PRINTER'S NO. 1229
No. 1070 Session of 1983
INTRODUCED BY RAPPAPORT, KOWALYSHYN, PICCOLA, F. E. TAYLOR,
LESCOVITZ AND VROON, MAY 25, 1983
REFERRED TO COMMITTEE ON INSURANCE, MAY 25, 1983
AN ACT
1 Relating to group life insurance; describing permitted policies
2 and restrictions thereon, the premium basis thereof and
3 rights thereunder; limiting the amount of such insurance;
4 prescribing standard policy provisions; requiring notice of
5 conversion privileges; and repealing certain sections.
6 The General Assembly of the Commonwealth of Pennsylvania
7 hereby enacts as follows:
8 Section 1. Short title.
9 This act shall be known and may be cited as the Group Life
10 Insurance Reform Act.
11 Section 2. Types of group insurance permitted.
12 Except as provided in section 3, no policy of group life
13 insurance shall be delivered in this Commonwealth unless it
14 conforms to one of the following descriptions:
15 (1) A policy issued to an employer or to the trustees of
16 a fund established by an employer, which employer or trustees
17 shall be deemed the policyholder, to insure employees of the
18 employer for the benefit of persons other than the employer,
19 subject to the following requirements:
1 (i) The employees eligible for insurance under the
2 policy shall be all of the employees of the employer or
3 all of any class or classes thereof. The policy may
4 provide that the term "employees" shall include the
5 employees of one or more subsidiary corporations and the
6 employees, individual proprietors and partners of one or
7 more affiliated corporations, proprietorships or
8 partnerships if the business of the employer and of such
9 affiliated corporations, proprietorships or partnerships
10 is under common control. The policy may provide that the
11 term "employees" shall include the individual proprietor
12 or partners if the employer is an individual
13 proprietorship or partnership. The policy may provide
14 that the term "employees" shall include retired
15 employees, former employees and the directors of a
16 corporate employer. A policy issued to insure the
17 employees of a public body may provide that the term
18 "employees" shall include elected or appointed officials.
19 (ii) The premium for the policy shall be paid either
20 from the employer's funds or from funds contributed by
21 the insured employees, or from both. Except as provided
22 in subparagraph (iii), a policy on which no part of the
23 premium is to be derived from funds contributed by the
24 insured employees must insure all eligible employees,
25 except those who reject such coverage in writing.
26 (iii) An insurer may exclude or limit the coverage
27 on any person as to whom evidence of individual
28 insurability is not satisfactory to the insurer.
29 (2) A policy issued to a creditor or its parent-holding
30 company or to a trustee or trustees or agent designated by
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1 two or more creditors, which creditor, holding company,
2 affiliate, trustee, trustees or agent shall be deemed the
3 policyholder, to insure debtors of the creditor or creditors,
4 subject to the following requirements:
5 (i) The debtors eligible for insurance under the
6 policy shall be all of the debtors of the creditor or
7 creditors or all of any class or classes thereof. The
8 policy may provide that the term "debtors" shall include:
9 (A) Borrowers of money or purchasers or lessees
10 of goods, services or property for which payment is
11 arranged through a credit transaction.
12 (B) The debtors of one or more subsidiary
13 corporations.
14 (C) The debtors of one or more affiliated
15 corporations, proprietorships or partnerships if the
16 business of the policyholder and of such affiliated
17 corporations, proprietorships or partnerships is
18 under common control.
19 (ii) The premium for the policy shall be paid either
20 from the creditor's funds or from charges collected from
21 the insured debtors, or from both. Except as provided in
22 subparagraph (iii), a policy on which no part of the
23 premium is to be derived from funds contributed by
24 insured debtors specifically for their insurance must
25 insure all eligible debtors.
26 (iii) An insurer may exclude any debtors as to whom
27 evidence of individual insurability is not satisfactory
28 to the insurer.
29 (iv) The amount of the insurance on the life of any
30 debtor shall not exceed the greater of the scheduled or
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1 actual amount of unpaid indebtedness to the creditor.
2 (v) The insurance may be payable to the creditor or
3 any successor to the right, title and interest of the
4 creditor. Such payment shall reduce or extinguish the
5 unpaid indebtedness of the debtor to the extent of such
6 payment and any excess of the insurance shall be payable
7 to the estate of the insured.
8 (vi) Notwithstanding the other provisions of this
9 paragraph, insurance on agricultural credit transaction
10 commitments may be written up to the amount of the loan
11 commitment on a nondecreasing or level term plan.
12 Insurance on educational credit transaction commitments
13 may be written up to the amount of the loan commitment
14 less the amount of any repayments made on the loan.
15 (3) A policy issued to a labor union or similar employee
16 organization, which shall be deemed to be the policyholder,
17 to insure members of such union or organization for the
18 benefit of persons other than the union or organization or
19 any of its officials, representatives or agents, subject to
20 the following requirements:
21 (i) The members eligible for insurance under the
22 policy shall be all of the members of the union or
23 organization, or all of any class or classes thereof.
24 (ii) The premium for the policy shall be paid either
25 from funds of the union or organization or from funds
26 contributed by the insured members specifically for their
27 insurance, or from both. Except as provided in
28 subparagraph (iii), a policy on which no part of the
29 premium is to be derived from funds contributed by the
30 insured members specifically for their insurance must
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1 insure all eligible members, except those who reject such
2 coverage in writing.
3 (iii) An insurer may exclude or limit the coverage
4 on any person as to whom evidence of individual
5 insurability is not satisfactory to the insurer.
6 (4) A policy issued to a trust or to the trustees of a
7 fund established or adopted by two or more employers, or by
8 one or more labor unions or similar employee organizations,
9 or by one or more employers and one or more labor unions or
10 similar employee organizations, which trust or trustees shall
11 be deemed the policyholder, to insure employees of the
12 employers or members of the unions or organizations for the
13 benefit of persons other than the employers or the unions or
14 organizations, subject to the following requirements:
15 (i) The persons eligible for insurance shall be all
16 of the employees of the employers or all of the members
17 of the unions or organizations or all of any class or
18 classes thereof. The policy may provide that the term
19 "employees" shall include the employees of one or more
20 subsidiary corporations and the employees, individual
21 proprietors and partners of one or more affiliated
22 corporations, proprietorships or partnerships if the
23 business of the employer and of such affiliated
24 corporations, proprietorships or partnerships is under
25 common control. The policy may provide that the term
26 "employees" shall include the individual proprietor or
27 partners if the employer is an individual proprietorship
28 or partnership. The policy may provide that the term
29 "employees" shall include retired employees, former
30 employees and directors of a corporate employer. The
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1 policy may provide that the term "employees" shall
2 include the trustees or their employees, or both, if
3 their duties are principally connected with such
4 trusteeship.
5 (ii) The premium for the policy shall be paid from
6 funds contributed by the employer or employers of the
7 insured persons or by the union or unions or similar
8 employee organizations, or by both, or from funds
9 contributed by the insured persons or from both the
10 insured persons and the employers or unions or similar
11 employee organizations. Except as provided in
12 subparagraph (iii), a policy on which no part of the
13 premium is to be derived from funds contributed by the
14 insured persons specifically for their insurance must
15 insure all eligible persons, except those who reject such
16 coverage in writing.
17 (iii) An insurer may exclude or limit the coverage
18 on any person as to whom evidence of individual
19 insurability is not satisfactory to the insurer.
20 (5) A policy issued to an association or to a trust or
21 to the trustees of a fund established, created or maintained
22 for the benefit of members of one or more associations. The
23 association or associations shall have at the outset a
24 minimum of 100 persons, shall have been organized and
25 maintained in good faith for purposes other than that of
26 obtaining insurance, shall have been in active existence for
27 at least two years and shall have a constitution and bylaws
28 which provide that:
29 (i) The association or associations hold regular
30 meetings not less than annually to further purposes of
19830H1070B1229 - 6 -
1 the members.
2 (ii) Except for credit unions, the association or
3 associations collect dues or solicit contributions from
4 members.
5 (iii) The members have voting privileges and
6 representation on the governing board and committees. The
7 policy shall be subject to the following requirements:
8 (A) The policy may insure members of such
9 association or associations, employees thereof or
10 employees of members, or one or more of the preceding
11 or all of any class or classes thereof for the
12 benefit of persons other than the employees'
13 employer.
14 (B) The premium for the policy shall be paid
15 from funds contributed by the association or
16 associations or by employer members, or by both, or
17 from funds contributed by the covered persons or from
18 both the covered persons and the association,
19 associations or employer members.
20 (C) Except as provided in clause (D), a policy
21 on which no part of the premium is to be derived from
22 funds contributed by the covered persons specifically
23 for their insurance must insure all eligible persons,
24 except those who reject such coverage in writing.
25 (D) An insurer may exclude or limit the coverage
26 on any person as to whom evidence of individual
27 insurability is not satisfactory to the insurer.
28 (6) A policy issued to a credit union or to a trustee or
29 trustees or agent designated by two or more credit unions,
30 which credit union, trustee, trustees or agent shall be
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1 deemed the policyholder, to insure members of such credit
2 union or credit unions for the benefit of persons other than
3 the credit union or credit unions, trustee or trustees or
4 agent or any of their officials, subject to the following
5 requirements:
6 (i) The members eligible for insurance shall be all
7 of the members of the credit union or credit unions or
8 all of any class or classes thereof.
9 (ii) The premium for the policy shall be paid by the
10 policyholder from the credit union's funds and, except as
11 provided in subparagraph (iii), must insure all eligible
12 members.
13 (iii) An insurer may exclude or limit the coverage
14 on any member as to whom evidence of individual
15 insurability is not satisfactory to the insurer.
16 Section 3. Other groups.
17 (a) Requirements.--Group life insurance offered to a
18 resident of this Commonwealth under a group life insurance
19 policy issued to a group, other than one described in section 2,
20 shall be subject to the following requirements:
21 (1) No such group life insurance policy shall be
22 delivered in this Commonwealth unless the commissioner finds
23 that:
24 (i) The issuance of such group policy is not
25 contrary to the best interest of the public.
26 (ii) The issuance of the group policy would result
27 in economies of acquisition or administration.
28 (iii) The benefits are reasonable in relation to the
29 premiums charged.
30 (2) No such group life insurance coverage may be offered
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1 in this Commonwealth by an insurer under a policy issued in
2 another state unless this Commonwealth or another state
3 having requirements substantially similar to those contained
4 in paragraph (1) has made a determination that such
5 requirements have been met.
6 (3) The premium for the policy shall be paid either from
7 the policyholder's funds or from funds contributed by the
8 covered persons, or from both.
9 (4) An insurer may exclude or limit the coverage on any
10 person as to whom evidence of individual insurability is not
11 satisfactory to the insurer.
12 (5) If compensation of any kind will or may be paid to
13 the policyholder in connection with the group policy, the
14 insurer shall cause to be distributed to prospective
15 insureds, a written notice that compensation will or may be
16 paid. Such notice shall be distributed:
17 (i) whether compensation is direct or indirect; and
18 (ii) whether such compensation is paid to or
19 retained by the policyholder, or paid to or retained by a
20 third party at the direction of the policyholder or any
21 entity affiliated with the policyholder by ownership,
22 contract or employment.
23 (b) Notice.--The notice required by this subsection shall be
24 placed on or accompany any document designed for the enrollment
25 of prospective insureds.
26 Section 4. Dependent group life insurance.
27 Except for a policy issued under section 2(2), a group life
28 insurance policy may be extended to insure the employees or
29 members against loss due to the death of their spouses and
30 dependent children or any class or classes thereof subject to
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1 the following:
2 (1) The premium for the insurance shall be paid either
3 from funds contributed by the employer, union, association or
4 other person to whom the policy has been issued or from funds
5 contributed by the covered persons, or from both. Except as
6 provided in paragraph (2), a policy on which no part of the
7 premium for the spouse's and dependent child's coverage is to
8 be derived from funds contributed by the covered persons must
9 insure all eligible employees or members with respect to
10 their spouses and dependent children or any class or classes
11 thereof.
12 (2) An insurer may exclude or limit the coverage on any
13 spouse or dependent child as to whom evidence of individual
14 insurability is not satisfactory to the insurer.
15 (3) The amounts of insurance for any covered spouse or
16 dependent child under the policy may not exceed 50% of the
17 amount of insurance for which the employee or member is
18 insured.
19 Section 5. Group life insurance standard provisions.
20 No policy of group life insurance shall be delivered or
21 issued for delivery in this Commonwealth unless it contains in
22 substance the following provisions, or provisions which in the
23 opinion of the commissioner are more favorable to the persons
24 insured, or at least as favorable to the persons insured and
25 more favorable to the policyholder: Provided, however, That
26 paragraphs (6) to (11) inclusive shall not apply to policies
27 insuring the lives of debtors; that the standard provisions
28 required for individual life insurance policies shall not apply
29 to group life insurance policies; and that if the group life
30 insurance policy is on a plan of insurance other than the term
19830H1070B1229 - 10 -
1 plan, it shall contain a nonforfeiture provision or provisions
2 which in the opinion of the commissioner is or are equitable to
3 the insured persons and to the policyholder, but nothing herein
4 shall be construed to require that group life insurance policies
5 contain the same nonforfeiture provisions as are required for
6 individual life insurance policies:
7 (1) A provision that the policyholder is entitled to a
8 grace period of 31 days for the payment of any premium due
9 except the first, during which grace period the death benefit
10 coverage shall continue in force, unless the policyholder
11 shall have given the insurer written notice of discontinuance
12 in advance of the date of discontinuance and in accordance
13 with the terms of the policy. The policy may provide that the
14 policyholder shall be liable to the insurer for the payment
15 of a pro rata premium for the time the policy was in force
16 during such grace period.
17 (2) A provision that the validity of the policy shall
18 not be contested, except for nonpayment of premiums, after it
19 has been in force for two years from its date of issue, and
20 that no statement made by any person covered under the policy
21 relating to insurability shall be used in contesting the
22 validity of the insurance with respect to which such
23 statement was made after such insurance has been in force
24 prior to the contest for a period of two years during such
25 person's lifetime, nor unless it is contained in a written
26 instrument signed by him: Provided, however, That no such
27 provision shall preclude the assertion at any time of
28 defenses based upon provisions in the policy which relate to
29 eligibility for coverage.
30 (3) A provision that a copy of the application, if any,
19830H1070B1229 - 11 -
1 of the policyholder shall be attached to the policy when
2 issued, that all statements made by the policyholder or by
3 the persons insured shall be deemed representations and not
4 warranties, and that no statement made by any person insured
5 shall be used in any contest unless a copy of the instrument
6 containing the statement is or has been furnished to such
7 person or, in the event of the death or incapacity of the
8 insured person, to his beneficiary or personal
9 representative.
10 (4) A provision setting forth the conditions, if any,
11 under which the insurer reserves the right to require a
12 person eligible for insurance to furnish evidence of
13 individual insurability satisfactory to the insurer as a
14 condition to part or all of the individual's coverage.
15 (5) A provision specifying an equitable adjustment of
16 premiums or of benefits, or of both, to be made in the event
17 the age of a person insured has been misstated, such
18 provision to contain a clear statement of the method of
19 adjustment to be used.
20 (6) A provision that any sum becoming due by reason of
21 the death of the person insured shall be payable to the
22 beneficiary designated by the person insured, except that
23 where the policy contains conditions pertaining to family
24 status, the beneficiary may be the family member specified by
25 the policy terms, subject to the provisions of the policy in
26 the event there is no designated beneficiary, as to all or
27 any part of such sum, living at the death of the person
28 insured, and subject to any right reserved by the insurer in
29 the policy and set forth in the certificate to pay at its
30 option a part of such sum not exceeding $2,000 to any person
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1 appearing to the insurer to be equitably entitled thereto by
2 reason of having incurred funeral or other expenses incident
3 to the last illness or death of the person insured.
4 (7) A provision that the insurer will issue to the
5 policyholder for delivery to each person insured a
6 certificate setting forth a statement as to the insurance
7 protection to which he is entitled, to whom the insurance
8 benefits are payable, a statement as to any dependent's
9 coverage, including such certificate and the rights and
10 conditions set forth in paragraphs (8) through (11).
11 (8) A provision that if the insurance, or any portion of
12 it, on a person covered under the policy or on the dependent
13 of a person covered, ceases because of termination of
14 employment or of membership in the class or classes eligible
15 for coverage under the policy, such person shall be entitled
16 to have issued to him by the insurer, without evidence of
17 insurability, an individual policy of life insurance without
18 disability or other supplementary benefits, provided
19 application for the individual policy shall be made, and the
20 first premium paid to the insurer, within 31 days after such
21 termination and provided further that:
22 (i) The individual policy shall, at the option of
23 such person, be on any one of the forms then customarily
24 issued by the insurer at the age and for the amount
25 applied for, except that the group policy may exclude the
26 option to elect term insurance.
27 (ii) The individual policy shall be in an amount not
28 in excess of the amount of life insurance which ceases
29 because of such termination, less the amount of any life
30 insurance for which such person becomes eligible under
19830H1070B1229 - 13 -
1 the same or any other group policy within 31 days after
2 such termination: Provided, That any amount of insurance
3 which shall have matured on or before the date of such
4 termination as an endowment payable to the person
5 insured, whether in one sum or in installments or in the
6 form of an annuity, shall not, for the purposes of this
7 provision, be included in the amount which is considered
8 to cease because of such termination.
9 (iii) The premium on the individual policy shall be
10 at the insurer's then customary rate applicable to the
11 form and amount of the individual policy, to the class of
12 risk to which such person then belongs, and to such
13 person's age attained on the effective date of the
14 individual policy.
15 Subject to the same conditions set forth above, the
16 conversion privilege shall be available to a surviving
17 dependent, if any, at the death of the employee or member,
18 with respect to the coverage under the group policy which
19 terminates by reason of the death and to the dependent of the
20 employee or member upon termination of coverage of the
21 dependent, while the employee or member remains insured under
22 the group policy, by reason of the dependent ceasing to be a
23 qualified family member under the group policy.
24 (9) A provision that if the group policy terminates or
25 is amended so as to terminate the insurance of any class of
26 insured persons, every person insured thereunder at the date
27 of such termination whose insurance terminates, including the
28 insured dependent of a covered person, and who has been so
29 insured for at least five years prior to such termination
30 date shall be entitled to have issued by the insurer an
19830H1070B1229 - 14 -
1 individual policy of life insurance, subject to the same
2 conditions and limitations as are provided by paragraph (8),
3 except that the group policy may provide that the amount of
4 such individual policy shall not exceed the smaller of:
5 (i) The amount of the person's life insurance
6 protection ceasing because of the termination or
7 amendment of the group policy, less the amount of any
8 life insurance for which such person is or becomes
9 eligible under a group policy issued or reinstated by the
10 same or another insurer within 31 days after such
11 termination.
12 (ii) $10,000.
13 (10) A provision that if a person insured under the
14 group policy, or the insured dependent of a covered person,
15 dies during the period within which such person would have
16 been entitled to have an individual policy issued in
17 accordance with paragraph (8) or (9) and before such an
18 individual policy shall have become effective, the amount of
19 life insurance which such person would have been entitled to
20 have issued under such individual policy shall be payable as
21 a claim under the group policy, whether or not application
22 for the individual policy or the payment of the first premium
23 therefor has been made.
24 (11) Where active employment is a condition of
25 insurance, a provision that an insured may continue coverage
26 during the insured's total disability by timely payment to
27 the policyholder of that portion, if any, of the premium that
28 would have been required from the insured had total
29 disability not occurred. The continuation shall be on a
30 premium paying basis for a period of six months from the date
19830H1070B1229 - 15 -
1 on which the total disability started, but not beyond the
2 earlier of:
3 (i) Approval by the insurer of continuation of the
4 coverage under any disability provision which the group
5 insurance policy may contain.
6 (ii) The discontinuance of the group insurance
7 policy.
8 (12) In the case of a policy insuring the lives of
9 debtors, a provision that the insurer will furnish to the
10 policyholder for delivery to each debtor insured under the
11 policy a certificate of insurance describing the coverage and
12 specifying that the death benefit shall first be applied to
13 reduce or extinguish the indebtedness.
14 Section 6. Conversion privileges.
15 If any individual insured under a group life insurance policy
16 hereafter delivered in this Commonwealth becomes entitled under
17 the terms of such policy to have an individual policy of life
18 insurance issued without evidence of insurability, subject to
19 making of application and payment of the first premium within
20 the period specified in such policy, and if such individual is
21 not given notice of the existence of such right at least 15 days
22 prior to the expiration date of such period, then in such event
23 the individual shall have an additional period within which to
24 exercise such right, but nothing herein contained shall be
25 construed to continue any insurance beyond the period provided
26 in such policy. This additional period shall expire 15 days next
27 after the individual is given such notice but in no event shall
28 such additional period extend beyond 60 days next after the
29 expiration date of the period provided in such policy. Written
30 notice presented to the individual or mailed by the policyholder
19830H1070B1229 - 16 -
1 to the last known address of the individual or mailed by the
2 insurer to the last known address of the individual as furnished
3 by the policyholder shall constitute notice for the purpose of
4 this section.
5 Section 7. Repeals.
6 (a) Absolute repeals.--Sections 1, 2, 3, 4, 5, 6, 7 and 9 of
7 the act of May 11, 1949 (P.L.1210, No.367), entitled "An act
8 relating to group life insurance; describing permitted policies
9 and restrictions thereon, the premium basis thereof and rights
10 thereunder; limiting the amount of such insurance; prescribing
11 standard policy provisions; and requiring notice of conversion
12 privileges," are repealed.
13 (b) General repeal.--All other acts and parts of acts are
14 repealed insofar as they are inconsistent with this act.
15 Section 8. Effective date.
16 This act shall take effect in 180 days.
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