SRC-LBB S.B. 1618 78(R) BILL ANALYSIS
Senate Research Center S.B. 1618
78R4959 PB-DBy: Ellis, Rodney
State Affairs
4/9/2003
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. The term includes
industrial life, home service, burial insurance and similar products which
historically have been sold to working-class and poor people. Some SFALI
policies are priced so that, over the life of the policy, an insured is
likely to pay multiples of the death benefit for the coverage. The SFALI
market in Texas has very little regulation. As proposed, S.B. 1618
requires insurers selling policies of less than $2,000 to offer an option
to the policyholder to increase the death benefit to not more than
$15,000. This bill also requires that, for policies where the multiple
might be greater than 1.5 over the life of the policy, the insured be
given the option of a shorter payment period, after which the policy
becomes paid up. In addition, this bill sets requirements for the timing
and content of disclosures to both applicants for coverage and to
policyholders and insurers.
RULEMAKING AUTHORITY
Rulemaking authority is expressly granted to the commissioner of insurance
in SECTION 1 (Sections 1101.205, 1101.214, and 1101.252, Insurance Code)
of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Chapter 1101, Insurance Code, as effective June 1,
2003, by adding Subchapters E and F, as follows:
SUBCHAPTER E. CERTAIN POLICIES WITH SMALL FACE VALUE
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. Provides that 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) Provides that this subchapter applies to any individual or group life
insurance policy, other than a term life insurance policy, issued in this
state, including an industrial insurance policy offered under Chapter
1151.
Sec. 1101.202. FACE AMOUNT. Provides that this subchapter applies only
to a life insurance policy issued in this state with an initial face
amount of $15,000 or less.
Sec. 1101.203. REQUIRED INCREASE IN DEATH BENEFIT. (a) Requires a life
insurance policy that provides a death benefit of $2,000 or less to
include an option for the insured to increase the death benefit to not
more than $15,000.
(b) Requires the insurer to provide the additional death benefit required
by this section without evidence of insurability and at the insurer's
current applicable rates for issuance of a new policy to the insured at
the insured's age at the time the option is exercised.
(c) 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 death benefit
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 that provides a death benefit of $2,000 or less to the same
insured.
Sec. 1101.205. PAYMENT PERIOD FOR CERTAIN LIFE INSURANCE POLICIES. (a)
Requires the insurer to also offer the applicant for a policy a payment
period established by the commissioner of insurance (commissioner) under
Subsection (b)
for a life insurance policy on which the total amount of premiums paid
under payment terms offered for the policy, minus cash dividends received
under the policy, could exceed 150 percent of the policy's face value.
(b) Requires the commissioner by rule to establish periods for the
payment of premiums on a policy described by Subsection (a) at the end of
which the policy is paid up.
Sec. 1101.206. MAXIMUM AMOUNT OF PREMIUMS PAID. (a) Prohibits an
insurer from charging or collecting premiums for a life insurance policy
that in the aggregate, less dividends paid in cash, exceed the amount
computed under this section by multiplying the amount of the maximum death
benefit available under the policy by the appropriate numerical factor
associated with the age of the insured at the time the policy is issued.
(b) Provides that if the policy is issued before the insured reaches the
insured's 21st birthday, the numerical factor is 1.5.
(c) Provides that if the policy is issued on or after the insured's 21st
birthday but before the insured reaches the insured's 46th birthday, the
numerical factor is computed in a certain manner.
(d) Provides that if the policy is issued on or after the insured's 46th
birthday but before the insured reaches the insured's 65th birthday, the
numerical factor is computed in a certain manner.
(e) Provides that if the policy is issued on or after the insured's 65th
birthday but before the insured reaches the insured's 86th birthday, the
numerical factor is 3.5.
(f) Provides that if the policy is issued on or after the insured's 86th
birthday but before the insured reaches the insured's 89th birthday, the
numerical factor is computed in a certain manner.
(g) Provides that if the policy is issued on or after the insured's 89th
birthday but before the insured reaches the insured's 96th birthday, the
numerical factor is computed in a certain manner.
(h) Provides that if the policy is issued on or after the insured's 96th
birthday but before the insured reaches the insured's 99th birthday, the
numerical factor is computed in a certain manner.
(i) Provides that if the policy is issued on or after the insured's 99th
birthday, the numerical factor is 1.
Sec. 1101.207. EFFECT OF PAYING MAXIMUM PREMIUMS. Provides that when the
aggregate premiums paid for a life insurance policy reach the maximum
amount computed under Section 1101.206, the life insurance policy becomes
a paid-up policy.
Sec. 1101.208. MINIMUM DISCLOSURE REQUIREMENTS--APPLICANT FOR INSURANCE
COVERAGE. (a) Requires, at a minimum, an insurer subject to this
subchapter to disclose to an applicant for a life insurance policy certain
information.
(b) Requires the insurer to provide in the disclosure statement, in
addition to the information required under Subsection (a), a statement to
the applicant regarding the effect of good health on the cost of the
coverage provided under the policy and the possible advantages of
alternative insurance products, for a guaranteed issue life insurance
policy.
Sec. 1101.209. APPLICANT'S RIGHT TO CANCEL. Provides that each
applicant for coverage under a life insurance policy has the right to
cancel the policy and obtain a refund of any premium paid before the 31st
day after the date of issuance of the policy. Requires an insurer to
provide each applicant for insurance coverage under a life insurance
policy written notice of the 30-day right to cancel.
Sec. 1101.210. TIMING OF DISCLOSURE TO APPLICANT. Requires an insurer
that issues a life insurance policy to provide the disclosure and notice
prescribed by Sections 1101.208 and 1101.209 on receipt of the application
for coverage, and again not later than the date on which the policy is
delivered.
Sec. 1101.211. MINIMUM DISCLOSURE REQUIREMENTS--POLICYHOLDER AND INSURED.
Requires, at a minimum, an insurer to disclose to the holder of a life
insurance policy and to each insured under the policy certain information.
Sec. 1101.212. TIMING OF DISCLOSURE TO POLICYHOLDER AND INSURED. (a)
Requires an insurer that issues a life insurance policy to provide the
disclosure prescribed by Section 1101.211 at the time that, on payment of
the next premium under the policy, the cumulative premiums paid will
exceed the face amount of the policy.
(b) Requires the insurer to also provide the required disclosure to each
policyholder and insured on a certain date.
Sec. 1101.213. EFFECT OF RIDERS. Provides that for purposes of Sections
1101.208-
1101.212, cumulative premiums include premiums paid for riders. Provides
that the face amount of a life insurance policy does not include the
benefit attributable to the riders.
Sec. 1101.214. RULES. (a) Authorizes the commissioner to adopt rules
necessary to implement this subchapter.
(b) Requires the commissioner by rule to prescribe the format of the
disclosure statements required under Sections 1101.208 and 1101.211 and
the notice required under Section 1101.209.
SUBCHAPTER F. UNCLAIMED BENEFITS UNDER CERTAIN POLICIES
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, 882, 884, or 982. Provides that 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) Provides that this subchapter applies to any individual or group life
insurance policy, other than a term life insurance policy, issued in this
state, including an industrial insurance policy offered under Chapter
1151.
Sec. 1101.252. DUE DILIGENCE STANDARDS. Requires the commissioner to
adopt rules as necessary to define minimum standards of due diligence that
an insurer must exercise relating to the payment of unclaimed benefits
payable on the death of an insured who is covered under more than one life
insurance policy issued by the insurer.
SECTION 2. Requires the commissioner of insurance to adopt rules as
required by Sections 1101.214(b) and 1101.252, Insurance Code, as added by
this Act, not later than January 1, 2004.
SECTION 3. Effective date: September 1, 2003.
Makes application of this Act prospective.