Amended in Assembly July 3, 2013

Amended in Senate May 1, 2013

Amended in Senate April 1, 2013

Senate Bill No. 281

Introduced by Senator Calderon

February 14, 2013

An act to amend Sections begin insert 10110.5, end insert 10271.1 and 10292 of begin insert , 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, end insert the Insurance Code, relating to life insurance.

LEGISLATIVE COUNSEL’S DIGEST

SB 281, as amended, Calderon. Life begin delete insurance. end delete begin insert insurance: accelerated death benefits. end insert

Existing law governs the business of insurance, and defines various types of insurance for these purposes, including life insurance and disability insurance. Existing law begin delete generally end delete begin insert , except as provided, end insert 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. begin insert Existing law also provides the language required as part of a provision or supplemental contract governed by these provisions. end insert

begin delete

This bill would specify that the term “special benefit” for purposes of those provisions means an accelerated death benefit that is added to a life insurance contract to provide for the advance payment of any part of the death proceeds to the insured upon the occurrence of certain qualifying events, including if the insured requires continuous confinement in an eligible institution and is expected to remain there for the rest of his or her life. The bill would require that any life insurance provision or supplemental contract that provides for a special benefit comply with specified requirements, including, but not limited to, that the provision or supplemental contract specify that the accelerated death benefit is fixed at the time the insurer approves the request for the benefit, and that the provision or supplemental contract is prohibited from restricting the use of the proceeds of the accelerated death benefit.

end delete begin delete

Existing law requires supplemental contracts or, if a supplemental contract is an integral part of a life insurance contract, life insurance contracts to be submitted for approval by the Insurance Commissioner before the contracts are delivered or issued for delivery in this state.

end delete begin delete

This bill would require a life insurance contract or supplemental contract that includes an accelerated death benefit and that is submitted for approval by the Insurance Commissioner to be submitted for approval with specified additional information, including a statement of the types of policy forms with which the benefit will be offered.

end delete begin insert

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.” The bill would also revise and recast the required language of the provision or supplemental contract, as prescribed.

end insert begin insert

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.

end insert begin insert

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.

end insert begin insert

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.

end insert begin insert

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 added to a life insurance policy to provide for the advance payment of any part of the death proceeds, payable upon the occurrence of a single qualifying event, as defined. The bill would require a life insurance policy with an accelerated death benefit provision to comply with 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 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 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 civil 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.

end insert begin insert

This bill would delete obsolete provisions and make conforming changes.

end insert

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 10110.5 of the end insert begin insert Insurance Code end insert begin insert is amended
to read: end insert

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 begin delete which
contain end delete begin insert containing end insert 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
begin delete special end delete surrender begin insert charge end insert 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 begin delete which contain end delete begin insert containing end insert that
provision shall establish any additional reserves and file any
additional financial reports that the commissioner may require.

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 10271 of the end insert begin insert Insurance Code end insert begin insert is repealed. end insert

begin delete

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 a special benefit, 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) (1) A provision or supplemental contract described in
subdivision (a) shall contain all of the provisions set forth in
paragraph (2). 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 provisions required by paragraph (2) 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.

(2) With respect to the benefit standards described in
subdivisions (a) and (b) of Section 10271.1, the following
requirements apply to the supplemental contracts with these
benefits:

(A) Either the contract or supplemental contract shall provide
that the contract and the supplemental contract constitute the entire
insurance or annuity contract consistent with paragraph (7) of
subdivision (c) of Section 2534.3 of Title 10 of the California Code
of Regulations, and shall also provide that no agent has the
authority to change the contract or to waive any of its provisions.
This requirement applies without regard to whether the contract
is a variable or nonvariable contract, or a group or individual
contract. This provision shall be preceded individually by a caption
stating “ENTIRE CONTRACT; CHANGES:” or other appropriate
caption as the commissioner may approve.

(B) Either the contract or supplemental contract shall provide
for reinstatement consistent with paragraph (3) of subdivision (c)
of Section 2534.3 of Title 10 of the California Code of Regulations.
This requirement applies without regard to whether the contract
is a variable or nonvariable contract, or a group or individual
contract. This provision shall be preceded individually by a caption
stating “REINSTATEMENT:” or other appropriate caption as the
commissioner may approve.

(C) Supplemental contracts subject to underwriting shall include
an incontestability statement that provides that the insurer shall
not contest the supplemental contract after it has been in force
during the lifetime of the insured for two years from its date of
issue, and may only be contested based on a statement made in
the application for the supplemental contract, if the statement is
attached to the contract. The statement upon which the contest is
made shall be material to the risk accepted or the hazard assumed
by the insurer. This provision shall be preceded individually by a
caption stating “INCONTESTABLE:” or other appropriate caption
as the commissioner may approve.

(D)  A provision or supplemental contract described in
subdivision (a) shall also include:

(i) NOTICE OF CLAIM: The insurer may require written notice
of claim no less than 20 days after an occurrence covered by the
provision or supplemental contract, or commencement of any loss
covered by the provision or supplemental contract. 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.

(ii) CLAIM FORMS: The insurer, upon receipt of a notice of
claim, shall furnish to the claimant such 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 provision or supplemental contract as to proof
of occurrence or proof of loss upon submitting, within the time
fixed in the provision or supplemental contract for filing proof of
occurrence or proof of loss, written proof covering the character
and the extent of the occurrence or loss.

(iii) PROOF OF LOSS: 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.

(iv) PHYSICAL EXAMINATIONS: 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.

(c) The commissioner shall review contracts and supplemental
contracts to ensure that the language can be readily understood
and interpreted, and 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 contract or supplemental contract
is offered, delivered, or issued.

(2) Constitutes fraud, unfair trade practices, and insurance
economically unsound to the owner, insured, or annuitant, as
applicable.

(d) A provision or supplemental contract described in
subdivision (a) shall not contain any title, description, or any other
indication that would describe or imply that the policy or
supplemental contract provides long-term care coverage.

(e) Commencing two years from the date of the issuance of the
provision or supplemental contract, no claim for loss incurred or
disability, as defined in the provision or supplemental contract,
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 provision or supplemental
contract.

(f) With regard to benefits set forth in Section 10271.1, the
provisions and supplemental contracts shall specify any applicable
exclusions, which shall be limited to the following:

(1) Total disability caused or substantially contributed to by any
attempt at suicide or intentionally self-inflicted injury, while sane
or insane.

(2) Total disability caused or substantially contributed to by
war or an act of war, as defined in the exclusion provisions of the
contract.

(3) Total disability caused or substantially contributed to by
active participation in a riot, insurrection, or terrorist activity.

(4) Total disability caused or substantially contributed to by
committing or attempting to commit a felony.

(5) Total disability 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) Total disability occurring after the policy anniversary or
supplemental contract anniversary, as applicable and as defined
in the policy or supplemental contract, on which the insured attains
a specified age of no less than 65.

(7) Total disability in consequence of the insured being
intoxicated, as defined by the jurisdiction where the total disability
occurred.

(8) Total disability caused or materially contributed to by
engaging in an illegal occupation.

(g) If the commissioner notifies the insurer, in writing, that the
filed form 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.

end delete

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 10271 is added to the end insert begin insert Insurance Code end insert begin insert , to read: end insert

begin insert

begin insert 10271. end insert   

(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) 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) The 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 for reinstatement
consistent with paragraph (3) of subdivision (c) of Section 2534.3
of Title 10 of the California Code of Regulations. This requirement
applies without regard to whether the contract is a variable or
nonvariable contract, or a group or individual contract. This
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
contract, 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.

(c) 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.

(d) A provision or supplemental contract 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.

(e) 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.

(f) With regard to supplemental benefits set forth in Section
10271.1, 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 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.

(7) Condition or loss in consequence of the insured being
intoxicated, as defined by the jurisdiction where the condition or
loss occurred.

(8) Condition or loss caused or materially contributed to by
engaging in an illegal occupation.

(g) If the commissioner notifies the insurer, in writing, that the
filed form 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.

end insert

begin delete SECTION 1. end delete
begin insert SEC. 4. end insert   

Section 10271.1 of the Insurance Code is amended to
read:

10271.1.  

(a) (1)  begin delete Provisions or supplemental contracts end delete
begin insert Supplemental benefits end insert 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 begin delete in the contract or supplemental contract end delete begin insert by the
supplemental benefit end insert , and where the waiver continues until the end
of the insured’s disability, or begin delete until the attainment of an age
established by the insurer end delete begin insert for the period specified by the
supplemental benefit, consistent with paragraph (5) end insert .

(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 begin delete in the contract or
supplemental contract end delete begin insert by the supplemental benefit end insert , 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 begin delete in the contract or supplemental
contract end delete begin insert by the supplemental benefit end insert , 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.

(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
begin delete in the provision or supplemental contract, end delete begin insert by the supplemental
benefit, end insert 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 begin delete in the contract or
supplemental contract end delete begin insert by the supplemental benefit end insert , 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) and (e) of Section 10232.8.

(6) Has become involuntarily or voluntarily unemployed.

begin delete

(c) (1) “Special benefit,” as used in this chapter, means an
accelerated death benefit that is added to a life insurance policy
to provide for the advance payment of any part of the death
proceeds payable upon the occurrence of a qualifying event.

(2) For the purposes of this section, “qualifying event” means
any one of the following:

(A) A medical condition that is reasonably expected to result
in a drastically limited life span for the insured.

(B) A medical condition that requires extraordinary medical
intervention, such as major organ transplant or continuous artificial
life support, without which the insured would die.

(C) A condition that usually requires continuous confinement
in a qualified institution and the insured is expected to remain there
for the rest of his or her life.

(D) A specified medical condition that, in the absence of
extensive or extraordinary medical treatment, would result in a
drastically limited life.

(E)  A chronic illness, defined as 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) and (e) of Section 10232.8.

(3) Any life insurance provision or supplemental contract that
provides a special benefit as defined in paragraph (1) shall comply
with all of the following:

(A) The provision or supplemental contract shall specify that
the accelerated death benefit is fixed at the time the insurer
approves the request for the accelerated death benefit.

(B) The provision or supplemental contract shall specify that
the payment of the accelerated death benefit is not conditioned on
the receipt of long-term care or medical services.

(C) The provision or supplemental contract shall include the
option to take the accelerated death benefit in a lump sum on the
occurrence of a single qualifying event and may include an option
to receive the benefit in periodic payments for a certain period
only. Periodic payments shall not be based on the continued
survival or institutional confinement of the insured.

(D) The provision or supplemental contract shall not restrict the
use of the proceeds of the accelerated death benefit.

(E) The provision or supplemental contract shall specify that
the payment of the accelerated death benefit is due immediately
upon receipt of the due written proof of eligibility.

(4) A life insurance contract or supplemental contract submitted
for the approval of the commissioner pursuant to Section 10292
shall be submitted with the following additional information if the
contract includes an accelerated death benefit:

(A) A statement of the types of policy forms with which this
benefit will be offered, any underwriting restrictions involving
face amount or age, and whether the benefit is intended for use
with new issues or in force business.

(B) A specimen issue of the statement regarding the effect of
the accelerated death benefit payment on other benefit provisions,
to be provided to the owner prior to, or concurrent with, the election
of the accelerated death benefit option, and an explanation of how
and when the statement will be provided. The statement shall
demonstrate the effect of the acceleration of the death benefit on
the policy cash value, death benefit, premium, cost of insurance
charges, and loans and liens, as applicable. The statement shall be
based only on guaranteed values. The statement shall also include
a disclosure that receipt of an accelerated death benefit may affect
eligibility for Medicaid or other governmental benefits or
entitlements and may have tax consequences.

(C) An actuarial memorandum prepared, dated, and signed by
a member of the American Academy of Actuaries that includes
the following information:

(i) A description of the accelerated death benefit, including the
effects of payment of the accelerated death benefit on all policy
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.

(ii) A description of, and justification for, expense charges
associated with the accelerated death benefit and the maximum
expense charges.

(iii) 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: (I) the current yield on 90-day Treasury
bills, or (II) a variable rate determined in accordance with the
National Association of Insurance Commissioners (NAIC) Model
Policy Loan Interest Rate Bill No. 590.

(iv) 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.

(v) 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.

(vi) 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.

(vii) A sample calculation of the accelerated death benefit. If
the policy contains a loan provision, the example shall assume that
there is an outstanding loan on the date of acceleration. All policy
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.

(viii) If an accelerated death benefit may be paid in installments,
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.

(ix) For any accelerated death benefit of the type other than a
terminal illness, a certification that the value and premium of the
accelerated death benefit is incidental to the life coverage.

end delete

begin delete SEC. 2. end delete
begin insert SEC. 5. end insert   

Section 10292 of the Insurance Code is amended to
read:

10292.  

(a) A supplemental contract described in 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 contract 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 begin insert , unless it is otherwise authorized, end insert is limited
to the supplemental portion and any other portions that relate to
the supplemental portion.

(b) A supplemental contract described in Section 10271.1 begin insert and
Article 2.1 (commencing with Section 10295) end insert shall be considered
an integral part of a contract for purposes of this section. To
facilitate the review of a supplemental contract, the insurer shall
submit, for informational purposes, a sample copy of the life
insurance or annuity contract with which the supplemental contract
will be used. To facilitate the location of the required provisions
as stated in paragraph (2) of subdivision (b) 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, begin insert Article 2.1 (commencing
with Section 10295), end insert and this section.

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Article 2.1 (commencing with Section 10295) is added
to Chapter 4 of Part 2 of Division 2 of the end insert begin insert Insurance Code end insert begin insert , to
read: end insert

begin insert

 

Article begin insert 2.1. end insert   Accelerated Death Benefits

 

begin insert 10295. end insert   

(a) It is the intent of the Legislature that 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. It is further the intent of the Legislature that an
accelerated death benefit not reimburse or provide specific
coverage for any health, accident, or long-term care insurance
benefits.

(b) For the purposes of this article, an “accelerated death
benefit” means a policy added to a life insurance policy to provide
for the advance payment of any part of the death proceeds, payable
upon the occurrence of a single qualifying event.

(1) For the purposes of this article, “qualifying event” means
any of the following:

(A) Developing any medical condition where the insured’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. If an insurer wishes to add
additional qualifying events, it may do so as long as the events are
one or more of the following:

(i) 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.

(ii) A chronic illness as defined in subparagraph (B) of
paragraph (5) of subdivision (b) of Section 10271.1.

(B) Other qualifying events that the commissioner shall approve
for a particular filing.

(C) For accelerated death benefits intended to be tax qualified
under Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec.
101(g)), the insurer may also 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 Health Insurance Portability and Accountability Act (Public
Law 104-191).

(2) For the purposes of this article, “policy” means any policy,
provision, contract, rider, supplemental contract, or endorsement
for accelerated death benefits delivered or issued for delivery in
this state by an insurer, fraternal benefit society, or any similar
organization regulated by the commissioner.

(3) For the purposes of this article, “applicant” means any of
the following:

(A) In the case of an individual accelerated death benefit policy,
the person who seeks to contract for benefits.

(B) (i) In the case of a group accelerated death benefit policy,
the proposed certificate holder.

(ii) “Certificate” means any certificate issued under a group
life insurance policy that includes an accelerated death benefit or
supplemental benefit.

(c) Accelerated death benefit policies are primarily mortality
risks rather than morbidity risks. The benefits are life insurance
benefits subject to provisions of this code relating to life insurance
products.

(d) A life insurance policy that accelerates death benefits to
cover long-term care benefits and services, under Section 10231.2,
shall not be considered an accelerated death benefit for the
purposes of this article.

begin insert 10295.1. end insert   

A life insurance policy or certificate that provides an
accelerated death benefit as defined in subdivision (b) of Section
10295 shall comply with all of the following:

(a) The policy or certificate shall specify that the accelerated
death benefit is fixed at the time the insurer approves the request
for the accelerated death benefit.

(b) The policy or certificate shall specify that the payment of
the accelerated death benefit is not conditioned on the receipt of
long-term care or medical services.

(c) The policy or certificate shall include the option to take the
accelerated death benefit in a lump sum on the occurrence of a
single qualifying event and may include an option to receive the
benefit in periodic payments for a certain period only. Periodic
payments shall not be based on the continued survival or
institutional confinement of the insured.

(d) The policy or certificate shall not restrict the use of the
proceeds of the accelerated death benefit.

(e) The policy or certificate shall specify that the payment of
the accelerated death benefit is due immediately upon receipt of
the due written proof of eligibility.

(f) 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.

(g) 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.

(h) The policy or certificate shall provide for a maximum amount
that may be accelerated.

(i) The policy or certificate may pay a daily per diem benefit
without regard to the amount of expenses the insured incurs for
qualified long-term care services. 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.

(j) The policy or certificate shall not have long-term care benefit
or service-related features, such as the use of preexisting condition
limitations, or the requirement that benefits be conditioned on a
prior hospitalization or institutionalization.

begin insert 10295.2. end insert   

A life insurance contract or supplemental contract
submitted for the approval of the commissioner pursuant to Section
10292 shall be submitted with the following additional information
if the contract includes an accelerated death benefit:

(a) The term “accelerated death benefit” shall be included in
the descriptive title.

(b) A statement of the types of policy forms with which this
benefit will be offered, any underwriting restrictions involving
face amount or age, and whether the benefit is intended for use
with new issues or in force business.

(c) Information consistent with the filing requirements in
subdivision (b) of Section 10292.

(d) A written disclosure, including, but not necessarily limited
to, a brief description of the accelerated death benefit and
definitions of the conditions or occurrences triggering payment of
the benefits, shall be given to the applicant. The description shall
include an explanation 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.

(1) The written disclosure shall also include a statement that
accelerated death benefits are not intended to replace long-term
care benefits, and that the receipt of an accelerated death benefit
may affect eligibility for Medicaid or other governmental benefits
or entitlements and may have tax consequences.

(2) The required notice shall be provided in the following form:

 

“IMPORTANT NOTICE TO APPLICANT/BUYER REGARDING
ACCELERATED DEATH BENEFITS

The benefits provided by this (provision/supplemental contract)
are not intended to provide, and will never provide, long-term care
insurance, nursing home insurance, or home care insurance. If an
applicant/buyer wants that insurance, the applicant/buyer 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.

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.

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.”

 

(3) 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
disclosure shall be signed by the applicant and the writing agent.

(4) In the case of a solicitation by direct response methods, the
insurer shall provide the disclosure form to the applicant at the
time the policy is delivered, with a notice that a full premium refund
shall be provided to the insured if the policy is returned to the
company within the free look period, pursuant to Section 10295.6.

(5) 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 certificate holder.

(e) 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 a benefit on the policy’s
cash value, accumulation account, death benefit, premium, policy
loans, and policy liens.

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

(2) In the case of a solicitation by direct response methods, the
insurer shall provide the illustration to the applicant at the time
the policy is delivered.

(3) In the case of group life 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 certificate
holder.

(f) An insurer with financing options other than through present
value or a lien approach shall disclose to the policyholder any
premium or cost of insurance charge for the accelerated death
benefit. If the certificate is required to pay any additional premium
or cost of insurance charge, that charge shall be shown on the
specifications page.

(g) The insurer shall disclose to the policyholder any
administrative expense charge.

(h) 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:

(1) A description of the accelerated death benefit, including the
effects of payment of the accelerated death benefit on all policy
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.

(2) A description of, and justification for, expense charges
associated with the accelerated death benefit and the maximum
expense charges.

(3) 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.

(4) 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.

(5) 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.

(6) 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.

(7) A sample calculation of the accelerated death benefit. If the
policy contains a loan provision, the example shall assume that
there is an outstanding loan on the date of acceleration. All policy
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.

(8) If an accelerated death benefit may be paid in installments,
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.

(9) For any accelerated death benefit of the type other than a
terminal illness, 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.

begin insert 10295.3. end insert   

(a) All applications for accelerated death benefit
provisions or supplemental contracts 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 a 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 coverage.”

 

(c) If an insurer does not complete medical underwriting and
resolve all reasonable questions arising from information submitted
on or with an application before issuing the policy or certificate,
then the insurer may only rescind the 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) The contestability period for an individual policy or
certificate shall comply with subparagraph (C) of paragraph (2)
of subdivision (b) of Section 10271.

(e) A copy of the completed application shall be delivered to
the insured at the time of delivery of the policy or certificate.

begin insert 10295.4. end insert   

(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 provision shall be effective
for terminal illness on the effective date of the policy or
supplemental contract. The accelerated death benefit provision
shall be effective for other qualifying events not more than 30 days
following the effective date of the policy or supplemental contract.

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

(d) 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 death benefits other than those conditions specified
in the policy or supplemental contract.

(e) The insurer shall provide the policyholder or certificate
holder with a report, at least monthly, of any 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. A calendar
month or policy or certificate month may be utilized.

(f) The policy or certificate may provide that any option
otherwise available to the insured to accelerate less than all of
the remaining death benefit on account of a terminal illness
diagnosis shall be suspended while the death benefit is being so
accelerated in accordance with the requirements of this article.

(g) 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 a separate 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.

(h) 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 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.

begin insert 10295.5. end insert   

(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. 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 contract at the time of the
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 policy or supplemental contract and the access to
the cash value may be restricted to any excess of the cash value
over the sum of any other outstanding loans and the lien. Future
access to additional policy loans 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, the payment shall not be
applied toward repaying an amount greater than a pro rata portion
of any outstanding policy loans.

begin insert 10295.6. end insert   

(a) If an accelerated death benefit is incorporated
into the terms of the policy or certificate, an applicant for a policy
or a certificate shall have the right to return the 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 benefit is purchased as a supplemental contract at
the same time as the base policy, then the supplemental contract
may be returned within 30 days. The underlying life insurance
policy shall be otherwise subject to this code.

(b) The return of a policy or certificate shall void the policy or
certificate from the beginning and the parties shall be in the same
position as if no policy, certificate, or contract had been issued.
All premiums paid and any policy fee paid for the policy shall be
fully refunded directly to the applicant by the insurer within 30
days after the policy or certificate is returned.

(c) Policies or certificates to which this section applies shall
have a notice prominently printed on the first page of the policy
or certificate, or attached thereto, stating in substance the
conditions described in subdivisions (a) and (b).

begin insert 10295.7. end insert   

(a) (1) Application forms shall include a question
designed to elicit information as to whether the proposed insurance
policy 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.

(2) An insurer that determines that the policy is intended to
replace a similar life policy without a benefit subject to this section
shall follow the procedures in Article 8 (commencing with Section
10509) of Chapter 5.

(b) 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.

(1) For the purposes of this section, “benefits” includes any
term of a life insurance policy, including the availability of
obtaining the benefit in a lump sum, the potential for a remaining
death benefit, or any other favorable characteristic not otherwise
available in a long-term care policy.

(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 does involve replacement of
a life insurance policy subject to this section or of a long-term
care policy, an insurer, other than an insurer using direct response
solicitation methods, or its agent shall furnish the applicant, prior
to issuance or delivery of a policy or certificate, a notice regarding
replacement of life insurance or long-term care insurance coverage
with a life insurance policy with an accelerated death benefit,
health insurance, or long-term care insurance coverage. 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
LIFE INSURANCE OR LONG-TERM CARE INSURANCE

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 coverage provides
thirty (30) days within which you may decide, without cost, whether
you desire to 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 that kind of 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.

Receipt of accelerated death benefits may be taxable. Prior to
electing to buy the accelerated death benefit, policy owners or
certificate holders 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, the applicant/buyer
should consult with the appropriate social services agency
concerning how receipt of accelerated death benefits may affect
that eligibility.

(1) 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.

(2) 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) For group coverage not subject to the 30-day return
provision of Section 10295.6, the notice shall be modified to reflect
the appropriate time period in which the policy may be returned
and premium refunded.

(e) 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 for the purposes of estate planning
for the need for terminal illness/chronic illness 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.

____Life insurance feature not available in long-term care
insurance (please specify)

____ Other (please specify) ______.

(Signature of Agent and Name of Insurer)

(Signature of Applicant)

(Date)

 

(f) Insurers using direct response solicitation methods shall
deliver a notice regarding replacement of life or long-term care
coverage to the applicant upon issuance of the policy or certificate.
The required notice shall be provided in the following form:

 

“NOTICE TO APPLICANT REGARDING REPLACEMENT OF
LIFE INSURANCE OR LONG-TERM CARE INSURANCE

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 coverage provides
thirty (30) days within which you may decide, without cost, whether
you desire to 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 that kind of 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.

Receipt of accelerated death benefits may be taxable. Prior to
electing to buy the accelerated death benefit, policy owners or
certificate holders 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, the applicant/buyer
should consult with the appropriate social services agency
concerning how receipt of accelerated death benefits may affect
that eligibility.

(1) 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.

(2) (To be included only if the application is attached to the
policy or certificate.) If, after due consideration, you still wish to
terminate your present coverage and replace it with new coverage,
read the copy of the application attached to your new coverage
and be sure that all questions are answered fully and correctly.
Omissions or misstatements in the application may cause an
otherwise valid claim to be denied. Carefully check the application
and write to (company name and address) within thirty (30) days
if any information is not correct and complete, or if any past
medical history has been left out of the application.

(Company Name)”

 

(g) For group coverage not subject to the 30-day return
provision of Section 10295.6, the notice shall be modified to reflect
the appropriate time period in which the policy may be returned
and premium refunded.

(h) If a group policy is replaced by another group policy issued
to the same policyholder, the succeeding insurer shall offer
coverage consistent with subdivision (g) of Section 10295.4.

(i) 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.

(j) 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.

begin insert 10295.8. end insert   

(a) An accelerated death benefit policy 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
that: “This product is a life insurance policy that accelerates the
death benefit for qualified chronic illness or other qualified events
and is not insurance providing long-term care insurance subject
to the minimum requirements of California Law, does not qualify
for the California Partnership for Long-Term Care program, and
is not a Medicare supplement (policy or certificate).” An insurer
shall include in any advertisement or marketing materials for these
insurance policies all of the following:

(1) A statement that the policy or certificate is intended to be a
tax-qualified insurance contract under Section 7702(b) of the
Internal Revenue Code (26 U.S.C. 7702(b)), if applicable.

(2) A description of the 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 these policies
and the benefits provided by long-term care insurance.

(b) The statement in paragraph (1) of subdivision (a) may only
appear in an advertisement, description comparison, illustration,
or marketing material for policies or certificates that accelerate
death benefits pursuant to Section 10295 if the policy or certificate
is a tax-qualified insurance contract under Section 7702(b) of the
Internal Revenue Code (26 U.S.C. 7702(b)).

begin insert 10295.9. end insert   

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.

begin insert 10295.10. end insert   

An individual accelerated death benefit policy or
certificate shall not be issued unless it meets the requirements of
Section 10113.72 regarding unintentional lapse.

begin insert 10295.11. end insert   

(a) Except at the request of the policyholder or
contract holder, all accelerated death benefit provisions or
supplemental contracts shall be renewable for the life of the
underlying life insurance policy.

(b) Term life insurance policies shall also include a statement
that the accelerated death benefit terminates with the policy.

begin insert 10295.12. end insert   

Termination of the accelerated death benefit
provision shall be without prejudice to any benefits payable for
any claim if the claim began while the accelerated death benefit
provision was in force and continues without interruption after
termination. An extension of benefits beyond the period the
insurance was in force may be limited to the duration of the benefit
period, if any, or to payment of the maximum benefits and may be
subject to any policy waiting period, and all other applicable
provisions of the insurance policy.

begin insert 10295.13. end insert   

(a) Except as described in subdivision (b), 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.

(b) A violation of this article is not subject to subdivision (d) of
Section 790.036.

end insert