Current through Register Vol. 49, No. 2, February 2024
SECTION 1. PURPOSE.
The purpose of this Regulation is to regulate accelerated benefit
provisions of individual and group life insurance policies and to provide
required standards of disclosure.
SECTION
2. AUTHORITY AND SCOPE. This Rule shall be issued under the
authority of the Commissioner pursuant to Ark. Code Ann. §
23-61-108, §§
25-15-201, et
seq., and other applicable laws. This Regulation shall apply to all licensed
domestic, foreign and alien life insurers. This Rule shall apply to ail
accelerated benefits provisions of individual and group life insurance policies
and riders attached thereto issued or issued for delivery in this State, except
long term care insurance policies.
SECTION
3. EFFECTIVE DATE. The provisions of this Rule shall be effective
August 1, 1994, upon signature of the Commissioner, and upon filing with the
Arkansas Secretary of State and the Arkansas State Library, pursuant to Ark.
Code Ann. §§
25-15-201, et
seq., as amended by Act 1106 of 1993.
Insurers' compliance with this Rule and Regulation shall commence
on and after November 1, 1994.
SECTION
4. DEFINITIONS.
A. "Accelerated
benefits" covered under this Regulation are benefits payable under a life
insurance contract:
(1) To a policyowner or
certificate holder, 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 may reduce or eliminate the death
benefit otherwise payable under the life insurance contract; and
(3) Which are payable upon the occurrence of
a single qualifying event which results in the payment of a benefit amount
fixed at the time of acceleration.
B. "Qualifying event" shall mean one (1) 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, twenty-four (24) months or less); or
(2) A medical condition which has required or
requires extraordinary medical intervention, such as, hut 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.
SECTION 5. 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 Ark. Code Ann. §§
23-79-101,
et seq., and §§
23-81-101, et
seq.
SECTION 6.
ASSIGNEE/BENEFICIARY. Prior to the payment of the accelerated benefit, the
insurer is required to obtain from any assignee or irrevocable beneficiary a
signed acknowledgement of concurrence for payout. If the insurer making the
accelerated benefit payment is itself the assignee under the policy, no such
acknowledgement is required.
SECTION
7. 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.
SECTION 8. DISCLOSURES.
A. Descriptive Title. The terminology
"accelerated benefit" shall be included in the descriptive title. Products
regulated under this Regulation shall not be described or marketed as long-term
care insurance or as providing long-term care benefits.
B. Tax Consequences. A disclosure statement
is required at the time of application for the policy or rider and at the time
the accelerated benefit payment request is submitted; disclosing that receipt
of these accelerated benefits may be taxable and that assistance should be
sought from a personal tax advisor. The disclosure statement shall be
prominently displayed on the first page of the policy or rider and any other
related documents.
C.
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 prior to or concurrently with the application. Acknowledgment of the
disclosure shall be signed by the applicant and writing agent.
(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 look period. Insurers shall provide a ten day free look period
for individual contracts in compliance with Ark. Code Ann. §
23-79-112(f).
(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 certificate
holder.
(2) If there is a
premium or cost of insurance charge, 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 prior to or concurrently with the
application.
(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 certificate
holder.
(3) Disclosure of
Premium Charge.
(a) Insurers with financing
options other than as described in Section 12 (A)(2) and (3) of this Regulation
shall disclose to the policy owner any premium or cost of insurance charge for
the accelerated benefit. These insurers shall make a reasonable effort to
assure that the certificate holder is aware of any additional premium or cost
of insurance charge if the certificate holder is required to pay such
charge.
(b) Insurers shall furnish
an actuarial demonstration to this Department when filing the product
disclosing the method of arriving at their cost for the accelerated
benefit.
(4) Disclosure
of Administrative Expense Charge. The insurer shall disclose to the policy
owner any administrative expense charge. The insurer shall make a reasonable
effort to assure that the certificate holder is aware of any administrative
expense charge if the certificate holder is required to pay such
charge.
D. Effect of the
Benefit Payment. when a policyowner or certificate holder requests an
acceleration, the insurer shall send a statement to the policy owner or
certificate holder 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 govemment
benefits or entitlements; and disclose that 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 policy owner or certificate holder and irrevocable
beneficiary. When the insurer agrees to accelerate .death benefits, the insurer
shall issue an amended schedule page to the policyholder or notify the
certificate holder under a group policy to reflect any new, reduced in-force
face amount of the contract.
SECTION
9. 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 only be effective for
illnesses which first manifest themselves more than sixty (60) days following
the effective date of the policy or rider.
SECTION 10. 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.
SECTION
11. 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.
SECTION 12. ACTUARIAL STANDARDS.
A. Financing Options.
(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. 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. Subject to
any applicable limitations contained in the Arkansas State Constitution on
interest rates or applicable Code sections thereon, 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 under Ark. Code Ann. §
23-81-109.
(3) The insurer may accrue an interest charge
on the amount of the accelerated benefits. 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. Subject to
any applicable limitations contained the Arkansas State Constitution or Code
sections on interest rates, 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, under Ark. Code
Ann. §
23-81-109.
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 12 (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 administrative 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 could
also be limited to any excess of the cash value 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.
SECTION
13. ACTUARIAL DISCLOSURE AND RESERVES.
A. Actuarial Memorandum. An actuary qualified
under Department Rule and Regulation 16, "Actuaries", 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 ins 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 Cominissioner 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, Ark. Code Ann. §§
23-84-101, et
seq. 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 of by an actuary otherwise
qualified under the provisions of Department Rule and Regulation 16,
"Actuaries". Mortality tables in compliance with Ark. Code Ann. §§
23-81-201, et
seq., and Department Rules and Regulations 39 and 40, 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 actuarally equivalent benefits, no additional reserves need to be
established.
(3) Policy liens and
policy loans, including accrued interest, represent assets of the insurer 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.
SECTION
14. FILING REQUIREMENT. Notwithstanding other sections to the
contrary, the filing and prior approval of forms for both individual and group
life insurance policies containing an accelerated benefit are required, under
the provisions of Ark. Code Ann. §
23-79-109
and other applicable provisions, despite or notwithstanding any form filing
requirements to the contrary and despite any form filing exemptions contained
in §
§
23-79-109,
et seq., as customarily applicable. Policy forms shall be filed not less than
sixty (60) days in advance of intended use in Arkansas, although the
Commissioner may waive all or any part of that period upon written application
by the filer which demonstrates good cause. No unapproved form shall be issued
or issued for delivery in Arkansas.
SECTION
15. SEVERABILITY. Any section or provision of this Rule held by a
court to be invalid or unconstitutional will not affect the validity of any
other section or provision of this Rule.
