Current through all regulations passed and filed through September 16, 2024
(A) Purpose
The purpose of this rule is to regulate accelerated death
benefit provisions of individual and group life insurance policies and to
provide required standards of disclosure.
(B) Authority
This rule is promulgated pursuant to the authority vested in
the superintendent under sections
3901.041
and
3915.24 of the Revised
Code.
(C) Scope
This rule shall apply to all accelerated death benefit
provisions of individual and group life insurance policies issued or delivered
in this state on or after the effective date of this rule. This rule shall not
apply to long-term care insurance or products providing long-term care benefits
that are subject to sections
3923.41
to
3923.48
of the Revised Code and any rules promulgated thereunder.
(D) Definitions
(1) "Accelerated death benefits" covered
under this rule are benefits payable under a life insurance contract:
(a) To a policyowner or certificateholder
during the lifetime of the insured, at the time of a qualifying event;
and
(b) Which reduce the death
benefit otherwise payable under the life insurance contract; and
(c) Which are payable upon the occurrence of
a single qualifying event in an amount fixed at the time of
acceleration.
(2)
"Qualifying event" shall mean one or more of the following:
(a) A medical condition which would result in
a drastically limited life span; or
(b) 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
(c) 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
the insured's life; or
(d) 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:
(i)
Coronary artery disease resulting in an acute infarction or requiring
surgery;
(ii) Permanent
neurological deficit resulting from cerebral vascular accident;
(iii) End stage renal failure;
(iv) Acquired immune deficiency syndrome
(AIDS); or
(v) Other medical
conditions which the superintendent shall approve for any particular filing;
or
(e) Other qualifying
events which the superintendent shall approve for any particular filing. This
includes, but is not limited to, chronic illness which is a permanent inability
to perform, without substantial assistance from another individual, a specified
number of activities of daily living (bathing, continence, dressing, eating,
toileting and transferring), and/or permanent severe cognitive impairment and
similar forms of dementia.
(3) "Drastically limited life span" shall
mean a projected life span of a minimum of six months or less and a maximum of
twenty-four months or less.
(E) Type of product
Accelerated death benefit riders and life insurance policies
with accelerated death benefit provisions are primarily mortality risks rather
than morbidity risks. They are life insurance benefits subject to Chapter 3915.
of the Revised Code.
(F)
Assignee/beneficiary
Prior to the payment of the accelerated death benefit, the
insurer is required to obtain from an assignee or irrevocable beneficiary a
signed acknowledgment of concurrence for payout. If the insurer making the
accelerated death benefit is itself the assignee under the policy, no such
acknowledgment is required.
(G) Payment procedures
(1) The payment options shall include the
option to receive the benefit in a lump sum and may include an option to
receive the benefit in periodic payments for a period certain only. Periodic
payments based on the continued survival or institutional confinement of the
insured are prohibited.
(2) The
policy or rider shall state that payment of the accelerated death benefit is
due immediately upon receipt of the due written proof of eligibility. If the
insurer requires filing of a claim form, the company shall provide the claim
form within fifteen calendar days of the acceleration request. If the insurer
does not timely provide the claim form, then written proof of eligibility is
deemed sufficient.
(H)
Accidental death benefit provision
If any death benefit remains after payment of an accelerated
death benefit, the accidental death benefit provision, if any, in the policy or
rider shall not be affected by the payment of the accelerated death
benefit.
(I) Disclosures
(1) Descriptive title
The term "accelerated death benefit" shall be included in the
descriptive title. Products regulated under this rule shall not be described or
marketed as longterm care insurance or as providing long-term care
benefits.
(2) Tax
consequences
A disclosure statement is required at the time of application
for the policy or rider and at the time the accelerated death benefit payment
request is submitted that receipt of these benefits may be a taxable event and
that the owner should seek additional information about the tax status of the
payment 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.
(3)
Solicitations
(a) A written disclosure
including, but not necessarily limited to, a brief description of the
accelerated death 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 and a generic illustration numerically
demonstrating any effect of the payment of a benefit on the policy's cash
value, account value, death benefit, premium, policy loans and policy liens.
(i) 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.
(ii) 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.
(iii)
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.
(b) Disclosure of premium charge
(i) Insurers with financing options other
than as described in paragraphs (O)(1)(b) and (O)(1)(c) of this rule shall
disclose to the policyowner any premium or cost of insurance charge for the
accelerated death 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.
(ii) Insurers shall furnish
an actuarial demonstration to the state insurance department when filing the
product disclosing the method of arriving at their cost for the accelerated
death benefit.
(c) The
insurer shall disclose to the policyowner any administrative expense charge.
The insurer shall make a reasonable effort to assure that the certificateholder
is aware of any administrative expense charge if the certificateholder is
required to pay such charge.
(4) 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 death benefit will have on the policy's cash value,
account value, death benefit, premium, policy loans and policy liens. The
statement shall disclose that receipt of accelerated death benefit payments may
adversely affect the recipient's eligibility for medicaid or other government
benefits or entitlements. In addition, receipt of an accelerated death 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 insurer agrees to accelerate death benefits, the insurer shall issue
an amended schedule page to the policyowner or notify the certificateholder
under a group policy to reflect any new, reduced in-force face amount of the
contract.
(J)
Effective date of accelerated death benefits
The accelerated death benefit provision shall be effective on
the effective date of the policy or rider.
(K) Waiver of premiums
The insurer may offer a waiver of premium for the accelerated
death 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.
(L) 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 death benefits other than
those conditions specified in the policy or rider.
(M) Prohibited provisions
The following provisions are prohibited in accelerated death
benefit policy provisions or rider:
(1) A requirement that the cause of the
qualifying event first manifest itself or be diagnosed after issuance of the
underlying policy or form, and
(2)
A waiting period requirement, and
(3) A requirement that the underlying policy
or rider be in force past the incontestable period, and
(4) A provision that, upon acceleration of
part of the policy death benefit, the insured forfeits the remainder of the
policy death benefit, and
(5)
Exclusions or restrictions for an accelerated death benefit that are not also
exclusions or restrictions in the underlying policy, and
(6) A time frame within which proof of
eligibility must be provided, and
(7) Restrictions on the use of the
accelerated death benefit proceeds.
(N) Incontestability
The form shall be incontestable on the same, or more favorable
basis, as the underlying policy.
(O) Actuarial standards
(1) Financing options
(a) The insurer may require a premium charge
or cost of insurance charge for the accelerated death 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.
(b) 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. The maximum
Interest rate used shall be no greater than the greater of:
(i) The current yield on ninety day treasury
bills; or
(ii) The current maximum
statutory adjustable policy loan interest rate; or
(iii) The policy loan interest rate stated in
the contract.
(c) The
insurer may accrue an interest charge on the amount of the accelerated death
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. The maximum interest rate used shall be no
greater than the greater of:
(i) The current
yield on ninety day treasury bills; or
(ii) The current maximum statutory adjustable
policy loan interest rate; or
(iii)
The policy loan interest rate stated in the contract.
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.
(2) Effect on cash value
(a) Except as provided in paragraph (O)(2)(b)
of this rule, when an accelerated death 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 death benefit
payment.
(b) Alternatively, the
payment of accelerated death benefits, any administrative expense charge, 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.
(3) Effect of any outstanding policy loans on
accelerated death benefit payment
When payment of an accelerated death 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.
(P)
Actuarial disclosure and reserves
(1)
Actuarial memorandum
A qualified actuary should describe the accelerated death
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 superintendent upon request.
(2) Reserves
(a) 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 sections
3903.72
to
3903.7211
of the Revised Code and any other appropriate rules. 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 approved for life insurance
reserves by the superintendent 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:
(i) Policies upon which no claim has yet
arisen; and
(ii) Policies upon
which an accelerated claim has arisen.
(b) For policies and certificates which
provide actuarially equivalent benefits, no additional reserves need to be
established.
(c) 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.
(Q) Severability
If any paragraph, term or provision of this rule is adjudged
invalid for any reason, the judgment shall not affect, impair or invalidate any
other paragraph, term or provision of this rule, but the remaining paragraphs,
terms and provisions shall be and continue in full force and effect.
