Garamendi Moves to Aid Terminally Ill

California on Tuesday became the first state to require special licensing of insurance companies that allow the terminally ill to cash in their life insurance benefits so they can use the proceeds while they are alive.

Insurance Commissioner John Garamendi said he is asking such companies to pay a $1,200 filing fee, designate an individual with a California address to transact the business and provide a plan of operation.

Under California law, terminally ill people can sell their life insurance policies by naming an individual or company as the beneficiary. The beneficiary then pays a percentage of the policy’s face value to the policyholder, who often uses the proceeds for medical care or to pay debts. The percentage paid--the so-called discount rate--generally ranges between 55% and 80%.

“All too often, the terminally ill live their final days destitute because they have no access to their life insurance benefits,” Garamendi said. “These rules provide peace of mind to those who desperately need cash to live out their lives in some comfort without sacrificing an unconscionable percentage of the value of their policies.”

With the advance of the AIDS epidemic and its many young victims, such arrangements have become more common.

Under the new rules issued Tuesday by Garamendi, in order to qualify for such an arrangement a patient must be medically certified by a doctor to be of sound mind with a life expectancy of two years or less.

“Regulation of this industry is vital to ensure that the terminally ill get a good value for their living benefit contracts and are not exploited by unscrupulous operators,” the commissioner said.