Section 1407.10  Purpose and Applicability

 

The purpose of this Part is to regulate accelerated benefit provisions in individual and group life insurance policies, contracts, riders, endorsements or amendments and to provide required standards of disclosure.  This Part is not applicable to long-term care policies, contracts, riders, endorsements or amendments subject to the provisions of Article XIXA of the Illinois Insurance Code [215 ILCS 5/351A-1 through 351A-11] or to long-term care partnership policies subject to provisions of the Partnership for Long-Term Care Act [320 ILCS 35].

 

(Source:  Amended at 23 Ill. Reg. 14688, effective December 14, 1999)

 

Section 1407.20  Definitions

 

"Accelerated Benefits" means amounts payable in advance of the time life insurance benefits would otherwise be payable because of the occurrence of a terminal illness or a qualified covered condition.

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Qualified Actuary" has the meaning ascribed in Section 223(13) of the Code.  

 

"Qualified Covered Condition" means, but is not limited to, any one of the separate covered conditions as set forth in Section 4, Class 1(a) of the Code the occurrence of which may result in the payment of an accelerated benefit of up to 75% of the face amount of the policy.

 

"Terminal Illness" means a medical condition that, in the opinion of a physician who is licensed to practice medicine in all of its branches, would generally result in the insured's death within 24 months, or any condition that requires continuous confinement in an eligible institution as defined by the contract if the insured is expected to remain there until death.

 

(Source:  Amended at 42 Ill. Reg. 14221, effective July 12, 2018)

 

Section 1407.30  Form Requirements

 

No policies, contracts, riders, endorsements or amendments which provide for accelerated benefits may be issued for delivery in this State unless they meet the following requirements.

 

a)         General Standards and Practices

 

1)         The name given to the coverage must be descriptive of the coverage provided and the terminology "accelerated benefit" shall be included in the descriptive title.  Products regulated under this Part shall not be described or marketed as long-term care insurance, as providing long-term care benefits, or as long-term care partnership insurance.

 

2)         The death benefit net of any outstanding policy loans shall not be reduced by more than the amount of the accelerated benefits and any applicable accrued interest, or any applicable actuarial present value discount appropriate to the policy design.

 

3)         The renewability and cost of any accelerated benefit life insurance policy must be guaranteed for the term of the policy or rider.  This requirement will not apply to coverage in which the insurer pays the present value of the life insurance face amount based on an applicable actuarial discount.  The requirements of this subsection are not applicable to group insurance.

 

b)         Filing Requirements

 

1)         All policy forms and certificate forms pertaining to an accelerated benefit shall be filed with the Department of Insurance for its review and approval pursuant to 50 Ill. Adm. Code 916 prior to their use in this State.

 

2)         If the filing is other than a policy or contract, the insurer shall provide the form number of the policy or contract form or forms with which the accelerated benefit filing is to be used.

 

3)         If a form provides for a reduction in policy values following payment of the accelerated benefit, the insurer shall provide the Department with an actuarial explanation of the policy value reductions and the remaining premium, if any.

 

4)         The insurer shall file with the Department the disclosure statements it will utilize to comply with Section 1407.50 of this Part.

 

5)         Concurrently with the accelerated benefit policy form filing required by this Section, the insurer shall file the actuarial memorandum required by Section 1407.70 of this Part.

 

c)         Effective Date of the Accelerated Benefits.  The accelerated benefit provision shall be effective for accidents on the effective date of the policy or rider.  The accelerated benefit provision shall be effective for illness no more than 30 days following the effective date of the policy or rider.

 

d)         Waiver of Premiums.  The insurer may offer a waiver of premium for the accelerated benefit provision in the absence of a regular waiver of premium provision being in effect.  At the time the benefit is claimed, the insurer shall explain any continuing premium requirement to keep the policy in force.

 

e)         Discrimination.  An insurer shall not unfairly discriminate among insureds with differing qualifying events covered under the policy or among insureds with similar qualifying events covered under the policy.  An insurer shall not apply further conditions on the payment of the accelerated benefits other than those conditions specified in the policy or rider.

 

(Source:  Amended at 23 Ill. Reg. 14688, effective December 14, 1999)

 

Section 1407.40  Standards for Claims Payment

 

a)         Before payment of any benefits the insurer may require medical evidence of the terminal illness or qualified condition, including clinical, radiological, histological or laboratory evidence of the condition.  Insurers shall evaluate the medical evidence and may order their own medical examinations.

 

b)         Prior to payment of the accelerated benefit, the insurer is required to obtain from an assignee or irrevocable beneficiary a signed acknowledgement of concurrence for payout.  If the insurer making the accelerated benefit is itself the assignee under the policy, no acknowledgement is required.

 

c)         Lump Sum Settlement Option Required.  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.

 

d)         Restrictions on Use of Proceeds.  No restrictions are permitted on the use of the proceeds.

 

e)         Accidental Death Benefit Provision.  If any death benefit remains after payment of an accelerated benefit, the accidental death benefit provisions, if any, in the policy or rider shall not be affected by the payment of the accelerated benefit.

 

f)         The insurer shall maintain in its files descriptions of the bases and procedures used to calculate benefits payable under these provisions.  These descriptions shall be made available for examination by the Director upon request.

 

(Source:  Amended at 23 Ill. Reg. 14688, effective December 14, 1999)

 

Section 1407.50  Required Disclosure Provisions

 

Solicitations:

 

a)         If there is a premium or cost of insurance charge, the insurer shall give the applicant a generic illustration numerically demonstrating any effect of the payment of the accelerated benefit on the policy's cash value, accumulation account, death benefit, premium, policy loans and policy liens.

 

1)         In the case of producer solicited insurance, the producer shall provide the illustration to the applicant prior to or concurrently with the application.

 

2)         In the case of direct mail solicitations, the insurer shall provide the illustration to the applicant at the time the policy is delivered.

 

3)         Information on the policy or certificate values shall be furnished by the company upon the request of the policyowner or certificateholder.

 

4)         In the case of group insurance policies, the disclosure form shall be contained as part of the certificate of coverage or any related document furnished by the insurer for the certificateholder.

 

b)         A written disclosure including, but not limited to, a brief description of the accelerated benefit and definitions of the conditions or occurrences triggering payment of the benefits and an explanation of 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 be provided the applicant in the following manner:

 

1)         In the case of producer solicited insurance, the producer shall provide the disclosure form to the applicant prior to or concurrently with the application.  Acknowledgement of the disclosure shall be signed by the applicant and the writing producer, if any.

 

2)         In the case of direct mail solicitations, the insurer shall provide the disclosure form to the applicant at the time the policy is delivered, with a notice that a full premium refund shall be received if the policy is returned to the insurer within 30 days after the initial receipt of the policy by the applicant.

 

3)         Information on the policy values shall be furnished by the company upon the request of the policyholder or certificateholder.

 

4)         In the case of group insurance policies, the disclosure form shall be contained as part of the certificate of coverage or any related document furnished by the insurer for the certificateholder.

 

c)         Tax Consequences.  A disclosure statement is required at the time of application for the policy, rider or certificate and at the time the accelerated benefit payment request is submitted indicating that receipt of these accelerated benefits may be taxable, and assistance should be sought from a personal tax advisor.  The disclosure statement shall be prominently displayed on the first page of the policy or rider and any other related documents.

 

d)         Effect of the Benefit Payment.  When a policyowner or certificateholder requests an acceleration, the insurer shall send a written statement to the policyowner or certificateholder and any irrevocable beneficiary which demonstrates any effect that the payment of the accelerated benefit will have on the policy's cash value, face value accumulation account, death benefit, premium, policy loans and policy liens.  The statement shall disclose that receipt of accelerated benefit payments may adversely affect the recipient's eligibility for Medicaid or other government benefits or entitlements.  In addition, receipt of an accelerated benefit payment may be taxable and assistance should be sought from a personal tax advisor.  When a previous disclosure statement becomes invalid as a result of an acceleration of the death benefit, the insurer shall send a revised disclosure statement to the policyowner or certificateholder and irrevocable beneficiary.  When the insurer agrees to accelerate death benefits, the insurer shall issue an amended schedule page to the policyholder or notify the certificateholder under a group policy to reflect any new, reduced in-force face amount of the contract.

 

e)         Disclosure of Administrative Expense Charge.  The insurer shall disclose to the policyowner any administrative expense charge.  The insurer shall make a reasonable effort to assure that the certificateholder is aware of any administrative expense charge if the certificateholder is required to pay the charge.  However, in no event shall the administrative expense charge exceed $250.

 

(Source:  Amended at 23 Ill. Reg. 14688, effective December 14, 1999)

 

Section 1407.60  Actuarial Standards

 

a)         Financing Options

 

1)         The insurer may require a premium charge or cost of insurance charge for the accelerated benefit.  In the case of group insurance, the additional cost may also be reflected in the experience rating.  This premium charge or cost of insurance charge shall be based on subsections (a)(1)(A) and (B) below:

 

A)        Either:

 

i)          The current yield on 90-day treasury bills; or

 

ii)         The current maximum statutory adjustable policy loan interest rate; and

 

B)        The reasonable estimates of incidence rates.

 

2)         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 reasonable and shall be disclosed in the contract or actuarial memorandum.  The maximum interest rate used shall be no greater than the greater of:

 

A)        The current yield on 90-day treasury bills; or

 

B)        The current maximum statutory adjustable policy loan interest rate.

 

3)         The insurer may accrue an interest charge on the amount of the accelerated benefits.  The interest rate or interest rate methodology used in the calculation shall be reasonable and shall be disclosed in the contract or actuarial memorandum.  The maximum interest rate used shall be no greater than the greater of:

 

A)        The current yield on 90-day treasury bills; or

 

B)        The current maximum statutory adjustable policy loan interest rate.

 

4)         The interest rate accrued on the portion of a lien described in subsection (b)(2) of this Section that is equal in amount to the cash value of the contract at the time of the benefit acceleration shall be no more than the policy loan interest rate stated in the contract.

 

b)         Effect on Cash Value

 

1)         Except as provided in subsection (b)(2) of this Section, when an accelerated benefit is payable, there shall be no more than a pro rata reduction in the cash value based on the percentage of death benefits accelerated to produce the accelerated benefit payment.

 

2)         Alternatively, the payment of accelerated benefits, any administrative expense charges, any future premiums and any accrued interest can be considered a lien against the death benefit of the policy or rider.  The access to the cash value may be restricted to any excess of the cash value over the sum of any other outstanding policy loans and liens.  Future access to additional policy loans could also be limited to any excess of the cash value over the sum of the liens and any other outstanding policy loans.

 

c)         Effect of Any Outstanding Policy Loans on Accelerated Death Benefit Payment.  When payment of an accelerated benefit results in a pro rata reduction in the cash value, the payment may not be applied toward repaying an amount greater than a pro rata portion of any outstanding policy loans.

 

(Source:  Amended at 24 Ill. Reg. 15066, effective October 2, 2000)

 

Section 1407.70  Actuarial Disclosure and Reserves

 

a)         Actuarial Memorandum.  Concurrently with the accelerated benefit policy form filing required by this Part, each insurer shall file with the Director an actuarial memorandum prepared by a qualified actuary that describes the accelerated benefits, the risks, the expected costs and the calculation of statutory reserves.

 

b)         When benefits are provided through the acceleration of benefits under group or individual policies or riders to such policies, policy reserves shall be determined in accordance with Section 223 of the Illinois Insurance Code [215 ILCS 5/223].  All valuation assumptions used in constructing the reserves shall be determined as appropriate for statutory valuation purposes by a qualified actuary.  Reserves in the aggregate shall be sufficient to cover:

 

1)         Policies upon which no claim has yet arisen; and

 

2)         Policies upon which an accelerated benefits claim has arisen.

 

c)         For policies and certificates which provide actuarially equivalent benefits, no additional reserves need to be established.

 

d)         Policy liens and policy loans, including accrued interest, represent assets of the company for statutory reporting purposes.  For any policy on which the policy lien exceeds the policy's statutory reserve liability, such excess must be held as a non-admitted asset.

 

(Source:  Amended at 24 Ill. Reg. 15066, effective October 2, 2000)