KANSAS
INSURANCE DEPARTMENT
Proposed
Regulation K.A.R. 40-2-20
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” means shall
mean benefits, other than those considered long-term care benefits as
defined and regulated pursuant to K.S.A. 1989 Supp. 40-2225 et seq., and
amendments thereto, that meet the following conditions:
(1) Are payable under an individual or group life
insurance or annuity contract:
(A) to a policyowner or certificate holder,
during the lifetime of the insured for the occurrence of a qualifying event;
(B) (2) which reduce the death benefit otherwise payable under the
life insurance contract; and
(C) (3)
are payable upon the occurrence of a single qualifying event,
which results in the payment of a benefit amount fixed at the time of
acceleration.
(2) “Qualifying
event” means one or more of the following:
(A) A
medical condition which 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 which has required or requires extraordinary medical
intervention including, but not limited to, a 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;
(D) a
medical condition which 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, 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; or
(iv) acquired
immune deficiency syndrome.
(E) any
other qualifying event approved by the commissioner.
(3) “Commissioner”
means 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 which
contains 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. In the case of For
group policies, each certificate holder shall be given a copy of the summary
with their the certificate. This summary shall include the
following:
(1) A brief description of the accelerated benefit and definitions of the conditions or occurrences 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 may 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. A Each
direct response insurer shall incorporate the summary and acknowledgement vehicle
in the application or attach them thereto 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 are 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 and irrevocable beneficiary
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 which 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 events 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) The
Any insurer may offer a waiver of premium for the accelerated benefit
provision in the absence of if a regular waiver of premium
provision being 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 either 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, except where unless the payment of the
accelerated benefits and any accrued interest may 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) When If payment of an
accelerated benefit results in a pro rata reduction in the cash value, the payment
may 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 section 1 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 which 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) plus 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. The
Each insurer shall maintain in its files descriptions of the bases and
procedures used to calculate benefits and , 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 such accelerated
benefits products with the commissioner. The 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) When
If benefits are provided through the acceleration of benefits under
group or individual life policies or riders to such 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 must shall follow both actuarial standards and
certification for good and sufficient reserves. Reserves in the aggregate should
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 which that provide actuarially
equivalent benefits, no additional reserves need to 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, such the excess must 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. 1989 Supp. 40-401, as amended
by L. 1990, Ch. 164, Sec. 1; implementing K.S.A. 1989 Supp. 40-401,
as amended by L. 1990, Ch. 164, Sec. 1; effective, T-40-11-29-90, Nov. 29,
1990; effective April 15, 1991; amended P- __________________.)