DAR File No. 28099

Insurance, Administration

R590-145

Accelerated Benefits Rule

NOTICE OF PROPOSED RULE

DAR File No.: 28099
Filed: 07/26/2005, 09:53
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

This rule was necessary to give guidance when accelerated benefits were first sold to the public. Now the life insurance industry has advanced to the point that this rule is no longer needed, and in fact, it is now restricting innovative accelerated benefit products. As a result, it has been decided that this rule should be repealed.

Summary of the rule or change:

This rule is repealed in its entirety.

State statutory or constitutional authorization for this rule:

Section 31A-2-201

Anticipated cost or savings to:

the state budget:

The repeal of this rule will have no immediate impact on the department's workload and no immediate or future fiscal impact on it or the state's budget. The only possible future impact to the department would be an increase in filings of accelerated benefit products. This would not require a change in department personnel or in their budget or revenues.

local governments:

This rule only applies to the relationship between the Insurance Department and their licensees. Therefore, there are no costs or savings to local government.

other persons:

The repeal of this rule could allow for more accelerated benefits to be provided to the public. Accelerated benefits allow for the advancement of cash to terminally ill insureds with life policies. The fiscal impact of this repeal is unknown but the availability of cash to those in need may increase.

Compliance costs for affected persons:

The repeal of this rule could allow for more accelerated benefits to be provided to the public. Accelerated benefits allow for the advancement of cash to terminally ill insureds with life policies. The fiscal impact of this repeal is unknown but the availability of cash to those in need may increase.

Comments by the department head on the fiscal impact the rule may have on businesses:

With more innovative life accelerated benefit products available, life insurers doing business in Utah should experience increased income. D. Kent Michie, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Direct questions regarding this rule to:

Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

09/14/2005

This rule may become effective on:

09/15/2005

Authorized by:

Jilene Whitby, Information Specialist

RULE TEXT

R590. Insurance, Administration.

[R590-145. Accelerated Benefits Rule.

R590-145-1. Purpose.

The purpose of this Rule is to regulate accelerated benefit provisions of individual and group life insurance policies and to provide required standards of disclosure. This Rule shall apply to all accelerated benefits provisions of individual and group life insurance policies, except those subject to the Long-Term Care provisions of Title 31A, issued or delivered in this state, on or after the effective date of this Rule.

R590-145-2. Definitions.

A. "Accelerated benefits" covered under this Rule are benefits payable under a life insurance contract:

(1) To a policyowner or certificateholder, during the lifetime of the insured, in anticipation of death or upon the occurrence of specified life threatening or catastrophic conditions as defined by the policy or rider; and

(2) Which reduce the death benefit otherwise payable under the life insurance contract; and

(3) Which are payable upon the occurrence of a qualifying event which results in the payment of a benefit amount fixed at the time of acceleration.

B. "Qualifying event" shall mean one or more of the following:

(1) A medical condition which would result in a drastically limited life span as specified in the contract, for example, 24 months or less; or

(2) A medical condition which has required or requires extraordinary medical intervention, such as, but not limited to, major organ transplant or continuous artificial life support, without which the insured would die; or

(3) Any condition which usually requires continuous confinement in an eligible institution as defined in the contract if the insured is expected to remain there for the rest of his or her life; or

(4) A medical condition which would, in the absence of extensive or extraordinary medical treatment, result in a drastically limited life span. Such conditions may include, BUT ARE NOT LIMITED TO, one or more of the following:

(a) Coronary artery disease resulting in an acute infarction or requiring surgery;

(b) Permanent neurological deficit resulting from cerebral vascular accident;

(c) End stage renal failure;

(d) Acquired Immune Deficiency Syndrome; or

(e) Other medical conditions which the commissioner shall approve for any particular filing; or

(5) Other qualifying events which the commissioner shall approve for any particular filing.

R590-145-3. Type of Product.

Accelerated benefit riders and life insurance policies with accelerated benefit provisions are primarily mortality risks rather than morbidity risks. They are life insurance benefits subject to 31A-22-400 et seq. and 31A-22-501 et seq.

R590-145-4. Assignee/Beneficiary.

Prior to the payment of the accelerated benefit, the insurer is required to obtain from any assignee or irrevocable beneficiary a signed acknowledgment of concurrence for pay out. If the insurer making the accelerated benefit is itself the assignee under the policy, no such acknowledgment is required.

R590-145-5. Criteria for Payment.

A. Lump Sum Settlement Option Required.

Contract payment options shall include the option to take the benefit as a lump sum. The benefit shall not be made available as an annuity contingent upon the life of the insured.

B. Restrictions on Use of Proceeds.

No restrictions are permitted on the use of the proceeds.

C. Accidental Death Benefit Provision

If any death benefit remains after payment of an accelerated benefit, the accidental death benefit provision, if any, in the policy or rider shall not be affected by the payment of the accelerated benefit.

R590-145-6. Disclosures.

A. Descriptive Title.

The terminology "accelerated benefit" shall be included in the descriptive title. Products regulated under this Rule shall not be described or marketed as long-term care insurance or as providing long-term care benefits.

B. Solicitations.

(1) A written disclosure including, but not necessarily limited to, a brief description of the accelerated benefit and definitions of the conditions or occurrences triggering payment of the benefits shall be given to the applicant. The description shall include an explanation of any effect of the payment of a benefit on the policy's cash value, accumulation account, death benefit, premium, policy loans and policy liens.

(a) In the case of agent solicited insurance, the agent shall provide the disclosure form to the applicant when the policy is delivered or prior to delivery of the policy if so requested.

(b) In the case of a solicitation by direct response methods, the insurer shall provide the disclosure form to the applicant at the time the policy is delivered, with a notice that a full premium refund shall be received if the policy is returned to the company within the free examination period.

(c) In the case of group insurance policies, the disclosure form shall be contained as part of the certificate of coverage or any related document furnished by the insurer for the certificateholder.

(2) If there is a premium or cost of insurance charge for the accelerated benefit, the insurer shall give the applicant a generic illustration numerically demonstrating any effect of the payment of a benefit on the policy's cash value, accumulation account, death benefit, premium, policy loans and policy liens.

(a) In the case of agent solicited insurance, the agent shall provide the illustration to the applicant when the policy is delivered or prior to delivery of the policy if so requested.

(b) In the case of a solicitation by direct response methods, the insurer shall provide the illustration to the applicant at the time the policy is delivered.

(c) In the case of group insurance policies, the disclosure form shall be contained as part of the certificate of coverage or any related document furnished by the insurer for the certificateholder.

C. Disclosure of Benefit Costs.

(1) Insurers with cost options as described in Section 10 A(1) of this Rule shall disclose to the policyowner any premium or cost of insurance charge for the accelerated benefit. These insurers shall make a reasonable effort to assure that the certificateholder is aware of any additional premium or cost of insurance charge if the certificateholder is required to pay such charge.

(2) Insurers with cost options as described in Section 10 A(2) of this Rule shall disclose to the policyowner a description of the basis of the calculation to be used in determining the cost of the accelerated benefit. Included in the disclosure shall be the administrative expense charge, if any, and the interest rate, if any, or the interest rate methodology. The insurer shall make a reasonable effort to assure that the certificateholder is aware of any additional charge if the certificateholder is required to pay such charge.

(3) Insurers with cost options as described in Section 10 A(3) of this Rule shall disclose the interest rate, if any, or interest rate methodology and the administrative expense charge, if any, to the policyowner. The insurer shall make a reasonable effort to assure that the certificateholder is aware of any additional charge if the certificateholder is required to pay such charge.

(4) Insurers shall furnish an actuarial memorandum demonstrating to the state insurance department when filing the product disclosing the method of arriving at their cost for the accelerated benefit.

(5) No charges may be made in connection with accelerated benefits other than as authorized in this Rule. An insurer may charge an administrative expense charge for expenses incurred for obtaining medical records and reports to determine eligibility for accelerated benefits and may charge a fee for expenses incurred for evaluating and processing the accelerated benefit claim. The insurer shall disclose the administrative expense charge, if any, and fee, if any, in the policy or rider and in the actuarial memorandum. The insurer shall make a reasonable effort to assure that the certificateholder is aware of any administrative expense charge or fee if the certificateholder is required to pay such charge.

D. Effect of the Benefit Payment.

When a policyowner or certificateholder requests an acceleration, the insurer shall send a statement to the policyowner or certificateholder and irrevocable beneficiary showing any effect that the payment of the accelerated benefit will have on the policy's cash value, accumulation account, death benefit, premium, policy loans and policy liens. The statement shall disclose that receipt of accelerated benefit payments may adversely affect the recipient's eligibility for Medicaid or other government benefits or entitlements. In addition, receipt of an accelerated benefit payment may be taxable and assistance should be sought from a personal tax advisor. When a previous disclosure statement becomes invalid as a result of an acceleration of the death benefit, the insurer shall send a revised disclosure statement to the policyowner or certificateholder and irrevocable beneficiary. When the cost option is as described in Section 10A(3) of this Rule, the insurer shall provide periodic statements at least annually to the policyholder or certificateholder as to the effects on policy values and benefits. When the insurer agrees to accelerate death benefits, the insurer shall issue an amended schedule page to the policyholder or notify the certificateholder under a group policy to reflect any new, reduced in-force face amount of the contract.

R590-145-7. Effective Date of the Accelerated Benefits.

The accelerated benefit provision shall be effective for accidents on the effective date of the policy or rider. The accelerated benefit provision shall be effective for illness no more than 30 days following the effective date of the policy or rider.

R590-145-8. Waiver of Premiums.

The insurer may offer a waiver of premium for the accelerated benefit provision in the absence of a regular waiver of premium provision being in effect. At the time the benefit is claimed, the insurer shall explain any continuing premium requirement to keep the policy in force.

R590-145-9. Discrimination.

Insurers shall not unfairly discriminate among insureds with differing qualifying events covered under the policy or among insureds with similar qualifying events covered under the policy. Insurers shall not apply further conditions on the payment of the accelerated benefits other than those conditions specified in the policy or rider.

R590-145-10. Actuarial Standards.

A. Methods of Determining Accelerated Benefits Costs

An insurer may use one of the following methods in determining accelerated benefits costs.

(1) The insurer may require a premium charge or cost of insurance charge for the accelerated benefit. These charges shall be based on sound actuarial principles. In the case of group insurance, the additional cost may also be reflected in the experience rating.

(2) The insurer may pay a present value of the face amount. The calculation shall be based on any applicable actuarial discount appropriate to the policy design which may include a reasonable administrative expense charge. The interest rate or interest rate methodology used in the calculation shall be based on sound actuarial principles and disclosed in the contract or actuarial memorandum. The maximum interest rate used shall be no greater than the greater of:

(a) The current yield on 90 day treasury bills; or

(b) The current maximum statutory adjustable policy loan interest rate.

(3) The insurer may accrue a lien interest charge on the amount of the accelerated benefits. The interest rate or interest rate methodology used in the calculation shall be disclosed in the accelerated benefit contract or actuarial memorandum. The maximum interest rate used shall be no greater than the greater of:

(a) The current yield on 90 day treasury bills; or

(b) the current maximum statutory adjustable policy loan interest rate. The interest rate accrued on the portion of the lien which is equal in amount to the cash value of the contract at the time of the benefit acceleration shall be no more than the policy loan interest rate stated in the contract.

B. Effect on Cash Value.

(1) Except as provided in Section 10 B(2), when an accelerated benefit is payable, there shall be no more than a pro rata reduction in the cash value based on the percentage of death benefits accelerated to produce the accelerated benefit payment.

(2) Alternatively, the payment of accelerated benefits, any actual expense charges, any future premiums and any accrued interest can be considered a lien against the death benefit of the policy or rider and the access to the cash value may be restricted to any excess of the cash value over the sum of any other outstanding loans and the lien. Future access to additional policy loans must be limited to any excess of the cash value, which includes accrued dividends over the sum of the lien and any other outstanding policy loans.

C. Effect of Any Outstanding Policy Loans on Accelerated Death Benefit Payment.

When payment of an accelerated benefit results in a pro rata reduction in the cash value, the payment may not be applied toward repaying an amount greater than a pro rata portion of any outstanding policy loans.

R590-145-11. Actuarial Disclosure and Reserves.

A. Actuarial Memorandum

A qualified actuary should describe the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves in an actuarial memorandum accompanying each state filing. The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions. These descriptions shall be made available for examination by the commissioner upon request.

B. Reserves

(1) When benefits are provided through the acceleration of benefits under group or individual life policies or riders to such policies, policy reserves shall be determined in accordance with the Standard Valuation Law. All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a Member in good standing of the American Academy of Actuaries. Mortality tables and interest currently recognized for life insurance reserves by the NAIC may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary must follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate should be sufficient to cover:

(a) Policies upon which no claim has yet arisen.

(b) Policies upon which an accelerated claim has arisen.

(2) For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.

(3) Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability such excess must be held as a non-admitted asset.

KEY: insurance companies

1991

Notice of Continuation October 25, 2001

31A-2-201]

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For questions regarding the content or application of this rule, please contact Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.