Legislature(2009 - 2010)BELTZ 211
04/14/2009 01:00 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB12 | |
| SB126 | |
| HB93 | |
| HB101 | |
| HB102 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 93 | TELECONFERENCED | |
| + | HB 101 | TELECONFERENCED | |
| + | HB 102 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 12 | ||
| = | SB 126 | ||
CSHB 101(JUD)-EXEMPTIONS: LIFE INSURANCE; ANNUITIES
1:40:17 PM
CHAIR PASKVAN announced CSHB 101(JUD) to be up for
consideration.
AMANDA MORTENSEN, staff to Representative Coghill, sponsor of HB
101, explained that it exempts the full value of life insurance
and annuities from being attached by creditors in the case of
liabilities. It would protect families and their ability to plan
for their future. For example, if person A were to hit person B
with a car, person B could sue for the assets of person A. This
bill would protect person A's life insurance and annuity
contracts so that their family could still survive on their own.
It does not prevent person B from being able to garnish person
A's other assets in order to fulfill the settlement. It also
protects the death benefit of a spouse or dependent of the
debtor in the case that the person is not yet deceased.
Currently retirement plans are creditor protected under federal
laws. This bill would help if an employee worked for an employer
who did not offer a retirement plan. The employee could use an
annuity as a retirement plan and provide themselves and their
families with better financial security. With the uncertainty of
the social security system, Alaskan families need to be able to
legitimately plan for their future. This bill falls under Title
38, the Alaska Exemptions Act; it then falls under section 15,
property exempt without limitation.
She explained that section 1 adds unmatured life insurance and
annuity contracts owned by the individual to the list of
property exempt without limitation. Section 2 removes the words
"or payable" in order to clarify a potential ambiguity regarding
trying to garnish a death benefit on an individual who has not
passed away yet. Section 3 is repealed because there is no
longer any reason to have a section dedicated to the exemption
of unmatured life insurance and annuity contracts since they now
fall under the category of "property exempt without limitation"
in AS 09.38.015. Section 4 is an applicability section that
seeks that this will only apply to a debt that is created on or
after the effective date of this act. As of May 2007, 10 states
exempt life insurance and annuities 100 percent from creditors.
SENATOR BUNDE asked if this would encourage people to be
irresponsible.
MS. MORTENSEN replied the intent here is not to allow people
hide money or to be deceitful. In Florida where life insurance
and annuities are protected, there have actually been court
cases brought against individuals who have been trying to hide
money or avoid paying and they have lost.
1:44:10 PM
SENATOR BUNDE asked if she had thought about limiting the
protection to $40,000 or $50,000 to provide some basic coverage
for survivors if someone has $2,000,000 in life insurance, for
instance.
MS. MORTENSEN replied they just trying to provide for Alaskan
families, not someone who is careless.
1:45:54 PM
LINDA HULBERT, said she has lived in Fairbanks for the last 40
years and has spent 20 years in adult education in employment
training. For the last 19 years she has been with New York Life
Insurance and supported HB 101. She helps families plan for the
future and it is becoming more important given today's
marketplace and what is happening. Many employers have stopped
their contributions to 401Ks and defined benefit plans are not
readily available any more. People have to assume individual
responsibility for their retirements; they also need to assume
responsibility to plan for their families so if something
unfortunate happens to them they have the opportunity to
continue having a life; life insurance is one of the ways to do
it and annuities is another.
Ten other states make this planning opportunity available. In
Alaska it can be used as a planning tool, but it has many
limitations.
Regarding Senator Bunde's concern, Ms. Hulbert said, most people
who have multimillion-dollar life insurance policies in Alaska
have term policies that don't have a cash value. People who
normally have large insurance policies with cash value also have
numerous other assets. The asset in life insurance is primarily
aimed at protecting their family and children for the future.
So, it is very unlikely to play a part in the situation.
If anyone would use a life insurance policy or annuity as a
fraudulent transaction to avoid an obligation, it would be void,
and they would not have creditor protection. Also an individual
can collaterally assign a life insurance policy, and then that
would make the cash value and death benefit available to the
creditor. In order to help people plan, she feels this is sound
public policy. People with a lot of money have other options for
protecting it like setting up a trust.
SENATOR BUNDE asked if she was referring to someone who has a
bad debt and someone is trying to collect from their whole life
and any cash value that might have accrued before they passed
away.
MS. HULBERT answered yes. A creditor could attach a death
benefit.
SENATOR BUNDE asked how often someone has had the cash value of
their life insurance attached to pay a bad debt.
MS. HULBERT replied that she had no personal knowledge of it
happening, but it could. It's especially important in retirement
situations where a person retired from a union and they get a
life insurance policy to protect their spouse and maximize their
pension. It would be disastrous for the spouse to lose that life
insurance, because their spouse then loses his retirement.
1:51:35 PM
DENNIS BAILEY, Legal Counsel, Legislative Legal and Research
Service, Legislative Affairs Agency, said he had no comments and
was available for questions.
1:52:20 PM
CHAIR PASKVAN closed public testimony.
SENATOR BUNDE said this seems like a solution in search of a
problem, and that he harbors the fear that people don't need
this protection at this point.
SENATOR MEYER said he likes the bill, but he didn't know why it
was needed. Can hospitals collect their costs from the life
insurance policy?
1:54:15 PM
MS. HULBERT responded that most life insurance policies in
Alaska have a "living benefits rider." If an individual who is
terminally ill adds a living benefits rider, they have access to
the death benefits of their policy early if, for instance,
someone needed medical care at the end of life. It depends on
who the beneficiary is. If somebody does die, frequently the
beneficiary is the estate of the insured, then the money would
go into the estate and be subject to the claims of any creditors
to the estate. If the beneficiary were an individual, the
benefits of that policy would be after submission of a death
certificate and would go directly to that spouse and children.
If estate taxes were due, those heirs could be requested to
utilize that policy to pay for estate taxes, but in general, the
benefit of the policy is paid directly from the insurance
company to the main beneficiary. That is why it's so important
to check your named beneficiaries occasionally.
CHAIR PASKVAN recapped that Ms. Hulbert had pointed out the
benefit of naming a specific person as opposed to the estate, so
it would pass outside of probate.
SENATOR MEYER said putting it in a trust could run into
problems, too.
1:57:24 PM
SENATOR THOMAS asked Ms. Hulbert if someone had an accident and
rushed out to buy a policy, would they be protected by this
language. Would they be seen as trying to hide assets?
MS. HULBERT replied this can't be used to fraudulently hide
money or fraudulently transfer it. Any knowledge or indication
there was a creditor issue, would void any transfer. This only
protects legitimate planning processes of people who set things
in motion to protect their families and their retirement.
1:58:30 PM
SENATOR BUNDE said he is still concerned and went back to
Senator Meyer's example of someone who racked up a great deal of
medical expense and passed away - this bill would not allow the
cost of that medical care to be attached from their life
insurance.
1:59:18 PM
MS. HULBERT responded that this bill doesn't affect access to
the death benefit. If somebody dies right now and their named
beneficiary is alive, the money goes directly to that named
beneficiary.
SENATOR BUNDE asked if this is trying to protect the cash value
of a policy after someone passes away.
MS. HULBERT replied that is primarily what it does. Because if
you take away the cash value, the death benefit no longer
exists.
2:01:04 PM
MR. BAILEY explained that the bill addresses the unmatured value
of the life insurance or annuity contract. So it is correct that
it does not affect the death benefit. However, there are a
variety of situations where the death benefit may go to someone
other than the estate and would not be available for collection
by an injured person in an accident.
2:02:07 PM
SENATOR MEYER moved to report CSHB 101(JUD) from committee with
individual recommendations and attached fiscal note(s). There
were no objections and it was so ordered.
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