806 KAR 12:160. Standards for
accelerated death benefits.
RELATES TO: KRS 304.6-170, 304.6-171,
304.12-010, 304.12-020, 304.12-235, 304.14-600(2), 304.15-115
STATUTORY AUTHORITY: KRS 304.2-110
NECESSITY, FUNCTION, AND CONFORMITY: KRS
304.2-110(1) authorizes the Executive Director of the Office of Insurance to
promulgate administrative regulations necessary for or as an aid to the
effectuation of any provision of the Kentucky Insurance Code, KRS Chapter 304. This
administrative regulation establishes standards for accelerated death benefits
in individual life insurance forms.
Section 1. Definitions. (1) "Accelerated
death benefit" means the advance payment of some or all of the death
proceeds payable pursuant to a life insurance policy:
(a) To the owner, during the lifetime of
the insured triggered by a qualifying event;
(b) That reduces the death benefit
otherwise payable under the policy through a present value payment or
imposition of a lien upon the death benefits; and
(c) That are payable upon the occurrence
of any single qualifying event.
(2) "Executive director" is
defined in KRS 304.1-050(1).
(3) "Form" means accelerated
death benefit form, or policy provision if the benefit is built into the
(4) "Qualifying event" means a
medical condition that is reasonably expected to result in a drastically
limited life span for the insured.
Section 2. Applicability. The
requirements established in this administrative regulation shall:
(1) Apply to accelerated death benefits
in individual life insurance policies; and
(2) Not apply to long-term care insurance
or policies providing long-term care benefits.
Section 3. Form Filings. The following form
filing requirements shall apply to accelerated death benefits and shall be
included on Certification Form L-TD Life, Transmittal Document, Office of Insurance
(1/1/06), incorporated by reference in 806 KAR 14:005, or as an attachment to
(1) A statement of the types of policy
forms with which this benefit will be offered;
(2) Underwriting restrictions involving
face amount or age;
(3) Whether the benefit is intended for
use with new issues, or in force business, or both;
(4) A notice describing the amount of the
accelerated benefit option and its effect on the other benefit provisions of
the policy, to be provided to the owner prior to or concurrent with the
election of the accelerated death benefit option; and
(5) An actuarial memorandum prepared,
dated, and signed by the member of the American Academy of Actuaries which
shall provide the following information:
(a) A description of the accelerated
death benefit, including the effects of payment of the accelerated death
benefit on all policy benefits, premium payments, cost of insurance rates, and
values, including any outstanding loan, if applicable, for all types of forms
with which the accelerated death benefit will be used;
(b) Justification for expense charges
associated with the accelerated death benefit and the maximum expense charges;
(c) The interest rate or interest rate
methodology used in any present value calculation or in accruing interest on
the amount of the accelerated death benefit, which shall not exceed the greater
1. The current yield on 90-day treasury
2. An adjustable rate determined in
accordance with KRS 304.15-115;
(d) The mortality basis and methodology,
including the period of time applicable to any mortality discount, used in any
present value calculation of the accelerated death benefit;
(e) The mortality and morbidity basis and
methodology used in the determination of any separate premium or costs of
insurance for the accelerated death benefit;
(f) The formula used to determine the
accelerated death benefit, including any limitations on the amount of the
benefit, and the formula used to determine the post-acceleration premium;
(g) A sample calculation of the
accelerated death benefit.
1. If the policy contains a loan
provision, the example shall assume that there is an outstanding loan at date
2. All policy benefits, premium payments,
cost of insurance charges, and values, including the outstanding loan, if applicable,
immediately before and immediately after acceleration shall be shown in the example;
(h) If an accelerated death benefit may
be paid in installments, the basis used in the calculation of the minimum periodic
payment for the payment period and a sample calculation of a minimum periodic
(i) If the insured dies before all
periodic payments for the payment period are made, identification of the basis
used and a sample calculation of the lump sum payable; and
(j) A certification that the value and
premium of the accelerated death benefit is incidental to the life coverage.
Section 4. General Form Requirements. (1)
The company's definition of a "drastically limited life span" shall
have a minimum of "six (6) months or less" and a maximum of
"twenty-four (24) months or less" and shall be specified in the form
(2) The cover page of the form, or the
cover page of the policy if the benefit is built into the policy, shall include
the following in prominent type:
(a) The term "accelerated death
benefit" included in the brief description or descriptive title of the
(b) A clear statement that the death
benefit and any accumulation values and cash values and, if applicable, premium
payments or cost of insurance charges, shall be reduced if an accelerated death
benefit is paid; and
(c) A clear statement recommending that
the owner seek additional information from the owner's personal tax advisor
about the tax status of the accelerated death benefit payment.
(3) The form shall not contain provisions
that unfairly discriminate among insureds with differing qualifying events
covered pursuant to the form or among insureds with similar qualifying events
covered pursuant to the form.
(4) Products subject to these standards
shall not be described as long-term care insurance or as providing long-term
(5)(a) The percentage or dollar amount of
the policy death benefit that may be accelerated may be limited.
(b) The limit shall be specified in the
(6) A time frame within which proof of
eligibility shall be provided shall be prohibited.
Section 5. Benefit Design Options. (1) The
form shall describe the accelerated death benefit option or options that shall
be available to the owner, such as the payment of all of the death benefit of
the policy, the payment of part of the death benefit of the policy, or a lien
on the death benefit of the policy.
(2) If the form allows for the present
value calculation, the form shall:
(a) Specify the amount of the death
benefit of the policy that may be accelerated by the owner;
(b) State that the company may apply a
portion of the accelerated death benefit to repay an outstanding policy loan
but only up to the amount of the outstanding policy loan multiplied by the
percentage of the policy death benefit that has been accelerated;
(c) State that the premium shall be
reduced to the premium that would apply had the policy been issued at the
reduced amount, and may be further reduced according to some defined formula,
such as pro rata reduction, or become paid-up;
(d) State that the company may pay the
owner a present value of the policy death benefit being accelerated. The
interest rate or interest rate methodology used in the calculation shall be disclosed
in the form; and
(e) State that the policy cash value, if
any, shall be reduced by the same percentage as the policy death benefit.
(3) If the payment to the owner of the
accelerated death benefit is treated as a lien on the death benefits of the
policy, the form shall state that:
(a) The lien may be applied only against
the policy death benefit, not against any policy cash value;
(b) The lien may bear interest.
1. The interest rate accrued on the portion
of the lien which is equal to the cash value of the policy upon acceleration
shall not be more than the policy loan interest rate stated in the policy. For
the amount of the lien in excess of the cash value, the interest rate or
interest rate methodology shall be disclosed in the form;
(c) Expense charges may be added to the
(d) Due and unpaid premiums may be
included in the lien after the automatic premium loan, if available, is
(e) Access to the policy cash value may
be restricted to the excess of the cash value over the sum of the lien and any
other outstanding policy loans.
(4)(a) A premium charge or cost of
insurance charge for the accelerated death benefit shall be disclosed to the
(b) A premium charge or cost of insurance
charge shall be prohibited for a qualifying event of the type described in Section
11(1)(a) of this administrative regulation.
(5) The company may deduct a reasonable
expense charge for accelerating the death benefit and shall state the maximum expense
charge in the form.
(6) If an index used in determining the
accelerated death benefit is discontinued, the company shall use an appropriate
(7) The form or policy shall not:
(a) Provide that the insured forfeits the
remainder of the policy death benefit upon acceleration of part of the policy
(b) Place an aggregate limit provision
that caps the accelerated death benefits payable for all policies issued by the
company and its subsidiaries and affiliates;
(c) Require that the accelerated death
benefit be provided if the policy remains in force for a specific period of
time following acceleration. The option may exclude from acceleration a term
insurance coverage scheduled to terminate prior to the end of the period used
to define a qualifying event of the type described in Section 11(1)(a) of this
administrative regulation; and
(d) Contain restrictions on the use of
the accelerated death benefit proceeds.
(8) A form with an accelerated death
benefit shall include an option upon acceleration:
(a) To reduce the accelerated death
benefit payment by an amount actuarially determined to pay the remaining
(b) To continue to pay premiums to keep
the policy in force.
Section 6. Effect of Benefit Payment on other
Benefit Provisions. (1) Prior to or concurrent with the election to accelerate
the policy death benefits, the owner and each irrevocable beneficiary shall be
given a statement demonstrating the effect of the acceleration of the payment
of death benefits on the cash value, death benefit, premium, cost of insurance
charges, and policy loans, including policy liens, of the particular policy involved.
(a) The statement shall display the premium
or cost of insurance charges necessary to continue coverage following the acceleration,
and shall display all expense and interest charges associated with accelerating
the death benefit.
(b) Statements for use with liens shall
state that future due and unpaid premiums or cost of insurance charges may be included
in the lien if the provision provides for the charges.
(c) The statement shall be based only on
guaranteed values and shall not show any projected or non-guaranteed values.
(d) The statement shall include a
disclosure that receipt of an accelerated death benefit may affect eligibility
for Medicaid or other government benefits or entitlements and may have income
(2) The form shall describe the effect of
acceleration on premiums, cost of insurance charges, cash values, and loan
values, as applicable.
(3) The form shall describe the effect
that acceleration of death benefits will have on coverage on another insured pursuant
to the policy.
(4) If a part of the death benefit
remains after payment of the accelerated death benefit, the following
requirements shall apply:
(a) If the accelerated death benefit is
paid under a present value calculation, the policy shall be modified by an
endorsement, which includes a statement of cash values, policy loans, premiums,
cost of insurance charges, and death benefits following acceleration;
(b) The dividends or non-guaranteed
elements credited shall not discriminate between policies whose death benefits
have been reduced through acceleration and policies originally issued in the
amount of the reduced death benefits; and
(c) The accidental death benefit
provision, if any, in the policy shall not be affected by the payment of the
accelerated death benefit.
Section 7. Exclusions or Restrictions. The
accelerated death benefit shall not contain exclusions or restrictions that are
not also exclusions or restrictions in the policy.
Section 8. Incontestability. The accelerated
death benefit shall be incontestable on the same, or on a more favorable basis,
as the individual policy.
Section 9. Payment Options. (1)(a) The
payment options shall include the option to receive the accelerated death
benefit payment in a lump sum and may include an option to receive the benefit
in periodic payments for a period certain.
(b) Periodic payments based on the
continued survival or institutional confinement of the insured shall be prohibited.
(2)(a) The amount payable as a lump sum
shall be at least equal to the acceleration percentage multiplied by the difference
between the current policy cash value and any outstanding policy loans.
(b) The current policy cash value shall
include any termination dividend payable on the surrender of the policy.
(3)(a) The form shall specify what occurs
if the insured dies before all payments of the accelerated death benefit are
(b) If the present value of remaining
payments is paid, the interest rate used to calculate any present value of the
settlement option shall be that assumed in calculating the original payments.
(4) If the insured dies after the owner
elects to receive accelerated death benefits but before benefits are received,
the election shall be cancelled and the death benefit paid pursuant to the
Section 10. Payment Procedures. The
procedures required to accelerate the death benefit of the policy shall be specified
in the form and shall be at least as favorable as the following:
(1)(a) If the company requires the filing
of a proof of eligibility claim form, the company shall provide the claim form
within fifteen (15) days of the acceleration request.
(b) If the claim form is not furnished
within fifteen (15) days, it shall be considered that the claimant complied
with the claim requirements if the claimant submits written proof covering the
occurrence, the character, and the extent of the occurrence for which claim is
(2)(a) The company may reserve the right
to require a second or third medical opinion to confirm benefit eligibility.
(b) The second or third medical opinion shall
be provided at the company’s expense.
(c) The second medical opinion may
include a physical examination by a physician designated by the company.
(d) In the case of conflicting opinions,
eligibility for benefits shall be determined by a third medical opinion provided
by a physician that is mutually acceptable to the insured and the company;
(3) The accelerated death benefit shall
be paid to the owner or owner’s estate while the insured is living, unless the
benefit has been otherwise assigned or designated by the owner; and
(4)(a) Prior to the payment of the
accelerated death benefit, the company shall obtain from any assignee or
irrevocable beneficiary a signed acknowledgement of concurrence for payout.
(b) If the company paying the accelerated
death benefit is itself the assignee under the policy, an acknowledgement shall
not be required.
(c) Payment of the accelerated death
benefit is due in accordance with KRS 304.12-235 with respect to any delay in
processing requests to accelerate the payment of death benefits.
Section 11. Qualifying Events. (1) A
qualifying event may, at the option of the company, include one (1) or more of
(a) A medical condition that requires
extraordinary medical intervention, such as major organ transplant or
continuous artificial life support, without which the insured is expected to die;
(b) A condition that usually requires
continuous confinement in an institution, as defined in the form, and the
insured is expected to remain there for the rest of the insured's life;
(c) A specified medical condition that,
in the absence of extensive or extraordinary medical treatment, is expected to result
in a drastically limited life span; or
(d) A chronic illness that results in permanent
inability to perform a specified number of activities of daily living without
substantial assistance from another individual, or permanent severe cognitive impairment,
(2) The form shall specify the terms and
conditions applicable to each qualifying event.
(3) The form shall not require that the
cause of a qualifying event first manifest itself or be diagnosed after
issuance of the individual policy or form.
(4) The form shall not include a waiting
(5) A requirement that the individual
policy or form be in force past the incontestable period shall be prohibited.
Section 12. Reinstatement. The form shall
include a reinstatement provision on the same, or more favorable, terms as
contained in the policy.
Section 13. Termination. (1) The form
shall include the following conditions for termination, upon:
(a) A written request; or
(b) Termination of the policy; or
(c) Nonpayment of any separate premium or
cost of insurance charge for the accelerated death benefit, in accordance with
the provisions of the form or the policy.
(2) The form may state that the
accelerated death benefit may be terminated if a nonforfeiture benefit becomes
effective pursuant to the policy.
(3) The form shall state that termination
shall not prejudice the payment of benefits for a qualifying event that
occurred while the form was in force.
Section 14. Effective Date. The requirements,
implementation, and enforcement of this administrative regulation shall begin
on January 1, 2008. (33 Ky.R. 4301; Am. 34 Ky.R. 295; 736; eff. 11-2-2007.)