Section R20-6-1019. 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 bene- fit pursuant to the provisions of A.R.S. § 20-1691.11, an insurer shall meet the following requirements:

1.        A policy or certificate offered with nonforfeiture benefits shall have the same coverage elements, eligibility, benefit triggers and benefit length as a policy or certificate issued without nonforfeiture benefits. The nonforfeiture benefit included in the offer shall be the benefit described in sub- section (I).

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 A.R.S. § 20-1691.11 is rejected, the insurer shall provide the contingent benefit upon lapse described in this Section.

D.      If a prospective policyholder rejects the offer of a nonforfei- ture benefit, the insurer shall provide the contingent benefit upon lapse described in this Section for individual and group policies without the nonforfeiture benefit, issued after January 10, 2005.

E.       If a group policyholder elects to make the nonforfeiture benefit an option to a certificateholder, the certificate shall provide either the nonforfeiture benefit or the contingent benefit upon lapse.

F.       The contingent benefit on lapse is triggered when:

1.        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 ini- tial annual premium set forth in the chart below, based on the insured’s issue age; and

2.       

Triggers for a Substantial Premium Increase
Issue Age		Percent Increase Over Initial Premium
29 and under		200%
30-34		190%
35-39		170%
40-44		150%
45-49		130%
50-54		110%
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%

  

 

The policy or certificate lapses within 120 days of the due date of the increased premium.

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%

G.      Unless otherwise required, an insurer shall notify policyhold- ers at least 30 days before the due date of the premium reflect- ing the rate increase.

H.      On or before the effective date of a substantial premium increase as defined in subsection (F), an insurer shall:

1.        Offer the insured the option of reducing policy benefits under the current coverage without additional underwrit- ing so that required premium payments are not increased;

2.        Offer to convert the coverage to a paid-up status with a shortened benefit period according to the terms of subsec- tion (I), which the insured may elect at any time during the 120-day period referenced in subsection (F)(2); and

3.        Notify the policyholder or certificateholder that a default or lapse at any time during the 120-day period referenced in subsection (F)(2) is deemed to be the election of the offer to convert under subsection (H)(2).

I.        In this Section, “benefits continued as nonforfeiture benefits,” including contingent benefits upon lapse, mean any of the fol- lowing:

1.        Attained age rating is defined as a schedule of premiums starting from the issue date that increases age at least one percent per year before age 50, and at least three percent per year beyond age 50.

2.        The nonforfeiture benefit shall be of a shortened benefit period providing paid-up long-term care insurance cover- age after lapse. The same benefits (amounts and fre- quency 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 (I)(3).

3.        The standard nonforfeiture credit equals 100% of the sum of all premiums paid, including the premiums paid before any change in benefits. The insurer may offer additional shortened benefit period options, as long as the benefits for each duration equal or exceed the standard nonforfei- ture credit for that duration. 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 cal- culation of the nonforfeiture credit is subject to the limita- tion of subsection (J).

4.        The nonforfeiture benefit shall begin not later than the end of the third year following the policy or certificate

issue date. The contingent benefit upon lapse shall be effective during the first three years, and thereafter.

5.        Notwithstanding subsection (I)(4), for a policy or certifi- cate with attained age rating, the nonforfeiture benefit shall begin on the earlier of:

a.         The end of the tenth year following the policy or cer- tificate 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.

6.        Nonforfeiture credits may be used for all care and ser- vices qualifying for benefits under the terms of the policy or certificate, up to the limits specified in the policy or certificate.

J.        All benefits paid by the insurer while the policy or certificate is in premium-paying status and in the paid- up status shall not exceed the maximum benefits that would be payable if the pol- icy or certificate had remained in premium-paying status.

K.      There shall be no difference in the minimum nonforfeiture benefits for group and individual policies.

L.       The requirements in  this Section  are  effective on or  after November 10, 2005 and shall apply as follows:

1.        Except as provided in subsection (L)(2), this Section applies to any long-term care policy issued in this state on or after January 10, 2005.

2.        The provisions of this Section do not apply to certificates issued on or after January 10, 2005, under a group long- term care insurance policy as defined in A.R.S. § 20- 1691(5)(a), that was in force on January 10, 2005.

M.     Premiums charged for a policy or certificate containing non- forfeiture benefits or a contingent benefit on lapse shall be subject to the loss ratio requirements of R20-6-1014, treating the policy as a whole.

N.      To determine whether contingent nonforfeiture upon lapse provisions are triggered under subsection (F), a replacing insurer that purchased or otherwise assumed a block of long- term care insurance policies from another insurer shall calcu- late the percentage increase based on the initial annual pre- mium the insured paid when first buying the policy from the original insurer.

O.      An insurer shall offer a nonforfeiture benefit for a qualified long-term care insurance contract that is a level premium con- tract and the benefit shall meet the following requirements:

1.        The nonforfeiture provision shall be separately captioned using the term “nonforfeiture benefit” or a substantially similar caption.

2.        The nonforfeiture provision shall provide a benefit avail- able in the event of a default in the payment of any premi- ums and shall state that the insurer may adjust the amount of the benefit initially granted only as needed to reflect changes in claims, persistency, and interest as reflected in changes in rates for premium paying contracts approved by the Director under to A.R.S. § 20-1691.08 for the same contract form; and

3.        The nonforfeiture provision shall provide at least one of the following:

a.         Reduced paid-up premiums,

b.        Extended term insurance,

c.         Shortened benefit period; or

d.        Other   similar   offerings   that   the   Director   has approved.

Historical Note

New Section made by final rulemaking at 10 A.A.R.

4661, effective January 3, 2005 (Supp. 04-4).