28 TAC §§3.4302, 3.4303, 3.4307 - 3.4311, and 3.4313
1. INTRODUCTION. The Commissioner of Insurance adopts amendments to §§3.4302, 3.4303, 3.4307 - 3.4311, and 3.4313, relating to the standards for acceleration-of-life-insurance benefits for individual and group policies and riders. The amendments are adopted without changes to the proposed text published in the April 25, 2008 issue of the Texas Register (33 TexReg 3374).
2. REASONED JUSTIFICATION. The amendments are necessary to update obsolete statutory and internal Texas Administrative Code references and to correct minor nonsubstantive errors in the existing rule. The adopted amendments do not make any substantive changes.
The adopted amendments update obsolete statutory references in the Texas Insurance Code. Insurance Code Article 3.50-6, which was referenced in §3.4303, was repealed in the nonsubstantive Insurance Code revision, Acts 2001, 77th Legislature, Chapter 1419, §31(a), effective June 1, 2003. Article 3.50-6 was re-adopted as §§1111.051 - 1111.053 in the same nonsubstantive Insurance Code revision. Insurance Code Article 3.70-8, which was referenced in §3.4303, was repealed in the nonsubstantive Insurance Code revision, Acts 2003, 78th Legislature, Chapter 1274, §26(a)(1), effective April 1, 2005. Article 3.70-8 was re-adopted as §§1201.003, 1201.059, 1201.105, 1351.002, and 1451.051 in the same nonsubstantive Insurance Code revision. Insurance Code Article 3.44a, which was referenced in §§3.4307 and 3.3409, was repealed in the nonsubstantive Insurance Code revision, Acts 2001, 77th Legislature, Chapter 1419, §31(a), effective June 1, 2003. Article 3.44a was re-adopted as Chapter 1105 in the same nonsubstantive Insurance Code revision. Insurance Code Article 3.28, which was referenced in §3.4310, was repealed in the nonsubstantive Insurance Code revision, Acts 2005, 79th Legislature, Chapter 727, §18(a)(3), effective April 1, 2007. Article 3.28 was re-adopted as §§425.051 - 425.070 in the same nonsubstantive Insurance Code revision. Insurance Code Article 21.21, which was referenced in §3.4311, was repealed in the nonsubstantive Insurance Code revision, Acts 2003, 78th Legislature, Chapter 1274, §26(a)(1), effective April 1, 2005. Article 21.21 was re-adopted as Chapter 541 in the same nonsubstantive Insurance Code revision. Adopted §3.4311(a) correctly references the title of Chapter 541 as "Unfair Methods of Competition and Unfair or Deceptive Acts or Practices."
The adopted amendments also correct obsolete internal Texas Administrative Code references. Previously, §3.4302(b)(2)(B) in the definition of the term "Long-term care illness" referenced home health care services "as defined and provided consistently with §3.3804(b)(13) and (14)." Amendments were adopted to §3.3804 on January 6, 2002 (26 TexReg 10886) to move paragraphs (13) and (14) to paragraphs (15) and (16). Adopted §3.4302(b)(2)(B) deletes the obsolete references to paragraphs (13) and (14) and uses the agency's general citation style, which references Long-term care illness "as defined and provided consistently with §3.3804(b)." Secton 3.4313(a) referenced the definition of an "invitation to contract" as defined in §21.114 of Title 28 of the Texas Administrative Code. Amendments were adopted to §21.114 on December 9, 2007 (32 TexReg 8830) to delete the definition of "invitation to contract" and to §21.102 to add the definition of "invitation to contract." Adopted §3.4313(a) reflects these changes.
The adopted amendments also make changes to correct nonsubstantive errors. The adopted subchapter title includes hyphens in the phrase "Acceleration-of-Life-Insurance" to be consistent with the phrase as used throughout the subchapter. Section 3.4302(b)(2)(A) in the definition of the term "Long-term care illness" referenced "§3.3812 of this title (relating to Policy Definition of Provider)." Adopted §3.4302(b)(2)(A) references the section title of §3.3812 to correctly reflect its title as "Policy Standards for Provider." Adopted §3.4303(b) includes the word "the" before the phrase "Insurance Code" for consistency with agency style and makes changes in punctuation to correctly reflect the title of §3.4302 as "Acceleration-of-Life-Insurance: Scope of Benefits" in the reference to that section. Unnecessary commas are deleted in adopted §§3.4307, 3.4309, 3.4310, and 3.4311. Section 3.4308 did not include a reference to the complete title of §3.4306, and adopted §3.4308 correctly reflects the reference to the §3.4306 title as "Methods for Determining Benefits and Allowable Charges and Fees."
3. HOW THE SECTIONS WILL FUNCTION. The adopted sections update obsolete statutory and Texas Administrative Code references and correct other minor nonsubstantive errors and will result in increased clarity and readability of the rules. The adopted changes are nonsubstantive and do not affect the existing requirements of any sections.
4. SUMMARY OF COMMENTS. The Department did not receive any comments on the published proposal.
5. STATUTORY AUTHORITY. The amendments are adopted under the Insurance Code §§1111.053, 1701.002, 1701.060, and 36.001. Section 1111.053 authorizes the Commissioner to adopt rules to implement Insurance Code Chapter 1111, Subchapter B, Accelerated Term Life Insurance Benefits. Section 1701.002 specifies that Chapter 1701 is applicable to a policy, contract, or certificate of accident or health insurance, medical or surgical insurance, life or term insurance, including group life or term insurance, endowment insurance, industrial life insurance, fraternal benefit insurance, an annuity or endowment contract, an application attached or required to be attached to the policy, contract or certificate, or a rider or endorsement to be attached to, printed on, or used in connection with the policy, contract, or certificate. Section 1701.060 authorizes the Commissioner to adopt rules necessary to implement Chapter 1701, Policy Forms, including rules that establish procedures and criteria under which each type of form submitted to the Department under Chapter 1701 will be reviewed and approved by the Commissioner or exempted under §1701.005(b), and procedures and criteria under which particular types of forms designated by the Commissioner may be given a summary review and approval, if considered appropriate by the Commissioner, to expedite review and approval of those forms. Section 36.001 authorizes the Commissioner of Insurance to adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.
6. TEXT.
§3.4302. Acceleration-of-Life-Insurance: Scope of Benefits.
(a) An acceleration-of-life-insurance benefit provision provides a special benefit under a life insurance contract, which prepays all or a portion of the death benefit, based either on a long-term care illness, specified disease, or terminal illness.
(b) The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise:
(1) Life insurance contract--An individual life insurance policy, a group life insurance policy or certificate of insurance, or a rider to an individual or group life insurance policy or group certificate of insurance.
(2) Long-term care illness--An illness or physical condition that results in the inability to perform the activities of daily living or the substantial and material duties of any occupation. Evidence of a long-term care illness includes, but is not limited to, illnesses or conditions which require:
(A) confinement in a convalescent nursing home, residential care or intermediate nursing facility, defined consistently with the provisions of §3.3812 of this title (relating to Policy Standards for Provider); or
(B) adult day care services, as defined and provided consistently with §3.3804(b) of this title (relating to Definitions), and home health care services, as defined and provided consistently with §3.3804(b) of this title.
(3) Specified disease--An illness or physical condition that is likely to cause permanent disability or premature death, including, but not limited to, the following:
(A) AIDS;
(B) a malignant tumor;
(C) a condition requiring organ transplantation;
(D) a coronary artery disease resulting in acute infarction or requiring surgery;
(E) a permanent neurological deficit resulting from cerebral vascular accident; or
(F) a condition of similar severity as specified in the life insurance contract, which would be expected to impair the insured's quality or length of life in the absence of appropriate medical attention.
(4) Terminal illness--An illness or physical condition, including a physical injury, that can reasonably be expected to result in death in two years or less.
(c) Any portion of the death benefit remaining after reduction of the death benefit due to payment of any acceleration-of-life-insurance benefit referred to in this section and related charges, interest or liens, as allowed by §3.4306(3) of this title (relating to Methods for Determining Benefits and Allowable Charges and Fees) shall be paid upon the death of the insured.
(d) Prepayment of acceleration-of-life-insurance benefits may be in a single sum or in installments.
(e) The acceleration-of-life-insurance benefits, related charges, interest, discounts or liens allowed under this subchapter, and the balance of the death benefit of the life insurance contract shall constitute full settlement on maturity of the face amount of the contract.
(f) Specific additional requirements for life insurance contracts that pay for long-term care expenses through acceleration-of-life-insurance benefit provisions are contained in §3.4314 of this title (relating to Requirements for Acceleration-of-life-insurance Benefits that Fund Long-Term Care Expenses).
§3.4303. Required Policy Definitions; Evidence of Total and Permanent Disability.
(a) Acceleration-of-life-insurance benefits, and the illness, condition, care or confinement necessary to evidence that the insured has either a long-term care illness, specified disease or terminal illness, shall be clearly defined in the life insurance contract consistently with this subchapter.
(b) Such illness, condition, care, or confinement is evidence of total and permanent disability for purposes of meeting the standards for providing acceleration-of-life-insurance benefits set forth in the Insurance Code, §§1111.052 and 1201.003, and §3.4302 of this title (relating to Acceleration-of-Life-Insurance: Scope of Benefits).
§3.4307. Limitations on Reduction of Cash Values. Except as otherwise authorized under the Lien Method for determining benefits under §3.4306(3) of this title (relating to Methods for Determining Benefits and Allowable Charges and Fees), if the cash values are reduced by the acceleration-of-life-insurance benefit, related charges and interest, the reduction shall not be unjust and shall not exceed an amount equal to the pro rata portion of the cash value associated with the death benefit used in providing the acceleration-of-life-insurance benefit. Future cash values shall not be less than the minimum cash values required by the Insurance Code Chapter 1105, for the reduced future guaranteed death benefits. These minimum cash values are equal to the present value of the reduced future guaranteed benefits less the present value of future adjusted premiums, decreased by the amount of any indebtedness, including liens, under the life insurance contract. The mortality and interest used in calculating the minimum cash values will be as provided in the Insurance Code Chapter 1105, for life insurance coverage, disregarding any acceleration-of-life-insurance benefits.
§3.4308. Pro Rata Reduction of Loan upon Acceleration of Benefits. Unless the insurer is using the Lien Method for determining benefits under §3.4306(3) of this title (relating to Methods for Determining Benefits and Allowable Charges and Fees), if there is a loan on the life insurance contract, the insurer may deduct up to a pro rata portion of the loan from the amount of the acceleration-of-life-insurance benefit.
§3.4309. Effect of Acceleration of Benefits on Nonforfeiture Calculations. An acceleration-of-life-insurance benefit provision or rider shall be disregarded in ascertaining nonforfeiture benefits under the Insurance Code Chapter 1105.
§3.4310. Calculation of Reserves.
(a) Reserves for an acceleration-of-life-insurance benefit shall be based on tables of disablement, morbidity, or mortality appropriate for determining liability for the benefits provided. Such disablement or morbidity tables shall be certified as appropriate by a member of the American Academy of Actuaries and approved by the Texas Department of Insurance under the Insurance Code §§425.058(k) and 425.069. Reserves for the death benefits or other supplementary benefits provided by a life insurance contract which includes an acceleration-of-life-insurance benefit shall be calculated disregarding such benefit, using mortality and interest rates as provided in the Insurance Code Chapter 425. The basis of reserves for any life insurance contract which contains an acceleration-of-life-insurance benefit provision shall accompany the filing of the contract with the Texas Department of Insurance.
(b) Reserves for an acceleration-of-life-insurance benefit under the Lien Method for determining benefits under §3.4306(3) of this title (relating to Methods for Determining Benefits and Allowable Charges and Fees), including accrued interest, represent assets of the company for statutory reporting purposes. For any life insurance contract on which the lien exceeds the policy's statutory reserve liability, such excess must be held as a non-admitted asset.
§3.4311. Unfair, Discriminatory or Deceptive Practices Prohibited.
(a) Acceleration-of-life-insurance benefit provisions are subject to the Insurance Code Chapter 541 (concerning Unfair Methods of Competition and Unfair or Deceptive Acts or Practices) and rules promulgated under Chapter 541.
(b) Insurers offering acceleration-of-life-insurance benefits shall not engage in unfair, discriminatory or deceptive practices in relation to the offer, sale or administration of acceleration-of-life-insurance benefits, including, but not limited to, the following practices:
(1) reclassification of the insured as a result of payment of the benefit specified in an acceleration-of-life-insurance benefit provision to a class of risk less favorable than the class of risk to which the insured originally belonged;
(2) unfair discrimination among insureds with differing qualifying events; or
(3) unfair discrimination among insureds with similar qualifying events.
§3.4313. Notice and Disclosure Requirements for Marketing Materials.
(a) Any "invitation to contract," as defined in §21.102 of this title (relating to Scope), used in the marketing, solicitation or sale of a life insurance contract containing an acceleration-of-life-insurance provision shall clearly and concisely disclose the following:
(1) the illness, condition, care, or confinement necessary to trigger eligibility for any acceleration-of-life-insurance benefit;
(2) the effect that an acceleration-of-life-insurance benefit provision will have on the death benefit and other values available under the life insurance contract;
(3) the tax-related disclosures contained in either subsection (a) or (b) of §3.4316 of this title (relating to Disclosures Related to Tax Qualification of Benefits and Benefits' Effect on Public Assistance), as appropriate, and the disclosure contained in subsection (c) of §3.4316, or disclosures substantially similar to these disclosures.
(b) No insurer or agent, in marketing a life insurance contract which provides acceleration-of-life-insurance benefits, may mention, illustrate, or refer to the contract as an alternative or substitute for catastrophic major medical health insurance.