Use of Graded Benefit Provisions in Life Insurance or Annuities Used to Fund Preneed Contracts

[LOGO] KAY IVEY GOVERNOR MARK FOWLER ACTING COMMISSIONER STATE OF ALABAMA DEPARTMENT OF INSURANCE 201 MONROE STREET, SUITE 502 POST OFFICE BOX 303351 MONTGOMERY, ALABAMA 36130-3351 TELEPHONE: (334) 269-3550 FACSIMILE: (334) 241-4192 INTERNET: www.aldoi.gov DEPUTY COMMISSIONER JIMMY W. GUNN CHIEF EXAMINER SHEILA TRAVIS STATE FIRE MARSHAL SCOTT F. PILGREEN GENERAL COUNSEL REYN NORMAN # BULLETIN NO. 2022-05 TO: All authorized insurers issuing life insurance policies or annuities to Alabama residents; preneed sellers FROM: Mark Fowler Acting Commissioner of Insurance DATE: September 28, 2022 RE: Use of graded benefit provisions in life insurance or annuities used to fund preneed contracts EFFECTIVE: Immediately This Bulletin clarifies the Alabama Department of Insurance's position on use of graded benefit provisions in life insurance policies or annuities used to fund preneed contracts. Effective immediately, the Department will accept graded benefit provisions in life insurance policies and annuities used to fund preneed contracts for approval as provided in Ala. Code § 27-14-8. In that respect and given Department rule 482-3-004-.11(5), the Department no longer construes Ala. Code § 27-17A-3(a) as necessarily prohibiting use of graded benefit provisions provided proper disclosure of the existence, use, and possible effects of the graded benefit provision is set out in the policy or annuity form. The Alabama Preneed Funeral and Cemetery Act, Ala. Code §§ 27-17A-1 et seq., prescribes that life insurers are subject to the Insurance Code. As long as the existence, use, and possible effects of graded benefit provisions are properly disclosed, the Department will approved such provisions for use in connection with preneed contracts. Life insurers are advised that all policy forms must comply with the disclosure requirements in Department regulation 482-1-131 and, in particular, rule 482-1-131-.06. Annuity disclosures must comply with the requirements in Department regulation 482-1-129. Preneed sellers using life insurance or annuities as a preneed contract funding mechanism are advised that any life insurance or annuities written must, in the aggregate, cover at least the initial retail price of the preneed contract subject to operation of any disclosed and approved graded benefit provision. Where graded benefit products are used, preneed sellers are responsible for furnishing Celebrating 125 Years of Insurance Regulation 1897 - 2022 Bulletin No. 2022-05 September 28, 2022 Page 2 appropriate advice to the preneed buyer about whether funding by life insurance or annuities is advisable under the circumstances. For information or assistance, please contact: Anthony Williams Insurance Analyst Anthony.Williams@insurance.alabama.gov MF/AW/JFM/bc