The New York State Insurance Department wants to update its accelerated death benefit regulations.[@@]

The proposed update would affect any individual life, group life or fraternal life insurer doing business in the Empire State that offers early benefits payments for insureds who suffer from serious health problems.

Much of the proposed update deals with accelerated death benefit provisions that pay off when insureds need long term care.

The proposed changes will help make consumers aware that they are getting limited access to life insurance policy benefits to help pay for long term care, not full-fledged LTC insurance, and they will ensure that the benefits payments qualify for favorable federal income tax treatment, state officials write in a regulatory impact statement discussing the draft.

The New York department “had extensive discussions with the Life Insurance Council of New York, a trade organization representing life insurance companies doing business in New York, during the drafting of the regulation,” officials write. “The regulation is reflective of the input received and the various alternatives considered during those discussions.”

The New York department considered simply adopting the 1993 National Association of Insurance Commissioners Long Term Care Insurance Model Act and Regulation standards for LTC-related accelerated death benefits. But the model was developed to regulate stand-alone long term care insurance policies, and the New York department has decided to try to develop standards that are suitable for life insurance policies that offer some benefits for long term care, officials write.

Here are some of the new requirements:

- Any accelerated death benefits for long term care expenses must meet the requirements that the Internal Revenue Code sets out for LTC insurance policies that qualify for federal tax breaks.

- An application for a life insurance policy with LTC benefits must include a prominent notice warning applicants that receipt of accelerated death benefits might affect eligibility for public assistance programs.

- Sellers of life insurance policies with accelerated death benefit features must follow strict state guidelines when preparing illustrations. If an accelerated death benefit provides for a discounting feature, for example, then the illustration must assume that the death will occur within one year (“or such other mortality basis on file with the superintendent”) and use an interest rate of 8%.

- The present value of the amounts to be accelerated may not exceed the policy death benefit, and life insurers must deduct the accelerated death benefits payments from the value of the ultimate death benefits. Life insurers can pay extra death benefits, but only if there are no premium requirements for such benefits once those benefits are being paid. Moreover, the insurer can pay a “residual death benefit” equal to 10% of the original death benefit, up to a maximum of $25,000, even if the insurer has paid out all of the required death benefits in the form of accelerated death benefits.

Links to the text of the proposed regulation and other information about the proposed regulation are at http://www.ins.state.ny.us/rproindx.htm