Bill Text: CA SB281 | 2013-2014 | Regular Session | Chaptered
Bill Title: Life insurance: accelerated death benefits.
Spectrum: Bipartisan Bill
Status: (Passed) 2013-09-24 - Chaptered by Secretary of State. Chapter 345, Statutes of 2013. [SB281 Detail]
Download: California-2013-SB281-Chaptered.html
BILL NUMBER: SB 281 CHAPTERED
BILL TEXT
CHAPTER 345
FILED WITH SECRETARY OF STATE SEPTEMBER 24, 2013
APPROVED BY GOVERNOR SEPTEMBER 24, 2013
PASSED THE SENATE SEPTEMBER 11, 2013
PASSED THE ASSEMBLY SEPTEMBER 11, 2013
AMENDED IN ASSEMBLY SEPTEMBER 6, 2013
AMENDED IN ASSEMBLY SEPTEMBER 3, 2013
AMENDED IN ASSEMBLY AUGUST 5, 2013
AMENDED IN ASSEMBLY JULY 3, 2013
AMENDED IN SENATE MAY 1, 2013
AMENDED IN SENATE APRIL 1, 2013
INTRODUCED BY Senator Calderon
(Coauthor: Senator Gaines)
(Coauthors: Assembly Members Cooley and Hagman)
FEBRUARY 14, 2013
An act to amend Sections 10110.5, 10232.8, 10271.1, and 10292 of,
to add Article 2.1 (commencing with Section 10295) to Chapter 4 of
Part 2 of Division 2 of, and to repeal and add Section 10271 of, the
Insurance Code, relating to life insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 281, Calderon. Life insurance: accelerated death benefits.
Existing law governs the business of insurance, and defines
various types of insurance for these purposes, including life
insurance and disability insurance. Existing law, except as provided,
makes the requirements imposed on disability insurance contracts
inapplicable to life insurance, endowment, and annuity contracts, or
supplemental contracts thereto, that provide additional benefits in
case of death or dismemberment or loss of sight by accident, or that
operate to safeguard contracts against lapse, or give a special
surrender benefit, or a special benefit, as specified. Existing law
also provides the language required as part of a provision or
supplemental contract governed by these provisions.
This bill would delete the term "special benefit" and replace it
with the defined term "accelerated death benefit." The bill would
generally revise the phrase "provision or supplemental contract" and
replace it with the term "supplemental benefit," as defined. The bill
would also revise and recast the required language of the provision
or supplemental contract, as prescribed.
Existing law requires a licensed health care practitioner,
independent of the insurer, to certify that an insured meets the
definition of a "chronically ill individual," as specified by federal
law, for purposes of establishing eligibility for benefits under a
long-term care policy or certificate that provides home care
benefits.
This bill would prohibit an insurer, for purposes of long-term
care insurance, from imposing a certification requirement of longer
than 90 days.
Existing law authorizes the Insurance Commissioner to adopt
reasonable rules and regulations necessary to administer and carry
out the purposes of certain provisions relating to the required
language in a provision or supplemental contract.
This bill would extend that authorization for the commissioner to
adopt reasonable rules and regulations to those provisions relating
to supplemental benefits that operate to safeguard life insurance
contracts against lapse when the insured becomes totally disabled and
those life insurance contracts with an accelerated death benefit.
Existing law authorizes provisions or supplemental contracts that
operate to safeguard life insurance contracts against lapse, in which
the insurer waives the premium or monthly deduction for a life
insurance contract when the insured becomes totally disabled, and
where the waiver continues until the end of the insured's disability,
or until the attainment of an age established by the insurer.
This bill would delete the provision regarding attainment of age
and would instead authorize the waiver of premiums to continue for a
period of time specified in the supplemental benefit. The bill would
define "accelerated death benefit" as a policy provision,
endorsement, or rider added to a life insurance policy that provides
for the advance payment of any part of the death proceeds, payable
upon the occurrence of a qualifying event, as defined. The bill would
require a life insurance policy with an accelerated death benefit
provision to comply with and, if applicable, explain specified
requirements, including payment of benefits, commissioner approval of
forms and disclosures, and a free look period, and would place
limits on advertising and marketing. The bill would prohibit an
insurer, broker, agent, or other person from causing a policyholder
to unnecessarily replace a long-term care insurance policy with an
accelerated death benefit policy, and provide certain notices when a
life insurance policy or long-term care insurance policy would be
replaced. The bill would prohibit accelerated death benefits from
limiting or excluding coverage by type of illness, treatment, medical
condition, or accident, except as specified.
This bill would also provide that an insurer that fails to conform
to the requirements of the above provisions would be subject to the
provisions of existing law that provide for the imposition of a
penalty against any person who engages in any unfair method of
competition or any unfair or deceptive act or practice in the
business of insurance, as provided, including civil penalties as well
as a misdemeanor for an insurer intentionally advertising insurance
that it will not sell. Because the bill would create a new crime, it
would impose a state-mandated local program.
This bill would authorize the commissioner to disapprove any
advertising that does not meet the requirements of these provisions,
as specified. The bill would also require a policy, certificate,
rider, or endorsement to include a provision giving the policyholder
or certificate holder the right to appeal to the insurer a decision
regarding benefit eligibility.
This bill would delete obsolete provisions and make conforming
changes.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10110.5 of the Insurance Code is amended to
read:
10110.5. (a) A policy or endorsement issued by an admitted life
and disability insurer may contain a provision for a waiver of
premium payments in the event of involuntary unemployment of the
insured. Insurers issuing policies or endorsements containing that
provision shall establish any additional reserves and file any
additional financial reports that the commissioner may require.
(b) A contract or supplemental contract issued by an admitted life
and disability insurer may contain a provision for a waiver of
surrender charge benefit for a life insurance or annuity contract in
the event of voluntary or involuntary unemployment of the owner,
insured, or annuitant, as applicable. Insurers issuing contracts or
supplemental contracts containing that provision shall establish any
additional reserves and file any additional financial reports that
the commissioner may require.
SEC. 2. Section 10232.8 of the Insurance Code is amended to read:
10232.8. (a) In every long-term care policy or certificate that
is not intended to be a federally qualified long-term care insurance
contract and provides home care benefits, the threshold establishing
eligibility for home care benefits shall be at least as permissive as
a provision that the insured will qualify if either one of two
criteria are met:
(1) Impairment in two out of seven activities of daily living.
(2) Impairment of cognitive ability.
The policy or certificate may provide for lesser but not greater
eligibility criteria. The commissioner, at his or her discretion, may
approve other criteria or combinations of criteria to be
substituted, if the insurer demonstrates that the interest of the
insured is better served.
"Activities of daily living" in every policy or certificate that
is not intended to be a federally qualified long-term care insurance
contract and provides home care benefits shall include eating,
bathing, dressing, ambulating, transferring, toileting, and
continence; "impairment" means that the insured needs human
assistance, or needs continual substantial supervision; and
"impairment of cognitive ability" means deterioration or loss of
intellectual capacity due to organic mental disease, including
Alzheimer's disease or related illnesses, that requires continual
supervision to protect oneself or others.
(b) In every long-term care policy approved or certificate issued
after the effective date of the act adding this section, that is
intended to be a federally qualified long-term care insurance
contract as described in subdivision (a) of Section 10232.1, the
threshold establishing eligibility for home care benefits shall
provide that a chronically ill insured will qualify if either one of
two criteria are met or if a third criterion, as provided by this
subdivision, is met:
(1) Impairment in two out of six activities of daily living.
(2) Impairment of cognitive ability.
Other criteria shall be used in establishing eligibility for
benefits if federal law or regulations allow other types of
disability to be used applicable to eligibility for benefits under a
long-term care insurance policy. If federal law or regulations allow
other types of disability to be used, the commissioner shall
promulgate emergency regulations to add those other criteria as a
third threshold to establish eligibility for benefits. Insurers shall
submit policies for approval within 60 days of the effective date of
the regulations. With respect to policies previously approved, the
department is authorized to review only the changes made to the
policy. All new policies approved and certificates issued after the
effective date of the regulation shall include the third criterion.
No policy shall be sold that does not include the third criterion
after one year beyond the effective date of the regulations. An
insured meeting this third criterion shall be eligible for benefits
regardless of whether the individual meets the impairment
requirements in paragraph (1) or (2) regarding activities of daily
living and cognitive ability.
(c) A licensed health care practitioner, independent of the
insurer, shall certify that the insured meets the definition of
"chronically ill individual" as defined under Public Law 104-191. For
the purposes of long-term care insurance as defined in Section
10231.2, an insurer shall not impose a certification requirement of
longer than 90 days. If a health care practitioner makes a
determination, pursuant to this section, that an insured does not
meet the definition of "chronically ill individual," the insurer
shall notify the insured that the insured shall be entitled to a
second assessment by a licensed health care practitioner, upon
request, who shall personally examine the insured. The requirement
for a second assessment shall not apply if the initial assessment was
performed by a practitioner who otherwise meets the requirements of
this section and who personally examined the insured. The assessments
conducted pursuant to this section shall be performed promptly with
the certification completed as quickly as possible to ensure that an
insured's benefits are not delayed. The written certification shall
be renewed every 12 months. A licensed health care practitioner shall
develop a written plan of care after personally examining the
insured. The costs to have a licensed health care practitioner
certify that an insured meets, or continues to meet, the definition
of "chronically ill individual," or to prepare written plans of care
shall not count against the lifetime maximum of the policy or
certificate. In order to be considered "independent of the insurer,"
a licensed health care practitioner shall not be an employee of the
insurer and shall not be compensated in any manner that is linked to
the outcome of the certification. It is the intent of this
subdivision that the practitioner's assessments be unhindered by
financial considerations. This subdivision shall apply only to a
policy or certificate intended to be a federally qualified long-term
care insurance contract.
(d) "Activities of daily living" in every policy or certificate
intended to be a federally qualified long-term care insurance
contract as provided by Public Law 104-191 shall include eating,
bathing, dressing, transferring, toileting, and continence;
"impairment in activities of daily living" means the insured needs
"substantial assistance" either in the form of "hands-on assistance"
or "standby assistance," due to a loss of functional capacity to
perform the activity; "impairment of cognitive ability" means the
insured needs substantial supervision due to severe cognitive
impairment; "licensed health care practitioner" means a physician,
registered nurse, licensed social worker, or other individual whom
the United States Secretary of the Treasury may prescribe by
regulation; and "plan of care" means a written description of the
insured's needs and a specification of the type, frequency, and
providers of all formal and informal long-term care services required
by the insured, and the cost, if any.
(e) Until the time that these definitions may be superseded by
federal law or regulation, the terms "substantial assistance,"
"hands-on assistance," "standby assistance," "severe cognitive
impairment," and "substantial supervision" shall be defined according
to the safe-harbor definitions contained in Internal Revenue Service
Notice 97-31, issued May 6, 1997.
(f) The definitions of "activities of daily living" to be used in
policies and certificates that are intended to be federally qualified
long-term care insurance shall be the following until the time that
these definitions may be superseded by federal law or regulations:
(1) Eating, which shall mean feeding oneself by getting food in
the body from a receptacle (such as a plate, cup, or table) or by a
feeding tube or intravenously.
(2) Bathing, which shall mean washing oneself by sponge bath or in
either a tub or shower, including the act of getting into or out of
a tub or shower.
(3) Continence, which shall mean the ability to maintain control
of bowel and bladder function; or when unable to maintain control of
bowel or bladder function, the ability to perform associated personal
hygiene (including caring for a catheter or colostomy bag).
(4) Dressing, which shall mean putting on and taking off all items
of clothing and any necessary braces, fasteners, or artificial
limbs.
(5) Toileting, which shall mean getting to and from the toilet,
getting on or off the toilet, and performing associated personal
hygiene.
(6) Transferring, which shall mean the ability to move into or out
of bed, a chair or wheelchair.
The commissioner may approve the use of definitions of "activities
of daily living" that differ from the verbatim definitions of this
subdivision if these definitions would result in more policy or
certificate holders qualifying for long-term care benefits than would
occur by the use of the verbatim definitions of this subdivision. In
addition, the following definitions may be used without the approval
of the commissioner: (1) the verbatim definitions of eating,
bathing, dressing, toileting, transferring, and continence in
subdivision (g); or (2) the verbatim definitions of eating, bathing,
dressing, toileting, and continence in this subdivision and a
substitute, verbatim definition of "transferring" as follows:
"transferring," which shall mean the ability to move into and out of
a bed, a chair, or wheelchair, or ability to walk or move around
inside or outside the home, regardless of the use of a cane,
crutches, or braces.
The definitions to be used in policies and certificates for
impairment in activities of daily living, "impairment in cognitive
ability," and any third eligibility criterion adopted by regulation
pursuant to subdivision (b) shall be the verbatim definitions of
these benefit eligibility triggers allowed by federal regulations. In
addition to the verbatim definitions, the commissioner may approve
additional descriptive language to be added to the definitions, if
the additional language is (1) warranted based on federal or state
laws, federal or state regulations, or other relevant federal
decision, and (2) strictly limited to that language that is necessary
to ensure that the definitions required by this section are not
misleading to the insured.
(g) The definitions of "activities of daily living" to be used
verbatim in policies and certificates that are not intended to
qualify for favorable tax treatment under Public Law 104-191 shall be
the following:
(1) Eating, which shall mean reaching for, picking up, and
grasping a utensil and cup; getting food on a utensil, and bringing
food, utensil, and cup to mouth; manipulating food on plate; and
cleaning face and hands as necessary following meals.
(2) Bathing, which shall mean cleaning the body using a tub,
shower, or sponge bath, including getting a basin of water, managing
faucets, getting in and out of tub or shower, and reaching head and
body parts for soaping, rinsing, and drying.
(3) Dressing, which shall mean putting on, taking off, fastening,
and unfastening garments and undergarments and special devices such
as back or leg braces, corsets, elastic stockings or garments, and
artificial limbs or splints.
(4) Toileting, which shall mean getting on and off a toilet or
commode and emptying a commode, managing clothing and wiping and
cleaning the body after toileting, and using and emptying a bedpan
and urinal.
(5) Transferring, which shall mean moving from one sitting or
lying position to another sitting or lying position; for example,
from bed to or from a wheelchair or sofa, coming to a standing
position, or repositioning to promote circulation and prevent skin
breakdown.
(6) Continence, which shall mean the ability to control bowel and
bladder as well as use ostomy or catheter receptacles, and apply
diapers and disposable barrier pads.
(7) Ambulating, which shall mean walking or moving around inside
or outside the home regardless of the use of a cane, crutches, or
braces.
SEC. 3. Section 10271 of the Insurance Code is repealed.
SEC. 4. Section 10271 is added to the Insurance Code, to read:
10271. (a) Except as set forth in this section, this chapter
shall not apply to, or in any way affect, provisions in life
insurance, endowment, or annuity contracts, or contracts supplemental
thereto, that provide additional benefits in case of death or
dismemberment or loss of sight by accident, or that operate to
safeguard those contracts against lapse, as described in subdivision
(a) of Section 10271.1, or give a special surrender benefit, as
defined in subdivision (b) of Section 10271.1, or an accelerated
death benefit as defined in Article 2.1 (commencing with Section
10295), in the event that the owner, insured, or annuitant, as
applicable, meets the benefit triggers specified in the life
insurance or annuity contract or supplemental contract.
(b) For the purposes of this section, the term "supplemental
benefit" means a rider to or provision in a life insurance policy,
certificate, or annuity contract that provides a benefit as set forth
in subdivision (a).
(c) A supplemental benefit described in subdivision (a) shall
contain all of the following provisions. However, an insurer, at its
option, may substitute for one or more of the provisions a
corresponding provision of different wording approved by the
commissioner that is not less favorable in any respect to the owner,
insured, or annuitant, as applicable. The required provisions shall
be preceded individually by the appropriate caption, or, at the
option of the insurer, by the appropriate individual or group
captions or subcaptions as the commissioner may approve.
(1) A life insurance policy or annuity contract that contains a
supplemental benefit shall provide that the contract, supplemental
contract, and any papers attached thereto by the insurer, including
the application if attached, constitute the entire insurance or
annuity contract and shall also provide that no agent has the
authority to change the contract or to waive any of its provisions.
This provision shall be preceded individually by a caption stating
"ENTIRE CONTRACT; CHANGES:" or other appropriate caption as the
commissioner may approve.
(2) The supplemental benefit shall provide that reinstatement of
the supplemental benefit shall be on the same or more favorable terms
as reinstatement of the underlying life insurance policy or annuity
contract. Following reinstatement, the insured and insurer shall have
the same rights under reinstatement as they had under the
supplemental benefit immediately before the due date of the defaulted
premium, subject to any provisions endorsed in the rider or
endorsement or attached to the rider or endorsement in connection
with the reinstatement. This reinstatement provision shall be
preceded individually by a caption stating "REINSTATEMENT:" or other
appropriate caption as the commissioner may approve.
(3) A supplemental benefit subject to underwriting shall include
an incontestability statement that provides that the insurer shall
not contest the supplemental benefit after it has been in force
during the lifetime of the insured for two years from its date of
issue, and that the supplemental benefit may only be contested based
on a statement made in the application for the supplemental benefit,
if the statement is attached to the contract and if the statement was
material to the risk accepted or the hazard assumed by the insurer.
This provision shall be preceded individually by a caption stating
"INCONTESTABILITY:" or other appropriate caption as the commissioner
may approve.
(4) The supplemental benefit shall provide either that the insurer
may accept written notice of claim at any time or that the insurer
may require that written notice of claim be submitted by a due date
that is no less than 20 days after an occurrence covered by the
supplemental benefit, or commencement of any loss covered by the
supplemental benefit, or as soon after the due date as is reasonably
possible. Notice given by or on behalf of the insured or the
beneficiary, as applicable, to the insurer at the insurer's address
or telephone number, or to any authorized agent of the insurer, with
information sufficient to identify the insured, shall be deemed
notice to the insurer. This provision shall be preceded individually
by a caption stating "NOTICE OF CLAIM:" or other appropriate caption
as the commissioner may approve.
(5) The supplemental benefit shall provide that the insurer, upon
receipt of a notice of claim, shall furnish to the claimant those
forms as are usually furnished by it for filing a proof of occurrence
or a proof of loss. If the forms are not furnished within 15 days
after giving notice, the claimant shall be deemed to have complied
with the requirements of the supplemental benefit as to proof of
occurrence or proof of loss upon submitting, within the time fixed by
the supplemental benefit for filing proof of occurrence or proof of
loss, written proof covering the character and the extent of the
occurrence or loss. This provision shall be preceded individually by
a caption stating "CLAIM FORMS:" or other appropriate caption as the
commissioner may approve.
(6) The supplemental benefit shall provide that the insurer may
require that the insured provide written proof of occurrence or proof
of loss no less than 90 days after the termination of the period for
which the insurer is liable, and, in the case of claim for any other
occurrence or loss, within 90 days after the date of the occurrence
or loss. Failure to furnish proof within the time required shall not
invalidate or reduce the claim if it was not reasonably possible to
give proof within the time, provided proof is furnished as soon as
reasonably possible and, except in the absence of legal capacity, no
later than one year from the time proof is otherwise required. This
provision shall be preceded individually by a caption stating "PROOF
OF LOSS:" or other appropriate caption as the commissioner may
approve.
(7) The supplemental benefit shall provide that the insurer, at
its own expense, shall have the right and opportunity to examine the
person of the insured when and as often as the insurer may reasonably
require during the pendency of a claim and to make an autopsy in
case of death where it is not forbidden by law. This provision shall
be preceded individually by a caption stating "PHYSICAL EXAMINATIONS:"
or other appropriate caption as the commissioner may approve.
(d) The commissioner shall not approve any contract or
supplemental contract for insurance or delivery in this state if the
commissioner finds that the contract or supplemental contract does
any of the following:
(1) Contains any provision, label, description of its contents,
title, heading, backing, or other indication of its provisions that
is unintelligible, uncertain, ambiguous, or abstruse, or likely to
mislead a person to whom the supplemental benefit is offered,
delivered, or issued.
(2) Constitutes fraud, unfair trade practices, or insurance
economically unsound to the owner, insured, or annuitant, as
applicable.
(3) Contains any actuarial information that is materially
incomplete, incorrect, or inadequate.
(e) A supplemental benefit described in subdivision (a) shall not
contain any title, description, or any other indication that would
describe or imply that the supplemental benefit provides long-term
care coverage.
(f) Commencing two years from the date of the issuance of the
supplemental benefit, no claim for loss incurred or disability, as
defined by the supplemental benefit, may be reduced or denied on the
grounds that a disease or physical condition not excluded from
coverage by name or specific description effective on the date of
loss had existed prior to the effective date on the coverage of the
supplemental benefit.
(g) With regard to supplemental benefits set forth in subdivision
(a), the supplemental benefit shall specify any applicable
exclusions, which shall be limited to the following:
(1) Condition or loss caused or substantially contributed to by
any attempt at suicide or intentionally self-inflicted injury, while
sane or insane.
(2) Condition or loss caused or substantially contributed to by
war or an act of war, as defined in the exclusion provisions of the
contract.
(3) Condition or loss caused or substantially contributed to by
active participation in a riot, insurrection, or terrorist activity.
(4) Condition or loss caused or substantially contributed to by
committing or attempting to commit a felony.
(5) Condition or loss caused or substantially contributed to by
voluntary intake of either:
(A) Any drug, unless prescribed or administered by a physician and
taken in accordance with the physician's instructions.
(B) Poison, gas, or fumes, unless they are the direct result of an
occupational accident.
(6) Condition or loss in consequence of the insured being
intoxicated, as defined by the jurisdiction where the condition or
loss occurred.
(7) Condition or loss caused or substantially contributed to by
engaging in an illegal occupation.
(h) If the commissioner notifies the insurer, in writing, that the
filed form or actuarial information does not comply with the
requirements of law and specifies the reasons for his or her opinion,
it is unlawful for an insurer to issue any policy in that form.
SEC. 5. Section 10271.1 of the Insurance Code is amended to read:
10271.1. (a) (1) Supplemental benefits that operate to safeguard
life insurance contracts against lapse are defined as a waiver of
premium benefit or a waiver of monthly deduction benefit, as
applicable, in which the insurer waives the premium or monthly
deduction for a life insurance contract when the insured becomes
totally disabled, as defined by the supplemental benefit, and where
the waiver continues until the end of the insured's disability, or
for the period specified by the supplemental benefit, consistent with
paragraph (5).
(2) For purposes of this subdivision, total disability shall not
be less favorable to the insured than the following:
(A) During the first 24 months of total disability, the insured is
unable to perform with reasonable continuity the substantial and
material duties of his or her job due to sickness or bodily injury.
(B) After the first 24 months of total disability, the insured,
due to sickness or bodily injury, is unable to engage with reasonable
continuity in any other job in which he or she could reasonably be
expected to perform satisfactorily in light of his or her age,
education, training, experience, station in life, or physical and
mental capacity.
(3) The definition of total disability may also include
presumptive total disability, such as the insured's total and
permanent loss of sight of both eyes, hearing of both ears, speech,
the use of both hands, both feet, or one hand and one foot.
(4) The insurer may require total disability to continue for an
uninterrupted period of time specified by the supplemental benefit,
or the insurer may allow separate periods of disability to be
combined.
(5) The waiver of premium or monthly deduction benefit shall
continue for the period specified by the supplemental benefit, but
shall not be less favorable to the insured than the following:
(A) If the insured's total disability begins before the insured
attains 60 years of age, the insurer shall waive all premiums or
monthly deductions due for the period of the total disability, and if
the total disability extends to the insured's attainment of 65 years
of age, the insurer shall waive all further premiums or monthly
deductions due.
(B) If the insured's total disability begins after the age
specified in subparagraph (A), the insurer shall waive all premiums
or monthly deductions due for the period that the insured continues
to be totally disabled up to 65 years of age.
(6) In addition to the permissible exclusions listed in
subdivision (g) of Section 10271, the insurer may exclude a total
disability occurring after the policy anniversary or supplemental
contract anniversary, as applicable and as defined by the
supplemental benefit, on which the insured attains a specified age of
no less than 65 years.
(b) "Special surrender benefit" is defined as a "waiver of
surrender charge benefit" wherein the insurer waives the surrender
charge usually charged for a withdrawal of funds from the cash value
of a life insurance contract or the account value of an annuity
contract if the owner, insured, or annuitant, as applicable, meets
any of the following criteria:
(1) Develops any medical condition where the owner's, insured's,
or annuitant's life expectancy is expected to be less than or equal
to a limited period of time that shall not be restricted to a period
of less than 12 months or greater than 24 months.
(2) Is receiving, as prescribed by a physician, registered nurse,
or licensed social worker, home care or community-based services, as
defined in subdivision (a) of Section 10232.9, or is confined in a
skilled nursing facility, convalescent nursing home, or extended care
facility, which shall not be defined more restrictively than as in
the Medicare program, or is confined in a residential care facility
or residential care facility for the elderly, as defined in the
Health and Safety Code. Out-of-state providers of services shall be
defined as comparable in licensure and staffing requirements to
California providers.
(3) Has any medical condition that would, in the absence of
treatment, result in death within a limited period of time, as
defined by the supplemental benefit, but that shall not be restricted
to a period of less than six months.
(4) Is totally disabled, as follows:
(A) During the first 24 months of total disability, the owner,
insured, or annuitant, as applicable, is unable to perform with
reasonable continuity the substantial and material duties of his or
her job due to sickness or bodily injury.
(B) After the first 24 months of total disability, the owner,
insured, or annuitant, as applicable, due to sickness or bodily
injury, is unable to engage with reasonable continuity in any other
job in which he or she could reasonably be expected to perform
satisfactorily in light of his or her age, education, training,
experience, station in life, or physical and mental capacity.
(C) The definition of total disability may also include
presumptive total disability, such as the insured's total and
permanent loss of sight of both eyes, hearing of both ears, speech,
the use of both hands, both feet, or
one hand and one foot.
(D) The insurer may require the total disability to continue for
an uninterrupted period of time specified by the supplemental
benefit, or the insurer may allow separate periods of disability to
be combined.
(5) Has a chronic illness as defined pursuant to either
subparagraph (A) or (B):
(A) Either of the following:
(i) Impairment in performing two out of seven activities of daily
living, as set forth in subdivisions (a) and (g) of Section 10232.8,
meaning the insured needs human assistance, or needs continual
substantial supervision.
(ii) The insured has an impairment of cognitive ability, meaning a
deterioration or loss of intellectual capacity due to mental illness
or disease, including Alzheimer's disease or related illnesses, that
requires continual supervision to protect oneself or others.
(B) Either of the following:
(i) Impairment in performing two out of six activities of daily
living as described in subdivisions (b), (d), (e), and (f) of Section
10232.8 due to a loss of functional capacity to perform the
activity.
(ii) Impairment of cognitive ability, meaning the insured needs
substantial supervision due to severe cognitive impairment, as
described in subdivisions (b), (d), and (e) of Section 10232.8.
(6) Has become involuntarily or voluntarily unemployed.
(c) The term "supplemental benefit" means a rider to or provision
in a life insurance policy, certificate, or annuity contract that
provides a benefit as set forth in subdivision (a) of Section 10271.
SEC. 6. Section 10292 of the Insurance Code is amended to read:
10292. (a) A supplemental benefit described in subdivision (a) of
Section 10271 shall not be delivered or issued for delivery to any
person in this state until a copy of the form thereof is submitted
to, and approved by, the commissioner. If the supplemental benefit is
an integral part of a contract of life insurance or annuity, the
entire contract shall be submitted to the commissioner, but his or
her power of approval or disapproval, unless it is otherwise
authorized, is limited to the supplemental portion and any other
portions that relate to the supplemental portion.
(b) A supplemental benefit described in subdivision (a) of Section
10271 shall be considered an integral part of a contract for
purposes of this section. To facilitate the review of a supplemental
benefit, the insurer shall submit, for informational purposes, a
sample copy of the life insurance or annuity contract with which the
supplemental benefit will be used. To facilitate the location of the
required provisions as stated in subdivision (c) of Section 10271,
the insurer shall provide the sample copy page reference for the
provisions that appear in the contract.
(c) The commissioner may adopt reasonable rules and regulations as
are necessary to administer and carry out the purposes of Sections
10271 and 10271.1, Article 2.1 (commencing with Section 10295), and
this section.
SEC. 7. Article 2.1 (commencing with Section 10295) is added to
Chapter 4 of Part 2 of Division 2 of the Insurance Code, to read:
Article 2.1. Accelerated Death Benefits
10295. (a) An accelerated death benefit, as described in this
section, shall not be offered, sold, issued, or marketed as health,
accident, or long-term care insurance. An accelerated death benefit
shall not reimburse or provide specific coverage for any health,
accident, or long-term care insurance benefits.
(b) (1) For the purposes of this article, an "accelerated death
benefit" means a provision, endorsement, or rider added to a life
insurance policy that provides for the advance payment of any part of
the death proceeds, payable upon the occurrence of a qualifying
event in accordance with Section 10295.1.
(2) For the purposes of this article, "qualifying event" means
that subparagraph (A) or (B) applies.
(A) The insured has a medical condition that would, in the absence
of treatment, result in death within a limited period of time, as
defined by the supplemental benefit, but that shall not be restricted
to a period of less than six months.
(B) (i) The insured has a chronic illness as defined in
subparagraph (B) of paragraph (5) of subdivision (b) of Section
10271.1.
(ii) For policies intended to be federally tax qualified, the
insurer shall require that a licensed health care practitioner,
independent of the insurer, certifies that the insured meets the
definition of "chronically ill individual" as defined under the
federal Health Insurance Portability and Accountability Act (Public
Law 104-191).
(I) If a health care practitioner makes a determination, pursuant
to this clause, that an insured does not meet the definition of
"chronically ill individual," the insurer shall notify the insured
that the insured shall be entitled to a second assessment by a
licensed health care practitioner, upon request, who shall personally
examine the insured. The requirement for a second assessment shall
not apply if the initial assessment was performed by a practitioner
who otherwise meets the requirements of this clause and who
personally examined the insured.
(II) The assessments conducted pursuant to this clause shall be
performed promptly with the certification completed as quickly as
possible to ensure that an insured's benefits are not delayed. The
written certification shall be renewed every 12 months.
(III) The costs to have a licensed health care practitioner
certify that an insured meets, or continues to meet, the definition
of "chronically ill individual," shall not count against the lifetime
maximum of the policy or certificate.
(IV) In order to be considered "independent of the insurer," a
licensed health care practitioner shall not be an employee of the
insurer and shall not be compensated in any manner that is linked to
the outcome of the certification.
(V) It is the intent of the Legislature in enacting this clause
that the practitioner's assessments be unhindered by financial
considerations.
(VI) This clause shall apply only to a policy or certificate
intended to be federally tax qualified.
(3) For the purposes of this article, "applicant" means any of the
following:
(A) In the case of an individual life insurance policy with an
accelerated death benefit, the person who seeks to contract for
benefits.
(B) (i) In the case of a group life insurance policy with an
accelerated death benefit, the proposed certificate holder.
(ii) "Certificate" means any certificate issued under a group life
insurance policy that includes an accelerated death benefit.
(4) For the purposes of this article, the term "supplemental
benefit" means a rider to or provision in a life insurance policy,
certificate, or annuity contract that provides a benefit as set forth
in subdivision (a) of Section 10271.
(c) A life insurance policy that accelerates death benefits if the
insured is chronically ill and requires that the insured receives
long-term care services described in Section 10231.2, shall not be
considered an accelerated death benefit for the purposes of this
article.
(d) Nothing in this subdivision shall be construed as prohibiting
an insurer from including other riders to a life insurance policy,
such as a terminal illness rider, that are not subject to this
article.
10295.1. (a) An accelerated death benefit as defined in paragraph
(1) of subdivision (b) of Section 10295 shall comply with, and shall
explain all of, the following:
(1) That the accelerated death benefit is fixed at the time the
insurer approves the request for the accelerated death benefit.
(2) That the payment of the accelerated death benefit is not
conditioned on the receipt of long-term care or medical services.
(3) That the insured shall have the option to take the accelerated
death benefit in a lump sum on the occurrence of a qualifying event,
as well as an option to receive the benefit in periodic payments is
provided for a certain period only.
(4) That the accelerated death benefit may not restrict the
insured's use of the proceeds.
(5) That the payment of the accelerated death benefit is due
immediately upon receipt of the due written proof of eligibility.
(6) That, prior to the payment of the accelerated death benefit,
the insurer is required to obtain from an assignee or irrevocable
beneficiary, if any, a signed acknowledgment of concurrence for
payout. If the insurer making the accelerated death benefit is itself
the assignee under the policy, the acknowledgment is not required.
(7) That if any death benefit remains after payment of an
accelerated death benefit, the accidental death benefit provision, if
any, in the policy shall not be affected by the payment of the
accelerated death benefit.
(b) The accelerated death benefit shall also provide for all of
the following:
(1) A maximum amount that may be accelerated.
(2) An explanation that the insured may accelerate more than once
on a qualifying event up to the maximum amount.
(3) An explanation that the insured may accelerate on more than
one of the qualifying events specified in the supplemental provision
up to the maximum amount.
(4) A statement that the policy, rider, endorsement, or
certificate pays proceeds that are or are not intended for favorable
tax treatment under Section 101(g) of the Internal Revenue Code (26
U.S.C. Sec. 101(g)), if applicable.
(c) The insurer shall advise the policyholder or certificate
holder that there may be tax consequences of accepting an amount
above the amount that would be tax qualified under the Internal
Revenue Code.
(d) The accelerated death benefit shall not contain any
preexisting condition limitation and shall not contain any
requirement that acceleration be conditioned on a prior
hospitalization or institutionalization.
(e) The accelerated death benefit shall contain an explanation of
how the insured will pay for the accelerated death benefit, whether
by paying a portion of the premium for the life insurance policy, by
paying a fee at the time of the acceleration, by paying the cost of
insurance charge, or by paying the administrative expense charge,
together with an illustration. If there is a premium or cost of
insurance charge, or a charge imposed upon the acceleration, 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 shall
suffice for this purpose.
(f) (1) Every accelerated death benefit that pays proceeds
intended for favorable tax treatment under Section 101(g) of the
Internal Revenue Code (26 U.S.C. Sec. 101(g)) shall be identified as
such by prominently displaying and printing that intention on page
one of the accelerated benefit policy provision, rider, endorsement,
or certificate.
(2) Every accelerated death benefit that pays proceeds that are
not intended for favorable tax treatment under Section 101(g) of the
Internal Revenue Code (26 U.S.C. Sec. 101(g)) shall be identified as
such by prominently displaying and printing that intention on page
one of the accelerated death benefit policy provision, rider,
endorsement, or certificate.
10295.2. A life insurance contract with an accelerated death
benefit or an accelerated death benefit in the form of a rider or
endorsement shall be submitted for the approval of the commissioner
in the same manner as required under Section 10292 and shall be
submitted with the following additional information:
(a) The term "accelerated death benefit" shall be included in the
descriptive title of the filing.
(b) A statement of the specific policy forms with which this
accelerated death benefit will be offered, any underwriting
restrictions involving face amount or age, and whether the
accelerated death benefit is intended for use with new issues or in
force business, or both.
(c) An insurer that requires certification that a chronic illness
is expected to last longer than 90 days shall include in its filing a
legal memorandum from outside tax counsel that the certification
would allow for preferable tax treatment under Section 101(g) of the
Internal Revenue Code (26 U.S.C. Sec. 101(g)).
10295.3. (a) A written disclosure, as set forth below, shall be
included with the filing for the commissioner's approval, and shall
be given to each applicant. The same written disclosure shall be
attached to the policy or certificate delivered to the insured.
(b) The required written disclosure shall be in the following
form:
"IMPORTANT NOTICE TO APPLICANT/BUYER REGARDING ACCELERATED DEATH
BENEFITS"
"The benefits provided by this accelerated death benefit are not
intended to provide, and will never provide, long-term care
insurance, nursing home insurance, or home care insurance. If you are
interested in long-term care or nursing home or home care insurance,
you should consult with an insurance agent licensed to sell that
insurance, inquire with the insurance company offering the
accelerated death benefits, or visit the California Department of
Insurance Internet Web site (www.insurance.ca.gov) section regarding
long-term care insurance.
If you choose to accelerate a portion of your death benefit, doing
so will reduce the amount that your beneficiary will receive upon
your death.
Receipt of accelerated death benefits may be taxable. Prior to
electing to buy the accelerated death benefit, you should seek
assistance from a qualified tax adviser.
Receipt of accelerated death benefits may affect eligibility for
public assistance programs, such as Medi-Cal or Medicaid. Prior to
electing to buy the accelerated death benefit, you should consult
with the appropriate social services agency concerning how receipt of
accelerated death benefits may affect that eligibility."
(c) In the case of agent-solicited life insurance, the agent shall
provide the disclosure form to the applicant prior to, or
concurrently with, the application. Acknowledgment of the applicant's
receipt of the disclosure shall be signed by the applicant and the
writing agent.
(d) In the case of a solicitation by direct response methods, the
insurer shall provide the disclosure form to the applicant together
with the application. A notice that a full premium refund shall be
provided to the insured if the policy is returned to the company
within the free look period, pursuant to Section 10295.8.
(e) In the case of group insurance policies, the disclosure form
shall be delivered together with the application for the certificate,
or with the certificate of coverage or any related document
furnished by the insurer for the certificate holder.
10295.4. An insurer shall file with the commissioner an actuarial
memorandum prepared, dated, and signed by a member of the American
Academy of Actuaries that includes all of the following information:
(a) A description of the accelerated death benefit, including the
effects of payment of the accelerated death benefit on all life
insurance policy benefits and any subsequent accelerated death
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) A description of, and justification for, expense charges
associated with the accelerated death benefit and the maximum expense
charges.
(c) A description of 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 the current yield on 90-day treasury bills,
or a variable rate determined in accordance with the National
Association of Insurance Commissioners (NAIC) Model Policy Loan
Interest Rate Bill No. 590.
(d) A description of 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) A description of 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 postacceleration premium for the
accelerated death benefit as well as the life insurance policy.
(g) A sample calculation of the accelerated death benefit. If the
life insurance policy contains a loan provision, the example shall
assume that there is an outstanding loan on the date of acceleration.
All policy and accelerated death benefit 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 will be paid in installments,
the actuarial memorandum shall explain the basis used in the
calculation of the minimum periodic payment for the payment period
and a sample calculation of a minimum periodic payment, and the basis
used, and a sample calculation of the lump sum payable if the
insured dies before all periodic payments for the payment period are
made.
(i) (1) For any accelerated death benefit subject to this article,
a certification that the value and premium of the accelerated death
benefit is 10 percent or less of the total value of the benefits over
the life of the policy. These values shall be measured as of the
date of issue.
(2) The certification shall be in the following form:
"I,____________________of ___________________________ am a Member
in good standing of the American Academy of Actuaries and am
qualified to provide this Certification with respect to the
accelerated death benefit described in the Actuarial Memorandum to
which this Certification is attached.
I certify that:
(1) The value of the benefits provided, on an aggregated basis, in
respect of the filed accelerated death benefit, determined according
to the formula below applied over a range of underwriting classes
and plans at which the benefit is being made available, is not in any
case greater than 10%.
(NSP2 - NSP1) / NSP1
Where:
(a) NSP1 and NSP2 are determined using an effective annual
interest rate of 6%.
(b) NSP1 is the net single premium for the base policy benefits
assuming there is no accelerated death benefit.
(c) NSP2 is the net single premium for the base policy benefits
assuming that the full death benefit is paid at time of death or the
occurrence of the non-death accelerated death benefit trigger.
(2) In developing the assumptions, other than the interest
assumption, used in calculating NSP1 and NSP2, I have complied with
all applicable laws, regulations, and Actuarial Standards of Practice
(ASOPs). The assumptions used represent anticipated experience
factors, as defined in actuarial literature and by generally accepted
actuarial practice.
(3) The assumptions, other than the interest assumption, used in
calculating NSP1 and NSP2 will be reviewed at least annually by the
Company to ensure that the value of the accelerated death benefit
provided, as defined in (1) above, continues to be incidental. If,
after such review and while this accelerated death benefit is being
actively issued, the value of the benefits provided by this benefit
are no longer incidental based on then current anticipated experience
factors, the Company will discontinue offering the accelerated death
benefit which is no longer incidental.
(4) If a separate premium or cost of insurance (COI) charge is
being charged for the accelerated death benefit provided, the ratio
of the present value of the accelerated death benefit premiums or COI
charges over the life of the policy to the present value of the
policy premiums or COI charges exclusive of any riders, does not
exceed 10%. The present values in this item (4) are determined using
an effective annual interest rate of 6%."
10295.5. (a) Applications, if any, or forms supporting an
application, if any, for accelerated death benefits shall contain
clear, unambiguous, short, and simple questions designed to ascertain
the health condition of the applicant. Each question shall contain
only one health status inquiry and shall require only a "yes" or "no"
answer, except that the application may include a request for the
name of any prescribed medication and the name of the prescribing
physician. If the application requests the name of any prescribed
medication or the prescribing physician, then any mistake or omission
shall not be used as a basis for the denial of a claim or the
rescission of the accelerated death benefit or life insurance policy
or certificate.
(b) The following warning shall be printed conspicuously and in
close conjunction with the applicant's signature block:
"Caution: If your answers on this application are misstated or
untrue, the insurer may have the right to deny benefits or rescind
your accelerated death benefit coverage."
(c) If an insurer does not complete medical underwriting for the
accelerated death benefit separate from underwriting for the life
insurance policy and resolve all reasonable questions arising from
information submitted on or with an application before issuing the
accelerated death benefit, then the insurer may only rescind the
accelerated death benefit or life insurance policy or certificate or
deny an otherwise valid claim upon clear and convincing evidence of
fraud or material misrepresentation of the risk by the applicant. The
evidence shall do all of the following:
(1) Pertain to the condition for which benefits are sought.
(2) Involve a chronic condition or involve dates of treatment
before the date of application.
(3) Be material to the acceptance for coverage.
(d) An accelerated death benefit may not be field issued.
(e) The contestability period for a life insurance policy or
certificate that contains an accelerated death benefit shall comply
with paragraph (3) of subdivision (c) of Section 10271.
(f) A copy of the completed application shall be delivered to the
insured at the time of delivery of the life insurance policy or
certificate that contains an accelerated death benefit.
10295.6. (a) When a policyholder or certificate holder requests
an acceleration of death benefits, the insurer shall send a statement
to the policyholder or certificate holder and irrevocable
beneficiary showing any effect that the payment of the accelerated
death benefit would 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 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 adviser. 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 policyholder or certificate holder and
irrevocable beneficiary.
(b) The accelerated death benefit shall be effective not more than
30 days following the effective date of the policy provision, rider,
endorsement, or certificate.
(c) If the insurer charges a separate premium for the accelerated
death benefit, then the insurer may also offer a waiver of premium
benefit as defined in subdivision (a) of Section 10271.1. At the time
the waiver of the accelerated death benefit premium benefit is
claimed, the insurer shall explain any continuing premium requirement
to keep the underlying policy in force.
(d) An insurer shall not unfairly discriminate among insureds with
different qualifying events covered under the policy or among
insureds with similar qualifying events covered under the policy. An
insurer shall not apply further conditions on the payment of the
accelerated death benefits other than those conditions specified in
the accelerated death benefit.
(e) The insurer shall provide the policyholder or certificate
holder with a report, at least monthly, of any accelerated death
benefits paid out during the prior month, an explanation of any
changes to the policy or certificate, death benefits, and cash values
on account of the benefits being paid out, and the amount of the
remaining benefits that can be accelerated at the end of the prior
month. The insurer may use a calendar month or policy or certificate
month.
(f) The conversion benefit available to group certificate holders
on termination of employment pursuant to paragraph (2) of subdivision
(a) of Section 10209 shall include a benefit comparable to the
accelerated death benefit. This requirement may be satisfied by an
individual policy or certificate. This requirement, subject to the
approval of the commissioner, may be satisfied by arrangement with
another insurer to provide the required coverage.
(g) When payment of an accelerated death benefit results in a pro
rata reduction in cash value, the payment may be applied toward
repaying a portion of the loan equal to a pro rata portion of any
outstanding policy loans if disclosure of the effect of acceleration
upon any remaining death benefit, cash value or accumulation account,
policy loan, and premium payments, including a statement of the
possibility of termination of any remaining death benefit, is
provided to the policyholder or certificate holder. The policyholder
or certificate holder shall provide written consent authorizing any
other arrangement for the repayment of outstanding policy loans.
10295.7. (a) The insurer may require a premium charge or cost of
insurance charge for the accelerated death benefit. This charge 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) (1) 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
required in Section 10295.4. The maximum interest rate used shall be
no greater than the greater of one of the following:
(A) The current yield on 90-day treasury bills.
(B) The current maximum statutory adjustable policy loan interest
rate.
(2) The interest rate accrued on the portion of the lien
that is equal in amount to the cash value of the life insurance
policy at the time of the supplemental benefit acceleration shall be
not more than the policy loan interest rate stated in the contract.
(c) (1) Except as provided in paragraph (2), when an accelerated
death benefit is payable, there shall not be 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.
(2) Alternatively, the payment of accelerated death benefits, any
administrative expense charges, any future premiums, and any accrued
interest can be considered a lien against the death benefit of the
life insurance policy and access to the cash value of the life
insurance policy 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 may also be limited to any excess
of the cash value over the sum of the lien and any other outstanding
policy loans.
(d) When payment of an accelerated death benefit results in a pro
rata reduction in the cash value of the life insurance policy, the
payment shall not be applied toward repaying an amount greater than a
pro rata portion of any outstanding policy loans.
10295.8. (a) An applicant for an accelerated death benefit shall
have the right to return the accelerated death benefit policy or
certificate by first-class United States mail within 30 days of its
delivery and to have the premium refunded if, after examination of
the policy or certificate, the applicant is not satisfied for any
reason. If the accelerated death benefit is purchased as an
endorsement or rider at the same time as the base life insurance
policy, then the endorsement or rider may be returned within 30 days.
The underlying life insurance policy shall be otherwise subject to
this code.
(b) The return of a life insurance policy or certificate that
contains an accelerated death benefit, or the return of an
accelerated death benefit rider or endorsement, shall void the life
insurance policy, certificate, rider, or endorsement from the
beginning, and the parties shall be in the same position as if no
policy, certificate, rider, or endorsement had been issued. All
premiums paid and any policy fee paid for the accelerated death
benefit shall be fully refunded directly to the applicant by the
insurer within 30 days after the policy, rider, endorsement, or
certificate is returned.
(c) Policies, certificates, riders, or endorsements to which this
section applies shall have a notice prominently printed, or attached
thereto, stating in substance the conditions described in
subdivisions (a) and (b).
10295.9. (a) Application forms for accelerated death benefits
shall include a question designed to elicit information as to whether
the accelerated death benefit is intended to replace any long-term
care insurance presently in force. A supplementary application or
other form to be signed by the applicant containing that question may
be used.
(b) (1) An insurer, broker, agent, or other person shall not cause
a policyholder to replace a long-term care insurance policy
unnecessarily. This section shall not be construed to allow an
insurer, broker, agent, or other person to cause a policyholder to
replace a long-term care insurance policy or life insurance policy
subject to this section that will result in a decrease in benefits
and an increase in premium.
(2) It shall be presumed that any third or greater policy sold to
a policyholder in any 12-month period is unnecessary within the
meaning of this section. This section shall not apply to those
instances in which a policy is replaced solely for the purpose of
consolidating policies with a single insurer.
(c) Upon determining that a sale will involve a replacement of a
life insurance policy subject to this section or replacement of a
long-term care insurance policy, an insurer or its agent shall
furnish the applicant, prior to issuance or delivery of a policy,
certificate, rider, or endorsement, a notice regarding replacement of
life insurance that includes an accelerated death benefit, or
long-term care insurance coverage with a life insurance policy or
certificate that contains an accelerated death benefit. One copy of
this notice shall be retained by the applicant and an additional copy
signed by the applicant shall be retained by the insurer. The
required notice shall be provided in the following form:
"NOTICE TO APPLICANT REGARDING REPLACEMENT OF LONG-TERM CARE
INSURANCE OR LIFE INSURANCE INCLUDING ACCELERATED DEATH BENEFITS
According to (your application) (information you have furnished),
you intend to lapse or otherwise terminate existing life insurance or
long-term care insurance and replace it with a life insurance policy
with an accelerated death benefit to be issued by (company name)
Insurance Company. Your new accelerated death benefit coverage
provides 30 days within which you may decide, without cost, whether
you desire to keep the coverage. Please note that your underlying
life insurance policy may only provide for a 10-day period during
which you may decide, without cost, whether you will keep the
coverage. For your own information and protection, you should be
aware of, and seriously consider, certain factors that may affect the
insurance protection available to you under the new coverage.
This accelerated death benefit is NOT Nursing Home, Home Care, or
Long-Term Care Insurance, and it is not intended or designed to
eliminate your need for that coverage. There are no restrictions or
limitations on the use of the accelerated death benefit proceeds.
If you want long-term care insurance, you should consult with an
insurance agent licensed to sell that insurance, inquire with the
insurance company offering the accelerated death benefits, or visit
the California Department of Insurance Internet Web site
(www.insurance.ca.gov) that provides information regarding long-term
care insurance.
If you want to replace existing coverage with life insurance that
includes an accelerated death benefit, you should note the following:
(1) Receipt of accelerated death benefits may be taxable. Prior to
electing to buy the accelerated death benefit, policyholders or
certificate holders should seek assistance from a qualified tax
adviser.
(2) Receipt of accelerated death benefits may affect eligibility
for public assistance programs, such as Medi-Cal or Medicaid. Prior
to electing to buy the accelerated death benefit, the applicant/buyer
should consult with the appropriate social services agency
concerning how receipt of accelerated death benefits may affect that
eligibility.
You may wish to secure the advice of your present insurer or its
agent regarding the proposed replacement of your present coverage.
This is not only your right, but it is also in your best interest to
make sure you understand all the relevant factors involved in
replacing your present coverage.
If, after due consideration, you still wish to terminate your
present coverage and replace it with new coverage, be certain to
truthfully and completely answer all questions on the application
concerning your medical health history. Failure to include all
material medical information on an application may provide a basis
for the company to deny any future claims and to refund your premium
as though your coverage had never been in force. After the
application has been completed and before you sign it, reread it
carefully to be certain that all the information has been properly
recorded.
The above "Notice to Applicant" was delivered to me on:
(Date)
(Applicant's Signature)"
(d) The replacement notice shall include the following statement
except when the replacement coverage is group insurance:
"COMPARISON TO YOUR CURRENT COVERAGE: I have reviewed your current
coverage. To the best of my knowledge, the replacement of insurance
involved in this transaction materially improves your position for
the following reasons:
____ Additional or different benefits
(please specify) ______.
____ No change in benefits, but lower premiums.
____ Fewer benefits and lower premiums.
____ Other (please specify) ______.
(Signature of Agent and Name of Insurer)
(Signature of Applicant)
(Date)
(e) In recommending the purchase or replacement of any policy or
certificate issued under this section, an agent shall make reasonable
efforts to determine the appropriateness of a recommended purchase
or replacement.
(f) The replacing policy or certificate shall not contain a
provision establishing a new waiting period in the event existing
coverage is converted to, or replaced by, a new or other form within
the same insurer, except with respect to an increase in benefits
voluntarily selected by the insured individual or group policyholder.
10295.10. An insurer may not:
(a) Cancel, nonrenew, or otherwise terminate an accelerated death
benefit on the grounds of the age or the deterioration of the mental
or physical health of the insured individual or certificate holder.
(b) Terminate a policy, certificate, or rider, or contain a
provision that allows the premium for an in-force policy,
certificate, or rider, to be increased due to the divorce of a
policyholder or certificate holder.
10295.11. (a) An accelerated death benefit shall not be
advertised or marketed as long-term care insurance, nursing home
insurance, or home care insurance. Any advertisement, description,
comparison, marketing material, or illustration shall state in bold
type:
"This is a life insurance benefit that also gives you the option
to accelerate some or all of the death benefit in the event that you
meet the criteria for a qualifying event described in the policy.
This policy or certificate does not provide long-term care insurance
subject to California long-term care insurance law. This policy or
certificate is not a California Partnership for Long-Term Care
program policy. This policy or certificate is not a Medicare
supplement (policy or certificate)."
An insurer shall also include in any advertisement or marketing
materials for these insurance policies all of the following:
(1) A statement that the policy or certificate pays proceeds that
are or are not intended to receive favorable tax treatment under
Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec. 101(g)).
(2) A description of the accelerated death benefits provided by
the policy, including a description of the acceleration of the death
benefit to pay an unrestricted cash benefit when the insured has
become chronically ill or otherwise eligible for benefits from a
qualified event.
(3) A comparison between the benefits provided by life insurance
policies, riders, or endorsements that contain accelerated death
benefits and the benefits provided by long-term care insurance.
(b) Advertising for term life insurance policies or certificates
that contain an accelerated death benefit to be attached to an
existing term life policy shall include a prominent statement that
the accelerated death benefit will terminate with the policy.
(c) On or after January 1, 2014, every insurer offering
accelerated death benefits shall file with the commissioner copies of
all printed advertising for accelerated death benefits that the
insurer proposes to disseminate in the state prior to use of that
material. The commissioner shall have the authority to disapprove any
advertising that does not meet the requirements of this code. If the
commissioner disapproves the advertising, the insurer shall not use
and shall stop using the disapproved advertising. Nothing in this
subdivision shall be construed as requiring prior approval of
advertising prior to dissemination in this state.
10295.12. (a) Insurers shall ensure that agents offering,
marketing, or selling accelerated death benefits on their behalf are
able to describe the differences between benefits provided under an
accelerated death benefit and benefits provided under long-term care
insurance, as follows:
(1) The difference between the benefits afforded to an insured
through an accelerated death benefit and a long-term care insurance
policy or rider.
(2) The differences between benefit eligibility criteria.
(3) Whether an elimination period applies to either an accelerated
death benefit or long-term care insurance and a description of the
elimination period.
(4) The benefits under the accelerated death benefit or long-term
care insurance if benefits are never needed.
(5) The benefits under the accelerated death benefit or long-term
insurance if benefits are needed.
(6) Restrictions on benefit amounts.
(7) Tax treatment of benefits.
(8) Income and death benefit considerations.
(b) Completion of California agent education or continuing
education for long-term care insurance shall meet the requirements of
this section.
10295.13. In addition to other unfair trade practices described
in this code, the following acts and practices in the sale of
insurance under this article are prohibited:
(a) Twisting. Knowingly making any misleading representation or
incomplete or fraudulent comparison of any insurance policies or
insurers for the purpose of inducing, or tending to induce, any
person to lapse, forfeit, surrender, terminate, retain, pledge,
assign, borrow on or convert any insurance policy, or to take out a
policy of insurance with another insurer.
(b) High pressure tactics. Employing any method of marketing
having the effect of, or tending to, induce the purchase of insurance
through force, fright, threat, whether explicit or implied, or undue
pressure to purchase or recommend the purchase of insurance.
(c) Cold lead advertising. Making use directly or indirectly of
any method of marketing that fails to disclose in a conspicuous
manner that a purpose of the method of marketing is solicitation of
insurance and that contact will be made by an insurance agent or
insurance company.
10295.14. (a) Accelerated death benefits shall comply with the
provisions in Sections 10113.71 and 10113.72.
(b) Every insurer offering term life insurance with accelerated
death benefits or any rider that provides for accelerated death
benefits described in Section 10295 shall also offer a waiver of
premium benefit for the life insurance premium and any premium
charged for the accelerated death benefit as described in Section
10271.1.
(c) Every insurer offering a cash value life insurance policy or
rider offering accelerated death benefits described in Section 10295
shall disclose all premium default protection options in the policy
and at the time of the application, including waiver of premium
options available under Section 10271.1 and automatic premium loans.
10295.15. (a) Except at the request of the policyholder or
contractholder, all accelerated death benefit provisions or
supplemental contracts shall be renewable for the life of the
underlying life insurance policy, provided the premiums are timely
paid. The statement shall be prominently displayed on the first page
of the accelerated death benefit policy or rider.
(b) Term life insurance policies shall also include a prominent
statement on page one that the accelerated death benefit terminates
with the policy.
10295.16. Termination of an accelerated death benefit shall not
prejudice the payment of benefits for any qualifying event that
occurred while the accelerated death benefit was in force.
10295.17. An insurer that fails to conform to the requirements
provided under this article shall be subject to Article 6.5
(commencing with Section 790) of Chapter 1 of Part 2 of Division 1.
10295.18. Accelerated death benefits shall not limit or exclude
coverage by type of illness, treatment, medical condition, or
accident, except under the circumstances described in paragraphs (1)
to (4), inclusive, of subdivision (g) of Section 10271.
10295.19. A policy, certificate, rider, or endorsement shall
include a provision giving the policyholder or certificate holder the
right to appeal to the insurer a decision regarding benefit
eligibility.
SEC. 8. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
