By: Eiland H.B. No. 2281

A BILL TO BE ENTITLED

AN ACT

relating to disclosures to life insurance policy owners

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle B, Title 5, Insurance Code, is amended by adding Chapter 525 to read as follows:

CHAPTER 525. LIFE INSURANCE CONSUMER DISCLOSURE ACT

Sec. 525.001. SHORT TITLE. This Act may be cited as the Life Insurance Consumer Disclosure Act.

Sec. 525.002. DEFINITIONS. In this chapter:

(1) "Insured" means a consumer who purchased a policy from an insurer.

(2) "Insurer" means the insurance company that issued the policy.

(3) "Person" means an individual, corporation, trust, partnership, association, or any other legal entity.

(4) "Policy" means an individual life insurance policy owned by a person who is a resident of this state regardless of whether the policy is issued, delivered, or renewed in this state.

(5) "Policy owner" means the owner of a policy.

Sec. 525.003. NOTICE TO POLICY OWNER REQUIRED. (a) An insurer shall provide the written notice required by Subsection (b) to a policy owner if the insured is at least 60 years old or if the insurer has actual knowledge that the insured is terminally or chronically ill, and if:

(1) the policy owner requests:

(A) the surrender, wholly or partly, of a policy; or

(B) an accelerated death benefit under a policy;

(2) the insurer sends notice to the policy owner that the policy may lapse; or

(3) another circumstance occurs and the commissioner has prescribed by rule that an insurer must send the notice under this chapter in that circumstance.

(b) The commissioner by rule shall adopt or approve forms to be used for notices under this chapter to inform a policy owner of:

(1) alternatives to the lapse or surrender of a policy; and

(2) the policy owner's rights related to the disposition of a policy.

(c) The written notice must be developed at no cost to insurers or other license holders and must be written in simple, nontechnical language.

(d) The written notice must contain:

(1) a statement explaining that life insurance is a critical part of a broader financial plan;

(2) a statement explaining that there are alternatives to the lapse or surrender of a policy;

(3) a general description of the following alternatives to the lapse or surrender of a policy:

(A) accelerated death benefits available under the policy or as a rider to the policy;

(B) the assignment of the policy as a gift;

(C) the sale of the policy under a life settlement contract, including a life settlement under Chapter 1111;

(D) the replacement of the policy under Chapter 1114;

(E) the maintenance of the policy under the terms of the policy or a rider to the policy or through a life settlement contract;

(F) the maintenance of the policy through a loan issued by an insurer or a third party, using the policy or the cash surrender value of the policy as collateral for the loan;

(G) conversion of the policy from a term policy to a permanent policy; and

(H) conversion of the policy to obtain long-term care health insurance coverage or a long-term care benefit plan; and

(4) a statement explaining that life insurance, life settlements, or other alternatives to the lapse or surrender of the policy described in the notice may be available to a particular policy owner depending on a number of circumstances, including the age and health status of the insured or the terms of a life insurance policy, and that policy owners should contact their financial advisor, insurance agent, broker, or attorney to obtain further advice and assistance.

Sec. 525.004. PENALTIES. A violation of Section 525.003(a) is an unfair or deceptive act or practice in the business of insurance subject to sanctions and penalties under Chapter 541.

SECTION 2. An insurer is not required to provide a notice under Chapter 525, Insurance Code, as added by this Act, before September 1, 2011.

SECTION 3. This Act takes effect September 1, 2011.