Nonforfeiture Benefit Requirement

Section 2012 Section 2012.127  Nonforfeiture Benefit Requirement a)         This Section does not apply to life insurance policies or riders containing accelerated long-term care benefits. b)         To comply with the requirement to offer a nonforfeiture benefit pursuant to Section 2012.86 of this Part: 1)         A policy or certificate offered with nonforfeiture benefits shall have coverage elements, eligibility, benefit triggers and benefit length that are the same as coverage to be issued without nonforfeiture benefits.  The nonforfeiture benefit included in the offer shall be the benefit described in Section 2012.127(e); and 2)         The offer shall be in writing if the nonforfeiture benefit is not otherwise described in the Outline of Coverage or other materials given to the prospective policyholder. c)         If the offer required to be made under Section 2012.86 is rejected, the insurer shall provide the contingent benefit upon lapse described in this Section. Even if this offer is accepted for a policy with a fixed or limited premium paying period, the contingent benefit upon lapse in subsection (d)(3) shall still apply. d)         After rejection of the offer required under Section 2012.86, for individual and group policies without nonforfeiture benefits, the insurer shall provide the contingent benefit upon lapse: 1)         In the event a group policyholder elects to make the nonforfeiture benefit an option to the certificateholder, a certificate shall provide either the nonforfeiture benefit or the contingent benefit upon lapse. 2)         For policies or certificates that have reached their twentieth duration, a contingent benefit on lapse shall be triggered every time an insurer increases the premium rates.  For policies or certificates that have not reached their twentieth duration, a contingent benefit on lapse shall be triggered every time an insurer increases the premium rates to a level that results in a cumulative increase of the annual premium equal to or exceeding the percentage of the insured's initial annual premium set forth below based on the insured's issue age, and the policy or certificate lapsing within 120 days after the due date of the premium so increased.  Unless otherwise required, policyholders shall be notified at least 30 days prior to the due date of the premium reflecting the rate increase. Triggers for a Substantial Premium Increase Issue Age Percent Increase Over Initial Premium 54 and under 100% 55-59 90% 60 70% 61 66% 62 62% 63 58% 64 54% 65 50% 66 48% 67 46% 68 44% 69 42% 70 40% 71 38% 72 36% 73 34% 74 32% 75 30% 76 28% 77 26% 78 24% 79 22% 80 20% 81 19% 82 18% 83 17% 84 16% 85 15% 86 14% 87 13% 88 12% 89 11% 90 and over 10% 3)         A contingent benefit upon lapse shall also be triggered for policies with a fixed or limited premium paying period every time an insurer increases the premium rates to a level that results in a cumulative increase of the annual premium equal to or exceeding the percentage of the insured's initial annual premium set forth below based on the insured's issue age, the policy or certificate lapsing within 120 days after the due date of the premium so increased, and the ratio in subsection (d)(5)(B) being 40% or more. Unless otherwise required, policyholders shall be notified at least 30 days prior to the due date of the premium reflecting the rate increase.  This subsection (d)(3) becomes effective January 1, 2009. Triggers for a Substantial Premium Increase Issue Age Percent Increase Over Initial Premium Under 65 50% 65-80 30% Over 80 10% This provision shall be in addition to the contingent benefit provided by subsection (d)(2) and, when both are triggered, the benefit provided shall be at the option of the insured. 4)         On or before the effective date of a substantial premium increase as defined in subsection (d)(2), the insurer shall: A)        Offer to reduce policy benefits provided by the current coverage without the requirement of additional underwriting so that required premium payments are not increased; B)        Offer to convert the coverage to a paid-up status with a shortened benefit period in accordance with the terms of subsection (e).  This option may be elected at any time during the 120-day period referenced in subsection (d)(2); and C)        Notify the policyholder or certificateholder that a default or lapse at any time during the 120-day period referenced in subsection (d)(2) shall be deemed to be the election of the offer to convert in subsection (d)(4) unless the automatic option in subsection (d)(5)(C) applies. 5)         On or before the effective date of a substantial premium increase, as defined in subsection (d)(3), the insurer shall: A)        Offer to reduce policy benefits provided by the current coverage without the requirement of additional underwriting so that required premium payments are not increased; B)        Offer to convert the coverage to a paid-up status when the amount payable for each benefit is 90% of the amount payable in effect immediately prior to lapse times the ratio of the number of completed months of paid premiums divided by the number of months in the premium paying period.  This option may be elected at any time during the 120-day period referenced in subsection (d)(3); and C)        Notify the policyholder or certificateholder that a default or lapse at any time during the 120-day period referenced in subsection (d)(3) shall be deemed to be the election of the offer to convert in subsection (d)(5)(B) if the ratio is 40% or more. 6)         For policies issued prior to July 1, 2002, the insurer shall provide these benefits without amending the contract or certificate to include them. e)         Benefits continued as nonforfeiture benefits, including contingent benefits upon lapse in accordance with subsection (d)(2), but not subsection (d)(3), are described as follows: 1)         For purposes of this Section, attained age rating is defined as a schedule of premiums starting from the issue date which increases age at least 1% per year prior to age 50, and at least 3% per year beyond age 50. 2)         For purposes of this Section, the nonforfeiture shall be a shortened benefit period providing paid-up traditional long-term care insurance coverage after lapse.  The same benefits (amounts and frequency in effect at the time of lapse but not increased thereafter) will be payable for a qualifying claim, but the lifetime maximum dollars or days of benefits shall be determined as specified in subsection (e)(3). 3)         The standard nonforfeiture credit will be equal to 100% of the sum of all premiums paid, including the premiums paid prior to any changes in benefits.  The insurer may offer additional shortened benefit period options, as long as the benefits for each duration equal or exceed the standard nonforfeiture credit for that duration. However, the minimum nonforfeiture credit shall not be less than 30 times the daily nursing home benefit at the time of lapse.  In either event, the calculation of the nonforfeiture credit is subject to the limitation of subsection (f) of this Section. 4)         No policy or certificate which includes a nonforfeiture benefit shall begin a nonforfeiture benefit later than the end of the third year following the policy or certificate issue date except that, for a policy or certificate with attained age rating, the nonforfeiture benefit shall begin on the earlier of: A)        The end of the tenth year following the policy or certificate issue date; or B)        The end of the second year following the date the policy or certificate is no longer subject to attained age rating. 5)         Nonforfeiture credits may be used for all care and services qualifying for benefits under the terms of the policy or certificate, up to the limits specified in the policy or certificate. f)         All benefits paid by the insurer while the policy or certificate is in premium paying status and in the paid up status will not exceed the maximum benefits which would have been payable if the policy or certificate had remained in premium paying status. g)         There shall be no difference in the minimum nonforfeiture benefits as required under this Section for group and individual policies. h)         The requirements of this Section shall apply to any long-term care policy issued in this State, and shall apply as follows: 1)         Except as provided in subsections (h)(2) and (3), the provisions of this Section apply to any long-term care policy issued in this State on or after July 2008. 2)         For certificates issued on or after July 2008, under a group long-term care insurance policy issued to one or more employers or labor organizations, or to a trust or to the trustee or trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees, or a combination thereof, or for members or former members, or a combination thereof, of the labor organizations, which policy was in force in July 2008, the provisions of this Section shall not apply. 3)         The last sentence in subsection (c) and all of subsections (d)(3) and (d)(4) shall apply to any long-term care insurance policy or certificate issued in this State after January 2009, except new certificates on a group policy issued to one or more employers or labor organizations, or to a trust or to the trustee or trustees of a fund established by one or more employers or labor organizations, or a combination thereof, for employees or former employees, or a combination thereof, or for members or former members, or a combination thereof, of the labor organizations, after July 2009. i)          Premiums charged for a policy or certificate containing nonforfeiture benefits or a contingent benefit on lapse shall be subject to the loss ratio requirements of Sections 2012.110, 2012.112 or Section 2012.113, whichever is applicable, treating the policy as a whole. j)          To determine whether contingent nonforfeiture upon lapse provisions are triggered under subsection (d)(2) or (d)(3), a replacing insurer that purchased or otherwise assumed a block or blocks of long-term care insurance policies from another insurer shall calculate the percentage increase based on the initial annual premium paid by the insured when the policy was first purchased from the original insurer. k)         A nonforfeiture benefit for qualified long-term care insurance contracts that are level premium contracts shall be offered that meets the following requirements: 1)         The nonforfeiture provision shall be appropriately captioned; 2)         The nonforfeiture provision shall provide a benefit available in the event of a default in the payment of any premiums and shall state that the amount of the benefit may be adjusted subsequent to being initially granted only as necessary to reflect changes in claims, persistency and interest as reflected in changes in rates for premium paying contracts approved by the Director for the same contract form; and 3)         The nonforfeiture provision shall provide at least one of the following: A)        Reduced paid-up insurance; B)        Extended term insurance; C)        Shortened benefit period; or D)        Other similar offerings approved by the Director.