The Texas House of Representatives today approved a bill that could set new disclosure requirements for issuers of permanent life insurance.

House members passed the bill by a vote of 147 to 0. Two other members were present but did not vote on the bill.

The bill, House Bill 207, would establish disclosure standards that would apply when life insurers make some kinds of changes to some kinds of life policy charges on or after Jan. 1, 2020.

The bill would not apply to individual or group annuity contracts, to credit life insurance, or to bank-owned or corporate-owned life insurance.

The bill would apply to policies, such as universal life (UL) policies and variable universal life policies, with a cash value, death benefits of at least $10,000, and non-guaranteed charges.

If the bill becomes law and is implemented as written, affected insurers would have to:

  • Alert customers at least 90 days in advance if they changed the value or length of a policy.
  • Provide written notice if they decreased the credited interest rate paid on a policy's accumulated value.
  • Provide policyholders with an illustration of charges at least once per year.

House Bill 207 was filed last November by Rep. Tom Craddick, R-Midland, Texas. Craddick is a former Texas House speaker

The Texas House Insurance Committee approved an amended version of the bill in March by an 8-0 vote.

Craddick has introduced life insurance standards legislation before. In 2017, he sponsored House Bill 3370. That bill could have capped some types of life insurance premium increases that were not disclosed at the time of policy issue at 10%.

The History

UL policies are generally structured so that the issuer can increase charges related to mortality protection as well as administrative expenses, even if some or all of the investment returns are guaranteed. In later years, the increases can be dramatic.

The cost-of-insurance increases have discouraged some consumers from keeping their UL policies.

The Texas Association of Life & Health Insurers (TALHI) noted in a recap of the 2017 Texas legislative session that Craddick himself had felt the effects of the increases.

"Former Speaker Craddick had a personal experience with a premium increase of over 100% on a Variable Universal Life policy," according to the TALHI session recap.

The increases have also increased costs for life settlement providers. Some life settlement companies have sued life insurers over UL cost-of-insurance increases that hurt their profit.

The Life Insurance Settlement Association has asked the National Council of Insurance Legislators (NCOIL) to develop a model act for life insurance cost-of-insurance increases.

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