These standards apply to accelerated death benefits that are built ...

IIPRC-L-08-I-AD-3http://www.insurancecompact.org/rulemaking_records/141204_record_stndrds_acceldeathbens.pdfADDITIONAL STANDARDS FOR ACCELERATED DEATH BENEFITS COMPLIANCE CHECKLISTEffective Date: December 4, 2014Scope: These standards apply to accelerated death benefits that are built into individual life insurance policy forms oradded to such policy forms by rider, endorsement or amendment.Products subject to these standards shall not be described as long-term care insurance or as providing long-term carebenefits. If the payment of accelerated death benefit is contingent upon receipt of long-term care services or supports,these standards shall not apply and such benefit will be subject to the Interstate Insurance Product RegulationCommission standards for individual long-term care insurance.As used in these standards the following definitions apply:A. “Accelerated death benefit” means the advance payment of some or all of the death proceeds payable under alife insurance policy:(1) To the owner, during the lifetime of the insured at the time of a qualifying event;(2) That reduces the death benefit otherwise payable under the policy through a present value payment orimposition of a lien upon the death benefits; and(3) That are payable upon the occurrence of any single qualifying event with respect to the insured resulting inthe payment of a benefit amount fixed at the time of acceleration.B. “Form” means a policy, or a rider, endorsement or amendment attached to a policy, that provides theaccelerated death benefit.C. “Qualifying event” means the following:(1) (a) Terminal Illness. A medical condition that is reasonably expected to result in a drastically limited lifespan for the insured. The company’s definition of a drastically limited life span shall have a minimum of“6 months or less” and a maximum of “24 months or less”, and shall be specified in the form;(b) A medical condition that requires extraordinary medical intervention, such as major organ transplant orcontinuous artificial life support, without which the insured would die;(c) A condition that is reasonably expected to require continuous confinement in an institution, as definedin the form, and the insured is expected to remain there for the rest of his or her life. The term“institution” shall be defined in the form;(d) A specified medical condition that, in the absence of extensive or extraordinary medical treatment,would result in a drastically limited life span; or(e) (i) A chronic illness defined as permanent inability to perform, without substantial assistance fromanother individual, a specified number of activities of daily living (bathing, continence, dressing,eating, toileting and transferring), or permanent severe cognitive impairment and similar forms of

dementia. The company’s definition of chronic illness shall not require the inability to perform morethan two activities of daily living.(ii) For the purposes of complying with the requirements of IRC Section 7702B and IRC Section 101(g)(“federal requirements”), chronic illness may also be defined as prescribed in these federalrequirements, such as:(I) For activities of daily living, requiring the inability to perform such activities to be for a periodof at least 90 days;(II) For Periodic payments, requiring that within the preceding 12-month benefit period alicensed health care practitioner has certified that the insured meets the requirements of IRCSection 7702B(c)(2)(A); and(III) For cognitive impairment, requiring substantial supervision.(2) A Terminal Illness qualifying event must always be included. The company may also provide accelerated benefitsupon the occurrence of other qualifying events. If the accelerated death benefit provides multiple qualifying events, theinsured meeting the conditions of any one specified qualifying event shall be sufficient to entitle the owner toaccelerate the death benefit.Mix and Match: These standards are available to be used in combination with State Product Components asdescribed in Section 111(b) of the Operating Procedure for the Filing and Approval of Product Filings(http://www.insurancecompact.org/rulemaking_records/081011_product_filing_app_A.pdf). Please note that thisapplies to the entire state or Compact approved forms and NOT to particular provisions contained within such forms.Submit the following:1. STATEMENT OF INTENT indicating the intent to use one or more State Product Components with a CommissionProduct Component. The Statement of Intent must identify the Compacting State(s) wherein the combined ProductComponents will be offered or sold, and sufficiently identify for each of such Compacting State(s) the StateComponent(s) that will be used with the Commission Component by listing the form numbers and Compacting Stateapproval dates; and2. CERTIFICATION stating that the combination of a Commission Component and a State Component does notcontain inconsistent, ambiguous, unfair, inequitable or misleading clauses, or exceptions or conditions thatunreasonably affect the risk purported to be assumed. The Certification must be signed by a company officer. ThisCertification shall not give rise to any presumption that the combination of Product Components, in fact, meets thisstandard for purposes of any action by the Commissioner of a Compacting State to prohibit the combined use of aCommission Product Component with a State Product Component.http://www.insurancecompact.org/documents/industry_resources_soi_pt1.pdfSelf-Certification: These standards are not available to be filed using the Rule for the Self-Certification of ProductComponents Filed with the Interstate Insurance Product Regulation Commission. Any deviation from the standardsprescribed shall require prior approval.The following Filing Information Notice (FIN) provides more guidance regarding the submission of filings using the “mixand match” process: http://www.insurancecompact.org/documents/fin_2009-4.pdf

§ 1 ADDITIONAL SUBMISSION REQUIREMENTSA. GENERALYES N/AThe following additional filing submission requirements shall apply:(1) Include a statement of the types of policy forms with which this benefit will be offered, anyunderwriting restrictions involving benefit amounts or age, and whether the benefit is intended foruse with new issues and/or in force business.(2) Include specimen issue of the statement required by item 1, as applicable, and Item 2 ofSection 3.C, and an explanation of how and when the statement will be provided.YESNAB. ACTUARIAL MEMORANDUM REQUIREMENTS(1) Include an actuarial memorandum prepared, dated and signed by a member of the AmericanAcademy of Actuaries who provides the following information:(a) A description of the accelerated death benefit, including the effects of payment of theaccelerated death benefit on all policy benefits, premium payments, cost of insurance rates, andvalues, including any outstanding loan, if applicable, for all types of forms with which theaccelerated death benefit will be used;(b) A description of and justification for expense charges associated with the accelerated deathbenefit and the maximum expense charges. If such charges exceed $250, include a detailedexplanation;(c) A description of the interest rate or interest rate methodology used in any present valuecalculation or in accruing interest on the amount of the accelerated death benefit. The maximuminterest rate shall not exceed the greater of:(i) The current yield on 90-day treasury bills available on the date of application or acceleratedpayment; or(ii) The current maximum adjustable policy loan interest rate based on the Moody’s CorporateBond Yield Averages – Monthly Average Corporates published by Moody’s Investor Service,Inc., or successor thereto, for the calendar month ending two months before the date ofapplication for an accelerated payment. The policy loan interest rate is that which is permittedunder the NAIC Model Policy Loan Interest Rate Bill (#590);(d) A description of the mortality basis and methodology, including the period of time applicableto any mortality discount, used in any present value calculation of the accelerated death benefit;(e) A description of the mortality and morbidity basis and methodology used in the determinationof any separate premium or costs of insurance (COI) for the accelerated death benefit;(f) The formula used to determine the accelerated death benefit, including any limitations on theamount of the benefit, and the formula used to determine the post-acceleration premium;(g) A sample calculation of the accelerated death benefit. If the policy contains a loan provision,the example shall assume that there is an outstanding loan at date of acceleration. All policybenefits, premium payments, COI charges and values, including the outstanding loan, ifapplicable, immediately before and immediately after acceleration must be shown in the example;(h) If an accelerated death benefit may be made in periodic payments, the basis used in thecalculation of the minimum periodic payment for the payment period and a sample calculation ofa minimum periodic payment. Identify the basis used and provide a sample calculation of thelump sum payable if the insured dies before all periodic payments for the payment period aremade; and(i) For any accelerated death benefit of the type described in items 1(b), (c), (d), and (e) of the“Qualifying event” definition contained in this these standards, a certification that the value andpremium of the accelerated death benefit is incidental to the life coverage, as per the Incidental

Value and Premium/Cost of Insurance Rate Relationship Certification shown in Appendix A.§ 2 GENERAL FORM REQUIREMENTSYES N/AYES N/AA. COVER PAGE OR FIRST PAGE(1) The cover page of the policy if the benefit is built into the policy, or the first page of the rider,endorsement, or amendment shall include the following in prominent print:(a) The term “accelerated death benefit” shall be included in the brief description or descriptive title ofthe form.(b) A clear statement that the death benefit and any accumulation values and cash values, and, ifapplicable, premium payments or COI charges, will be reduced if an accelerated death benefit is paid.(c) A clear statement that the owner should seek additional information from his personal tax advisorabout the tax status of the accelerated death benefit payment.“Prominent print” means, for example, all capital letters, contrasting color, underlined or otherwisedifferentiated from the other type on the form.B. FAIRNESS(1) The form shall not contain provisions that unfairly discriminate among insureds with differingqualifying events covered under the form, or among insureds with similar qualifying events coveredunder the form.§ 3 ACCELERATED DEATH BENEFIT PROVISIONSYES N/AYES N/AA. BENEFIT AMOUNT(1) The form may limit the percentage or dollar amount of the policy death benefit that may beaccelerated. Any minimum or maximum limit shall be specified in the form.B. BENEFIT DESIGN OPTIONS(1) The form shall describe the accelerated death benefit option or options that are available to theowner, such as the payment of all of the death benefit of the policy, the payment of part of the deathbenefit 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 outstandingpolicy loan but only up to the amount of the outstanding policy loan multiplied by the percentage ofthe 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 issuedat the reduced amount, and may be further reduced according to some defined formula, such as prorata reduction, or become paid-up;(d) State that the company may pay the owner a present value of the policy death benefit that is beingaccelerated. 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 deathbenefit.(3) If the form allows the payment to the owner of the accelerated death benefit to be treated as a lien onthe 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) Interest bearing liens are permitted. The interest rate accrued on the portion of the lien which is equalto the cash value of the policy at the time of acceleration shall be no more than the policy loaninterest rate stated in the policy. For the amount of the lien in excess of such cash value, the interestrate or interest rate methodology shall be disclosed in the form;(c) Expense charges may be added to the lien;(d) Due and unpaid premiums may be included in the lien after the automatic premium loan, if available,is exercised; and(e) Access to the policy cash value may be restricted to the excess of the cash value over the sum of thelien and any other outstanding policy loans.(4) The form shall disclose any premium charge or cost of insurance charge for the accelerated deathbenefit. A premium charge or cost of insurance charge is prohibited for a qualifying event of the typedescribed in item 1(a) of the “qualifying event” definition contained in this these standards.(5) The form shall not require that, upon acceleration of part of the policy death benefit, the insuredforfeits the remainder of the policy death benefit.(6) The form shall not include an aggregate limit provision that caps the accelerated death benefitspayable for all policies issued by the company and its subsidiaries and affiliates.(7) The form shall not require that the accelerated death benefit will be provided only if the policy wouldremain in force for a specific period of time following acceleration. However, the option may excludefrom acceleration any term insurance coverage scheduled to terminate prior to the end of the period usedto define a qualifying event of the type described in item 1(a) of the “qualifying event” definitioncontained in these standards.(8) The form shall not contain any restrictions on the use of the accelerated death benefit proceeds.(9) The form may include an option at the time of acceleration to reduce the accelerated death benefitpayment by an amount actuarially determined to pay any remaining premiums.YES N/AC. EFFECT OF BENEFIT PAYMENT ON OTHER BENEFIT PROVISIONS(1) For forms delivered or issued for delivery in a state that may require pursuant to state law that astatement be provided to the applicant at the time of application for a form containing accelerated deathbenefits, the content of such a written statement shall comply with these uniform standards foraccelerated death benefits approved by the Interstate Insurance Product Regulation Commission. Thewritten statement shall include, but not necessarily be limited to, the following elements and shall beprovided to the applicant at the time of application for accelerated death benefits:(a) A brief description of the accelerated death benefit;(b) A description of all qualifying events that can trigger the payment of the accelerated death benefit;(c) A description of any premium cost of insurance charge for the accelerated benefit.(d) A description of the effect of payment of the accelerated benefits on the policy’s cash value,accumulation amount, death benefit, premium, policy loans and policy liens, as applicable;

(e) A statement that an administrative expense charge and an interest charge may apply at the time ofacceleration.(f) A statement whether the accelerated benefits are intended to qualify for favorable tax treatment;(g) A statement that there are circumstances when receipt of accelerated benefit payment may be taxableand assistance should be sought from a personal tax advisor.(h) A statement that receipt of accelerated benefits may adversely affect the recipient’s eligibility forMedicaid or other government benefits or entitlements; and(i) A statement that the accelerated benefits do not and are not intended to qualify as long-term careinsurance.Check which states require written statement to be provided to the applicant at the time of application fora form containing accelerated death benefits.(2) The form shall state that (a) upon a request to accelerate the policy death benefits and (b) upon thepayment of the accelerated death benefit, the owner and any irrevocable beneficiary shall be given astatement demonstrating the effect of the acceleration of the payment of death benefits on the cash value,death benefit, premium, COI charges, and policy loans (including policy liens) of the particular policyinvolved. The statement shall display any premium or COI charges necessary to continue any remainingcoverage following the acceleration, and shall disclose all expense and interest charges associated withaccelerating the death benefit. Statements for use with liens shall say that future due and unpaidpremiums or COI charges may be included in the lien if the provision so provides. The statement shallbe based only on guaranteed values. No projected or nonguaranteed values or benefits may be shown.The statement shall include a disclosure that receipt of an accelerated death benefit may affect eligibilityfor Medicaid or other government benefits or entitlements and may have income tax consequences.(3) The form shall describe the effect of acceleration on premiums, COI charges, cash values and loanvalues, as applicable.(4) The form shall describe the effect that acceleration will have on coverage on another insured underthe policy.(5) The form may state that the owner cannot be required to apply for the accelerated death benefitbefore qualifying for Medicaid, or be required by creditors to apply for the accelerated death benefit.(6) When a part of the death benefit remains after payment of the accelerated death benefit, the followingrequirements shall apply:(a) Where the accelerated death benefit is paid under a present value calculation, the policy shall bemodified by an endorsement, which includes a statement of cash values, policy loans, premiums, COIcharges, and death benefits following acceleration;(b) The dividends or non-guaranteed elements credited shall not discriminate between policies whosedeath benefits have been reduced through acceleration and policies originally issued in the amount of thereduced death benefits; and(c) The accidental death benefit provision, if any, in the policy shall not be affected by the payment ofthe accelerated death benefit.YES N/AYES N/AD. EXCLUSIONS/RESTRICTIONS(1) The form shall not contain exclusions or restrictions for an accelerated death benefit that are not alsoexclusions or restrictions in the policy.E. EXPENSE CHARGES(1) The company may deduct one expense charge for each acceleration of the death benefit, asapplicable, and if an expense charge will be deducted, the company shall state the maximum expensecharge in the form.

(2) The form shall provide that if any index used in determining interest or expense charges isdiscontinued, the company will use an appropriate substitute index subject to the approval of theInterstate Insurance Product Regulation Commission.YES N/AYES N/AF. INCONTESTABILITY(1) The form shall be incontestable on the same, or a more favorable basis, as the individual policy.G. PAYMENT OPTIONS(1) The form shall describe the payment options available to the owner. The description shall include theoption to receive the accelerated death benefit payment in a lump sum, and may include an option toreceive the benefit in periodic payments for a period certain only.(a) The amount of the accelerated death benefit cannot be conditioned on the amount of time apolicyholder is expected to be confined in an institution or expected to survive.(b) An option to receive the benefit in periodic payments shall include a description of how suchperiodic payment will reduce the death benefit.(2) The form shall state that the amount payable as a lump sum shall be at least equal to the accelerationpercentage multiplied by the difference between the current policy cash value and any outstanding policyloans. The current policy cash value shall include any termination dividend payable on the surrender ofthe policy.(3) For purposes of complying with the requirements of IRC Section 7702B and IRC Section 101(g)(“federal requirements”),(a) Periodic payments may be subject to the per diem specifications of the federal requirements to avoidunfavorable tax consequences. If the application of the federal requirements results in a reducedaccelerated benefit from that requested, the remaining death benefit that can be accelerated will beavailable for acceleration in future months.(b) Lump sum payments may be subject to the per diem specifications of the federal requirements toavoid unfavorable tax consequences, In this situation, the per diem payments are annualized todetermine the maximum lump sum amount payable every 12 months. If the application of the federalrequirement results in a reduced accelerated benefit from that requested, the remaining death benefit thatcan be accelerated shall be available for acceleration in future months.(c) If, before the payment of the full acceleration benefit, whether periodic or lump sum, the insureddies, the payments shall cease and the remaining accelerated benefit shall be paid as a death benefitpursuant to the policy.(d) If, before the payment of the full acceleration benefit, the insured is not re-certified as having met thefederal requirements for chronic illness, the remaining accelerated benefit will be returned to the policydeath benefit.(4) After an accelerated death benefit is paid, the premium may either be reduced to the premium thatwould apply for the remaining death benefit under the policy or the premium may remain the same,depending on how the accelerated death benefit amount is calculated. The form shall state howpremiums will be affected.(5) The company may include a waiver of premium benefit for the accelerated death benefit. The formshall explain any continuing premium requirements to keep the policy in force.YES N/AH. PAYMENT PROCEDURES(1) The form shall specify the procedures required to accelerate the death benefit of the policy. Theprocedures shall be at least as favorable as the following:(a) If the form states that the company requires the filing of a proof of eligibility claim form, the

company shall provide the claim form within 15 days of the acceleration request. If the claim formis not furnished within 15 days, it is considered that the claimant complied with the claimrequirements if the claimant submits written proof covering the occurrence, the character and theextent of the occurrence for which claim is made;(b) The form shall not provide for a time frame within which proof of eligibility must be provided;(c) The form may state that the company has the right to require a second or third medical opinion toconfirm benefit eligibility. The form shall state that the second or third medical opinions are at thecompany’s expense. The second medical opinion may include a physical examination by aphysician designated by the company. In the case of conflicting opinions, eligibility for theaccelerated death benefit shall be determined by a third medical opinion that is provided by aphysician that is mutually acceptable to the insured and the company;(d) The form shall state that the accelerated death benefit is paid to the owner or owner’s estate while theinsured is living, unless the benefit has been otherwise assigned or designated by the owner;(e) The form shall state that prior to the payment of the accelerated death benefit, the company shallobtain from any assignee or irrevocable beneficiary a signed acknowledgement of concurrence forpayout. If the company paying the accelerated death benefit is itself the assignee under the policy,no acknowledgement is required; and(f) The form shall state that payment of the accelerated death benefit is due immediately upon receipt ofthe due written proof of eligibility. Companies are subject to the requirements of the Death BenefitProceeds standards with respect to any delay in processing requests to accelerate the payment ofdeath benefits.(2) The form shall specify what occurs if the insured dies before all payments of the accelerated deathbenefit are made. If the present value of remaining payments is paid, the interest rate used tocalculate any present value of the settlement option shall be that assumed in calculating the originalpayments.(3) The form shall state that if the insured dies after the owner elects to receive accelerated death benefitsbut before any such benefits are received, the election shall be cancelled and the death benefit paidpursuant to the policy.YES N/AI. QUALIFYING EVENTS(1) The form shall specify the terms and conditions applicable to each qualifying event.(2) The form shall not require that the cause of a qualifying event first manifest itself or be diagnosedafter issuance of the individual policy or form.(3) The form shall not include a waiting period requirement. “Waiting period” means a period of timefollowing the date of issue of the accelerated death benefit during which the benefit is not in effect. Arequirement that the individual policy or form be in force past the incontestable period is prohibited.(4) The form may include an elimination period for the qualifying events described in items (c) and (e)of the qualifying event definition in these standards, other than chronic illness as defined for purposes ofcomplying with the requirements of Internal Revenue Code sections 7702B and 101g. The term“elimination period” means a specified period of time not to exceed 90 days during which the insuredmeets the terms of the qualifying event. The elimination period begins on the first day that the insuredmeets the terms of the qualifying event and ends at the end of the specified period. If the insured meetsthe terms of multiple qualifying events that are subject to elimination periods on the same day, theelimination periods for each applicable qualifying event shall run concurrently. During the eliminationperiod, the insured is required to continuously meet the terms of the qualifying event without

interruption. If at the end of the elimination period the insured continues to meet the terms of thequalifying event, the owner may apply for the accelerated death benefit.YES N/AYES N/AJ. REINSTATEMENT(1) The form shall include a reinstatement provision on the same, or more favorable, terms as containedin the policy.K. TERMINATION(1) The form shall state that the accelerated death benefit shall end at the earliest of:(a) Upon written request from the owner;(b) Upon termination of the policy; or(c) Upon nonpayment of any separate premium or COI charge for the accelerated death benefit, inaccordance with the provisions of the form or the policy.(2) The form may state that the accelerated death benefit may terminate when a nonforfeiture benefitbecomes effective under the policy.(3) The form shall state that if the accelerated death benefit ends, this shall not prejudice the payment ofbenefits for any qualifying event that occurred while the form was in force.The Reviewer Checklist is intended for the sole purpose of assisting a company product filer ("User") in understanding therequirements of the applicable Uniform Standard(s) for IIPRC product filings. Users are hereby notified not to rely solely upon theReviewer Checklist in preparing a product filing or in complying with the IIPRC Uniform Standards, Rules and OperatingProcedures. The User also acknowledges there is a possibility of human, mechanical or technical error in the development,presentation or use of the Reviewer Checklist. The Interstate Insurance Product Regulation Commission (Commission) accepts noliability for any loss, cost or damage caused by use of this tool, including without limitation, direct or indirect, incidental, special,consequential or exemplary or punitive damages arising out of the use or inability to use the Reviewer Checklist. There are nowarranties either express or implied and User specifically acknowledges the Commission does not warrant the truth, accuracy orcompleteness of the Reviewer Checklist.

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