California law puts accelerated death benefits under spotlight

California’s Senate Bill 281, with its significant focus on accelerated death benefits, was signed into law on September 24. In addition to other related statutory revisions, a new article, Article 2.1 (sections 10295 through 10295.19) entitled “Accelerated Death Benefits” has been added to Chapter 4 of Part 2 of Division 2 of the Insurance Code. Multiple detailed requirements are established in these sections, including:

• Prohibits an accelerated death benefit, as described in this bill, from being offered, sold, issued, or marketed as health, accident or long-term care insurance.
• Prohibits an insurer, broker, agent or other person from causing a policyholder to unnecessarily replace a long-term care insurance policy with an accelerated death benefit policy.
• Requires certain notices be issued when a life insurance policy or long-term care insurance policy is replaced.
• Prohibits accelerated death benefits from limiting or excluding coverage by type of illness, treatment, medical condition or accident, except as specified.
• Provides that if a health-care practitioner makes a determination (exceptions apply) that an insured does not meet the definition of “chronically ill individual,” the insurer must notify the insured that he or she is entitled to a second assessment by a licensed health-care practitioner, upon request, who will personally examine the insured.
• Authorizes the California Department of Insurance to disapprove any advertising that does not meet the requirements of these new provisions.
• Requires a policy, certificate, rider or endorsement to include a provision giving the policyholder or certificate holder the right to appeal to the insurer a decision regarding benefit eligibility.
• Applications, if any, or forms supporting an application, if any, for accelerated death benefits must contain clear, unambiguous, short and simple questions designed to ascertain the health condition of the applicant.

Product filing requirements outlined in this bill include the submittal of life insurance contracts with accelerated death benefits or accelerated death benefit riders or endorsements for approval. Insurers must include “accelerated death benefit” in the descriptive title of the filing, along with:

• A statement of the specific policy forms with which this accelerated death benefit will be offered, any underwriting restrictions involving face amount or age, and whether the accelerated death benefit is intended for use with new issues or in-force business, or both.
• A legal memorandum from outside tax counsel that the certification would allow for preferable tax treatment, as specified in this bill, if an insurer is requiring a certification that a chronic illness is expected to last longer than 90 days. 
• A written disclosure, as set forth in this bill, which provides information including the effects which acceleration has on the individual’s death benefit, potential impact on taxes as well as possible impact on eligibility for public assistance programs.
• An actuarial memorandum prepared, dated and signed by a member of the American Academy of Actuaries that includes the information specified in Section10295.4.

Senate Bill 281 has most definitely established a number of detailed requirements and addressed a number of marketing, underwriting and filing standards that insurers will need to evaluate and implement in order to ensure compliance.