S RIGHT TO CANCEL. Provides that each
policyholder of a life insurance policy has the right to cancel the policy
before the 31st day after the date of delivery of the policy and obtain a
refund of any premium paid. Requires the insurer to provide each
policyholder under such a life insurance policy written notice of the
30-day right to cancel.
Sec. 1101.208. TIMING OF DISCLOSURES. Requires an insurer that issues a
life insurance policy to provide the options, disclosures, and notice
prescribed by Sections 1101.205 and 1101.206 at the time of the
application for coverage, and the notice prescribed by Section 1101.207 at
the time of delivery of the policy. Requires the insurer, if the
application is received by the insurer directly from the applicant and was
not solicited by an agent, to give the options, disclosures, and notices
prescribed by Sections 1101.205, 1101.206, and 1101.207 at the time of
delivery of the policy.
Sec. 1101.209. DISCLOSURE REQUIREMENTS--POLICY OWNER. Requires an
insurer, at a minimum, to disclose to the owner of a life insurance policy
certain information, as of the date the policy is issued.
Sec. 1101.210. TIMING OF DISCLOSURE TO POLICY OWNER. (a) Requires an
insurer that issues a life insurance policy to provide the disclosure
prescribed by Section 1101.209 on delivery of the policy.
(b) Requires that, in the year in which the estimated cumulative premiums
paid will exceed the face amount of the policy, and every fifth year
thereafter, the same disclosure be provided to the policy owner of each
policy for which premium is then being paid.
Sec. 1101.211. EFFECT OF RIDERS. (a) Provides that for purposes of this
subchapter, cumulative premiums include premiums paid for riders that
increase the face amount of the policy for the insured but do not include
premiums for riders issued to the insured for accidental death benefits;
permanent disability benefits; and any other benefit similar to accidental
death benefits and permanent disability benefits.
(b) Provides that cumulative premiums do not include premiums paid for
riders on persons other than the insurer.
Sec. 1101.212. RULES. (a) Authorizes the commissioner of insurance
(commissioner) to adopt rules necessary to implement this subchapter.
(b) Requires the commissioner by rule to require that the disclosure
statements required under Sections 1101.206 and 1101.209 and the notice
required under Section 1101.207 shall be substantially in the form
prescribed by the commissioner.
(c) Authorizes the commissioner to adopt rules to allow an insurer to
include the disclosure statement required under Section 1101.209 with any
other mailing to the policy owner.
[Reserves Section 1101.213-1101.250 for expansion.]
Sec. 1101.251. APPLICABILITY. (a) Provides that this subchapter applies
to each insurer authorized to write life insurance in this state operating
under Chapter 841, 881, 882, 884, 885, 886, 887, 888, or 982, including an
insurer exempt under Section 887.102.
(b) Provides that this subchapter applies to any individual or group life
insurance policy issued in this state, including an industrial insurance
policy offered under Chapter 1151.
Sec. 1101.252. DUE DILIGENCE STANDARDS. (a) Requires an insurer, as
provided by this section, to exercise due diligence relating to the
payment of unclaimed benefits payable on the death of an insured who may
be covered under more than one life insurance policy issued by the
insurer.
(b) Requires an insurer, on submission of a death claim form under an
insurance policy, to conduct a reasonable search for other policies on the
decedent's life. Provides that for purposes of this subsection, a
reasonable search does not require a search of group life insurance policy
records or credit life insurance policy records for which the insurer does
not maintain identification records of the individual certificate holders.
(c) Requires the insurer to investigate additional policy files
identified by the search, for which liability is not immediately
verified, and complete a determination of liability not later than the
180th day after the date on which the claim is filed.
(d) Requires an insurer, if other policies exist, to notify the policy
owner, if different than the insured, and the beneficiary and arrange for
payment under the policies.
(e) Requires each insurer to adopt a written claim processing standard
and methodology that will allow the insurer to process a death claim,
endowment claim, or other claim presented against a life insurance policy
or an accidental death or dismemberment policy.
(f) Requires the insurer, as a part of the claim processing standard
and methodology adopted under Subsection (e), to inquire, for each
claim filed with the insurer for death benefits, about other names by
which the insured may have been known, such as a maiden name, a
hyphenated name, a nickname, a derivative form of first and middle name,
or an alias, and the date of birth of the insured. Requires an insurer,
if the filer of the claim form includes that additional name information
on the claim form or if the insurer otherwise knows about other names by
which the insured may have been known, the insurer shall include that
information and the date of birth, if available, as a part of its search
criteria to determine whether additional policies exist.
(g) Requires each insurer to maintain claim records in a manner that
demonstrates that the insurer has followed the written claim processing
standard and methodology required by this section.
SECTION 2. Requires the commissioner, not later than February 1, 2004, to
adopt rules as required by Section 1101.212(b), Transportation Code, as
added by this Act.
SECTION 3. Effective date: November 1, 2003.
Makes application of this Act prospective to July 1, 2004.