Amended in Assembly September 3, 2013

Amended in Assembly August 5, 2013

Amended in Assembly July 3, 2013

Amended in Senate May 1, 2013

Amended in Senate April 1, 2013

Senate BillNo. 281


Introduced by Senator Calderon

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(Coauthor: Senator Gaines)

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(Coauthors: Assembly Members Cooley and Hagman)

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February 14, 2013


An act to amend Sections 10110.5,begin insert 10232.8,end insert 10271.1, and 10292 of, to add Article 2.1 (commencing with Section 10295) to Chapter 4 of Part 2 of Division 2 of, and to repeal and add Section 10271 of, the Insurance Code, relating to life insurance.

LEGISLATIVE COUNSEL’S DIGEST

SB 281, as amended, Calderon. Life insurance: accelerated death benefits.

Existing law governs the business of insurance, and defines various types of insurance for these purposes, including life insurance and disability insurance. Existing law, except as provided, makes the requirements imposed on disability insurance contracts inapplicable to life insurance, endowment, and annuity contracts, or supplemental contracts thereto, that provide additional benefits in case of death or dismemberment or loss of sight by accident, or that operate to safeguard contracts against lapse, or give a special surrender benefit, or a special benefit, as specified. Existing law also provides the language required as part of a provision or supplemental contract governed by these provisions.

This bill would delete the term “special benefit” and replace it with the defined term “accelerated death benefit.” The bill would generally revise the phrase “provision or supplemental contract” and replace it with the term “supplemental benefit,” as defined. The bill would also revise and recast the required language of the provision or supplemental contract, as prescribed.

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Existing law requires a licensed health care practitioner, independent of the insurer, to certify that an insured meets the definition of a “chronically ill individual,” as specified by federal law, for purposes of establishing eligibility for benefits under a long-term care policy or certificate that provides home care benefits.

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This bill would prohibit an insurer, for purposes of long-term care insurance, from imposing a certification requirement of longer than 90 days.

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Existing law authorizes the Insurance Commissioner to adopt reasonable rules and regulations necessary to administer and carry out the purposes of certain provisions relating to the required language in a provision or supplemental contract.

This bill would extend that authorization for the commissioner to adopt reasonable rules and regulations to those provisions relating to supplemental benefits that operate to safeguard life insurance contracts against lapse when the insured becomes totally disabled and those life insurance contracts with an accelerated death benefit.

Existing law authorizes provisions or supplemental contracts that operate to safeguard life insurance contracts against lapse, in which the insurer waives the premium or monthly deduction for a life insurance contract when the insured becomes totally disabled, and where the waiver continues until the end of the insured’s disability, or until the attainment of an age established by the insurer.

This bill would delete the provision regarding attainment of age and would instead authorize the waiver of premiums to continue for a period of time specified in the supplemental benefit. The bill would define “accelerated death benefit” as a policy provision, endorsement, or rider added to a life insurance policy that provides for the advance payment of any part of the death proceeds, payable upon the occurrence of a qualifying event, as defined. The bill would require a life insurance policy with an accelerated death benefit provision to comply with and, if applicable, explain specified requirements, including payment of benefits, commissioner approval of forms and disclosures, and a free look period, and would place limits on advertising and marketing. The bill would prohibit an insurer, broker, agent, or other person from causing a policyholder to unnecessarily replace a long-term care insurance policy with an accelerated death benefit policy, and provide certain notices when a life insurance policy or long-term care insurance policy would be replaced.begin delete 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 delete The bill would prohibit accelerated death benefits from limiting or excluding coverage by type of illness, treatment, medical condition, or accident, except as specified.

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This bill would also provide that an insurer that fails to conform to the requirements of the above provisions would be subject to the provisions of existing law that provide for the imposition of a penalty against any person who engages in any unfair method of competition or any unfair or deceptive act or practice in the business of insurance, as provided, including civil penalties as well as a misdemeanor for an insurer intentionally advertising insurance that it will not sell. Because the bill would create a new crime, it would impose a state-mandated local program.

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begin delete

The

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begin insertThisend insert bill would authorize the commissioner to disapprove any advertising that does not meet the requirements of these provisions, as specified. The bill would also require a policy, certificate, rider, or endorsement to include a provision giving the policyholder or certificate holder the right to appeal to the insurer a decision regarding benefit eligibility.

This bill would delete obsolete provisions and make conforming changes.

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The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

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This bill would provide that no reimbursement is required by this act for a specified reason.

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Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: begin deleteno end deletebegin insertyesend insert.

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

P4    1

SECTION 1.  

Section 10110.5 of the Insurance Code is
2amended to read:

3

10110.5.  

(a) A policy or endorsement issued by an admitted
4life and disability insurer may contain a provision for a waiver of
5premium payments in the event of involuntary unemployment of
6the insured. Insurers issuing policies or endorsements containing
7that provision shall establish any additional reserves and file any
8additional financial reports that the commissioner may require.

9(b) A contract or supplemental contract issued by an admitted
10life and disability insurer may contain a provision for a waiver of
11surrender charge benefit for a life insurance or annuity contract in
12the event of voluntary or involuntary unemployment of the owner,
13insured, or annuitant, as applicable. Insurers issuing contracts or
14supplemental contracts containing that provision shall establish
15 any additional reserves and file any additional financial reports
16that the commissioner may require.

17begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 10232.8 of the end insertbegin insertInsurance Codeend insertbegin insert is amended to
18read:end insert

19

10232.8.  

(a) In every long-term care policy or certificate that
20is not intended to be a federally qualified long-term care insurance
21contract and provides home care benefits, the threshold establishing
22eligibility for home care benefits shall be at least as permissive as
23a provision that the insured will qualify if either one of two criteria
24are met:

25(1) Impairment in two out of seven activities of daily living.

26(2) Impairment of cognitive ability.

27The policy or certificate may provide for lesser but not greater
28eligibility criteria. The commissioner, at his or her discretion, may
29approve other criteria or combinations of criteria to be substituted,
30if the insurer demonstrates that the interest of the insured is better
31served.

32“Activities of daily living” in every policy or certificate that is
33not intended to be a federally qualified long-term care insurance
34contract and provides home care benefits shall include eating,
35bathing, dressing, ambulating, transferring, toileting, and
36continence; “impairment” means that the insured needs human
37assistance, or needs continual substantial supervision; and
38“impairment of cognitive ability” means deterioration or loss of
P5    1intellectual capacity due to organic mental disease, including
2Alzheimer’s disease or related illnesses, that requires continual
3supervision to protect oneself or others.

4(b) In every long-term care policy approved or certificate issued
5after the effective date of the act adding this section, that is
6intended to be a federally qualified long-term care insurance
7 contract as described in subdivision (a) of Section 10232.1, the
8threshold establishing eligibility for home care benefits shall
9provide that a chronically ill insured will qualify if either one of
10two criteria are met or if a third criterion, as provided by this
11subdivision, is met:

12(1) Impairment in two out of six activities of daily living.

13(2) Impairment of cognitive ability.

14Other criteria shall be used in establishing eligibility for benefits
15if federal law or regulations allow other types of disability to be
16used applicable to eligibility for benefits under a long-term care
17insurance policy. If federal law or regulations allow other types
18of disability to be used, the commissioner shall promulgate
19emergency regulations to add those other criteria as a third
20threshold to establish eligibility for benefits. Insurers shall submit
21 policies for approval within 60 days of the effective date of the
22regulations. With respect to policies previously approved, the
23department is authorized to review only the changes made to the
24policy. All new policies approved and certificates issued after the
25effective date of the regulation shall include the third criterion. No
26policy shall be sold that does not include the third criterion after
27one year beyond the effective date of the regulations. An insured
28meeting this third criterion shall be eligible for benefits regardless
29of whether the individual meets the impairment requirements in
30paragraph (1) or (2) regarding activities of daily living and
31cognitive ability.

32(c) A licensed health care practitioner, independent of the
33insurer, shall certify that the insured meets the definition of
34“chronically ill individual” as defined under Public Law 104-191.
35begin insert For the purposes of long-term care insurance as defined in Section
3610231.2, an insurer shall not impose end insert
begin inserta certification requirement
37of longer than 90 days.end insert
If a health care practitioner makes a
38determination, pursuant to this section, that an insured does not
39meet the definition of “chronically ill individual,” the insurer shall
40notify the insured that the insured shall be entitled to a second
P6    1assessment by a licensed health care practitioner, upon request,
2who shall personally examine the insured. The requirement for a
3second assessment shall not apply if the initial assessment was
4performed by a practitioner who otherwise meets the requirements
5of this section and who personally examined the insured. The
6assessments conducted pursuant to this section shall be performed
7promptly with the certification completed as quickly as possible
8to ensure that an insured’s benefits are not delayed. The written
9certification shall be renewed every 12 months. A licensed health
10care practitioner shall develop a written plan of care after
11personally examining the insured. The costs to have a licensed
12health care practitioner certify that an insured meets, or continues
13to meet, the definition of “chronically ill individual,” or to prepare
14written plans of care shall not count against the lifetime maximum
15of the policy or certificate. In order to be considered “independent
16of the insurer,” a licensed health care practitioner shall not be an
17employee of the insurer and shall not be compensated in any
18manner that is linked to the outcome of the certification. It is the
19intent of this subdivision that the practitioner’s assessments be
20unhindered by financial considerations. This subdivision shall
21apply only to a policy or certificate intended to be a federally
22qualified long-term care insurance contract.

23(d) “Activities of daily living” in every policy or certificate
24intended to be a federally qualified long-term care insurance
25contract as provided by Public Law 104-191 shall include eating,
26bathing, dressing, transferring, toileting, and continence;
27“impairment in activities of daily living” means the insured needs
28“substantial assistance” either in the form of “hands-on assistance”
29or “standby assistance,” due to a loss of functional capacity to
30perform the activity; “impairment of cognitive ability” means the
31insured needs substantial supervision due to severe cognitive
32impairment; “licensed health care practitioner” means a physician,
33registered nurse, licensed social worker, or other individual whom
34the United States Secretary of the Treasury may prescribe by
35regulation; and “plan of care” means a written description of the
36insured’s needs and a specification of the type, frequency, and
37providers of all formal and informal long-term care services
38required by the insured, and the cost, if any.

39(e) Until the time that these definitions may be superseded by
40federal law or regulation, the terms “substantial assistance,”
P7    1“hands-on assistance,” “standby assistance,” “severe cognitive
2impairment,” and “substantial supervision” shall be defined
3according to the safe-harbor definitions contained in Internal
4Revenue Service Notice 97-31, issued May 6, 1997.

5(f) The definitions of “activities of daily living” to be used in
6policies and certificates that are intended to be federally qualified
7long-term care insurance shall be the following until the time that
8these definitions may be superseded by federal law or regulations:

9(1) Eating, which shall mean feeding oneself by getting food in
10the body from a receptacle (such as a plate, cup, or table) or by a
11feeding tube or intravenously.

12(2) Bathing, which shall mean washing oneself by sponge bath
13or in either a tub or shower, including the act of getting into or out
14of a tub or shower.

15(3) Continence, which shall mean the ability to maintain control
16of bowel and bladder function; or when unable to maintain control
17of bowel or bladder function, the ability to perform associated
18personal hygiene (including caring for a catheter or colostomy
19bag).

20(4) Dressing, which shall mean putting on and taking off all
21items of clothing and any necessary braces, fasteners, or artificial
22limbs.

23(5) Toileting, which shall mean getting to and from the toilet,
24getting on or off the toilet, and performing associated personal
25hygiene.

26(6) Transferring, which shall mean the ability to move into or
27out of bed, a chair or wheelchair.

28The commissioner may approve the use of definitions of
29“activities of daily living” that differ from the verbatim definitions
30of this subdivision if these definitions would result in more policy
31or certificate holders qualifying for long-term care benefits than
32would occur by the use of the verbatim definitions of this
33subdivision. In addition, the following definitions may be used
34without the approval of the commissioner: (1) the verbatim
35definitions of eating, bathing, dressing, toileting, transferring, and
36continence in subdivision (g); or (2) the verbatim definitions of
37eating, bathing, dressing, toileting, and continence in this
38subdivision and a substitute, verbatim definition of “transferring”
39as follows: “transferring,” which shall mean the ability to move
40into and out of a bed, a chair, or wheelchair, or ability to walk or
P8    1move around inside or outside the home, regardless of the use of
2a cane, crutches, or braces.

3The definitions to be used in policies and certificates for
4impairment in activities of daily living, “impairment in cognitive
5ability,” and any third eligibility criterion adopted by regulation
6pursuant to subdivision (b) shall be the verbatim definitions of
7these benefit eligibility triggers allowed by federal regulations. In
8addition to the verbatim definitions, the commissioner may approve
9additional descriptive language to be added to the definitions, if
10the additional language is (1) warranted based on federal or state
11laws, federal or state regulations, or other relevant federal decision,
12and (2) strictly limited to that language which is necessary to ensure
13that the definitions required by this section are not misleading to
14the insured.

15(g) The definitions of “activities of daily living” to be used
16verbatim in policies and certificates that are not intended to qualify
17for favorable tax treatment under Public Law 104-191 shall be the
18following:

19(1) Eating, which shall mean reaching for, picking up, and
20grasping a utensil and cup; getting food on a utensil, and bringing
21food, utensil, and cup to mouth; manipulating food on plate; and
22cleaning face and hands as necessary following meals.

23(2) Bathing, which shall mean cleaning the body using a tub,
24shower, or sponge bath, including getting a basin of water,
25managing faucets, getting in and out of tub or shower, and reaching
26head and body parts for soaping, rinsing, and drying.

27(3) Dressing, which shall mean putting on, taking off, fastening,
28and unfastening garments and undergarments and special devices
29such as back or leg braces, corsets, elastic stockings or garments,
30and artificial limbs or splints.

31(4) Toileting, which shall mean getting on and off a toilet or
32commode and emptying a commode, managing clothing and wiping
33and cleaning the body after toileting, and using and emptying a
34bedpan and urinal.

35(5) Transferring, which shall mean moving from one sitting or
36lying position to another sitting or lying position; for example,
37from bed to or from a wheelchair or sofa, coming to a standing
38position, or repositioning to promote circulation and prevent skin
39breakdown.

P9    1(6) Continence, which shall mean the ability to control bowel
2and bladder as well as use ostomy or catheter receptacles, and
3apply diapers and disposable barrier pads.

4(7) Ambulating, which shall mean walking or moving around
5inside or outside the home regardless of the use of a cane, crutches,
6or braces.

7

begin deleteSEC. 2.end delete
8begin insertSEC. 3.end insert  

Section 10271 of the Insurance Code is repealed.

9

begin deleteSEC. 3.end delete
10begin insertSEC. 4.end insert  

Section 10271 is added to the Insurance Code, to read:

11

10271.  

(a) Except as set forth in this section, this chapter shall
12not apply to, or in any way affect, provisions in life insurance,
13endowment, or annuity contracts, or contracts supplemental thereto,
14that provide additional benefits in case of death or dismemberment
15or loss of sight by accident, or that operate to safeguard those
16contracts against lapse, as described in subdivision (a) of Section
1710271.1, or give a special surrender benefit, as defined in
18subdivision (b) of Section 10271.1, or an accelerated death benefit
19as defined in Article 2.1 (commencing with Section 10295), in the
20event that the owner, insured, or annuitant, as applicable, meets
21the benefit triggers specified in the life insurance or annuity
22contract or supplemental contract.

23(b) For the purposes of this section, the term “supplemental
24benefit” means a rider to or provision in a life insurance policy,
25certificate, or annuity contract that provides a benefit as set forth
26in subdivision (a).

27(c) A supplemental benefit described in subdivision (a) shall
28contain all of the following provisions. However, an insurer, at its
29option, may substitute for one or more of the provisions a
30corresponding provision of different wording approved by the
31commissioner that is not less favorable in any respect to the owner,
32insured, or annuitant, as applicable. The required provisions shall
33be preceded individually by the appropriate caption, or, at the
34option of the insurer, by the appropriate individual or group
35captions or subcaptions as the commissioner may approve.

36(1) A life insurance policy or annuity contract that contains a
37supplemental benefit shall provide that the contract, supplemental
38contract, and any papers attached thereto by the insurer, including
39the application if attached, constitute the entire insurance or annuity
40contract and shall also provide that no agent has the authority to
P10   1change the contract or to waive any of its provisions. This provision
2shall be preceded individually by a caption stating “ENTIRE
3CONTRACT; CHANGES:” or other appropriate caption as the
4commissioner may approve.

5(2) begin deleteReinstatement of a end deletebegin insertThe end insertsupplemental benefit shallbegin insert provide
6that reinstatement of the supplemental benefit shallend insert
be on the same
7or more favorable terms asbegin delete those inend deletebegin insert reinstatement ofend insert the underlying
8begin insert life insuranceend insert policybegin insert or annuity contractend insert.begin delete In all other respects,end delete
9begin insert Following reinstatement,end insert the insured and insurer shall have the
10same rights under reinstatement as they had under the supplemental
11benefit immediately before the due date of the defaulted premium,
12subject to any provisions endorsed in the rider or endorsement or
13attached to the rider or endorsement in connection with the
14reinstatement. This reinstatement provision shall be preceded
15individually by a caption stating “REINSTATEMENT:” or other
16appropriate caption as the commissioner may approve.

17(3) A supplemental benefit subject to underwriting shall include
18an incontestability statement that provides that the insurer shall
19not contest the supplemental benefit after it has been in force during
20the lifetime of the insured for two years from its date of issue, and
21that the supplemental benefit may only be contested based on a
22statement made in the application for the supplemental benefit, if
23the statement is attached to the contract and if the statement was
24material to the risk accepted or the hazard assumed by the insurer.
25This provision shall be preceded individually by a caption stating
26“INCONTESTABILITY:” or other appropriate caption as the
27commissioner may approve.

28(4) The supplemental benefit shall provide either that the insurer
29may accept written notice of claim at any time or that the insurer
30may require that written notice of claim be submitted by a due date
31that is no less than 20 days after an occurrence covered by the
32supplemental benefit, or commencement of any loss covered by
33the supplemental benefit, or as soon after the due date as is
34reasonably possible. Notice given by or on behalf of the insured
35or the beneficiary, as applicablebegin insert,end insert to the insurer at the insurer’s
36address or telephone number, or to any authorized agent of the
37insurer, with information sufficient to identify the insured, shall
38be deemed notice to the insurer. This provision shall be preceded
39individually by a caption stating “NOTICE OF CLAIM:” or other
40appropriate caption as the commissioner may approve.

P11   1(5) The supplemental benefit shall provide that the insurer, upon
2receipt of a notice of claim, shall furnish to the claimant those
3forms as are usually furnished by it for filing a proof of occurrence
4or a proof of loss. If the forms are not furnished within 15 days
5after giving notice, the claimant shall be deemed to have complied
6with the requirements of the supplemental benefit as to proof of
7occurrence or proof of loss upon submitting, within the time fixed
8by the supplemental benefit for filing proof of occurrence or proof
9of loss, written proof covering the character and the extent of the
10occurrence or loss. This provision shall be preceded individually
11by a caption stating “CLAIM FORMS:” or other appropriate
12caption as the commissioner may approve.

13(6) The supplemental benefit shall provide that the insurer may
14require that the insured provide written proof of occurrence or
15proof of loss no less than 90 days after the termination of the period
16for which the insurer is liable, and, in the case of claim for any
17other occurrence or loss, within 90 days after the date of the
18occurrence or loss. Failure to furnish proof within the time required
19shall not invalidate or reduce the claim if it was not reasonably
20possible to give proof within the time, provided proof is furnished
21as soon as reasonably possible and, except in the absence of legal
22capacity, no later than one year from the time proof is otherwise
23required. This provision shall be preceded individually by a caption
24stating “PROOF OF LOSS:” or other appropriate caption as the
25commissioner may approve.

26(7) The supplemental benefit shall provide that the insurer, at
27its own expense, shall have the right and opportunity to examine
28the person of the insured when and as often as the insurer may
29reasonably require during the pendency of a claim and to make an
30autopsy in case of death where it is not forbidden by law. This
31provision shall be preceded individually by a caption stating
32“PHYSICAL EXAMINATIONS:” or other appropriate caption
33as the commissioner may approve.

34(d) The commissioner shall not approve any contract or
35supplemental contract for insurance or delivery in this state if the
36commissioner finds that the contract or supplemental contract does
37any of the following:

38(1) Contains any provision, label, description of its contents,
39title, heading, backing, or other indication of its provisions that is
40unintelligible, uncertain, ambiguous, or abstruse, or likely to
P12   1mislead a person to whom the supplemental benefit is offered,
2delivered, or issued.

3(2) Constitutes fraud, unfair trade practices, or insurance
4economically unsound to the owner, insured, or annuitant, as
5applicable.

6(3) Contains any actuarial information that isbegin delete significantlyend delete
7begin insert materially end insert incomplete, incorrect, or inadequate.

8(e) A supplemental benefit described in subdivision (a) shall
9not contain any title, description, or any other indication that would
10describe or imply that the supplemental benefit provides long-term
11care coverage.

12(f) Commencing two years from the date of the issuance of the
13supplemental benefit, no claim for loss incurred or disability, as
14defined by the supplemental benefit, may be reduced or denied on
15the grounds that a disease or physical condition not excluded from
16coverage by name or specific description effective on the date of
17loss had existed prior to the effective date on the coverage of the
18supplemental benefit.

19(g) With regard to supplemental benefits set forth in subdivision
20(a), the supplemental benefit shall specify any applicable
21exclusions, which shall be limited to the following:

22(1) Condition or loss caused or substantially contributed to by
23any attempt at suicide or intentionally self-inflicted injury, while
24 sane or insane.

25(2) Condition or loss caused or substantially contributed to by
26war or an act of war, as defined in the exclusion provisions of the
27contract.

28(3) Condition or loss caused or substantially contributed to by
29active participation in a riot, insurrection, or terrorist activity.

30(4) Condition or loss caused or substantially contributed to by
31committing or attempting to commit a felony.

32(5) Condition or loss caused or substantially contributed to by
33voluntary intake of either:

34(A) Any drug, unless prescribed or administered by a physician
35and taken in accordance with the physician’s instructions.

36(B) Poison, gas, or fumes, unless they are the direct result of an
37occupational accident.

38(6) Condition or loss in consequence of the insured being
39intoxicated, as defined by the jurisdiction where the condition or
40loss occurred.

P13   1(7) Condition or loss caused or substantially contributed to by
2engaging in an illegal occupation.

3(h) If the commissioner notifies the insurer, in writing, that the
4filed form or actuarial information does not comply with the
5requirements of law and specifies the reasons for his or her opinion,
6it is unlawful for an insurer to issue any policy in that form.

7

begin deleteSEC. 4.end delete
8begin insertSEC. 5.end insert  

Section 10271.1 of the Insurance Code is amended to
9read:

10

10271.1.  

(a) (1) Supplemental benefits that operate to
11safeguard life insurance contracts against lapse are defined as a
12waiver of premium benefit or a waiver of monthly deduction
13benefit, as applicable, in which the insurer waives the premium or
14monthly deduction for a life insurance contract when the insured
15becomes totally disabled, as defined by the supplemental benefit,
16and where the waiver continues until the end of the insured’s
17disability, or for the period specified by the supplemental benefit,
18consistent with paragraph (5).

19(2) For purposes of this subdivision, total disability shall not be
20less favorable to the insured than the following:

21(A) During the first 24 months of total disability, the insured is
22unable to perform with reasonable continuity the substantial and
23material duties of his or her job due to sickness or bodily injury.

24(B) After the first 24 months of total disability, the insured, due
25to sickness or bodily injury, is unable to engage with reasonable
26continuity in any other job in which he or she could reasonably be
27expected to perform satisfactorily in light of his or her age,
28education, training, experience, station in life, or physical and
29mental capacity.

30(3) The definition of total disability may also include
31presumptive total disability, such as the insured’s total and
32permanent loss of sight of both eyes, hearing of both ears, speech,
33the use of both hands, both feet, or one hand and one foot.

34(4) The insurer may require total disability to continue for an
35 uninterrupted period of time specified by the supplemental benefit,
36or the insurer may allow separate periods of disability to be
37combined.

38(5) The waiver of premium or monthly deduction benefit shall
39continue for the period specified by the supplemental benefit, but
40shall not be less favorable to the insured than the following:

P14   1(A) If the insured’s total disability begins before the insured
2attains 60 years of age, the insurer shall waive all premiums or
3monthly deductions due for the period of the total disability, and
4if the total disability extends to the insured’s attainment of 65 years
5of age, the insurer shall waive all further premiums or monthly
6deductions due.

7(B) If the insured’s total disability begins after the age specified
8in subparagraph (A), the insurer shall waive all premiums or
9monthly deductions due for the period that the insured continues
10to be totally disabled up to 65 years of age.

11(6) In addition to the permissible exclusions listed in subdivision
12(g) of Section 10271, the insurer may exclude abegin delete condition or lossend delete
13begin insert total disability end insert occurring after the policy anniversary or
14supplemental contract anniversary, as applicable and as defined
15by the supplemental benefit, on which the insured attains a
16specified age of no less than 65 years.

17(b) “Special surrender benefit” is defined as a “waiver of
18surrender charge benefit” wherein the insurer waives the surrender
19charge usually charged for a withdrawal of funds from the cash
20value of a life insurance contract or the account value of an annuity
21contract if the owner, insured, or annuitant, as applicable, meets
22any of the following criteria:

23(1) Develops any medical condition where the owner’s,
24insured’s, or annuitant’s life expectancy is expected to be less than
25or equal to a limited period of time that shall not be restricted to
26a period of less than 12 months or greater than 24 months.

27(2) Is receiving, as prescribed by a physician, registered nurse,
28or licensed social worker, home care or community-based services,
29as defined in subdivision (a) of Section 10232.9, or is confined in
30a skilled nursing facility, convalescent nursing home, or extended
31care facility, which shall not be defined more restrictively than as
32in the Medicare program, or is confined in a residential care facility
33or residential care facility for the elderly, as defined in the Health
34and Safety Code. Out-of-state providers of services shall be defined
35as comparable in licensure and staffing requirements to California
36providers.

37(3) Has any medical condition that would, in the absence of
38treatment, result in death within a limited period of time, as defined
39by the supplemental benefit, but that shall not be restricted to a
40period of less than six months.

P15   1(4) Is totally disabled, as follows:

2(A) During the first 24 months of total disability, the owner,
3 insured, or annuitant, as applicable, is unable to perform with
4reasonable continuity the substantial and material duties of his or
5her job due to sickness or bodily injury.

6(B) After the first 24 months of total disability, the owner,
7insured, or annuitant, as applicable, due to sickness or bodily injury,
8is unable to engage with reasonable continuity in any other job in
9which he or she could reasonably be expected to perform
10 satisfactorily in light of his or her age, education, training,
11experience, station in life, or physical and mental capacity.

12(C) The definition of total disability may also include
13presumptive total disability, such as the insured’s total and
14permanent loss of sight of both eyes, hearing of both ears, speech,
15the use of both hands, both feet, or one hand and one foot.

16(D) The insurer may require the total disability to continue for
17an uninterrupted period of time specified by the supplemental
18benefit, or the insurer may allow separate periods of disability to
19be combined.

20(5) Has a chronic illness as defined pursuant to either
21subparagraph (A) or (B):

22(A) Either of the following:

23(i) Impairment in performing two out of seven activities of daily
24living, as set forth in subdivisions (a) and (g) of Section 10232.8,
25meaning the insured needs human assistance, or needs continual
26substantial supervision.

27(ii) The insured has an impairment of cognitive ability, meaning
28a deterioration or loss of intellectual capacity due to mental illness
29or disease, including Alzheimer’s disease or related illnesses, that
30requires continual supervision to protect oneself or others.

31(B) Either of the following:

32(i) Impairment in performing two out of six activities of daily
33living as described in subdivisions (b), (d), (e), and (f) of Section
3410232.8 due to a loss of functional capacity to perform the activity.

35(ii) Impairment of cognitive ability, meaning the insured needs
36substantial supervision due to severe cognitive impairment, as
37described in subdivisions (b), (d), and (e) of Section 10232.8.

38(6) Has become involuntarily or voluntarily unemployed.

39(c) The term “supplemental benefit” means a rider to or
40provision in a life insurance policy, certificate, or annuity contract
P16   1that provides a benefit as set forth in subdivision (a) of Section
210271.

3

begin deleteSEC. 5.end delete
4begin insertSEC. 6.end insert  

Section 10292 of the Insurance Code is amended to
5read:

6

10292.  

(a) A supplemental benefit described in subdivision
7(a) of Section 10271 shall not be delivered or issued for delivery
8to any person in this state until a copy of the form thereof is
9submitted to, and approved by, the commissioner. If the
10supplemental benefit is an integral part of a contract of life
11insurance or annuity, the entire contract shall be submitted to the
12commissioner, but his or her power of approval or disapproval,
13unless it is otherwise authorized, is limited to the supplemental
14portion and any other portions that relate to the supplemental
15portion.

16(b) A supplemental benefit described in subdivision (a) of
17Sectionbegin delete 10271.1 and Article 2.1 (commencing with Section 10295)end delete
18begin insert 10271end insert shall be considered an integral part of a contract for purposes
19of this section. To facilitate the review of a supplemental benefit,
20the insurer shall submit, for informational purposes, a sample copy
21of the life insurance or annuity contract with which the
22supplemental benefit will be used. To facilitate the location of the
23required provisions as stated in subdivision (c) of Section 10271,
24the insurer shall provide the sample copy page reference for the
25provisions that appear in the contract.

26(c) The commissioner may adopt reasonable rules and
27regulations as are necessary to administer and carry out the
28purposes of Sections 10271 and 10271.1, Article 2.1 (commencing
29with Section 10295), and this section.

30

begin deleteSEC. 6.end delete
31begin insertSEC. 7.end insert  

Article 2.1 (commencing with Section 10295) is added
32to Chapter 4 of Part 2 of Division 2 of the Insurance Code, to read:

33 

34Article 2.1.  Accelerated Death Benefits
35

 

36

10295.  

(a) An accelerated death benefit, as described in this
37section, shall not be offered, sold, issued, or marketed as health,
38accident, or long-term care insurance. An accelerated death benefit
39shall not reimburse or provide specific coverage for any health,
40accident, or long-term care insurance benefits.

P17   1(b) (1) For the purposes of this article, an “accelerated death
2benefit” means a provision, endorsement, or rider added to a life
3insurance policy that provides for the advance payment of any part
4of the death proceeds, payable upon the occurrence of a qualifying
5event in accordance with Section 10295.1.

6(2) For the purposes of this article, “qualifying event” means
7that subparagraph (A) or (B) applies.

8(A) The insured has a medical condition that would, in the
9absence of treatment, result in death within a limited period of
10time, as defined by the supplemental benefit, but that shall not be
11restricted to a period of less than six months.

12(B) (i) The insured has a chronic illness as defined in
13subparagraph (B) of paragraph (5) of subdivision (b) of Section
1410271.1.

15(ii) begin deleteFor purposes of determining whether this subparagraph
16applies, end delete
begin insertFor policies intended to be federally tax qualified,end insertbegin insert end insertthe
17insurerbegin delete may alsoend deletebegin insert shallend insert require that a licensed health care
18practitioner, independent of the insurer, certifies that the insured
19meets the definition of “chronically ill individual” as defined under
20the federal Health Insurance Portability and Accountability Act
21(Public Law 104-191).

begin delete

22(iii) Nothing in this subdivision shall preclude an insurer from
23requiring certification that the chronic illness is expected to be
24permanent.

end delete
begin insert

25(I) If a health care practitioner makes a determination, pursuant
26to this clause, that an insured does not meet the definition of
27“chronically ill individual,” the insurer shall notify the insured
28that the insured shall be entitled to a second assessment by a
29licensed health care practitioner, upon request, who shall
30personally examine the insured. The requirement for a second
31assessment shall not apply if the initial assessment was performed
32by a practitioner who otherwise meets the requirements of this
33clause and who personally examined the insured.

end insert
begin insert

34(II) The assessments conducted pursuant to this clause shall be
35performed promptly with the certification completed as quickly as
36possible to ensure that an insured’s benefits are not delayed. The
37written certification shall be renewed every 12 months.

end insert
begin insert

38(III) The costs to have a licensed health care practitioner certify
39that an insured meets, or continues to meet, the definition of
P18   1“chronically ill individual,” shall not count against the lifetime
2maximum of the policy or certificate.

end insert
begin insert

3(IV) In order to be considered “independent of the insurer,” a
4licensed health care practitioner shall not be an employee of the
5insurer and shall not be compensated in any manner that is linked
6to the outcome of the certification.

end insert
begin insert

7(V) It is the intent of the Legislature this clause, that in enacting
8the practitioner’s assessments be unhindered by financial
9considerations.

end insert
begin insert

10(VI) This clause shall apply only to a policy or certificate
11intended to be federally tax qualified.

end insert

12(3) For the purposes of this article, “applicant” means any of
13the following:

14(A) In the case of an individual life insurance policy with an
15accelerated death benefit, the person who seeks to contract for
16benefits.

17(B) (i) In the case of a group life insurance policy with an
18accelerated death benefit, the proposed certificate holder.

19(ii) “Certificate” means any certificate issued under a group life
20insurance policy that includes an accelerated death benefit.

21(4) For the purposes of this article, the term “supplemental
22benefit” means a rider to or provision in a life insurance policy,
23certificate, or annuity contract that provides a benefit as set forth
24in subdivision (a) of Section 10271.

25(c) A life insurance policy that accelerates death benefits if the
26insured is chronically ill and requires that the insured receives
27long-term care services described in Section 10231.2, shall not be
28considered an accelerated death benefit for the purposes of this
29article.

30(d) Nothing in this subdivision shall be construed as prohibiting
31an insurer from including other riders to a life insurance policy,
32such as a terminal illness rider, that are notbegin delete beend delete subject to this article.

33

10295.1.  

(a) An accelerated death benefit as defined in
34paragraph (1) of subdivision (b) of Section 10295 shall comply
35with,begin delete and, if applicable,end deletebegin insert andend insert shall explain all of, the following:

36(1) That the accelerated death benefit is fixed at the time the
37insurer approves the request for the accelerated death benefit.

38(2) That the payment of the accelerated death benefit is not
39conditioned on the receipt of long-term care or medical services.

P19   1(3) That thebegin insert insured shall have theend insert option to take the accelerated
2death benefit in a lump sum on the occurrence of a qualifying event
3, as well as an option to receive the benefit in periodic payments
4is provided for a certain period only.

5(4) Thatbegin delete there will be no restrictions on the use of the proceeds
6of the accelerated death benefit.end delete
begin insert the accelerated death benefit may
7not restrict the insured’s use of the proceeds.end insert

8(5) That the payment of the accelerated death benefit is due
9immediately upon receipt of the due written proof of eligibility.

10(6) That, prior to the payment of the accelerated death benefit,
11the insurer is required to obtain from an assignee or irrevocable
12beneficiary, if any, a signed acknowledgment of concurrence for
13payout. If the insurer making the accelerated death benefit is itself
14the assignee under the policy, the acknowledgment is not required.

15(7) That if any death benefit remains after payment of an
16accelerated death benefit, the accidental death benefit provision,
17if any, in the policy shall not be affected by the payment of the
18accelerated death benefit.

19(b) The accelerated death benefit shall also provide for all of
20the following:

21(1) A maximum amount that may be accelerated.

22(2) An explanationbegin delete of whetherend deletebegin insert thatend insert the insured may accelerate
23more than once on a qualifying event up to the maximum amount.

24(3) An explanationbegin delete of whetherend deletebegin insert thatend insert the insured may accelerate
25on more than one of the qualifying events specified in the
26supplemental provision up to the maximum amount.

27(4) A statement that the policy, rider, endorsement, or certificate
28pays proceedsbegin insert that are or are notend insert intended for favorable tax
29treatment under Section 101(g) of the Internal Revenue Code (26
30U.S.C. Sec. 101(g)), if applicable.

31(c) The insurer shall advise the policyholder or certificate holder
32that there may be tax consequences of accepting an amount above
33the amount that would be tax qualified under the Internal Revenue
34Code.

35(d) The accelerated death benefit shall not contain any
36preexisting condition limitation and shall not contain any
37requirement that acceleration be conditioned on a prior
38hospitalization or institutionalization.

39(e) The accelerated death benefit shall contain an explanation
40of how the insured will pay for the accelerated death benefit,
P20   1whether by paying a portion of the premium for the life insurance
2policy, by paying a fee at the time of the acceleration, by paying
3the cost of insurance charge, or by paying the administrative
4expense charge, together with an illustration. If there is a premium
5or cost of insurance charge, or a charge imposed upon the
6acceleration, a generic illustration numerically demonstrating any
7effect of the payment of a benefit on the policy’s cash value,
8accumulation account, death benefit, premium, policy loans, and
9policy liens shall suffice for this purpose.

10(f) begin insert(1)end insertbegin insertend insert Every accelerated death benefit that pays proceeds
11intended for favorable tax treatment under Section 101(g) of the
12Internal Revenue Code (26 U.S.C. Sec. 101(g)) shall be identified
13as such by prominently displaying and printing that intention on
14page one of the accelerated benefit policy provision, rider,
15endorsement, or certificate.

begin insert

16(2) Every accelerated death benefit that pays proceeds that are
17not intended for favorable tax treatment under Section 101(g) of
18the Internal Revenue Code (26 U.S.C. Sec. 101(g)), shall be
19identified as such by prominently displaying and printing that
20intention on page one of the accelerated death benefit policy
21provision, rider, endorsement, or certificate.

end insert
22

10295.2.  

A life insurance contract with an accelerated death
23benefitbegin insert or an accelerated death benefit in the form of a rider or
24endorsementend insert
shall be submitted for the approval of the
25commissioner in the same manner as required under Section 10292
26and shall be submitted with the following additional information:

27(a) The term “accelerated death benefit” shall be included in
28the descriptive title of the filing.

29(b) A statement of the specific policy forms with which this
30accelerated death benefit will be offered, any underwriting
31restrictions involving face amount or age, and whether the
32accelerated death benefit is intended for use with new issues or in
33force business, or both.

begin insert

34(c) An insurer that requires certification that a chronic illness
35is expected to last longer than 90 days shall include in its filing a
36legal memorandum from outside tax counsel that the certification
37would allow for preferable tax treatment under Section 101(g) of
38the Internal Revenue Code (26 U.S.C. Sec. 101(g)).

end insert
39

10295.3.  

(a) A written disclosure, as set forth below, shall be
40included with the filing for the commissioner’s approval, and shall
P21   1be given to each applicant. The same written disclosure shall be
2attached to the policy or certificate delivered to the insured.

3(b) The required written disclosure shall be in the following
4form:

5“IMPORTANT NOTICE TO APPLICANT/BUYER
6REGARDING ACCELERATED DEATH BENEFITS”

begin delete

7(A) Description of the accelerated death benefit.

8(B) Explanation of the qualifying event or events.

9(C) Explanation of any effect of the payment of an accelerated
10death benefit on the life insurance policy’s cash value,
11accumulation account, death benefit, premium, policy loans, and
12policy liens.

13(D) Explanation of how the insured will be paying for this
14supplemental accelerated death benefit, by paying a portion of the
15premium for the life insurance policy, by paying a fee at the time
16of the acceleration, by paying the cost of insurance charge, or by
17paying the administrative expense charge, together with an
18illustration. If there is a premium or cost of insurance charge, or
19charge imposed upon acceleration, a generic illustration
20numerically demonstrating any effect of the payment of a benefit
21on the policy’s cash value, accumulation account, death benefit,
22premium, policy loans, and policy liens shall suffice for this
23purpose.

24(E) Explanation of whether the portion of the premium on the
25life insurance policy attributed to the accelerated death benefit will
26ever increase, and if so, how.

27(F) Explanation of how acceleration affects the premium for
28the life insurance policy or certificate and the effect on the premium
29for the accelerated death benefit.

30(G) Explanation of whether the insured may accelerate more
31than one time within the stated maximum and whether there is any
32restriction as to accelerating based on more than one qualifying
33event.

34(c) The disclosure shall also contain this language, verbatim:

end delete

35“The benefits provided by this accelerated death benefit are not
36intended to provide, and will never provide, long-term care
37insurance, nursing home insurance, or home care insurance. If you
38are interested in long-term care or nursing home or home care
39insurance, you should consult with an insurance agent licensed to
40sell that insurance, inquire with the insurance company offering
P22   1the accelerated death benefits, or visit the California Department
2of Insurance Internet Web site (www.insurance.ca.gov) section
3regarding long-term care insurance.

begin insert

4If you choose to accelerate a portion of your death benefit, doing
5so will reduce the amount that your beneficiary will receive upon
6your death.

end insert

7Receipt of accelerated death benefits may be taxable. Prior to
8electing to buy the accelerated death benefit, you should seek
9assistance from a qualified tax adviser.

10Receipt of accelerated death benefits may affect eligibility for
11public assistance programs, such as Medi-Cal or Medicaid. Prior
12to electing to buy the accelerated death benefit, you should consult
13with the appropriate social services agency concerning how receipt
14of accelerated death benefits may affect that eligibility.”

begin delete

15(d)

end delete

16begin insert(c)end insert In the case of agent-solicited life insurance, the agent shall
17provide the disclosure form to the applicant prior to, or
18concurrently with, the application. Acknowledgment of the
19applicant’s receipt of the disclosure shall be signed by the applicant
20and the writing agent.

begin delete

21(e)

end delete

22begin insert(d)end insert In the case of a solicitation by direct response methods, the
23insurer shall provide the disclosure form to the applicant together
24with the application. A notice that a full premium refund shall be
25provided to the insured if the policy is returned to the company
26within the free look period, pursuant to Section 10295.8.

begin delete

27(f)

end delete

28begin insert(e)end insert In the case of group insurance policies, the disclosure form
29shall be delivered together with the application for the certificate,
30or with the certificate of coverage or any related document
31furnished by the insurer for the certificate holder.

32

10295.4.  

An insurer shall file with the commissioner an
33actuarial memorandum prepared, dated, and signed by a member
34of the American Academy of Actuaries that includes all of the
35following information:

36(a) A description of the accelerated death benefit, including the
37effects of payment of the accelerated death benefit on all life
38insurance policy benefits and any subsequent accelerated death
39benefits, premium payments, cost of insurance rates, and values,
P23   1including any outstanding loan, if applicable, for all types of forms
2with which the accelerated death benefit will be used.

3(b) A description of, and justification for, expense charges
4associated with the accelerated death benefit and the maximum
5expense charges.

6(c) A description of the interest rate or interest rate methodology
7used in any present value calculation or in accruing interest on the
8amount of the accelerated death benefit, which shall not exceed
9the greater of the current yield on 90-day treasury bills, or a
10variable rate determined in accordance with the National
11Association of Insurance Commissioners (NAIC) Model Policy
12Loan Interest Rate Bill No. 590.

13(d) A description of the mortality basis and methodology,
14including the period of time applicable to any mortality discount,
15used in any present value calculation of the accelerated death
16benefit.

17(e) A description of the mortality and morbidity basis and
18methodology used in the determination of any separate premium
19or costs of insurance for the accelerated death benefit.

20(f) The formula used to determine the accelerated death benefit,
21including any limitations on the amount of the benefit, and the
22formula used to determine the postacceleration premium for the
23accelerated death benefit as well as the life insurance policy.

24(g) A sample calculation of the accelerated death benefit. If the
25life insurance policy contains a loan provision, the example shall
26assume that there is an outstanding loan on the date of acceleration.
27All policy and accelerated death benefit benefits, premium
28payments, cost of insurance charges and values, including the
29outstanding loan, if applicable, immediately before and
30immediately after acceleration shall be shown in the example.

31(h) If an accelerated death benefit will be paid in installments,
32the actuarial memorandum shall explain the basis used in the
33 calculation of the minimum periodic payment for the payment
34period and a sample calculation of a minimum periodic payment,
35and the basis used, and a sample calculation of the lump sum
36payable if the insured dies before all periodic payments for the
37payment period are made.

38(i) begin insert(1)end insertbegin insertend insert For any accelerated death benefitbegin delete of the type other than
39a terminal illness,end delete
begin insert subject to this article,end insert a certification that the
40value and premium of the accelerated death benefit is 10 percent
P24   1or less of the total value of the benefits over the life of the policy.
2These values shall be measured as of the date of issue.

begin insert

3(2) The certification shall be in the following form:

end insert
begin insert

4

end insert
begin insert

5“I,____________________of ___________________________
6am a Member in good standing of the American Academy of
7Actuaries and am qualified to provide this Certification with
8respect to the accelerated death benefit described in the Actuarial
9Memorandum to which this Certification is attached.

end insert
begin insert

10I certify that:

end insert
begin insert

11(1) The value of the benefits provided, on an aggregated basis,
12in respect of the filed accelerated death benefit, determined
13according to the formula below applied over a range of
14underwriting classes and plans at which the benefit is being made
15available, is not in any case greater than 10%.

end insert
begin insert

16(NSP2 - NSP1) / NSP1

end insert
begin insert

17Where:

end insert
begin insert

18(a) NSP1 and NSP2 are determined using an effective annual
19interest rate of 6%.

end insert
begin insert

20(b) NSP1 is the net single premium for the base policy benefits
21assuming there is no accelerated death benefit.

end insert
begin insert

22(c) NSP2 is the net single premium for the base policy benefits
23assuming that the full death benefit is paid at time of death or the
24occurrence of the non-death accelerated death benefit trigger.

end insert
begin insert

25(2) In developing the assumptions, other than the interest
26assumption, used in calculating NSP1 and NSP2, I have complied
27with all applicable laws, regulations, and Actuarial Standards of
28Practice (ASOPs). The assumptions used represent anticipated
29experience factors, as defined in actuarial literature and by
30generally accepted actuarial practice.

end insert
begin insert

31(3) The assumptions, other than the interest assumption, used
32in calculating NSP1 and NSP2 will be reviewed at least annually
33by the Company to ensure that the value of the accelerated death
34benefit provided, as defined in (1) above, continues to be incidental.
35If, after such review and while this accelerated death benefit is
36being actively issued, the value of the benefits provided by this
37benefit are no longer incidental based on then current anticipated
38experience factors, the Company will discontinue offering the
39accelerated death benefit which is no longer incidental.

end insert
begin insert

P25   1(4) If a separate premium or cost of insurance (COI) charge is
2being charged for the accelerated death benefit provided, the ratio
3of the present value of the accelerated death benefit premiums or
4COI charges over the life of the policy to the present value of the
5policy premiums or COI charges exclusive of any riders, does not
6exceed 10%. The present values in this item (4) are determined
7using an effective annual interest rate of 6%.”

end insert
begin insert

8

end insert
9

10295.5.  

(a) Applications, if any, or forms supporting an
10application, if any, for accelerated death benefits shall contain
11clear, unambiguous, short, and simple questions designed to
12ascertain the health condition of the applicant. Each question shall
13contain only one health status inquiry and shall require only a
14“yes” or “no” answer, except that the application may include a
15request for the name of any prescribed medication and the name
16of the prescribing physician. If the application requests the name
17of any prescribed medication or the prescribing physician, then
18any mistake or omission shall not be used as a basis for the denial
19of a claim or the rescission of the accelerated death benefit or life
20insurance policy or certificate.

21(b) The following warning shall be printed conspicuously and
22in close conjunction with the applicant’s signature block:

23

24“Caution: If your answers on this application are misstated or
25untrue, the insurer may have the right to deny benefits or rescind
26your accelerated death benefit coverage.”

27

28(c) If an insurer does not complete medical underwriting for the
29accelerated death benefit separate from underwriting for the life
30insurance policy and resolve all reasonable questions arising from
31information submitted on or with an application before issuing the
32 accelerated death benefit, then the insurer may only rescind the
33accelerated death benefit or life insurance policy or certificate or
34deny an otherwise valid claim upon clear and convincing evidence
35of fraud or material misrepresentation of the risk by the applicant.
36The evidence shall do all of the following:

37(1) Pertain to the condition for which benefits are sought.

38(2) Involve a chronic condition or involve dates of treatment
39before the date of application.

40(3) Be material to the acceptance for coverage.

P26   1(d) An accelerated death benefit may not be field issued.

2(e) The contestability period for a life insurance policy or
3certificate that contains an accelerated death benefit shall comply
4with paragraph (3) of subdivision (c) of Section 10271.

5(f) A copy of the completed application shall be delivered to
6the insured at the time of delivery of the life insurance policy or
7certificate that contains an accelerated death benefit.

8

10295.6.  

(a) When a policyholder or certificate holder requests
9an acceleration of death benefits, the insurer shall send a statement
10to the policyholder or certificate holder and irrevocable beneficiary
11showing any effect that the payment of the accelerated death benefit
12would have on the policy’s cash value, accumulation account,
13death benefit, premium, policy loans, and policy liens. The
14statement shall disclose that receipt of accelerated death benefit
15payments may adversely affect the recipient’s eligibility for
16Medicaid or other government benefits or entitlements. In addition,
17receipt of an accelerated death benefit payment may be taxable
18and assistance should be sought from a personal tax adviser. When
19a previous disclosure statement becomes invalid as a result of an
20acceleration of the death benefit, the insurer shall send a revised
21disclosure statement to the policyholder or certificate holder and
22irrevocable beneficiary.

23(b) The accelerated death benefit shall be effectivebegin delete for other
24qualifying eventsend delete
not more than 30 days following the effective
25date of the policybegin insert, end insert provision, rider, endorsement, or certificate.

begin delete

26(c) The insurer may offer a waiver of premium for the
27accelerated death benefit provision in the absence of a regular
28waiver of premium provision being in effect. At the time the benefit
29is claimed, the insurer shall explain any continuing premium
30requirement to keep the policy in force.

end delete
begin insert

31(c)  If the insurer charges a separate premium for the
32accelerated death benefit, then the insurer may also offer a waiver
33of premium benefit as defined in subdivision (a) of Section 10271.1.
34At the time the waiver of the accelerated death benefit premium
35benefit is claimed, the insurer shall explain any continuing
36premium requirement to keep the underlying policy in force.

end insert

37(d) An insurer shall not unfairly discriminate among insureds
38with different qualifying events covered under the policy or among
39insureds with similar qualifying events covered under the policy.
40An insurer shall not apply further conditions on the payment of
P27   1the accelerated death benefits other than those conditions specified
2in the begin delete unrestrictedend delete accelerated death benefit.

3(e) The insurer shall provide the policyholder or certificate
4holder with a report, at least monthly, of any accelerated death
5benefits paid out during the prior month, an explanation of any
6changes to the policy or certificate, death benefits, and cash values
7on account of the benefits being paid out, and the amount of the
8remaining benefits that can be accelerated at the end of the prior
9month. The insurer may use a calendar month or policy or
10certificate month.

begin delete

11(f) The policy or certificate may provide that any option
12otherwise available to the insured to accelerate less than all of the
13remaining death benefit on account of a terminal illness diagnosis
14shall be suspended while the death benefit is being so accelerated
15in accordance with the requirements of this article.

16(g)

end delete

17begin insert(f)end insert The conversion benefit available to group certificate holders
18on termination of employment pursuant to paragraph (2) of
19subdivision (a) of Section 10209 shall include a benefit comparable
20to the accelerated death benefit. This requirement may be satisfied
21bybegin delete a separateend deletebegin insert an individualend insert policy or certificate. This requirement,
22subject to the approval of the commissioner, may be satisfied by
23arrangement with another insurer to provide the required coverage.

begin delete

24(h)

end delete

25begin insert(g)end insert When payment of an accelerated death benefit results in a
26pro rata reduction in cash value, the payment may be applied
27toward repaying a portion of the loan equal to a pro rata portion
28of any outstanding policy loans if disclosure of the effect of
29acceleration upon any remaining death benefit, cash value or
30accumulation account, policy loan, and premium payments,
31including a statement of the possibility of termination of any
32remaining death benefit, is provided to the policyholder or
33certificate holder. The policyholder or certificate holder shall
34provide written consent authorizing any other arrangement for the
35repayment of outstanding policy loans.

36

10295.7.  

(a) The insurer may require a premium charge or
37cost of insurance charge for the accelerated death benefit. This
38charge shall be based on sound actuarial principles. In the case of
39group insurance, the additional cost may also be reflected in the
40experience rating.

P28   1(b) (1) The insurer may pay a present value of the face amount.
2The calculation shall be based on any applicable actuarial discount
3appropriate to the policy design. The interest rate or interest rate
4methodology used in the calculation shall be based on sound
5 actuarial principles and disclosed in the contract or actuarial
6memorandum required in Section 10295.4. The maximum interest
7rate used shall be no greater than the greater of one of the
8following:

9(A) The current yield on 90-day treasury bills.

10(B) The current maximum statutory adjustable policy loan
11interest rate.

12(2) The interest rate accrued on the portion of the lien that is
13equal in amount to the cash value of the life insurance policy at
14the time of the supplemental benefit acceleration shall be not more
15than the policy loan interest rate stated in the contract.

16(c) (1) Except as provided in paragraph (2), when an accelerated
17death benefit is payable, there shall not be more than a pro rata
18reduction in the cash value based on the percentage of death
19benefits accelerated to produce the accelerated death benefit
20payment.

21(2) Alternatively, the payment of accelerated death benefits,
22any administrative expense charges, any future premiums, and any
23accrued interest can be considered a lien against the death benefit
24of the life insurance policy and access to the cash value of the life
25insurance policy may be restricted to any excess of the cash value
26over the sum of any other outstanding loans and the lien. Future
27access to additional policy loans may also be limited to any excess
28of the cash value over the sum of the lien and any other outstanding
29policy loans.

30(d) When payment of an accelerated death benefit results in a
31pro rata reduction in the cash value of the life insurance policy,
32the payment shall not be applied toward repaying an amount greater
33than a pro rata portion of any outstanding policy loans.

34

10295.8.  

(a) begin deleteIf an accelerated death benefit is incorporated
35into the terms of the policy or certificate, an applicant for a policy
36or a certificate end delete
begin insertAn applicant for an accelerated death benefit end insertshall
37have the right to return the accelerated death benefit policy or
38certificate by first-class United States mail within 30 days of its
39delivery and to have the premium refunded if, after examination
40of the policy or certificate, the applicant is not satisfied for any
P29   1reason. If the accelerated death benefit is purchased as an
2endorsement or rider at the same time as the base life insurance
3policy, then the endorsement or rider may be returned within 30
4days. The underlying life insurance policy shall be otherwise
5subject to this code.

6(b) The return of a life insurance policy or certificate that
7contains an accelerated death benefit, or the return of an accelerated
8death benefit rider or endorsementbegin insert,end insert shall void the life insurance
9policy or certificate, or rider or endorsement from the beginningbegin insert,end insert
10 and the parties shall be in the same position as if no policy,
11certificate, rider, or endorsement had been issued. All premiums
12paid and any policy fee paid for the accelerated death benefit shall
13be fully refunded directly to the applicant by the insurer within 30
14days after the policy, rider, endorsement, or certificate is returned.

15(c) Policies, certificates, riders, or endorsements to which this
16section applies shall have a notice prominently printed , or attached
17thereto, stating in substance the conditions described in
18subdivisions (a) and (b).

19

10295.9.  

(a) Application forms for accelerated death benefits
20shall include a question designed to elicit information as to whether
21thebegin delete proposed insurance policyend deletebegin insert accelerated death benefitend insert is intended
22to replace any long-term care insurance presently in force. A
23supplementary application or other form to be signed by the
24applicant containing that question may be used.

25(b) (1) An insurer, broker, agent, or other person shall not cause
26a policyholder to replace a long-term care insurance policy
27unnecessarily. This section shall not be construed to allow an
28insurer, broker, agent, or other person to cause a policyholder to
29replace a long-term care insurance policy or life insurance policy
30subject to this section that will result in a decrease in benefits and
31an increase in premium.

32(2) It shall be presumed that any third or greater policy sold to
33a policyholder in any 12-month period is unnecessary within the
34meaning of this section. This section shall not apply to those
35instances in which a policy is replaced solely for the purpose of
36consolidating policies with a single insurer.

37(c) Upon determining that a sale will involve a replacement of
38a life insurance policy subject to this section or replacement of a
39long-term care insurance policy, anbegin delete insurer,end deletebegin insert insurer end insert or its agent
40shall furnish the applicant, prior to issuance or delivery of a policy,
P30   1certificate, rider, or endorsement, a notice regarding replacement
2of life insurance that includes an accelerated death benefit, or
3long-term care insurance coverage with a life insurance policy or
4certificate that contains an accelerated death benefit. One copy of
5this notice shall be retained by the applicant and an additional copy
6signed by the applicant shall be retained by the insurer. The
7required notice shall be provided in the following form:

8

9“NOTICE TObegin delete PERSONS APPLYING TO REPLACE
10EXISTINGend delete
begin insert APPLICANT REGARDING REPLACEMENT OFend insert
11 LONG-TERM CARE INSURANCE ORbegin delete REPLACE EXISTINGend delete
12 LIFE INSURANCE INCLUDING ACCELERATED DEATH
13BENEFITS

14According to (your application) (information you have
15furnished), you intend to lapse or otherwise terminate existing life
16insurance or long-term care insurance and replace it with a life
17insurance policy with an accelerated death benefit to be issued by
18(company name) Insurance Company. Your new accelerated death
19benefit coverage provides 30 days within which you may decide,
20without cost, whether you desire to keep the coverage. Please note
21that your underlying life insurance policy may only provide for a
2210-day period during which you may decide, without cost, whether
23you will keep the coverage. For your own information and
24protection, you should be aware of, and seriously consider, certain
25factors that may affect the insurance protection available to you
26under the new coverage.

27This accelerated death benefit is NOT Nursing Home, Home
28Care, or Long-Term Care Insurance, and it is not intended or
29designed to eliminate your need for that coverage. There are no
30restrictions or limitations on the use of the accelerated death benefit
31proceeds.

32If you want long-term care insurance, you should consult with
33an insurance agent licensed to sell that insurance, inquire with the
34insurance company offering the accelerated death benefits, or visit
35the California Department of Insurance Internet Web site
36(www.insurance.ca.gov) that provides information regarding
37long-term care insurance.

38If you want to replace existing coverage with life insurance that
39includes an accelerated death benefit, you should note the
40following:

P31   1(1) Receipt of accelerated death benefits may be taxable. Prior
2to electing to buy the accelerated death benefit, policyholders or
3certificate holders should seek assistance from a qualified tax
4adviser.

5(2) Receipt of accelerated death benefits may affect eligibility
6for public assistance programs, such as Medi-Cal or Medicaid.
7Prior to electing to buy the accelerated death benefit, the
8applicant/buyer should consult with the appropriate social services
9agency concerning how receipt of accelerated death benefits may
10affect that eligibility.

11You may wish to secure the advice of your present insurer or its
12agent regarding the proposed replacement of your present coverage.
13This is not only your right, but it is also in your best interest to
14make sure you understand all the relevant factors involved in
15replacing your present coverage.

16If, after due consideration, you still wish to terminate your
17present coverage and replace it with new coverage, be certain to
18truthfully and completely answer all questions on the application
19concerning your medical health history. Failure to include all
20material medical information on an application may provide a
21basis for the company to deny any future claims and to refund your
22premium as though your coverage had never been in force. After
23the application has been completed and before you sign it, reread
24it carefully to be certain that all the information has been properly
25recorded.

26The above “Notice to Applicant” was delivered to me on:

27(Date)

28(Applicant’s Signature)”

29

30(d) The replacement notice shall include the following statement
31except when the replacement coverage is group insurance:

32

33“COMPARISON TO YOUR CURRENT COVERAGE: I have
34reviewed your current coverage . To the best of my knowledge,
35the replacement of insurance involved in this transaction materially
36improves your position for the following reasons:

37____ Additional or different benefits

38(please specify) ______.

39____ No change in benefits, but lower premiums.

40____ Fewer benefits and lower premiums.

begin delete

P32   1____Life insurance feature not available in long-term care
2insurance (please specify).

end delete

3____ Other (please specify) ______.

4(Signature of Agent and Name of Insurer)

5(Signature of Applicant)

6(Date)

7

8(e) In recommending the purchase or replacement of any policy
9or certificate issued under this section, an agent shall make
10reasonable efforts to determine the appropriateness of a
11recommended purchase or replacement.

12(f) The replacing policy or certificate shall not contain a
13provision establishing a new waiting period in the event existing
14coverage is converted to, or replaced by, a new or other form within
15the same insurer, except with respect to an increase in benefits
16voluntarily selected by the insured individual or group
17policyholder.

18

10295.10.  

begin deleteWith regard to an accelerated death benefit, an end deletebegin insertAn end insert
19 insurer may not:

20(a) Cancel, nonrenew, or otherwise terminate an accelerated
21death benefit on the grounds of the age or the deterioration of the
22mental or physical health of the insured individual or certificate
23holder.

24(b) Terminate a policy, certificate, or rider, or contain a
25provision that allows the premium for an in-force policy, certificate,
26or rider, to be increased due to the divorce of a policyholder or
27certificate holder.

28

10295.11.  

(a) An accelerated death benefit shall not be
29advertised or marketed as long-term care insurance, nursing home
30insurance, or home care insurance. Any advertisement, description,
31comparison, marketing material, or illustration shall state in bold
32type:

33“This is a life insurance benefit that also gives you the option to
34accelerate some or all of the death benefit in the event that you
35meet the criteria for a qualifying event described in the policy.
36This policy or certificate does not provide long-term care insurance
37subject to California long-term care insurance law. This policy or
38certificate is not a California Partnership for Long-Term Care
39program policy. This policy or certificate is not a Medicare
40supplement (policy or certificate).”

P33   1An insurer shall also include in any advertisement or marketing
2materials for these insurance policies all of the following:

3(1) A statement that the policy or certificate pays proceeds that
4arebegin insert or are notend insert intendedbegin delete forend deletebegin insert to receiveend insert favorable tax treatment under
5Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec.
6begin delete 101(g)), if applicableend deletebegin insert 101(g))end insert.

7(2) A description of the accelerated death benefits provided by
8the policy, including a description of the acceleration of the death
9benefit to pay an unrestricted cash benefit when the insured has
10become chronically ill or otherwise eligible for benefits from a
11qualified event.

12(3) A comparison between the benefits provided by life
13insurance policies, riders, or endorsements that contain accelerated
14death benefits and the benefits provided by long-term care
15insurance.

begin delete

16(4) The statement in paragraph (1) of subdivision (a) may only
17appear in an advertisement, description comparison, illustration,
18or marketing material for policies or certificates that accelerate
19death benefits pursuant to Section 10295 if the policy pays proceeds
20that are intended for favorable tax treatment under Section 101(g)
21of the Internal Revenue Code (26 U.S.C. Sec. 101(g)).

end delete

22(b) Advertising for term life insurance policies or certificates
23that contain an accelerated death benefit to be attached to an
24existing term life policy shall include abegin insert prominentend insert statement that
25the accelerated death benefit will terminate with the policy.

26(c) On or after January 1, 2014, every insurer offering
27accelerated death benefits shall file with the commissioner copies
28of all printed advertising for accelerated death benefits that the
29insurer proposes to disseminate in the state prior to use of that
30material. The commissioner shall have the authority to disapprove
31any advertising that does not meet the requirements of this code.
32If the commissioner disapproves the advertising, the insurer shall
33not use and shall stop using the disapproved advertising. Nothing
34in this subdivision shall be construed as requiring prior approval
35of advertising prior to dissemination in this state.

36

10295.12.  

begin insert(a)end insertbegin insertend insertInsurers shall ensure that agents offering,
37marketing, or selling acceleratedbegin insert deathend insert benefits on their behalf are
38able to describe the differences between benefits provided under
39an acceleratedbegin insert death end insert benefit and benefits provided under long-term
40carebegin delete insurance. Completionend deletebegin insert insurance, as follows:end insert

begin insert

P34   1(1) The difference between the benefits afforded to an insured
2through an accelerated death benefit and a long-term care
3insurance policy or rider.

end insert
begin insert

4(2) The differences between benefit eligibility criteria.

end insert
begin insert

5(3) Whether an elimination period applies to either an
6accelerated death benefit or long-term care insurance and a
7description of the elimination period.

end insert
begin insert

8(4) The benefits under the accelerated death benefit or long-term
9care insurance if benefits are never needed.

end insert
begin insert

10(5) The benefits under the accelerated death benefit or long-term
11insurance if benefits are needed.

end insert
begin insert

12(6) Restrictions on benefit amounts.

end insert
begin insert

13(7) Tax treatment of benefits.

end insert
begin insert

14(8) Income and death benefit considerations.

end insert

15begin insert(b)end insertbegin insertend insertbegin insertCompletionend insert of California agent education or continuing
16education for long-term care insurance shallbegin delete be deemed to have
17metend delete
begin insert meetend insert the requirements of this section.

18

10295.13.  

In addition to other unfair trade practices described
19in this code, the following acts and practices in the sale of insurance
20under this article are prohibited:

21(a) Twisting. Knowingly making any misleading representation
22or incomplete or fraudulent comparison of any insurance policies
23or insurers for the purpose of inducing, or tending to induce, any
24person to lapse, forfeit, surrender, terminate, retain, pledge, assign,
25borrow on or convert any insurance policy, or to take out a policy
26of insurance with another insurer.

27(b) High pressure tactics. Employing any method of marketing
28having the effect of, or tending to, induce the purchase of insurance
29through force, fright, threat, whether explicit or implied, or undue
30pressure to purchase or recommend the purchase of insurance.

31(c) Cold lead advertising. Making use directly or indirectly of
32any method of marketing that fails to disclose in a conspicuous
33manner that a purpose of the method of marketing is solicitation
34of insurance and that contact will be made by an insurance agent
35or insurance company.

begin delete
36

10295.14.  

An individual accelerated death benefit shall not be
37issued unless it meets the requirements of Section 10113.72
38regarding unintentional lapse.

end delete
begin insert
39

begin insert10295.14.end insert  

(a) Accelerated death benefits shall comply with
40the provisions in Sections 10113.71 and 10113.72.

P35   1(b) Every insurer offering term life insurance with accelerated
2death benefits or any rider that provides for accelerated death
3benefits described in Section 10295 shall also offer a waiver of
4premium benefit for the life insurance premium and any premium
5charged for the accelerated death benefit as described in Section
610271.1.

7(c) Every insurer offering a cash value life insurance policy or
8rider offering accelerated death benefits described in Section
910295 shall disclose all premium default protection options in the
10policy and at the time of the application, including waiver of
11premium options available under Section 10271.1 and automatic
12premium loans.

end insert
13

10295.15.  

(a) Except at the request of the policyholder or
14contract holder, all accelerated death benefit provisions or
15supplemental contracts shall be renewable for the life of the
16underlying life insurance policy, provided the premiums are timely
17paid. The statement shall be prominently displayed on the first
18page of the accelerated death benefit policy or rider.

19(b) Term life insurance policies shall also include abegin insert prominentend insert
20 statementbegin insert on page one end insert that the accelerated death benefit terminates
21with the policy.

22

10295.16.  

Termination ofbegin delete theend deletebegin insert anend insert accelerated death benefit
23begin delete provisionend delete shallbegin delete be withoutend deletebegin insert notend insert prejudicebegin delete to anyend deletebegin insert the payment ofend insert
24 benefitsbegin delete payableend delete for anybegin delete claim if the claim began whileend deletebegin insert qualifying
25event that occurred whileend insert
the accelerated death benefitbegin delete provisionend delete
26 was inbegin delete force and continues without interruption after termination.end delete
27begin insert force.end insert

28

10295.17.  

An insurer that fails to conform to the requirements
29provided under this article shall be subject to Article 6.5
30(commencing with Section 790) of Chapter 1 of Part 2 of Division
311.

begin delete

32(b) A violation of this article is not subject to subdivision (d)
33of Section 790.036.

end delete
34

10295.18.  

Accelerated death benefits shall not limit or exclude
35coverage by type of illness, treatment, medical condition, or
36accident, except under the circumstances described in paragraphs
37(1) to (4), inclusive, of subdivision (g) of Section 10271.

38

10295.19.  

A policy, certificate, rider, or endorsement shall
39include a provision giving the policyholder or certificate holder
P36   1the right to appeal to the insurer a decision regarding benefit
2eligibility.

3begin insert

begin insertSEC. 8.end insert  

end insert
begin insert

No reimbursement is required by this act pursuant to
4Section 6 of Article XIII B of the California Constitution because
5the only costs that may be incurred by a local agency or school
6district will be incurred because this act creates a new crime or
7infraction, eliminates a crime or infraction, or changes the penalty
8for a crime or infraction, within the meaning of Section 17556 of
9the Government Code, or changes the definition of a crime within
10the meaning of Section 6 of Article XIII B of the California
11Constitution.

end insert


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