Legislature(2009 - 2010)BELTZ 211

04/14/2009 01:00 PM Senate LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change --
+ HB 93 DO NOT CALL REGISTRY--MOBILE/CELL PHONES TELECONFERENCED
Moved HB 93 Out of Committee
+ HB 101 EXEMPTIONS: LIFE INSURANCE; ANNUITIES TELECONFERENCED
Moved CSHB 101(JUD) Out of Committee
+ HB 102 UNIFORM COMMERCIAL CODE TELECONFERENCED
Moved CSHB 102(JUD) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
= SB 12 LIMIT OVERTIME FOR REGISTERED NURSES
Moved CSSB 12(L&C) Out of Committee
= SB 126 REEMPLOYMENT OF RETIREES; EXEMPT SERVICE
Moved CSSB 126(STA) Out of Committee
      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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