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New California Law to Affect Life-LTC Hybrids

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A new California law could affect the design of life insurance-based long-term care (LTC) hybrid products.

The new law, based on Assembly Bill 1209, applies to life-LTC hybrids built around life insurance policies that normally offer access with policy loans or cash withdrawals, and that provide LTC benefits by accelerating payment of death benefits.

(Related: Regulators Look Inside Life-LTC Hybrid Math Guts)

If the underlying policy normally allows for policy loans or cash withdrawals, the policy may not “prohibit or limit a loan or withdrawal while the insured receives payment of long-term care benefits, except as specified,” according to the bill text.

If, however, the payment of accelerated death benefits for use in long-term care caused the cash value of the policy to fall, the drop in the remaining cash value could affect future access to policy loans, according to the bill text.

At least 30 days before the first payment of an accelerated death benefit for long-term care goes out, an issuer is supposed to send the policyholder or certificate holder a statement that gives policy and LTC-related benefits details, including an explanation of any changes in the policy that will occur as a result of the LTC-related benefits payments.

The issuer must warn a policyholder or certificate holder if payment of LTC-related accelerated death benefits will affect access to policy loans or cash withdrawals.

The issuer of a universal life policy that includes LTC coverage must provide a disclosure about the risk that the policy could lapse, along with an optional provision that protects the policyholder against the risk of lapse.

Stand-Alone Long-Term Care Insurance Rates

Another provision in the new law prohibits the issuer of stand-alone long-term care insurance (LTCI) issued on or after Jan. 1, 2021, from designing policy premium rates to increase automatically as the insured gets older.

An issuer could still let the policyholder or certificate holder buy more coverage based on increases in the insured’s age.

Legislative Nuts and Bolts

Assemblymember Adrin Nazarian, D-Los Angeles, introduced AB 1209. The final version of the bill passed by 37-0 vote in the state Assembly, and by a 78-0 vote in the state Senate.

Gov. Gavin Newsom, a Democrat, signed the bill earlier this month.

The new law applies to life-LTC hybrid policies issued in California on or after Jan. 1, 2021, and to stand-alone LTCI coverage issued on or after Jan. 1, 2021.

In the past, insurers, employers and other groups have succeeded at blocking the implementation of some insurance laws, such as a pre-Affordable Care Act “play or pay” law that could have required many large employers in the state to provide health coverage or else pay a penalty.


California Insurance Commissioner Ricardo Lara put out a statement welcoming the signing of AB 1209.

“The protections put in place for long-term care policyholders mean more Californians should be able to afford their policies and keep their coverage, allowing them to age with dignity,” Lara said in the statement.

Insurers and insurance groups expressed no opposition to the bill, according to Assembly and Senate legislative analyses.


The new law applies only in California, but, because California has such a large insurance market, the law could end up sparking discussing about life-LTC hybrid rules in other states.


Links to AB 1209 information sources are available here.

— Read First-Time LTCI Claimants May Be Getting Older: AALTCIon ThinkAdvisor.

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