H.B. No. 1865
INTER VIVOS PAYMENT OF LIFE INSURANCE BENEFITS
Governor Bush signed HB 1865 on June 17, 1997. HB 1865 becomes effective on September 1, 1997, and applies to life insurance contracts issued after that date.
HB 1865 changes the law regarding so-called viatical settlements -- payments of life insurance proceeds to persons who are terminally ill.
The House Insurance Committee's Report of HB 1317 states:
. . . [T]he House Human Services Committee studied private funding alternatives to Medicaid for long-term care related expenses. One option that was suggested was for the insured under a life insurance policy to obtain proceeds from the policy before death. This option, which is possible only when certain health conditions occur, is called an "accelerated benefit" or an "accelerated death benefit". Presently, an insurance company can offer accelerated benefits, but under fairly narrow circumstances (e.g. policyholder must have a life expectancy of 12 mos. or less; payout cannot be greater than 50 percent of the face value of the life insurance policy).
Although not presently referenced in statute, the Department of Insurance has permitted the offering of accelerated benefits to individual life policies and group cash value policies. The legislation also brings Texas into line with federal law (Kennedy/Kassebaum) which established a preferred tax status for accelerated benefits under certain circumstances.
The purpose of HB 1865 is to modify the provisions of Article 3.50-6, Insurance Code, to eliminate the restrictions on the permitted acceleration of death benefits for group policies. The provisions of the proposed bill modify the existing statute to encompass both individual and group life insurance policies (term and cash value). In addition, the permitted circumstances under which an individual may elect such an option offered by an insurance company include "terminal illnesses," defined as any illness or injury reasonably expected to result in premature death within two years; "long-term care illnesses," defined as any disabling condition that results in a need for long term care services; or "specified diseases," defined as any other illness or physical condition likely to cause permanent disability or premature death, such as AIDS or malignant tumors.
The proposed changes would permit the offering of this option by insurance companies to Texas residents and enhance the accessibility of such alternatives.
The changes made by HB 1865 apply only to a policy or contract that is delivered, issued for delivery, or renewed on or after September 1, 1997. This isn't my area of expertise, but consider if paying the annual premium on an existing term policy is a "renewal" of the policy.