Chapter 13 Return of Premium, Cash Surrender, or Other Nonforfeiture Benefits in Health Insurance Policies

Chapter 13 Return of Premium, Cash Surrender, or Other Nonforfeiture Benefits in Health Insurance Policies | Library of Maryland Regulations

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Title 31 MARYLAND INSURANCE ADMINISTRATION

Subtitle 10 HEALTH INSURANCE — GENERAL

Chapter 13 Return of Premium, Cash Surrender, or Other Nonforfeiture Benefits in Health Insurance Policies

Code of Maryland Regulations

Chapter 13 Return of Premium, Cash Surrender, or Other Nonforfeiture Benefits in Health Insurance Policies

Administrative History Effective date: August 10, 1979 (6:16 Md. R. 1330) —————— Chapter recodified from COMAR 09.30.46 to COMAR 31.10.13 effective September 7, 1998 (25:18 Md. R. 1439) Authority Insurance Article, §§ 2-109 and 12-203 — 12-205 , Annotated Code of Maryland

.01 Preface. The issuance or delivery of health insurance policies in Maryland in any manner not in compliance with this chapter shall be deemed to constitute the transaction of insurance business hazardous to policyholders and the public and contrary to the public interest and otherwise contrary to requirements of the Insurance Article. Insurance Article, §2-109, Annotated Code of Maryland , authorizes the Commissioner to make reasonable regulations necessary for or as an aid to implementing any provision of the Insurance Article. Insurance Article, §12-203, Annotated Code of Maryland , provides, in part, that no health insurance policy form shall be delivered or issued for delivery in this State unless the form has been filed with and approved by the Commissioner. Insurance Article, §12-205, Annotated Code of Maryland , authorizes the Commissioner to disapprove any policy form if it contains an inequitable provision or a provision without substantial benefit to the policyholder or if the policy benefits are unreasonable in relation to the premium charged or if the policy benefits are not of real economic value to the insured.

.02 Applicability. This chapter applies to individual policies of health insurance and its application varies with the types of benefit provided by a policy. For this purpose, the benefits which have been found to appear in individual policies of health insurance are classified as follows: A. Type 1: A benefit payable if an event involving a morbidity risk occurs or commences during the premium paying period of the policy. Most accident and health insurance benefits fall into this category. B. Type 2: A deferred benefit in the form of a payment at the expiration date of the policy or at a date specified instead of an expiration date. This payment may be defined as an amount equal to all or a stated portion of the accumulated premiums for the policy, with or without interest, or the amount may be defined without regard to the premiums. C. Type 3: A deferred periodic benefit providing for specified amounts payable at one or more specified times or intervals during the premium paying period. The specified amounts may be defined as equal to all or a stated portion of the premiums paid during a specified period, with or without interest, or the amounts of the payments may be defined without regard to the premiums.

.03 Purpose. The purpose of this chapter is to serve the interests of continuing policyholders and to afford reasonable protection to the interests of those policyholders who are forced to discontinue their policies prematurely by regulating the design of the policies in a manner which is equitable to the policyholder and which provides benefits reasonable in relation to the premium charged and which provides benefits of economic value to the insured.

.04 Construction. The classification in Regulation .02 of this chapter applies to the benefit rather than to the policy. A policy may contain benefits of more than one type. Benefits of Type 2 and Type 3 are deemed supplementary to Type 1 benefits. Premiums for Type 2 benefits and Type 3 benefits are normally payable at the same time as premiums for other benefits of the policy, but payments of Type 2 and Type 3 benefits will normally be made only after the passage of a considerable period of time.

.05 Definitions. A. In this chapter, the following terms have the meanings indicated. B. Terms Defined. (1) "Guaranteed renewable" when used in connection with an individual health insurance policy means that the insured has the right to continue the policy in force by the timely payment of premiums: (a) Until at least age 50; or (b) In the case of a policy issued after age 44, for at least 5 years from its date of issue, during which period the insurer has no right to make unilaterally any change in any policy provision except the right to change premiums in accordance with the terms of the policy. (2) "Withdrawal benefit" means: (a) Any paid-up nonforfeiture benefit, for example, extended insurance for a limited period of time or insurance continued for the original term of the policy but for a reduced amount of benefit, providing coverage for morbidity risks; or (b) Any cash surrender nonforfeiture benefit or any endowment or annuity payment which is payable without reference to any morbidity risk. (3) "Morbidity risk" means any loss resulting from injury, sickness, childbirth, or health care.

.06 Type 1 Benefit. Provision for a withdrawal benefit in connection with a nondeferred benefit, Type 1, is not required. However, provision for a withdrawal benefit in connection with a Type 1 benefit may be used at the insurer's option, if any payment under it is not greater than an amount corresponding to a reserve which might properly be held at the time of withdrawal with respect to the Type 1 benefit to which it is related.

.07 Type 2 or Type 3 Benefit. A. No deferred benefit of Type 2 or Type 3, or any provision for a withdrawal benefit, may be used in any individual policy of health insurance unless the policy is guaranteed renewable. B. An individual policy containing a provision for a Type 2 or Type 3 benefit shall make further provision for a withdrawal benefit. In the event of discontinuance by the policyholder on or after the fifth anniversary of the effective date of the policy, or any earlier date which the policy may specify, the withdrawal benefit shall be payable. The value of the withdrawal benefit before any reduction because of provision for claim payments offset (see §F of this regulation ), shall be not less than an amount computed (without provision for claim payments offset for the purpose of this section) in the same manner as the minimum reserve required with respect to the Type 2 or Type 3 benefit to which it is related but on a 5-year preliminary term basis with an interest rate of 5 percent per annum, using mortality and morbidity tables which are approved by the Commissioner as acceptable for reserve purposes. C. If the policy gives the policy owner the option of electing one of two or more withdrawal benefits, the right of election shall extend for at least 60 days after the date the policy ceases to be in force, and one of the withdrawal benefits shall be designated as the automatic benefit in event the policy owner does not make a timely election. D. If the policy gives the policy owner the option of electing one of two or more withdrawal benefits, and one of these benefits provides for extended insurance, the extended insurance benefit shall be in effect from the date the policy lapses until the earlier of the date the policyholder exercises his option to elect an alternate benefit or until the date an alternate benefit becomes effective as an automatic withdrawal benefit. The insurer may deduct the cost of the extended insurance benefit from the value of an alternate withdrawal benefit which later becomes effective. E. If the policy provides a cash surrender nonforfeiture benefit upon lapse before the expiry date stated in the policy, the insurer may provide the policyholder the option of electing an arrangement for automatic premium loans. The insurer may charge the amount advanced as automatic premium loans, together with interest thereon at an effective rate not to exceed 8 percent per annum, against the cash surrender value or against the value of any other withdrawal benefit which may later become effective under the policy. F. Claim Payments Offset. An individual health insurance policy may provide that a Type 2 benefit or a Type 3 benefit, or any withdrawal benefit associated with a Type 2 or Type 3 benefit, shall be reduced because of prior claim payments under the policy. No provision may be used which could cause the amount of a Type 2 or Type 3 benefit, or any associated withdrawal benefit, to be reduced by more than the amount of any currently incurred and prior claims.

.08 Combining Withdrawal Provisions. If a policy provides for withdrawal benefits in connection with more than one benefit or more than one type of benefit, provision for these withdrawal benefits may be combined in a single part of the policy.

.09 Death of an Insured. Any cash withdrawal benefit provided by a policy shall be payable on death of an insured.

.10 Policies Insuring More Than One Life. If a policy covers more than one life, any provision of the regulation defining a minimum withdrawal benefit shall be construed, when appropriate, to be applicable separately to each covered life. The benefit provision shall be specific in regard to the determination of the amount of benefits under these cases.

.11 Dividends. For purposes of this chapter, dividends to policyholders may not be regarded as claims paid, but may be regarded as reductions of premiums paid.

.12 Premium Waiver. For purposes of this chapter, a waived premium shall be regarded both as a premium paid and a claim paid.

.13 Premium Notices. The insurer shall send the policyholder timely advance notice of each premium as it comes due, unless the premium installments are payable on a payroll savings or salary deduction plan, or by a series of preauthorized checks or bank drafts, or a similar plan.

.14 Advertising. A sales presentation or advertising concerning any Type 2 or Type 3 benefit may not state, or in any manner indicate or imply, or tend to cause the policyholder to believe, that any withdrawal benefit is provided free or without additional cost or charge to the policyholder.

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