By: Ellis S.B. No. 1618
A BILL TO BE ENTITLED
AN ACT
relating to regulation of certain life insurance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 1101, Insurance Code, as effective June
1, 2003, is amended by adding Subchapters E and F to read as
follows:
SUBCHAPTER E. CERTAIN POLICIES WITH SMALL FACE AMOUNT
Sec. 1101.201. APPLICABILITY. (a) 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) This subchapter applies to any individual or group life
insurance policy issued in this state, including an industrial
insurance policy offered under Chapter 1151. This subchapter does
not apply to a life insurance policy issued to fund prepaid funeral
benefits as defined in Section 154.002(9), Finance Code.
Sec. 1101.202. FACE AMOUNT. 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 FACE AMOUNT.
(a) Except as provided by Section 884.302, a life insurance policy
with an initial face amount of $2,000 or less must include an option
for the insured to increase the face amount of the policy to not
more than $15,000.
(b) The insurer may 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) The insurer must provide the additional face amount
required by this section at the insurer's current applicable
underwriting standards, rates, and contestability period for
issuance of a new policy to the insured at the insured's age at the
time the option is exercised.
(d) The exercise of an option under Subsection (a) may not
result in a reduction of the cash value of the life insurance
policy.
Sec. 1101.204. PROHIBITION: ISSUANCE OF SUBSEQUENT
POLICY. An insurer that issues a life insurance policy that
provides an initial face amount of $2,000 or less and that includes
the option to increase coverage required by Section 1101.203 may
not issue a subsequent life insurance policy that provides an
initial face amount of $2,000 or less to the same insured.
Sec. 1101.205. REQUIRED ALTERNATIVE PAYMENT OPTIONS.
(a) Unless otherwise prohibited by law, an insurer that offers a
life insurance policy that provides an initial face amount of
$15,000 or less must offer alternative premium payment options to
the payment options the insurer would otherwise have offered if, at
any point in time over the term of the policy, the cumulative
premiums paid, less dividends paid by the insurer, might exceed 250
percent of the face amount of the policy.
(b) For purposes of this section, the insurer must offer
alternative premium payment options that include payment schedules
that allow for shorter payment periods and schedules for making
payments less often.
(c) The alternative payment option information shall be
provided to the policyholder before the sale of the policy, and
again not later than the day on which the policy is delivered.
Sec. 1101.206. MINIMUM DISCLOSURE REQUIREMENTS--APPLICANT
FOR INSURANCE COVERAGE. (a) At a minimum, an insurer subject to
this subchapter shall disclose to an applicant, with respect to a
life insurance policy applied for:
(1) the initial face amount under the policy;
(2) the premium for the policy by selected mode of
payment, on an annualized basis;
(3) if applicable, the fact that the cumulative
premiums for the policy may exceed the face amount over the life of
the policy; and
(4) the possible advantages of coverage under a single
policy with a larger face amount rather than several smaller
policies.
(b) For a guaranteed issue life insurance policy, the
insurer shall 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.
Sec. 1101.207. APPLICANT'S RIGHT TO CANCEL. Each applicant
for insurance coverage under 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. The insurer
shall provide each applicant for insurance coverage under a life
insurance policy written notice of the 30-day right to cancel.
Sec. 1101.208. TIMING OF DISCLOSURE TO APPLICANT. An
insurer that issues a life insurance policy shall provide the
disclosure and notice prescribed by Sections 1101.206 and 1101.207
on application for coverage.
Sec. 1101.209. MINIMUM DISCLOSURE REQUIREMENTS--POLICY
OWNER. At a minimum, an insurer shall disclose to the owner of a
life insurance policy, as of the date of the disclosure:
(1) the face amount under the policy;
(2) the premium for the policy by selected payment
mode, on an annualized basis;
(3) the cumulative premiums paid for the policy;
(4) the cash value of the policy, if any; and
(5) the year in which cumulative premiums will exceed
the face amount.
Sec. 1101.210. TIMING OF DISCLOSURE TO POLICYHOLDER.
(a) An insurer that issues a life insurance policy shall provide
the disclosure prescribed by Section 1101.209 on delivery of the
policy, and 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) The insurer shall also provide the required disclosure
to each policyholder on:
(1) the fifth anniversary of the date of the initial
delivery of the policy; and
(2) every subsequent five-year anniversary of the date
of the initial delivery of the policy.
Sec. 1101.211. EFFECT OF RIDERS. (a) 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:
(1) accidental death benefits;
(2) permanent disability benefits; and
(3) any other benefit similar to accidental death
benefits and permanent disability benefits.
(b) Cumulative premiums do not include premiums paid for
riders on persons other than the insured.
Sec. 1101.212. RULES. (a) The commissioner may adopt
rules necessary to implement this subchapter.
(b) The commissioner by rule shall 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) The commissioner may adopt rules to allow an insurer to
include the disclosure statement required under Section 1101.209
with any other mailing to the policy owner.
[Sections 1101.213-1101.250 reserved for expansion]
SUBCHAPTER F. UNCLAIMED BENEFITS UNDER CERTAIN POLICIES
Sec. 1101.251. APPLICABILITY. (a) 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) 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) As provided
by this section, an insurer shall 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) On submission of a death claim form under an insurance
contract, an insurer shall conduct a reasonable search for other
policies on the decedent's life.
(c) The insurer shall 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) If other policies exist, the insurer shall notify the
policy owner, if different than the insured, and the beneficiary
and shall arrange for payment under the policies.
(e) Each insurer shall 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) The insurer, as a part of the claim processing standard
and methodology adopted under Subsection (e), shall 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. 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) Each insurer shall 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. Not later than January 1, 2004, the commissioner
of insurance shall adopt rules as required by Subsection (b),
Section 1101.212, Insurance Code, as added by this Act.
SECTION 3. This Act takes effect September 1, 2003, and
applies only to an insurance policy that is delivered on or after
July 1, 2004. A policy that is delivered before July 1, 2004, is
governed by the law as it existed immediately before the effective
date of this Act, and that law is continued in effect for that
purpose.