Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.6-170,
304.6-171,
304.12-010,
304.12-020,
304.12-235,
304.14-600(2),
304.15-115
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110(1) authorizes the
Executive Director of the Office of Insurance to promulgate administrative
regulations necessary for or as an aid to the effectuation of any provision of
the Kentucky Insurance Code, KRS Chapter 304. This administrative regulation
establishes standards for accelerated death benefits in individual life
insurance forms.
Section 1.
Definitions.
(1) "Accelerated death benefit"
means the advance payment of some or all of the death proceeds payable pursuant
to a life insurance policy:
(a) To the owner,
during the lifetime of the insured triggered by a qualifying event;
(b) That reduces the death benefit otherwise
payable under the policy through a present value payment or imposition of a
lien upon the death benefits; and
(c) That are payable upon the occurrence of
any single qualifying event.
(2) "Executive director" is defined in
KRS
304.1-050(1).
(3) "Form" means accelerated death benefit
form, or policy provision if the benefit is built into the policy.
(4) "Qualifying event" means a medical
condition that is reasonably expected to result in a drastically limited life
span for the insured.
Section
2. Applicability. The requirements established in this
administrative regulation shall:
(1) Apply to
accelerated death benefits in individual life insurance policies; and
(2) Not apply to long-term care insurance or
policies providing long-term care benefits.
Section 3. Form Filings. The following form
filing requirements shall apply to accelerated death benefits and shall be
included on Certification Form L-TD Life, Transmittal Document, Office of
Insurance (1/1/06), incorporated by reference in
806
KAR 14:005, or as an attachment to the filing:
(1) A statement of the types of policy forms
with which this benefit will be offered;
(2) Underwriting restrictions involving face
amount or age;
(3) Whether the
benefit is intended for use with new issues, or in force business, or
both;
(4) A notice describing the
amount of the accelerated benefit option and its effect on the other benefit
provisions of the policy, to be provided to the owner prior to or concurrent
with the election of the accelerated death benefit option; and
(5) An actuarial memorandum prepared, dated,
and signed by the member of the American Academy of Actuaries which shall
provide the following information:
(a) A
description of the accelerated death benefit, including the effects of payment
of the accelerated death benefit on all policy benefits, premium payments, cost
of insurance rates, and values, including any outstanding loan, if applicable,
for all types of forms with which the accelerated death benefit will be
used;
(b) Justification for expense
charges associated with the accelerated death benefit and the maximum expense
charges;
(c) The interest rate or
interest rate methodology used in any present value calculation or in accruing
interest on the amount of the accelerated death benefit, which shall not exceed
the greater of:
1. The current yield on
90-day treasury bills; or
2. An
adjustable rate determined in accordance with
KRS
304.15-115;
(d) The mortality basis and methodology,
including the period of time applicable to any mortality discount, used in any
present value calculation of the accelerated death benefit;
(e) The mortality and morbidity basis and
methodology used in the determination of any separate premium or costs of
insurance for the accelerated death benefit;
(f) The formula used to determine the
accelerated death benefit, including any limitations on the amount of the
benefit, and the formula used to determine the post-acceleration
premium;
(g) A sample calculation
of the accelerated death benefit.
1. If the
policy contains a loan provision, the example shall assume that there is an
outstanding loan at date of acceleration.
2. All policy benefits, premium payments,
cost of insurance charges, and values, including the outstanding loan, if
applicable, immediately before and immediately after acceleration shall be
shown in the example;
(h) If an accelerated death benefit may be
paid in installments, the basis used in the calculation of the minimum periodic
payment for the payment period and a sample calculation of a minimum periodic
payment;
(i) If the insured dies
before all periodic payments for the payment period are made, identification of
the basis used and a sample calculation of the lump sum payable; and
(j) A certification that the value and
premium of the accelerated death benefit is incidental to the life
coverage.
Section
4. General Form Requirements.
(1)
The company's definition of a "drastically limited life span" shall have a
minimum of "six (6) months or less" and a maximum of "twenty-four (24) months
or less" and shall be specified in the form
(2) The cover page of the form, or the cover
page of the policy if the benefit is built into the policy, shall include the
following in prominent type:
(a) The term
"accelerated death benefit" included in the brief description or descriptive
title of the form;
(b) A clear
statement that the death benefit and any accumulation values and cash values
and, if applicable, premium payments or cost of insurance charges, shall be
reduced if an accelerated death benefit is paid; and
(c) A clear statement recommending that the
owner seek additional information from the owner's personal tax advisor about
the tax status of the accelerated death benefit payment.
(3) The form shall not contain provisions
that unfairly discriminate among insureds with differing qualifying events
covered pursuant to the form or among insureds with similar qualifying events
covered pursuant to the form.
(4)
Products subject to these standards shall not be described as long-term care
insurance or as providing long-term care benefits.
(5)
(a) The
percentage or dollar amount of the policy death benefit that may be accelerated
may be limited.
(b) The limit shall
be specified in the form.
(6) A time frame within which proof of
eligibility shall be provided shall be prohibited.
Section 5. Benefit Design Options.
(1) The form shall describe the accelerated
death benefit option or options that shall be available to the owner, such as
the payment of all of the death benefit of the policy, the payment of part of
the death benefit of the policy, or a lien on the death benefit of the
policy.
(2) If the form allows for
the present value calculation, the form shall:
(a) Specify the amount of the death benefit
of the policy that may be accelerated by the owner;
(b) State that the company may apply a
portion of the accelerated death benefit to repay an outstanding policy loan
but only up to the amount of the outstanding policy loan multiplied by the
percentage of the policy death benefit that has been accelerated;
(c) State that the premium shall be reduced
to the premium that would apply had the policy been issued at the reduced
amount, and may be further reduced according to some defined formula, such as
pro rata reduction, or become paid-up;
(d) State that the company may pay the owner
a present value of the policy death benefit being accelerated. The interest
rate or interest rate methodology used in the calculation shall be disclosed in
the form; and
(e) State that the
policy cash value, if any, shall be reduced by the same percentage as the
policy death benefit.
(3) If the payment to the owner of the
accelerated death benefit is treated as a lien on the death benefits of the
policy, the form shall state that:
(a) The
lien may be applied only against the policy death benefit, not against any
policy cash value;
(b) The lien may
bear interest.
1. The interest rate accrued
on the portion of the lien which is equal to the cash value of the policy upon
acceleration shall not be more than the policy loan interest rate stated in the
policy.
2. For the amount of the
lien in excess of the cash value, the interest rate or interest rate
methodology shall be disclosed in the form;
(c) Expense charges may be added to the
lien;
(d) Due and unpaid premiums
may be included in the lien after the automatic premium loan, if available, is
exercised; and
(e) Access to the
policy cash value may be restricted to the excess of the cash value over the
sum of the lien and any other outstanding policy loans.
(4)
(a) A
premium charge or cost of insurance charge for the accelerated death benefit
shall be disclosed to the insured.
(b) A premium charge or cost of insurance
charge shall be prohibited for a qualifying event of the type described in
Section 11(1)(a) of this administrative regulation.
(5) The company may deduct a reasonable
expense charge for accelerating the death benefit and shall state the maximum
expense charge in the form.
(6) If
an index used in determining the accelerated death benefit is discontinued, the
company shall use an appropriate substitute index.
(7) The form or policy shall not:
(a) Provide that the insured forfeits the
remainder of the policy death benefit upon acceleration of part of the policy
death benefit;
(b) Place an
aggregate limit provision that caps the accelerated death benefits payable for
all policies issued by the company and its subsidiaries and
affiliates;
(c) Require that the
accelerated death benefit be provided if the policy remains in force for a
specific period of time following acceleration. The option may exclude from
acceleration a term insurance coverage scheduled to terminate prior to the end
of the period used to define a qualifying event of the type described in
Section 11(1)(a) of this administrative regulation; and
(d) Contain restrictions on the use of the
accelerated death benefit proceeds.
(8) A form with an accelerated death benefit
shall include an option upon acceleration:
(a)
To reduce the accelerated death benefit payment by an amount actuarially
determined to pay the remaining premiums; or
(b) To continue to pay premiums to keep the
policy in force.
Section
6. Effect of Benefit Payment on other Benefit Provisions.
(1) Prior to or concurrent with the election
to accelerate the policy death benefits, the owner and each irrevocable
beneficiary shall be given a statement demonstrating the effect of the
acceleration of the payment of death benefits on the cash value, death benefit,
premium, cost of insurance charges, and policy loans, including policy liens,
of the particular policy involved.
(a) The
statement shall display the premium or cost of insurance charges necessary to
continue coverage following the acceleration, and shall display all expense and
interest charges associated with accelerating the death benefit.
(b) Statements for use with liens shall state
that future due and unpaid premiums or cost of insurance charges may be
included in the lien if the provision provides for the charges.
(c) The statement shall be based only on
guaranteed values and shall not show any projected or non-guaranteed
values.
(d) The statement shall
include a disclosure that receipt of an accelerated death benefit may affect
eligibility for Medicaid or other government benefits or entitlements and may
have income tax consequences.
(2) The form shall describe the effect of
acceleration on premiums, cost of insurance charges, cash values, and loan
values, as applicable.
(3) The form
shall describe the effect that acceleration of death benefits will have on
coverage on another insured pursuant to the policy.
(4) If a part of the death benefit remains
after payment of the accelerated death benefit, the following requirements
shall apply:
(a) If the accelerated death
benefit is paid under a present value calculation, the policy shall be modified
by an endorsement, which includes a statement of cash values, policy loans,
premiums, cost of insurance charges, and death benefits following
acceleration;
(b) The dividends or
non-guaranteed elements credited shall not discriminate between policies whose
death benefits have been reduced through acceleration and policies originally
issued in the amount of the reduced death benefits; and
(c) The accidental death benefit provision,
if any, in the policy shall not be affected by the payment of the accelerated
death benefit.
Section
7. Exclusions or Restrictions. The accelerated death benefit shall
not contain exclusions or restrictions that are not also exclusions or
restrictions in the policy.
Section
8. Incontestability. The accelerated death benefit shall be
incontestable on the same, or on a more favorable basis, as the individual
policy.
Section 9. Payment Options.
(1)
(a) The
payment options shall include the option to receive the accelerated death
benefit payment in a lump sum and may include an option to receive the benefit
in periodic payments for a period certain.
(b) Periodic payments based on the continued
survival or institutional confinement of the insured shall be
prohibited.
(2)
(a) The amount payable as a lump sum shall be
at least equal to the acceleration percentage multiplied by the difference
between the current policy cash value and any outstanding policy
loans.
(b) The current policy cash
value shall include any termination dividend payable on the surrender of the
policy.
(3)
(a) The form shall specify what occurs if the
insured dies before all payments of the accelerated death benefit are
made.
(b) If the present value of
remaining payments is paid, the interest rate used to calculate any present
value of the settlement option shall be that assumed in calculating the
original payments.
(4)
If the insured dies after the owner elects to receive accelerated death
benefits but before benefits are received, the election shall be cancelled and
the death benefit paid pursuant to the policy.
Section 10. Payment Procedures. The
procedures required to accelerate the death benefit of the policy shall be
specified in the form and shall be at least as favorable as the following:
(1)
(a) If
the company requires the filing of a proof of eligibility claim form, the
company shall provide the claim form within fifteen (15) days of the
acceleration request.
(b) If the
claim form is not furnished within fifteen (15) days, it shall be considered
that the claimant complied with the claim requirements if the claimant submits
written proof covering the occurrence, the character, and the extent of the
occurrence for which claim is made;
(2)
(a) The
company may reserve the right to require a second or third medical opinion to
confirm benefit eligibility.
(b)
The second or third medical opinion shall be provided at the company's
expense.
(c) The second medical
opinion may include a physical examination by a physician designated by the
company.
(d) In the case of
conflicting opinions, eligibility for benefits shall be determined by a third
medical opinion provided by a physician that is mutually acceptable to the
insured and the company;
(3) The accelerated death benefit shall be
paid to the owner or owner's estate while the insured is living, unless the
benefit has been otherwise assigned or designated by the owner; and
(4)
(a)
Prior to the payment of the accelerated death benefit, the company shall obtain
from any assignee or irrevocable beneficiary a signed acknowledgement of
concurrence for payout.
(b) If the
company paying the accelerated death benefit is itself the assignee under the
policy, an acknowledgement shall not be required.
(c) Payment of the accelerated death benefit
is due in accordance with
KRS
304.12-235 with respect to any delay in
processing requests to accelerate the payment of death benefits.
Section 11. Qualifying
Events.
(1) A qualifying event may, at the
option of the company, include one (1) or more of the following:
(a) A medical condition that requires
extraordinary medical intervention, such as major organ transplant or
continuous artificial life support, without which the insured is expected to
die;
(b) A condition that usually
requires continuous confinement in an institution, as defined in the form, and
the insured is expected to remain there for the rest of the insured's
life;
(c) A specified medical
condition that, in the absence of extensive or extraordinary medical treatment,
is expected to result in a drastically limited life span; or
(d) A chronic illness that results in
permanent inability to perform a specified number of activities of daily living
without substantial assistance from another individual, or permanent severe
cognitive impairment, or both.
(2) The form shall specify the terms and
conditions applicable to each qualifying event.
(3) The form shall not require that the cause
of a qualifying event first manifest itself or be diagnosed after issuance of
the individual policy or form.
(4)
The form shall not include a waiting period requirement.
(5) A requirement that the individual policy
or form be in force past the incontestable period shall be
prohibited.
Section 12.
Reinstatement. The form shall include a reinstatement provision on the same, or
more favorable, terms as contained in the policy.
Section 13. Termination.
(1) The form shall include the following
conditions for termination, upon:
(a) A
written request; or
(b) Termination
of the policy; or
(c) Nonpayment of
any separate premium or cost of insurance charge for the accelerated death
benefit, in accordance with the provisions of the form or the policy.
(2) The form may state that the
accelerated death benefit may be terminated if a nonforfeiture benefit becomes
effective pursuant to the policy.
(3) The form shall state that termination
shall not prejudice the payment of benefits for a qualifying event that
occurred while the form was in force.
Section 14. Effective Date. The requirements,
implementation, and enforcement of this administrative regulation shall begin
on January 1, 2008.
STATUTORY AUTHORITY:
KRS
304.2-110