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 Section 3 is repealed because there is no longer any reason to have a section dedicated to the exemption of unmatured life insurance and annuity contracts since they now fall under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.