California Code of Regulations
Title 10 - Investment
Chapter 5 - Insurance Commissioner
Subchapter 3 - Insurers
Article 12 - Disability Insurance Advertisements
Section 2536.3 - Necessity for Disclosing Policy Provisions Relating to Renewability, Cancellability and Termination
Current through Register 2024 Notice Reg. No. 38, September 20, 2024
When an advertisement, which is an invitation to contract, refers to either a dollar amount or a period of time for which any benefit is payable, or the cost of the policy, or specific policy benefit, or the loss for which such benefit is payable, it shall disclose the provisions relating to renewability, cancellability and termination and any modification of benefits, losses covered or premiums because of age or for other reasons, in a manner which shall not minimize or render obscure the qualifying conditions.
GUIDELINE 2536.3
This Section imposes the same disclosure standards with respect to policy provisions relating to renewability, cancellability and termination, modification of benefits, losses or premiums because of age or otherwise as stated in Guideline 2536.2(b)(1). The comments in that Guideline are equally applicable to this Section. Advertisements of cancellable policies must state that the contract is cancellable or renewable at the option of the company as the case may be. For example the following represent illustrations: A policy which is cancellable shall be advertised in a manner similar to "This policy can be cancelled by the company at any time." A policy which is renewable at the option of the insurance company shall be advertised in a manner similar to "This policy is renewable at the option of the company" or "The company has the right to refuse renewal of this policy" or "Renewable at the option of the insurer." Advertisements of such policies must indicate that the insurer has the right to increase premium rates.
With respect to non-cancellable policies and guaranteed renewable policies, the section requires a summary of the policy provisions with respect to renewability must be set forth and defined where appropriate. The disclosure of provisions relating to renewability requires the use of language such as "non-cancellable," "non-cancellable and guaranteed renewable," or "guaranteed renewable." The use of those terms and the definitions provided shall be consistent with Insurance Code Sections 10273 and 10273.3.
The Section also requires a statement of the qualifying conditions which constitute limitations on the permanent nature of the coverage. These customarily fall into three categories;
(1) age limits,
(2) reservation of a right to increase premiums and
(3) the establishment of aggregate limits. For example, "non-cancellable and guaranteed renewable" does not fulfill the requirement of the section if the policy contains a terminal age of 65. In such a case, a proper statement would be "non-cancellable and guaranteed renewable to age 65." If a guaranteed renewable policy reserves the right to increase premiums, the statement must be expanded into language similar to "guaranteed renewable to age 65 but the Company reserves the right to increase premium rates on a class basis." If the contract contains an aggregate limit after which no further benefits are payable, the above statement must be amplified with the phrase "subject to a maximum aggregate amount of $50,000" or similar language. A policy may have one or more than three basic limitations and an advertisement must describe each of those which the policy contains. Currently over 50% of new individual policy issues are guaranteed renewable, therefore, the fact that a policy is guaranteed renewable shall not be exaggerated.
This rule also requires the disclosure of any modification of benefits or losses covered because of age or for other reasons. Provisions for reduction of benefits at stated ages must be set forth. For example, a policy may contain a provision which reduces benefits 50% after age 60 although it is renewable to age 65. Such a reduction would have to be set forth. Also, a provision for the elimination of certain hazards at any specific ages or after the policy has been in force for a specified time would have to be set forth.
An advertisement for a policy which provides for step-rated premium rates based upon the policy year or the insured's attained age must disclose such rate increases and the times or ages at which such premiums increase.
This Section requires that the qualifying conditions of renewability must be disclosed in a manner which does not minimize or render obscure the qualifying conditions of renewal.
1. Amendment filed 11-29-74; effective thirtieth day thereafter (Register 74, No. 48).
