HBA-ATS S.B. 1196 76(R)BILL ANALYSIS


Office of House Bill AnalysisS.B. 1196
By: Shapiro
Insurance
5/7/1999
Committee Report (Amended)



BACKGROUND AND PURPOSE 

A common practice in the insurance industry to avoid adverse estate taxes,
especially in buy/sell insurance, key-person insurance, and trust-owned
insurance, is for an insured to authorize a  third party to purchase, or
apply for, an individual or group insurance policy on the insured if the
insured actively participates in the application process and consents to
the purchase in writing.  A similar procedure is followed when an employer
insures the lives of its officers, directors, employees, and retirees for
the purpose of and in an amount necessary to provide funds to offset fringe
benefit-related liabilities.  In those cases, the insured provides written
consent in a group or master contract to designate third parties as owners
and beneficiaries. 

S.B. 1196 authorizes any person of legal age to consent in writing to the
purchase of or the application for individual or group insurance policies
issued by any legal reserve or mutual assessment life insurance company by
third parties, and, in such written document, consent to or designate the
third party as the absolute or partial owner or owners, beneficiary, or any
combination of the two, of any policy or policies issued in connection with
such consent or designation.  The third-party owner or beneficiary is
required to have an insurable interest in the life of such person, except
that a third party who is engaged in the business of burying the dead
cannot have an insurable interest in the life of any person. 
 
RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Article 3.49-1, Insurance Code, as follows:

Sec. 1.  DESIGNATION OF BENEFICIARIES OR OWNERS IN APPLICATION.  Makes a
conforming change. 

Sec. 2.  DESIGNATION OF BENEFICIARIES OR OWNERS IN EXISTING OR FUTURE
POLICIES.  Makes a conforming change. 

Sec. 3.  CONSENT TO OWNERSHIP OR BENEFICIARY OF POLICIES.  Adds this
section to authorize any person of legal age to consent in writing to the
purchase of or the application for individual or group insurance policies
issued by any legal reserve or mutual assessment life insurance company by
third parties, and, in such written document, consent to or designate any
person, persons, partnership, association, corporation, or other legal
entity, or a combination of these entities, as the absolute or partial
owner or owners, beneficiary, or any combination of the two, of any policy
or policies issued in connection with such consent or designation.
Requires the owner or beneficiary, with respect to such policies, to have
an insurable interest in the life of such person, except as provided in
Section 4. 

Sec. 4.  EXCEPTION OF PERSONS, ETC., ENGAGED IN BUSINESS OF BURYING DEAD.
Includes Section 3 among the sections which do not grant a person, persons,
partnership, association, corporation, or other legal entity, or any
combination of entities, engaged in the business of burying the dead, an
insurable interest in the life of any person. Makes a conforming change. 

Sec. 5.  CUMULATIVE EFFECT; LIBERAL CONSTRUCTION.  Makes a conforming
change. 

SECTION 2.Effective date: September 1, 1999.
Makes application of this Act prospective for an insurance policy
delivered, issued, or used on or after January 1, 2000. 

SECTION 3.Emergency clause.

EXPLANATION OF AMENDMENTS

Amendment No. 1:

Amends S.B. 1196 by adding new SECTION 2 to provide that the purpose of
this Act is to clarify existing law and practice as it relates to consent
to the ownership of, or status as a beneficiary under, a life insurance
policy, and to provide that this Act is not intended to alter or modify the
meaning of, or law relating to, former Section 4, Chapter 113, Acts of the
53rd Legislature, Regular Session, 1953 (Article 3.49-1, V.T.I.C.), as it
existed before the effective date of this Act.  Provides that the
subsequent SECTIONS of the bill are redesignated as appropriate.