AN ACT CONCERNING ACCELERATED BENEFITS OF LIFE INSURANCE POLICIES.

This bill expands the benefits available under a life insurance policy's accelerated death benefit option by revising what constitutes a “qualifying event. ” An accelerated death benefit pays benefits during an insured person's life, upon the occurrence of a qualifying event. Such a payment reduces the benefit payable upon death. The law permits life insurers and fraternal benefit societies to include an accelerated benefit option in life insurance policies.

The bill adds as a qualifying event confinement in the insured person's residence or an acute care hospital for at least six months due to a “medically determinable condition,” if the person is expected to remain confined at that location until death. Current law requires benefits to be paid only if the confinement is in a nonacute care institution where a certified or licensed health care provider renders the necessary care. The bill eliminates the requirement that a certified or licensed health care provider render the care in an institutional setting.

By law, confinement must be due to a medically determinable condition. The bill specifies that an individual must be deemed chronically ill for the purposes of Internal Revenue Code (I. R. C) § 101(g). It specifically authorizes the insurance commissioner to issue regulations regarding medically determinable conditions that are considered qualifying events. The law permits the commissioner to issue regulations deemed necessary to implement the accelerated death benefit statutes.

The bill also allows payment of accelerated benefits due to confinement in either lump sum or periodic payments. Current law permits only lump sum payments.

*House Amendment “A” (1) changes the definition of a “medically determinable condition” from a permanent chronic illness expected to result in a reduced life span to refer instead to an individual deemed chronically ill for the purposes of I. R. C § 101(g), (2) changes references to “place of residence” from “home,” and (3) makes technical changes.

Current law defines a “qualifying event” as (1) a medically determinable condition, such as coronary artery disease, myocardial infarction, stroke, kidney failure, or liver disease, that can be expected to result in death within about 12 months; (2) a medical condition that would result in death within about 12 months in the absence of extensive or extraordinary medical treatment; or (3) a medically determinable condition that has caused the insured person to be confined for at least six months in an institution, other than an acute care hospital, where he or she (a) receives necessary care and treatment from a certified or licensed health care provider and (b) is expected to remain until death.

The bill leaves intact the first two parts of the “qualifying event” definition. It changes the third part to a medically determinable condition resulting in the insured being considered a chronically ill individual for the purposes of I. R. C. § 101(g) or any subsequent corresponding internal revenue code and that has caused the insured person to be confined for at least six months in his or her place of residence or in an institution that provides necessary care and treatment. The insured person also must be expected to remain confined at that location until death.

I. R. C. § 101(g) refers to the definition of “chronically ill individual” given in I. R. C. § 7702B(c)(2), excluding terminally ill individuals.

I. R. C. § 7702B(c)(2) defines a “chronically ill individual” to include anyone who has been certified by a licensed health care practitioner as (1) being unable to perform (without substantial assistance from another individual) at least two activities of daily living for a period of at least 90 days due to a loss of functional capacity, or a similar level of disability, as determined under regulations, or (2) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment. A licensed health care practitioner must have certified within the preceding 12- months that the individual meets the requirements.

Activities of daily living include eating, toileting, transferring, bathing, dressing, and continence.

The law requires a variety of disclosures to consumers regarding accelerated benefits. For example, either before or at the time of application, applicants must be given a written disclosure that includes (1) a brief description of the accelerated benefit; (2) a statement about the effect of accelerated benefit payments on the policy's cash value, death benefit, premium, policy loans, and policy liens; and (3) definitions of the conditions or occurrences that trigger accelerated benefit payments.

The law also requires, at the time of application and when an accelerated benefit payment is requested, disclosure of the potential tax implications of receiving an accelerated payment. The disclosure must state that the accelerated benefits may be taxable and the insured person should seek assistance from a tax advisor. This disclosure also must be displayed prominently on the policy's first page. Each policy face page must include a description of coverage that uses the word “accelerated” and the following statement: “Benefits as specified under this policy will be reduced upon receipt of an accelerated benefit. ”

Yea

Nay

(02/10/2009)