KANSAS INSURANCE DEPARTMENT
K.A.R. 40-2-20. Life insurance; accelerated benefits; requirements and restrictions. (a) As used in this regulation, these terms shall have the following meanings:
(1) “Accelerated benefits” shall mean benefits that meet the following conditions:
(A) Are payable
under an individual or group life insurance or annuity contract to a
policyowner or certificate holder, during the lifetime of the insured for the
occurrence of a qualifying condition;
the death benefit otherwise payable under the life insurance contract; and
payable upon the occurrence of a single qualifying condition, which results in
the payment of a benefit amount fixed at the time of acceleration.
(2) “Qualifying condition” shall mean any of the following conditions:
(A) A medical condition that a health care provider licensed to practice medicine and surgery or osteopathy predicts will result in a limited life expectancy of 24 months or less;
(B) a medical condition that has required or requires extraordinary medical intervention, including a major organ transplant or continuous artificial life support, without which the insured would die;
(C) any condition that 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;
(D) a medical condition that medical evidence indicates would, in the absence of extraordinary medical intervention, result in a limited life expectancy of 24 months or less. Such conditions may include any of the following:
(i) Coronary artery disease resulting in an acute infarction or requiring surgery;
(ii) a permanent neurological deficit resulting from a cerebral vascular accident;
(iii) end stage renal failure;
(iv) acquired immune deficiency syndrome;
(viii) muscular sclerosis;
(ix) Alzheimer’s disease;
(xi) anterior lateral sclerosis; or
(xii) severe burns; and
(E) any other condition approved by the commissioner as the basis for a qualifying event.
shall mean the commissioner of insurance, state of
(b) Each accelerated benefit shall have a title printed on or attached to the first page of the policy or rider. The title shall describe the coverage provided and shall be followed or accompanied by a description of the coverage containing the phrase “accelerated benefit” or words of similar import.
(c) Each applicant shall be given a summary of the accelerated benefit provisions at or before the time an application is completed. For group policies, each certificate holder shall be given a copy of the summary with the certificate. This summary shall include the following:
(1) A brief description of the accelerated benefit and definitions of the qualifying conditions that would result in payment of the benefit;
(2) the existence and amount of any separately identifiable premium for the accelerated benefit and a description of any charge for administrative expense;
(3) a generic illustration numerically demonstrating the effect of the payment of a benefit on cash values, accumulation accounts, death benefits, premiums, policy loans, and policy liens;
(4) a statement that receipt of the accelerated benefit could be taxable;
(5) a statement that receipt of accelerated benefits could affect medicaid eligibility; and
(6) an acknowledgement, signed and dated by the agent and the applicant for the group or individual coverage, that the summary has been furnished. Each direct response insurer shall incorporate the summary and acknowledgement in the application or attach them to the application.
(d) Contract payment options shall include the option to take the benefit as a lump sum. The benefit shall not be made available as an annuity contingent upon the life of the insured.
(e) No restrictions shall be permitted on the use of the proceeds.
(f) If the accelerated benefit is offered without an additional premium, a separate written explanation of how the benefit is funded shall be filed with the commissioner and included with the summary.
(g) Each time an accelerated benefit is requested and whenever a previous summary becomes invalid, the irrevocable beneficiary and either the individual policyowner or group certificate holder shall be given a summary. This summary shall include statements meeting the following conditions:
(1) Warning that receipt of the accelerated benefit could be taxable and that assistance from a tax advisor is suggested;
(2) showing the effect that the payment of the benefit will have on cash values, accumulation accounts, death benefits, premiums, policy loans, and policy liens; and
(3) disclosing that receipt of accelerated benefit payments may adversely affect the recipient's eligibility for medicaid or other government benefits or entitlements.
(h) Each time an accelerated benefit option is exercised, the policyowner and certificate holder shall be given an endorsement, rider, or schedule page that reflects any revisions to cash values, death benefits, accumulation accounts, premiums, policy loans, policy liens, and any other values that change as a result of the payment or payments.
(i) Insurers shall not unfairly discriminate among insureds with different or similar qualifying conditions covered under the policy. Insurers shall not apply any additional conditions to the payment of the accelerated benefits other than those conditions specified in the policy or rider.
(j) Any insurer may offer a waiver of premium for the accelerated benefit provision if a regular waiver of premium provision is not in effect. At the time the benefit is claimed, the insurer shall explain any continuing premium requirement to keep the policy in force.
(k) Accelerated benefits shall be funded by any of the following methods:
(1) Requiring the policyowner to pay an additional premium;
(2) utilizing the present value of the face amount of the policy if the following conditions are met:
(A) The present value calculation is based on an actuarial discount appropriate to the policy design;
(B) the interest rate used in the present value calculation is based on sound actuarial principles and disclosed in the contract or actuarial memorandum; and
(C) the maximum interest rate is no greater than the greater of either of the following:
(i) The current yield on 90-day treasury bills; or
(ii) the current maximum policy loan interest rate permitted by K.S.A. 40-420c and amendments thereto; or
(3) accruing an interest charge on the amount of the accelerated benefits at an interest rate based on sound actuarial principles and disclosed in the contract or actuarial memorandum and no greater than the greater of either of the following:
(i) The current yield on 90-day treasury bills; or
(ii) the current maximum policy loan interest rate permitted by K.S.A. 40-240c and amendments thereto.
(l) When an accelerated benefit is payable, no greater than a pro rata reduction in the cash value shall be made, unless the payment of the accelerated benefits and any accrued interest can be treated as a lien against the death benefit of the policy or rider. Therefore, 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 and access to additional policy loans may be limited to the difference between the cash value and the sum of the lien and any other outstanding policy loans on the policy under which the accelerated benefits were paid.
(m) (1) If payment of an accelerated benefit results in a pro rata reduction in the cash value, the payment shall not be applied toward repaying an amount greater than a pro rata portion of any outstanding policy loans; or
(2) if the payment is considered a lien as provided in subsection (l), the insurance company may require any accelerated death benefit payment to be applied toward repaying the portion of any other outstanding policy loan that causes the sum of the accelerated death benefit and policy loan to exceed the cash value.
(n) The death benefit shall not be reduced more than the amount of the accelerated benefits after adjustment for any actuarial discount or accrued interest as provided in subsection (k) and any administrative expense charge required by policies providing accelerated benefits without an additional premium charge as disclosed on the summary required by subsection (c).
(o) If any death benefit remains after payment of an accelerated benefit, the accidental death benefit, if any, in a policy or rider shall not be affected by the payment of an accelerated benefit.
(p) The valuation method and assumptions used to produce the accelerated benefit provisions shall be filed with the insurance department with the related policy form or rider. The assumptions shall reflect the statutory mortality and interest rate assumptions for the life insurance provisions and appropriate assumptions for the other provisions incorporated in the policy or rider. Each insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits, which shall be made available for examination by the commissioner or a designee upon request.
(q) A qualified actuary shall describe the accelerated benefits, the risks, the expected costs, and the calculation of statutory reserves in an actuarial memorandum accompanying each filing of accelerated benefits products with the commissioner. Each 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 commissioner upon request.
(1) If benefits are provided through the acceleration of benefits under group or individual life policies or riders to these policies, policy reserves shall be determined in accordance with the standard valuation law. 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 rates currently recognized for life insurance reserves by the national association of insurance commissioners may be used as well as appropriate assumptions for the other provisions incorporated in the policy form. The actuary shall follow both actuarial standards and certification for good and sufficient reserves. Reserves in the aggregate shall be sufficient to cover the following:
(A) Policies upon which no claim has yet arisen; and
(B) policies upon which an accelerated claim has arisen.
(2) For policies and certificates that provide actuarially equivalent benefits, no additional reserves shall be required to be established.
(3) Policy liens and policy loans, including accrued interest, shall represent assets of the company for statutory reporting purposes. For any policy on which the policy lien exceeds the policy's statutory reserve liability, the excess shall be held as a non-admitted asset.
(r) The accelerated benefit provision shall become effective for accidents on the effective date of the policy or rider and shall become effective for illness no more than 30 days following the effective date of the policy or rider. (Authorized by K.S.A. 40-103 and K.S.A. 40-401; implementing K.S.A. 40-401; effective, T-40-11-29-90, Nov. 29, 1990; effective April 15, 1991; amended effective Feb. 9, 2007.)