Amended in Assembly September 6, 2013

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

(Coauthor: Senator Gaines)

(Coauthors: Assembly Members Cooley and Hagman)

February 14, 2013


An act to amend Sections 10110.5, 10232.8, 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.

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.

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

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. The bill would prohibit accelerated death benefits from limiting or excluding coverage by type of illness, treatment, medical condition, or accident, except as specified.

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.

This 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.

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.

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

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

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

P3    1

SECTION 1.  

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

P4    1

10110.5.  

(a) A policy or endorsement issued by an admitted
2life and disability insurer may contain a provision for a waiver of
3premium payments in the event of involuntary unemployment of
4the insured. Insurers issuing policies or endorsements containing
5that provision shall establish any additional reserves and file any
6additional financial reports that the commissioner may require.

7(b) A contract or supplemental contract issued by an admitted
8life and disability insurer may contain a provision for a waiver of
9surrender charge benefit for a life insurance or annuity contract in
10the event of voluntary or involuntary unemployment of the owner,
11insured, or annuitant, as applicable. Insurers issuing contracts or
12supplemental contracts containing that provision shall establish
13 any additional reserves and file any additional financial reports
14that the commissioner may require.

15

SEC. 2.  

Section 10232.8 of the Insurance Code is amended to
16read:

17

10232.8.  

(a) In every long-term care policy or certificate that
18is not intended to be a federally qualified long-term care insurance
19contract and provides home care benefits, the threshold establishing
20eligibility for home care benefits shall be at least as permissive as
21a provision that the insured will qualify if either one of two criteria
22are met:

23(1) Impairment in two out of seven activities of daily living.

24(2) Impairment of cognitive ability.

25The policy or certificate may provide for lesser but not greater
26eligibility criteria. The commissioner, at his or her discretion, may
27approve other criteria or combinations of criteria to be substituted,
28if the insurer demonstrates that the interest of the insured is better
29served.

30“Activities of daily living” in every policy or certificate that is
31not intended to be a federally qualified long-term care insurance
32contract and provides home care benefits shall include eating,
33bathing, dressing, ambulating, transferring, toileting, and
34continence; “impairment” means that the insured needs human
35assistance, or needs continual substantial supervision; and
36“impairment of cognitive ability” means deterioration or loss of
37intellectual capacity due to organic mental disease, including
38Alzheimer’s disease or related illnesses, that requires continual
39supervision to protect oneself or others.

P5    1(b) In every long-term care policy approved or certificate issued
2after the effective date of the act adding this section, that is
3intended to be a federally qualified long-term care insurance
4 contract as described in subdivision (a) of Section 10232.1, the
5threshold establishing eligibility for home care benefits shall
6provide that a chronically ill insured will qualify if either one of
7two criteria are met or if a third criterion, as provided by this
8subdivision, is met:

9(1) Impairment in two out of six activities of daily living.

10(2) Impairment of cognitive ability.

11Other criteria shall be used in establishing eligibility for benefits
12if federal law or regulations allow other types of disability to be
13used applicable to eligibility for benefits under a long-term care
14insurance policy. If federal law or regulations allow other types
15of disability to be used, the commissioner shall promulgate
16emergency regulations to add those other criteria as a third
17threshold to establish eligibility for benefits. Insurers shall submit
18 policies for approval within 60 days of the effective date of the
19regulations. With respect to policies previously approved, the
20department is authorized to review only the changes made to the
21policy. All new policies approved and certificates issued after the
22effective date of the regulation shall include the third criterion. No
23policy shall be sold that does not include the third criterion after
24one year beyond the effective date of the regulations. An insured
25meeting this third criterion shall be eligible for benefits regardless
26of whether the individual meets the impairment requirements in
27paragraph (1) or (2) regarding activities of daily living and
28cognitive ability.

29(c) A licensed health care practitioner, independent of the
30insurer, shall certify that the insured meets the definition of
31“chronically ill individual” as defined under Public Law 104-191.
32For the purposes of long-term care insurance as defined in Section
3310231.2, an insurer shall not impose a certification requirement
34of longer than 90 days. If a health care practitioner makes a
35determination, pursuant to this section, that an insured does not
36meet the definition of “chronically ill individual,” the insurer shall
37notify the insured that the insured shall be entitled to a second
38assessment by a licensed health care practitioner, upon request,
39who shall personally examine the insured. The requirement for a
40second assessment shall not apply if the initial assessment was
P6    1performed by a practitioner who otherwise meets the requirements
2of this section and who personally examined the insured. The
3assessments conducted pursuant to this section shall be performed
4promptly with the certification completed as quickly as possible
5to ensure that an insured’s benefits are not delayed. The written
6certification shall be renewed every 12 months. A licensed health
7care practitioner shall develop a written plan of care after
8personally examining the insured. The costs to have a licensed
9health care practitioner certify that an insured meets, or continues
10to meet, the definition of “chronically ill individual,” or to prepare
11written plans of care shall not count against the lifetime maximum
12of the policy or certificate. In order to be considered “independent
13of the insurer,” a licensed health care practitioner shall not be an
14employee of the insurer and shall not be compensated in any
15manner that is linked to the outcome of the certification. It is the
16intent of this subdivision that the practitioner’s assessments be
17unhindered by financial considerations. This subdivision shall
18apply only to a policy or certificate intended to be a federally
19qualified long-term care insurance contract.

20(d) “Activities of daily living” in every policy or certificate
21intended to be a federally qualified long-term care insurance
22contract as provided by Public Law 104-191 shall include eating,
23bathing, dressing, transferring, toileting, and continence;
24“impairment in activities of daily living” means the insured needs
25“substantial assistance” either in the form of “hands-on assistance”
26or “standby assistance,” due to a loss of functional capacity to
27perform the activity; “impairment of cognitive ability” means the
28insured needs substantial supervision due to severe cognitive
29impairment; “licensed health care practitioner” means a physician,
30registered nurse, licensed social worker, or other individual whom
31the United States Secretary of the Treasury may prescribe by
32regulation; and “plan of care” means a written description of the
33insured’s needs and a specification of the type, frequency, and
34providers of all formal and informal long-term care services
35required by the insured, and the cost, if any.

36(e) Until the time that these definitions may be superseded by
37federal law or regulation, the terms “substantial assistance,”
38“hands-on assistance,” “standby assistance,” “severe cognitive
39impairment,” and “substantial supervision” shall be defined
P7    1according to the safe-harbor definitions contained in Internal
2Revenue Service Notice 97-31, issued May 6, 1997.

3(f) The definitions of “activities of daily living” to be used in
4policies and certificates that are intended to be federally qualified
5long-term care insurance shall be the following until the time that
6these definitions may be superseded by federal law or regulations:

7(1) Eating, which shall mean feeding oneself by getting food in
8the body from a receptacle (such as a plate, cup, or table) or by a
9feeding tube or intravenously.

10(2) Bathing, which shall mean washing oneself by sponge bath
11or in either a tub or shower, including the act of getting into or out
12of a tub or shower.

13(3) Continence, which shall mean the ability to maintain control
14of bowel and bladder function; or when unable to maintain control
15of bowel or bladder function, the ability to perform associated
16personal hygiene (including caring for a catheter or colostomy
17bag).

18(4) Dressing, which shall mean putting on and taking off all
19items of clothing and any necessary braces, fasteners, or artificial
20limbs.

21(5) Toileting, which shall mean getting to and from the toilet,
22getting on or off the toilet, and performing associated personal
23hygiene.

24(6) Transferring, which shall mean the ability to move into or
25out of bed, a chair or wheelchair.

26The commissioner may approve the use of definitions of
27“activities of daily living” that differ from the verbatim definitions
28of this subdivision if these definitions would result in more policy
29or certificate holders qualifying for long-term care benefits than
30would occur by the use of the verbatim definitions of this
31subdivision. In addition, the following definitions may be used
32without the approval of the commissioner: (1) the verbatim
33definitions of eating, bathing, dressing, toileting, transferring, and
34continence in subdivision (g); or (2) the verbatim definitions of
35eating, bathing, dressing, toileting, and continence in this
36subdivision and a substitute, verbatim definition of “transferring”
37as follows: “transferring,” which shall mean the ability to move
38into and out of a bed, a chair, or wheelchair, or ability to walk or
39move around inside or outside the home, regardless of the use of
40a cane, crutches, or braces.

P8    1The definitions to be used in policies and certificates for
2impairment in activities of daily living, “impairment in cognitive
3ability,” and any third eligibility criterion adopted by regulation
4pursuant to subdivision (b) shall be the verbatim definitions of
5these benefit eligibility triggers allowed by federal regulations. In
6addition to the verbatim definitions, the commissioner may approve
7additional descriptive language to be added to the definitions, if
8the additional language is (1) warranted based on federal or state
9laws, federal or state regulations, or other relevant federal decision,
10and (2) strictly limited to that languagebegin delete whichend deletebegin insert thatend insert is necessary to
11ensure that the definitions required by this section are not
12misleading to the insured.

13(g) The definitions of “activities of daily living” to be used
14verbatim in policies and certificates that are not intended to qualify
15for favorable tax treatment under Public Law 104-191 shall be the
16following:

17(1) Eating, which shall mean reaching for, picking up, and
18grasping a utensil and cup; getting food on a utensil, and bringing
19food, utensil, and cup to mouth; manipulating food on plate; and
20cleaning face and hands as necessary following meals.

21(2) Bathing, which shall mean cleaning the body using a tub,
22shower, or sponge bath, including getting a basin of water,
23managing faucets, getting in and out of tub or shower, and reaching
24head and body parts for soaping, rinsing, and drying.

25(3) Dressing, which shall mean putting on, taking off, fastening,
26and unfastening garments and undergarments and special devices
27such as back or leg braces, corsets, elastic stockings or garments,
28and artificial limbs or splints.

29(4) Toileting, which shall mean getting on and off a toilet or
30commode and emptying a commode, managing clothing and wiping
31and cleaning the body after toileting, and using and emptying a
32bedpan and urinal.

33(5) Transferring, which shall mean moving from one sitting or
34lying position to another sitting or lying position; for example,
35from bed to or from a wheelchair or sofa, coming to a standing
36position, or repositioning to promote circulation and prevent skin
37breakdown.

38(6) Continence, which shall mean the ability to control bowel
39and bladder as well as use ostomy or catheter receptacles, and
40apply diapers and disposable barrier pads.

P9    1(7) Ambulating, which shall mean walking or moving around
2inside or outside the home regardless of the use of a cane, crutches,
3or braces.

4

SEC. 3.  

Section 10271 of the Insurance Code is repealed.

5

SEC. 4.  

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

6

10271.  

(a) Except as set forth in this section, this chapter shall
7not apply to, or in any way affect, provisions in life insurance,
8endowment, or annuity contracts, or contracts supplemental thereto,
9that provide additional benefits in case of death or dismemberment
10or loss of sight by accident, or that operate to safeguard those
11contracts against lapse, as described in subdivision (a) of Section
1210271.1, or give a special surrender benefit, as defined in
13subdivision (b) of Section 10271.1, or an accelerated death benefit
14as defined in Article 2.1 (commencing with Section 10295), in the
15event that the owner, insured, or annuitant, as applicable, meets
16the benefit triggers specified in the life insurance or annuity
17contract or supplemental contract.

18(b) For the purposes of this section, the term “supplemental
19benefit” means a rider to or provision in a life insurance policy,
20certificate, or annuity contract that provides a benefit as set forth
21in subdivision (a).

22(c) A supplemental benefit described in subdivision (a) shall
23contain all of the following provisions. However, an insurer, at its
24option, may substitute for one or more of the provisions a
25corresponding provision of different wording approved by the
26commissioner that is not less favorable in any respect to the owner,
27insured, or annuitant, as applicable. The required provisions shall
28be preceded individually by the appropriate caption, or, at the
29option of the insurer, by the appropriate individual or group
30captions or subcaptions as the commissioner may approve.

31(1) A life insurance policy or annuity contract that contains a
32supplemental benefit shall provide that the contract, supplemental
33contract, and any papers attached thereto by the insurer, including
34the application if attached, constitute the entire insurance or annuity
35contract and shall also provide that no agent has the authority to
36change the contract or to waive any of its provisions. This provision
37shall be preceded individually by a caption stating “ENTIRE
38CONTRACT; CHANGES:” or other appropriate caption as the
39commissioner may approve.

P10   1(2) The supplemental benefit shall provide that reinstatement
2of the supplemental benefit shall be on the same or more favorable
3terms as reinstatement of the underlying life insurance policy or
4annuity contract. Following reinstatement, the insured and insurer
5shall have the same rights under reinstatement as they had under
6the supplemental benefit immediately before the due date of the
7defaulted premium, subject to any provisions endorsed in the rider
8or endorsement or attached to the rider or endorsement in
9connection with the reinstatement. This reinstatement provision
10shall be preceded individually by a caption stating
11“REINSTATEMENT:” or other appropriate caption as the
12commissioner may approve.

13(3) A supplemental benefit subject to underwriting shall include
14an incontestability statement that provides that the insurer shall
15not contest the supplemental benefit after it has been in force during
16the lifetime of the insured for two years from its date of issue, and
17that the supplemental benefit may only be contested based on a
18statement made in the application for the supplemental benefit, if
19the statement is attached to the contract and if the statement was
20material to the risk accepted or the hazard assumed by the insurer.
21This provision shall be preceded individually by a caption stating
22“INCONTESTABILITY:” or other appropriate caption as the
23commissioner may approve.

24(4) The supplemental benefit shall provide either that the insurer
25may accept written notice of claim at any time or that the insurer
26may require that written notice of claim be submitted by a due date
27that is no less than 20 days after an occurrence covered by the
28supplemental benefit, or commencement of any loss covered by
29the supplemental benefit, or as soon after the due date as is
30reasonably possible. Notice given by or on behalf of the insured
31or the beneficiary, as applicable, to the insurer at the insurer’s
32address or telephone number, or to any authorized agent of the
33insurer, with information sufficient to identify the insured, shall
34be deemed notice to the insurer. This provision shall be preceded
35individually by a caption stating “NOTICE OF CLAIM:” or other
36appropriate caption as the commissioner may approve.

37(5) The supplemental benefit shall provide that the insurer, upon
38receipt of a notice of claim, shall furnish to the claimant those
39forms as are usually furnished by it for filing a proof of occurrence
40or a proof of loss. If the forms are not furnished within 15 days
P11   1after giving notice, the claimant shall be deemed to have complied
2with the requirements of the supplemental benefit as to proof of
3occurrence or proof of loss upon submitting, within the time fixed
4by the supplemental benefit for filing proof of occurrence or proof
5of loss, written proof covering the character and the extent of the
6occurrence or loss. This provision shall be preceded individually
7by a caption stating “CLAIM FORMS:” or other appropriate
8caption as the commissioner may approve.

9(6) The supplemental benefit shall provide that the insurer may
10require that the insured provide written proof of occurrence or
11proof of loss no less than 90 days after the termination of the period
12for which the insurer is liable, and, in the case of claim for any
13other occurrence or loss, within 90 days after the date of the
14occurrence or loss. Failure to furnish proof within the time required
15shall not invalidate or reduce the claim if it was not reasonably
16possible to give proof within the time, provided proof is furnished
17as soon as reasonably possible and, except in the absence of legal
18capacity, no later than one year from the time proof is otherwise
19required. This provision shall be preceded individually by a caption
20stating “PROOF OF LOSS:” or other appropriate caption as the
21commissioner may approve.

22(7) The supplemental benefit shall provide that the insurer, at
23its own expense, shall have the right and opportunity to examine
24the person of the insured when and as often as the insurer may
25reasonably require during the pendency of a claim and to make an
26autopsy in case of death where it is not forbidden by law. This
27provision shall be preceded individually by a caption stating
28“PHYSICAL EXAMINATIONS:” or other appropriate caption
29as the commissioner may approve.

30(d) The commissioner shall not approve any contract or
31supplemental contract for insurance or delivery in this state if the
32commissioner finds that the contract or supplemental contract does
33any of the following:

34(1) Contains any provision, label, description of its contents,
35title, heading, backing, or other indication of its provisions that is
36unintelligible, uncertain, ambiguous, or abstruse, or likely to
37mislead a person to whom the supplemental benefit is offered,
38delivered, or issued.

P12   1(2) Constitutes fraud, unfair trade practices, or insurance
2economically unsound to the owner, insured, or annuitant, as
3applicable.

4(3) Contains any actuarial information that is materially
5incomplete, incorrect, or inadequate.

6(e) A supplemental benefit described in subdivision (a) shall
7not contain any title, description, or any other indication that would
8describe or imply that the supplemental benefit provides long-term
9care coverage.

10(f) Commencing two years from the date of the issuance of the
11supplemental benefit, no claim for loss incurred or disability, as
12defined by the supplemental benefit, may be reduced or denied on
13the grounds that a disease or physical condition not excluded from
14coverage by name or specific description effective on the date of
15loss had existed prior to the effective date on the coverage of the
16supplemental benefit.

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

20(1) Condition or loss caused or substantially contributed to by
21any attempt at suicide or intentionally self-inflicted injury, while
22sane or insane.

23(2) Condition or loss caused or substantially contributed to by
24war or an act of war, as defined in the exclusion provisions of the
25contract.

26(3) Condition or loss caused or substantially contributed to by
27active participation in a riot, insurrection, or terrorist activity.

28(4) Condition or loss caused or substantially contributed to by
29committing or attempting to commit a felony.

30(5) Condition or loss caused or substantially contributed to by
31voluntary intake of either:

32(A) Any drug, unless prescribed or administered by a physician
33and taken in accordance with the physician’s instructions.

34(B) Poison, gas, or fumes, unless they are the direct result of an
35occupational accident.

36(6) Condition or loss in consequence of the insured being
37intoxicated, as defined by the jurisdiction where the condition or
38loss occurred.

39(7) Condition or loss caused or substantially contributed to by
40engaging in an illegal occupation.

P13   1(h) If the commissioner notifies the insurer, in writing, that the
2filed form or actuarial information does not comply with the
3requirements of law and specifies the reasons for his or her opinion,
4it is unlawful for an insurer to issue any policy in that form.

5

SEC. 5.  

Section 10271.1 of the Insurance Code is amended to
6read:

7

10271.1.  

(a) (1) Supplemental benefits that operate to
8safeguard life insurance contracts against lapse are defined as a
9waiver of premium benefit or a waiver of monthly deduction
10benefit, as applicable, in which the insurer waives the premium or
11monthly deduction for a life insurance contract when the insured
12becomes totally disabled, as defined by the supplemental benefit,
13and where the waiver continues until the end of the insured’s
14disability, or for the period specified by the supplemental benefit,
15consistent with paragraph (5).

16(2) For purposes of this subdivision, total disability shall not be
17less favorable to the insured than the following:

18(A) During the first 24 months of total disability, the insured is
19unable to perform with reasonable continuity the substantial and
20material duties of his or her job due to sickness or bodily injury.

21(B) After the first 24 months of total disability, the insured, due
22to sickness or bodily injury, is unable to engage with reasonable
23continuity in any other job in which he or she could reasonably be
24expected to perform satisfactorily in light of his or her age,
25education, training, experience, station in life, or physical and
26mental capacity.

27(3) The definition of total disability may also include
28presumptive total disability, such as the insured’s total and
29permanent loss of sight of both eyes, hearing of both ears, speech,
30the use of both hands, both feet, or one hand and one foot.

31(4) The insurer may require total disability to continue for an
32 uninterrupted period of time specified by the supplemental benefit,
33or the insurer may allow separate periods of disability to be
34combined.

35(5) The waiver of premium or monthly deduction benefit shall
36continue for the period specified by the supplemental benefit, but
37shall not be less favorable to the insured than the following:

38(A) If the insured’s total disability begins before the insured
39attains 60 years of age, the insurer shall waive all premiums or
40monthly deductions due for the period of the total disability, and
P14   1if the total disability extends to the insured’s attainment of 65 years
2of age, the insurer shall waive all further premiums or monthly
3deductions due.

4(B) If the insured’s total disability begins after the age specified
5in subparagraph (A), the insurer shall waive all premiums or
6monthly deductions due for the period that the insured continues
7to be totally disabled up to 65 years of age.

8(6) In addition to the permissible exclusions listed in subdivision
9(g) of Section 10271, the insurer may exclude a total disability
10occurring after the policy anniversary or supplemental contract
11anniversary, as applicable and as defined by the supplemental
12benefit, on which the insured attains a specified age of no less than
1365 years.

14(b) “Special surrender benefit” is defined as a “waiver of
15surrender charge benefit” wherein the insurer waives the surrender
16charge usually charged for a withdrawal of funds from the cash
17value of a life insurance contract or the account value of an annuity
18contract if the owner, insured, or annuitant, as applicable, meets
19any of the following criteria:

20(1) Develops any medical condition where the owner’s,
21insured’s, or annuitant’s life expectancy is expected to be less than
22or equal to a limited period of time that shall not be restricted to
23a period of less than 12 months or greater than 24 months.

24(2) Is receiving, as prescribed by a physician, registered nurse,
25or licensed social worker, home care or community-based services,
26as defined in subdivision (a) of Section 10232.9, or is confined in
27a skilled nursing facility, convalescent nursing home, or extended
28care facility, which shall not be defined more restrictively than as
29in the Medicare program, or is confined in a residential care facility
30or residential care facility for the elderly, as defined in the Health
31and Safety Code. Out-of-state providers of services shall be defined
32as comparable in licensure and staffing requirements to California
33providers.

34(3) Has any medical condition that would, in the absence of
35treatment, result in death within a limited period of time, as defined
36by the supplemental benefit, but that shall not be restricted to a
37period of less than six months.

38(4) Is totally disabled, as follows:

39(A) During the first 24 months of total disability, the owner,
40 insured, or annuitant, as applicable, is unable to perform with
P15   1reasonable continuity the substantial and material duties of his or
2her job due to sickness or bodily injury.

3(B) After the first 24 months of total disability, the owner,
4insured, or annuitant, as applicable, due to sickness or bodily injury,
5is unable to engage with reasonable continuity in any other job in
6which he or she could reasonably be expected to perform
7satisfactorily in light of his or her age, education, training,
8experience, station in life, or physical and mental capacity.

9(C) The definition of total disability may also include
10presumptive total disability, such as the insured’s total and
11permanent loss of sight of both eyes, hearing of both ears, speech,
12the use of both hands, both feet, or one hand and one foot.

13(D) The insurer may require the total disability to continue for
14an uninterrupted period of time specified by the supplemental
15benefit, or the insurer may allow separate periods of disability to
16be combined.

17(5) Has a chronic illness as defined pursuant to either
18subparagraph (A) or (B):

19(A) Either of the following:

20(i) Impairment in performing two out of seven activities of daily
21living, as set forth in subdivisions (a) and (g) of Section 10232.8,
22meaning the insured needs human assistance, or needs continual
23substantial supervision.

24(ii) The insured has an impairment of cognitive ability, meaning
25a deterioration or loss of intellectual capacity due to mental illness
26or disease, including Alzheimer’s disease or related illnesses, that
27requires continual supervision to protect oneself or others.

28(B) Either of the following:

29(i) Impairment in performing two out of six activities of daily
30living as described in subdivisions (b), (d), (e), and (f) of Section
3110232.8 due to a loss of functional capacity to perform the activity.

32(ii) Impairment of cognitive ability, meaning the insured needs
33substantial supervision due to severe cognitive impairment, as
34described in subdivisions (b), (d), and (e) of Section 10232.8.

35(6) Has become involuntarily or voluntarily unemployed.

36(c) The term “supplemental benefit” means a rider to or
37provision in a life insurance policy, certificate, or annuity contract
38that provides a benefit as set forth in subdivision (a) of Section
3910271.

P16   1

SEC. 6.  

Section 10292 of the Insurance Code is amended to
2read:

3

10292.  

(a) A supplemental benefit described in subdivision
4(a) of Section 10271 shall not be delivered or issued for delivery
5to any person in this state until a copy of the form thereof is
6submitted to, and approved by, the commissioner. If the
7supplemental benefit is an integral part of a contract of life
8insurance or annuity, the entire contract shall be submitted to the
9commissioner, but his or her power of approval or disapproval,
10unless it is otherwise authorized, is limited to the supplemental
11portion and any other portions that relate to the supplemental
12portion.

13(b) A supplemental benefit described in subdivision (a) of
14Section 10271 shall be considered an integral part of a contract
15for purposes of this section. To facilitate the review of a
16supplemental benefit, the insurer shall submit, for informational
17purposes, a sample copy of the life insurance or annuity contract
18with which the supplemental benefit will be used. To facilitate the
19location of the required provisions as stated in subdivision (c) of
20Section 10271, the insurer shall provide the sample copy page
21reference for the provisions that appear in the contract.

22(c) The commissioner may adopt reasonable rules and
23regulations as are necessary to administer and carry out the
24purposes of Sections 10271 and 10271.1, Article 2.1 (commencing
25with Section 10295), and this section.

26

SEC. 7.  

Article 2.1 (commencing with Section 10295) is added
27to Chapter 4 of Part 2 of Division 2 of the Insurance Code, to read:

28 

29Article 2.1.  Accelerated Death Benefits
30

 

31

10295.  

(a) An accelerated death benefit, as described in this
32section, shall not be offered, sold, issued, or marketed as health,
33accident, or long-term care insurance. An accelerated death benefit
34shall not reimburse or provide specific coverage for any health,
35accident, or long-term care insurance benefits.

36(b) (1) For the purposes of this article, an “accelerated death
37benefit” means a provision, endorsement, or rider added to a life
38insurance policy that provides for the advance payment of any part
39of the death proceeds, payable upon the occurrence of a qualifying
40event in accordance with Section 10295.1.

P17   1(2) For the purposes of this article, “qualifying event” means
2that subparagraph (A) or (B) applies.

3(A) The insured has a medical condition that would, in the
4absence of treatment, result in death within a limited period of
5time, as defined by the supplemental benefit, but that shall not be
6restricted to a period of less than six months.

7(B) (i) The insured has a chronic illness as defined in
8subparagraph (B) of paragraph (5) of subdivision (b) of Section
910271.1.

10(ii) For policies intended to be federally tax qualified, the insurer
11shall require that a licensed health care practitioner, independent
12of the insurer, certifies that the insured meets the definition of
13“chronically ill individual” as defined under the federal Health
14Insurance Portability and Accountability Act (Public Law 104-191).

15(I) If a health care practitioner makes a determination, pursuant
16to this clause, that an insured does not meet the definition of
17“chronically ill individual,” the insurer shall notify the insured that
18the insured shall be entitled to a second assessment by a licensed
19health care practitioner, upon request, who shall personally examine
20the insured. The requirement for a second assessment shall not
21apply if the initial assessment was performed by a practitioner who
22otherwise meets the requirements of this clause and who personally
23examined the insured.

24(II) The assessments conducted pursuant to this clause shall be
25performed promptly with the certification completed as quickly
26as possible to ensure that an insured’s benefits are not delayed.
27The written certification shall be renewed every 12 months.

28(III) The costs to have a licensed health care practitioner certify
29that an insured meets, or continues to meet, the definition of
30“chronically ill individual,” shall not count against the lifetime
31maximum of the policy or certificate.

32(IV) In order to be considered “independent of the insurer,” a
33licensed health care practitioner shall not be an employee of the
34insurer and shall not be compensated in any manner that is linked
35to the outcome of the certification.

36(V) It is the intent of the Legislaturebegin delete this clause, that in enactingend delete
37begin insert in enacting this clause that end insert the practitioner’s assessments be
38unhindered by financial considerations.

39(VI) This clause shall apply only to a policy or certificate
40intended to be federally tax qualified.

P18   1(3) For the purposes of this article, “applicant” means any of
2the following:

3(A) In the case of an individual life insurance policy with an
4accelerated death benefit, the person who seeks to contract for
5benefits.

6(B) (i) In the case of a group life insurance policy with an
7accelerated death benefit, the proposed certificate holder.

8(ii) “Certificate” means any certificate issued under a group life
9insurance policy that includes an accelerated death benefit.

10(4) For the purposes of this article, the term “supplemental
11benefit” means a rider to or provision in a life insurance policy,
12certificate, or annuity contract that provides a benefit as set forth
13in subdivision (a) of Section 10271.

14(c) A life insurance policy that accelerates death benefits if the
15insured is chronically ill and requires that the insured receives
16long-term care services described in Section 10231.2, shall not be
17considered an accelerated death benefit for the purposes of this
18article.

19(d) Nothing in this subdivision shall be construed as prohibiting
20an insurer from including other riders to a life insurance policy,
21such as a terminal illness rider, that are not subject to this article.

22

10295.1.  

(a) An accelerated death benefit as defined in
23paragraph (1) of subdivision (b) of Section 10295 shall comply
24with, and shall explain all of, the following:

25(1) That the accelerated death benefit is fixed at the time the
26insurer approves the request for the accelerated death benefit.

27(2) That the payment of the accelerated death benefit is not
28conditioned on the receipt of long-term care or medical services.

29(3) That the insured shall have the option to take the accelerated
30death benefit in a lump sum on the occurrence of a qualifyingbegin delete event
31,end delete
begin insert event,end insert as well as an option to receive the benefit in periodic
32payments is provided for a certain period only.

33(4) That the accelerated death benefit may not restrict the
34insured’s use of the proceeds.

35(5) That the payment of the accelerated death benefit is due
36immediately upon receipt of the due written proof of eligibility.

37(6) That, prior to the payment of the accelerated death benefit,
38the insurer is required to obtain from an assignee or irrevocable
39beneficiary, if any, a signed acknowledgment of concurrence for
P19   1payout. If the insurer making the accelerated death benefit is itself
2the assignee under the policy, the acknowledgment is not required.

3(7) That if any death benefit remains after payment of an
4accelerated death benefit, the accidental death benefit provision,
5if any, in the policy shall not be affected by the payment of the
6accelerated death benefit.

7(b) The accelerated death benefit shall also provide for all of
8the following:

9(1) A maximum amount that may be accelerated.

10(2) An explanation that the insured may accelerate more than
11once on a qualifying event up to the maximum amount.

12(3) An explanation that the insured may accelerate on more than
13one of the qualifying events specified in the supplemental provision
14up to the maximum amount.

15(4) A statement that the policy, rider, endorsement, or certificate
16pays proceeds that are or are not intended for favorable tax
17treatment under Section 101(g) of the Internal Revenue Code (26
18U.S.C. Sec. 101(g)), if applicable.

19(c) The insurer shall advise the policyholder or certificate holder
20that there may be tax consequences of accepting an amount above
21the amount that would be tax qualified under the Internal Revenue
22Code.

23(d) The accelerated death benefit shall not contain any
24preexisting condition limitation and shall not contain any
25requirement that acceleration be conditioned on a prior
26hospitalization or institutionalization.

27(e) The accelerated death benefit shall contain an explanation
28of how the insured will pay for the accelerated death benefit,
29whether by paying a portion of the premium for the life insurance
30policy, by paying a fee at the time of the acceleration, by paying
31the cost of insurance charge, or by paying the administrative
32expense charge, together with an illustration. If there is a premium
33or cost of insurance charge, or a charge imposed upon the
34acceleration, a generic illustration numerically demonstrating any
35effect of the payment of a benefit on the policy’s cash value,
36accumulation account, death benefit, premium, policy loans, and
37policy liens shall suffice for this purpose.

38(f) (1) Every accelerated death benefit that pays proceeds
39intended for favorable tax treatment under Section 101(g) of the
40Internal Revenue Code (26 U.S.C. Sec. 101(g)) shall be identified
P20   1as such by prominently displaying and printing that intention on
2page one of the accelerated benefit policy provision, rider,
3endorsement, or certificate.

4(2) Every accelerated death benefit that pays proceeds that are
5not intended for favorable tax treatment under Section 101(g) of
6the Internal Revenue Code (26 U.S.C. Sec.begin delete 101(g)),end deletebegin insert 101(g))end insert shall
7be identified as such by prominently displaying and printing that
8intention on page one of the accelerated death benefit policy
9provision, rider, endorsement, or certificate.

10

10295.2.  

A life insurance contract with an accelerated death
11benefit or an accelerated death benefit in the form of a rider or
12endorsement shall be submitted for the approval of the
13commissioner in the same manner as required under Section 10292
14and shall be submitted with the following additional information:

15(a) The term “accelerated death benefit” shall be included in
16the descriptive title of the filing.

17(b) A statement of the specific policy forms with which this
18accelerated death benefit will be offered, any underwriting
19restrictions involving face amount or age, and whether the
20accelerated death benefit is intended for use with new issues or in
21force business, or both.

22(c) An insurer that requires certification that a chronic illness
23is expected to last longer than 90 days shall include in its filing a
24legal memorandum from outside tax counsel that the certification
25would allow for preferable tax treatment under Section 101(g) of
26the Internal Revenue Code (26 U.S.C. Sec. 101(g)).

27

10295.3.  

(a) A written disclosure, as set forth below, shall be
28included with the filing for the commissioner’s approval, and shall
29be given to each applicant. The same written disclosure shall be
30attached to the policy or certificate delivered to the insured.

31(b) The required written disclosure shall be in the following
32form:

33“IMPORTANT NOTICE TO APPLICANT/BUYER
34REGARDING ACCELERATED DEATH BENEFITS”

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
P21   1the accelerated death benefits, or visit the California Department
2of Insurance Internet Web site (www.insurance.ca.gov) section
3regarding long-term care insurance.

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.

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.”

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

20(d) In the case of a solicitation by direct response methods, the
21insurer shall provide the disclosure form to the applicant together
22with the application. A notice that a full premium refund shall be
23provided to the insured if the policy is returned to the company
24within the free look period, pursuant to Section 10295.8.

25(e) In the case of group insurance policies, the disclosure form
26shall be delivered together with the application for the certificate,
27or with the certificate of coverage or any related document
28furnished by the insurer for the certificate holder.

29

10295.4.  

An insurer shall file with the commissioner an
30actuarial memorandum prepared, dated, and signed by a member
31of the American Academy of Actuaries that includes all of the
32following information:

33(a) A description of the accelerated death benefit, including the
34effects of payment of the accelerated death benefit on all life
35insurance policy benefits and any subsequent accelerated death
36benefits, premium payments, cost of insurance rates, and values,
37including any outstanding loan, if applicable, for all types of forms
38with which the accelerated death benefit will be used.

P22   1(b) A description of, and justification for, expense charges
2associated with the accelerated death benefit and the maximum
3expense charges.

4(c) A description of the interest rate or interest rate methodology
5used in any present value calculation or in accruing interest on the
6amount of the accelerated death benefit, which shall not exceed
7the greater of the current yield on 90-day treasury bills, or a
8variable rate determined in accordance with the National
9Association of Insurance Commissioners (NAIC) Model Policy
10Loan Interest Rate Bill No. 590.

11(d) A description of the mortality basis and methodology,
12including the period of time applicable to any mortality discount,
13used in any present value calculation of the accelerated death
14benefit.

15(e) A description of the mortality and morbidity basis and
16methodology used in the determination of any separate premium
17or costs of insurance for the accelerated death benefit.

18(f) The formula used to determine the accelerated death benefit,
19including any limitations on the amount of the benefit, and the
20formula used to determine the postacceleration premium for the
21accelerated death benefit as well as the life insurance policy.

22(g) A sample calculation of the accelerated death benefit. If the
23life insurance policy contains a loan provision, the example shall
24assume that there is an outstanding loan on the date of acceleration.
25All policy and accelerated death benefit benefits, premium
26payments, cost of insurance charges and values, including the
27outstanding loan, if applicable, immediately before and
28immediately after acceleration shall be shown in the example.

29(h) If an accelerated death benefit will be paid in installments,
30the actuarial memorandum shall explain the basis used in the
31 calculation of the minimum periodic payment for the payment
32period and a sample calculation of a minimum periodic payment,
33and the basis used, and a sample calculation of the lump sum
34payable if the insured dies before all periodic payments for the
35payment period are made.

36(i) (1) For any accelerated death benefit subject to this article,
37a certification that the value and premium of the accelerated death
38benefit is 10 percent or less of the total value of the benefits over
39the life of the policy. These values shall be measured as of the date
40of issue.

P23   1(2) The certification shall be in the following form:

2

3“I,____________________of ___________________________
4am a Member in good standing of the American Academy of
5Actuaries and am qualified to provide this Certification with respect
6to the accelerated death benefit described in the Actuarial
7Memorandum to which this Certification is attached.

8I certify that:

9(1) The value of the benefits provided, on an aggregated basis,
10in respect of the filed accelerated death benefit, determined
11according to the formula below applied over a range of
12underwriting classes and plans at which the benefit is being made
13available, is not in any case greater than 10%.

14(NSP2 - NSP1) / NSP1

15Where:

16(a) NSP1 and NSP2 are determined using an effective annual
17interest rate of 6%.

18(b) NSP1 is the net single premium for the base policy benefits
19assuming there is no accelerated death benefit.

20(c) NSP2 is the net single premium for the base policy benefits
21assuming that the full death benefit is paid at time of death or the
22occurrence of the non-death accelerated death benefit trigger.

23(2) In developing the assumptions, other than the interest
24assumption, used in calculating NSP1 and NSP2, I have complied
25with all applicable laws, regulations, and Actuarial Standards of
26Practice (ASOPs). The assumptions used represent anticipated
27experience factors, as defined in actuarial literature and by
28generally accepted actuarial practice.

29(3) The assumptions, other than the interest assumption, used
30in calculating NSP1 and NSP2 will be reviewed at least annually
31by the Company to ensure that the value of the accelerated death
32benefit provided, as defined in (1) above, continues to be incidental.
33If, after such review and while this accelerated death benefit is
34being actively issued, the value of the benefits provided by this
35benefit are no longer incidental based on then current anticipated
36experience factors, the Company will discontinue offering the
37accelerated death benefit which is no longer incidental.

38(4) If a separate premium or cost of insurance (COI) charge is
39being charged for the accelerated death benefit provided, the ratio
40of the present value of the accelerated death benefit premiums or
P24   1COI charges over the life of the policy to the present value of the
2policy premiums or COI charges exclusive of any riders, does not
3exceed 10%. The present values in this item (4) are determined
4using an effective annual interest rate of 6%.”

5

6

10295.5.  

(a) Applications, if any, or forms supporting an
7application, if any, for accelerated death benefits shall contain
8clear, unambiguous, short, and simple questions designed to
9ascertain the health condition of the applicant. Each question shall
10contain only one health status inquiry and shall require only a
11“yes” or “no” answer, except that the application may include a
12request for the name of any prescribed medication and the name
13of the prescribing physician. If the application requests the name
14of any prescribed medication or the prescribing physician, then
15any mistake or omission shall not be used as a basis for the denial
16of a claim or the rescission of the accelerated death benefit or life
17insurance policy or certificate.

18(b) The following warning shall be printed conspicuously and
19in close conjunction with the applicant’s signature block:

20

21“Caution: If your answers on this application are misstated or
22untrue, the insurer may have the right to deny benefits or rescind
23your accelerated death benefit coverage.”

24

25(c) If an insurer does not complete medical underwriting for the
26accelerated death benefit separate from underwriting for the life
27insurance policy and resolve all reasonable questions arising from
28information submitted on or with an application before issuing the
29 accelerated death benefit, then the insurer may only rescind the
30accelerated death benefit or life insurance policy or certificate or
31deny an otherwise valid claim upon clear and convincing evidence
32of fraud or material misrepresentation of the risk by the applicant.
33The evidence shall do all of the following:

34(1) Pertain to the condition for which benefits are sought.

35(2) Involve a chronic condition or involve dates of treatment
36before the date of application.

37(3) Be material to the acceptance for coverage.

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

P25   1(e) The contestability period for a life insurance policy or
2certificate that contains an accelerated death benefit shall comply
3with paragraph (3) of subdivision (c) of Section 10271.

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

7

10295.6.  

(a) When a policyholder or certificate holder requests
8an acceleration of death benefits, the insurer shall send a statement
9to the policyholder or certificate holder and irrevocable beneficiary
10showing any effect that the payment of the accelerated death benefit
11would have on the policy’s cash value, accumulation account,
12death benefit, premium, policy loans, and policy liens. The
13statement shall disclose that receipt of accelerated death benefit
14payments may adversely affect the recipient’s eligibility for
15Medicaid or other government benefits or entitlements. In addition,
16receipt of an accelerated death benefit payment may be taxable
17and assistance should be sought from a personal tax adviser. When
18a previous disclosure statement becomes invalid as a result of an
19acceleration of the death benefit, the insurer shall send a revised
20disclosure statement to the policyholder or certificate holder and
21irrevocable beneficiary.

22(b) The accelerated death benefit shall be effective not more
23than 30 days following the effective date of thebegin delete policy,end deletebegin insert policyend insert
24 provision, rider, endorsement, or certificate.

25(c)  If the insurer charges a separate premium for the accelerated
26death benefit, then the insurer may also offer a waiver of premium
27benefit as defined in subdivision (a) of Section 10271.1. At the
28time the waiver of the accelerated death benefit premium benefit
29is claimed, the insurer shall explain any continuing premium
30requirement to keep the underlying policy in force.

31(d) An insurer shall not unfairly discriminate among insureds
32with different qualifying events covered under the policy or among
33insureds with similar qualifying events covered under the policy.
34An insurer shall not apply further conditions on the payment of
35the accelerated death benefits other than those conditions specified
36in the accelerated death benefit.

37(e) The insurer shall provide the policyholder or certificate
38holder with a report, at least monthly, of any accelerated death
39benefits paid out during the prior month, an explanation of any
40changes to the policy or certificate, death benefits, and cash values
P26   1on account of the benefits being paid out, and the amount of the
2remaining benefits that can be accelerated at the end of the prior
3month. The insurer may use a calendar month or policy or
4certificate month.

5(f) The conversion benefit available to group certificate holders
6on termination of employment pursuant to paragraph (2) of
7subdivision (a) of Section 10209 shall include a benefit comparable
8to the accelerated death benefit. This requirement may be satisfied
9by an individual policy or certificate. This requirement, subject to
10the approval of the commissioner, may be satisfied by arrangement
11with another insurer to provide the required coverage.

12(g) When payment of an accelerated death benefit results in a
13pro rata reduction in cash value, the payment may be applied
14toward repaying a portion of the loan equal to a pro rata portion
15of any outstanding policy loans if disclosure of the effect of
16acceleration upon any remaining death benefit, cash value or
17accumulation account, policy loan, and premium payments,
18including a statement of the possibility of termination of any
19remaining death benefit, is provided to the policyholder or
20certificate holder. The policyholder or certificate holder shall
21provide written consent authorizing any other arrangement for the
22repayment of outstanding policy loans.

23

10295.7.  

(a) The insurer may require a premium charge or
24cost of insurance charge for the accelerated death benefit. This
25charge shall be based on sound actuarial principles. In the case of
26group insurance, the additional cost may also be reflected in the
27experience rating.

28(b) (1) The insurer may pay a present value of the face amount.
29The calculation shall be based on any applicable actuarial discount
30appropriate to the policy design. The interest rate or interest rate
31methodology used in the calculation shall be based on sound
32 actuarial principles and disclosed in the contract or actuarial
33memorandum required in Section 10295.4. The maximum interest
34rate used shall be no greater than the greater of one of the
35following:

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

37(B) The current maximum statutory adjustable policy loan
38interest rate.

39(2) The interest rate accrued on the portion of the lien that is
40equal in amount to the cash value of the life insurance policy at
P27   1the time of the supplemental benefit acceleration shall be not more
2than the policy loan interest rate stated in the contract.

3(c) (1) Except as provided in paragraph (2), when an accelerated
4death benefit is payable, there shall not be more than a pro rata
5reduction in the cash value based on the percentage of death
6benefits accelerated to produce the accelerated death benefit
7payment.

8(2) Alternatively, the payment of accelerated death benefits,
9any administrative expense charges, any future premiums, and any
10accrued interest can be considered a lien against the death benefit
11of the life insurance policy and access to the cash value of the life
12insurance policy may be restricted to any excess of the cash value
13over the sum of any other outstanding loans and the lien. Future
14access to additional policy loans may also be limited to any excess
15of the cash value over the sum of the lien and any other outstanding
16policy loans.

17(d) When payment of an accelerated death benefit results in a
18pro rata reduction in the cash value of the life insurance policy,
19the payment shall not be applied toward repaying an amount greater
20than a pro rata portion of any outstanding policy loans.

21

10295.8.  

(a) An applicant for an accelerated death benefit shall
22have the right to return the accelerated death benefit policy or
23certificate by first-class United States mail within 30 days of its
24delivery and to have the premium refunded if, after examination
25of the policy or certificate, the applicant is not satisfied for any
26reason. If the accelerated death benefit is purchased as an
27endorsement or rider at the same time as the base life insurance
28policy, then the endorsement or rider may be returned within 30
29days. The underlying life insurance policy shall be otherwise
30subject to this code.

31(b) The return of a life insurance policy or certificate that
32contains an accelerated death benefit, or the return of an accelerated
33death benefit rider or endorsement, shall void the life insurance
34begin delete policy or certificate, or rider or endorsementend deletebegin insert policy, certificate,
35rider, or endorsementend insert
from the beginning, and the parties shall be
36in the same position as if no policy, certificate, rider, or
37endorsement had been issued. All premiums paid and any policy
38fee paid for the accelerated death benefit shall be fully refunded
39directly to the applicant by the insurer within 30 days after the
40policy, rider, endorsement, or certificate is returned.

P28   1(c) Policies, certificates, riders, or endorsements to which this
2section applies shall have a notice prominentlybegin delete printed ,end deletebegin insert printed,end insert
3 or attached thereto, stating in substance the conditions described
4in subdivisions (a) and (b).

5

10295.9.  

(a) Application forms for accelerated death benefits
6shall include a question designed to elicit information as to whether
7the accelerated death benefit is intended to replace any long-term
8care insurance presently in force. A supplementary application or
9other form to be signed by the applicant containing that question
10may be used.

11(b) (1) An insurer, broker, agent, or other person shall not cause
12a policyholder to replace a long-term care insurance policy
13unnecessarily. This section shall not be construed to allow an
14insurer, broker, agent, or other person to cause a policyholder to
15replace a long-term care insurance policy or life insurance policy
16subject to this section that will result in a decrease in benefits and
17an increase in premium.

18(2) It shall be presumed that any third or greater policy sold to
19a policyholder in any 12-month period is unnecessary within the
20meaning of this section. This section shall not apply to those
21instances in which a policy is replaced solely for the purpose of
22consolidating policies with a single insurer.

23(c) Upon determining that a sale will involve a replacement of
24a life insurance policy subject to this section or replacement of a
25long-term care insurance policy, an insurer or its agent shall furnish
26the applicant, prior to issuance or delivery of a policy, certificate,
27rider, or endorsement, a notice regarding replacement of life
28insurance that includes an accelerated death benefit, or long-term
29care insurance coverage with a life insurance policy or certificate
30that contains an accelerated death benefit. One copy of this notice
31shall be retained by the applicant and an additional copy signed
32by the applicant shall be retained by the insurer. The required
33notice shall be provided in the following form:

34

35“NOTICE TO APPLICANT REGARDING REPLACEMENT
36OF LONG-TERM CARE INSURANCE OR LIFE INSURANCE
37INCLUDING ACCELERATED DEATH BENEFITS

38According to (your application) (information you have
39furnished), you intend to lapse or otherwise terminate existing life
40insurance or long-term care insurance and replace it with a life
P29   1insurance policy with an accelerated death benefit to be issued by
2(company name) Insurance Company. Your new accelerated death
3benefit coverage provides 30 days within which you may decide,
4without cost, whether you desire to keep the coverage. Please note
5that your underlying life insurance policy may only provide for a
610-day period during which you may decide, without cost, whether
7you will keep the coverage. For your own information and
8protection, you should be aware of, and seriously consider, certain
9factors that may affect the insurance protection available to you
10under the new coverage.

11This accelerated death benefit is NOT Nursing Home, Home
12Care, or Long-Term Care Insurance, and it is not intended or
13designed to eliminate your need for that coverage. There are no
14restrictions or limitations on the use of the accelerated death benefit
15proceeds.

16If you want long-term care insurance, you should consult with
17an insurance agent licensed to sell that insurance, inquire with the
18insurance company offering the accelerated death benefits, or visit
19the California Department of Insurance Internet Web site
20(www.insurance.ca.gov) that provides information regarding
21long-term care insurance.

22If you want to replace existing coverage with life insurance that
23includes an accelerated death benefit, you should note the
24following:

25(1) Receipt of accelerated death benefits may be taxable. Prior
26to electing to buy the accelerated death benefit, policyholders or
27certificate holders should seek assistance from a qualified tax
28adviser.

29(2) Receipt of accelerated death benefits may affect eligibility
30for public assistance programs, such as Medi-Cal or Medicaid.
31Prior to electing to buy the accelerated death benefit, the
32applicant/buyer should consult with the appropriate social services
33agency concerning how receipt of accelerated death benefits may
34affect that eligibility.

35You may wish to secure the advice of your present insurer or its
36agent regarding the proposed replacement of your present coverage.
37This is not only your right, but it is also in your best interest to
38make sure you understand all the relevant factors involved in
39replacing your present coverage.

P30   1If, after due consideration, you still wish to terminate your
2present coverage and replace it with new coverage, be certain to
3truthfully and completely answer all questions on the application
4concerning your medical health history. Failure to include all
5material medical information on an application may provide a
6basis for the company to deny any future claims and to refund your
7premium as though your coverage had never been in force. After
8the application has been completed and before you sign it, reread
9it carefully to be certain that all the information has been properly
10recorded.

11The above “Notice to Applicant” was delivered to me on:

12(Date)

13(Applicant’s Signature)”

14

15(d) The replacement notice shall include the following statement
16except when the replacement coverage is group insurance:

17

18“COMPARISON TO YOUR CURRENT COVERAGE: I have
19reviewed your current coverage . To the best of my knowledge,
20the replacement of insurance involved in this transaction materially
21improves your position for the following reasons:

22____ Additional or different benefits

23(please specify) ______.

24____ No change in benefits, but lower premiums.

25____ Fewer benefits and lower premiums.

26____ Other (please specify) ______.

27(Signature of Agent and Name of Insurer)

28(Signature of Applicant)

29(Date)

30

31(e) In recommending the purchase or replacement of any policy
32or certificate issued under this section, an agent shall make
33reasonable efforts to determine the appropriateness of a
34recommended purchase or replacement.

35(f) The replacing policy or certificate shall not contain a
36provision establishing a new waiting period in the event existing
37coverage is converted to, or replaced by, a new or other form within
38the same insurer, except with respect to an increase in benefits
39voluntarily selected by the insured individual or group
40policyholder.

P31   1

10295.10.  

An insurer may not:

2(a) Cancel, nonrenew, or otherwise terminate an accelerated
3death benefit on the grounds of the age or the deterioration of the
4mental or physical health of the insured individual or certificate
5holder.

6(b) Terminate a policy, certificate, or rider, or contain a
7provision that allows the premium for an in-force policy, certificate,
8or rider, to be increased due to the divorce of a policyholder or
9certificate holder.

10

10295.11.  

(a) An accelerated death benefit shall not be
11advertised or marketed as long-term care insurance, nursing home
12insurance, or home care insurance. Any advertisement, description,
13comparison, marketing material, or illustration shall state in bold
14type:

15“This is a life insurance benefit that also gives you the option to
16accelerate some or all of the death benefit in the event that you
17meet the criteria for a qualifying event described in the policy.
18This policy or certificate does not provide long-term care insurance
19subject to California long-term care insurance law. This policy or
20certificate is not a California Partnership for Long-Term Care
21program policy. This policy or certificate is not a Medicare
22supplement (policy or certificate).”

23An insurer shall also include in any advertisement or marketing
24materials for these insurance policies all of the following:

25(1) A statement that the policy or certificate pays proceeds that
26are or are not intended to receive favorable tax treatment under
27Section 101(g) of the Internal Revenue Code (26 U.S.C. Sec.
28 101(g)).

29(2) A description of the accelerated death benefits provided by
30the policy, including a description of the acceleration of the death
31benefit to pay an unrestricted cash benefit when the insured has
32become chronically ill or otherwise eligible for benefits from a
33qualified event.

34(3) A comparison between the benefits provided by life
35insurance policies, riders, or endorsements that contain accelerated
36death benefits and the benefits provided by long-term care
37insurance.

38(b) Advertising for term life insurance policies or certificates
39that contain an accelerated death benefit to be attached to an
P32   1existing term life policy shall include a prominent statement that
2the accelerated death benefit will terminate with the policy.

3(c) On or after January 1, 2014, every insurer offering
4accelerated death benefits shall file with the commissioner copies
5of all printed advertising for accelerated death benefits that the
6insurer proposes to disseminate in the state prior to use of that
7material. The commissioner shall have the authority to disapprove
8any advertising that does not meet the requirements of this code.
9If the commissioner disapproves the advertising, the insurer shall
10not use and shall stop using the disapproved advertising. Nothing
11in this subdivision shall be construed as requiring prior approval
12of advertising prior to dissemination in this state.

13

10295.12.  

(a) Insurers shall ensure that agents offering,
14marketing, or selling accelerated death benefits on their behalf are
15able to describe the differences between benefits provided under
16an accelerated death benefit and benefits provided under long-term
17care insurance, as follows:

18(1) The difference between the benefits afforded to an insured
19through an accelerated death benefit and a long-term care insurance
20policy or rider.

21(2) The differences between benefit eligibility criteria.

22(3) Whether an elimination period applies to either an
23accelerated death benefit or long-term care insurance and a
24description of the elimination period.

25(4) The benefits under the accelerated death benefit or long-term
26care insurance if benefits are never needed.

27(5) The benefits under the accelerated death benefit or long-term
28insurance if benefits are needed.

29(6) Restrictions on benefit amounts.

30(7) Tax treatment of benefits.

31(8) Income and death benefit considerations.

32(b) Completion of California agent education or continuing
33education for long-term care insurance shall meet the requirements
34of this section.

35

10295.13.  

In addition to other unfair trade practices described
36in this code, the following acts and practices in the sale of insurance
37under this article are prohibited:

38(a) Twisting. Knowingly making any misleading representation
39or incomplete or fraudulent comparison of any insurance policies
40or insurers for the purpose of inducing, or tending to induce, any
P33   1person to lapse, forfeit, surrender, terminate, retain, pledge, assign,
2borrow on or convert any insurance policy, or to take out a policy
3of insurance with another insurer.

4(b) High pressure tactics. Employing any method of marketing
5having the effect of, or tending to, induce the purchase of insurance
6through force, fright, threat, whether explicit or implied, or undue
7pressure to purchase or recommend the purchase of insurance.

8(c) Cold lead advertising. Making use directly or indirectly of
9any method of marketing that fails to disclose in a conspicuous
10manner that a purpose of the method of marketing is solicitation
11of insurance and that contact will be made by an insurance agent
12or insurance company.

13

10295.14.  

(a) Accelerated death benefits shall comply with
14the provisions in Sections 10113.71 and 10113.72.

15(b) Every insurer offering term life insurance with accelerated
16death benefits or any rider that provides for accelerated death
17benefits described in Section 10295 shall also offer a waiver of
18premium benefit for the life insurance premium and any premium
19charged for the accelerated death benefit as described in Section
2010271.1.

21(c) Every insurer offering a cash value life insurance policy or
22rider offering accelerated death benefits described in Section 10295
23shall disclose all premium default protection options in the policy
24and at the time of the application, including waiver of premium
25options available under Section 10271.1 and automatic premium
26loans.

27

10295.15.  

(a) Except at the request of the policyholder or
28contract holder, all accelerated death benefit provisions or
29supplemental contracts shall be renewable for the life of the
30underlying life insurance policy, provided the premiums are timely
31paid. The statement shall be prominently displayed on the first
32page of the accelerated death benefit policy or rider.

33(b) Term life insurance policies shall also include a prominent
34statement on page one that the accelerated death benefit terminates
35with the policy.

36

10295.16.  

Termination of an accelerated death benefit shall
37not prejudice the payment of benefits for any qualifying event that
38occurred while the accelerated death benefit was in force.

39

10295.17.  

An insurer that fails to conform to the requirements
40provided under this article shall be subject to Article 6.5
P34   1(commencing with Section 790) of Chapter 1 of Part 2 of Division
21.

3

10295.18.  

Accelerated death benefits shall not limit or exclude
4coverage by type of illness, treatment, medical condition, or
5accident, except under the circumstances described in paragraphs
6(1) to (4), inclusive, of subdivision (g) of Section 10271.

7

10295.19.  

A policy, certificate, rider, or endorsement shall
8include a provision giving the policyholder or certificate holder
9the right to appeal to the insurer a decision regarding benefit
10eligibility.

11

SEC. 8.  

No reimbursement is required by this act pursuant to
12Section 6 of Article XIII B of the California Constitution because
13the only costs that may be incurred by a local agency or school
14district will be incurred because this act creates a new crime or
15infraction, eliminates a crime or infraction, or changes the penalty
16for a crime or infraction, within the meaning of Section 17556 of
17the Government Code, or changes the definition of a crime within
18the meaning of Section 6 of Article XIII B of the California
19Constitution.



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