14VAC5-320-70:3. APPENDIX C. RESERVES FOR WAIVER OF PREMIUM.

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                   Table of Contents   »  Title 14. Insurance  »  Agency 5. State Corporation Commission, Bureau of Insurance  »  Chapter 320. Rules Establishing Minimum Reserve Standards for Individual and Group Accident and Sickness Insurance Contracts

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                      Chapter 320. Rules Establishing Minimum Reserve Standards for Individual and Group Accident and Sickness Insurance Contracts  14VAC5-320-10. Purpose.    The purpose of this chapter ( 14VAC5-320-10  et seq.), is to set forth rules governing reserve standards for accident and sickness insurance policies which the Commission deems necessary to carry out the provisions of §§  38.2-1311  and  38.2-1314  of the Code of Virginia.   Statutory Authority  §§  12.1-13 ,  38.2-223 ,  38.2-1311  and  38.2-1314  of the Code of Virginia.  Historical Notes  Derived from Regulation 15, Case No. INS930382, § 1, eff. January 1, 1994.    14VAC5-320-20. General.  A. Scope.
 1. These standards apply to all individual and group accident and sickness insurance coverages, except credit accident and sickness insurance coverages, provided by policies or contracts delivered or issued for delivery by any domestic, foreign or alien company licensed to transact the business of insurance in this Commonwealth.
 2. When a company determines that adequacy of its accident and sickness insurance reserves requires reserves in excess of the minimum standards specified herein, such increased reserves shall be held and shall be considered the minimum reserves for that company.
 3. With respect to any block of contracts, or with respect to a company's accident and sickness business as a whole, a prospective gross premium valuation is the ultimate test of reserve adequacy as of a given valuation date. Such a gross premium valuation will take into account for contracts in force, in a claims status, or in a continuation of benefits status on the valuation date, the present value as of the valuation date of: all expected benefits unpaid, all expected expenses unpaid, and all unearned or expected premiums, adjusted for future premium increases reasonably expected to be put into effect.
 Such a gross premium valuation is to be performed whenever a significant doubt exists as to reserve adequacy with respect to any major block of contracts, or with respect to the company's accident and sickness business as a whole. In the event inadequacy is found to exist, immediate loss recognition shall be made and the reserves restored to adequacy. Adequate reserves (inclusive of claim, premium and contract reserves, if any) shall be held with respect to all contracts, regardless of whether contract reserves are required for such contracts under these standards. Whenever minimum reserves, as defined in these standards, exceed reserve requirements as determined by a prospective gross premium valuation, such minimum reserves remain the minimum requirement under these standards.
 B. Categories of reserves. The following sections of this chapter ( 14VAC5-320-10  et seq.) set forth minimum standards for three categories of accident and sickness insurance reserves:
 14VAC5-320-30. Claim Reserves
 14VAC5-320-40. Premium Reserves
 14VAC5-320-50. Contract Reserves
 Adequacy of a company's accident and sickness insurance reserves is to be determined on the basis of all three categories combined. However, these standards emphasize the importance of determining appropriate reserves for each of the three categories separately.
 C. Appendices. These standards contain two appendices which are in integral part of the standards, and one additional "supplementary" appendix which is not part of the standards as such, but is included for explanatory and illustrative purposes only.
 Appendix A. Specific minimum standards with respect to morbidity, mortality and interest, which apply to claim reserves according to year of incurral and to contract reserves according to year of issue.
 Appendix B. Glossary of Technical Terms used.
 Appendix C. (Supplementary) Waiver of Premium Reserves.   Statutory Authority  §§  12.1-13 ,  38.2-223 ,  38.2-1311  and  38.2-1314  of the Code of Virginia.  Historical Notes  Derived from Regulation 15, Case No. INS930382, § 3, eff. January 1, 1994.    14VAC5-320-30. Claim reserves.  A. General.
 1. Claim reserves are required for all incurred but unpaid claims on all accident and sickness insurance policies.
 2. Appropriate claim expense reserves are required with respect to the estimated expense of settlement of all incurred but unpaid claims.
 3. All such reserves for prior valuation years are to be tested for adequacy and reasonableness along the lines of claim runoff schedules in accordance with the statutory financial statement including consideration of any residual unpaid liability.
 B. Minimum standards for claim reserves.
 1. Disability income.
 a. Interest. The maximum interest rate for claim reserves is specified in Appendix A.
 b. Morbidity. Minimum standards with respect to morbidity are those specified in Appendix A except that, at the option of the company:
 (1) For claims with a duration from date of disablement of less than two years, reserves may be based on the company's experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.
 (2) For group disability income claims with a duration from date of disablement of more than two years but less than five years, reserves may, with the approval of the Commission, be based on the company's experience for which the company maintains underwriting and claim administration control. The request for such approval of a plan of modification to the reserve basis must include:
 -An analysis of the credibility of the experience;
 -A description of how all of the company's experience is proposed to be used in setting reserves;
 -A description and quantification of the margins to be included;
 -A summary of the financial impact that the proposed plan of modification would have had on the company's last filed annual statement;
 -A copy of the approval of the proposed plan of modification by the Commission or the chief insurance regulatory official of the company's state of domicile; and
 -Any other information deemed necessary by the Commission.
 c. Duration of disablement. For contracts with an elimination period, the duration of disablement should be measured as dating from the time that benefits would have begun to accrue had there been no elimination period.
 2. All other benefits.
 a. Interest. The maximum interest rate for claim reserves is specified in Appendix A.
 b. Morbidity or other contingency. The reserve should be based on the company's experience, if such experience is considered credible, or upon other assumptions designed to place a sound value on the liabilities.
 C. Claim reserve methods generally. Any generally accepted or reasonable actuarial method or combination of methods may be used to estimate all claim liabilities. The methods used for estimating liabilities generally may be aggregate methods, or various reserve items may be separately valued. Approximations based on groupings and averages may also be employed. Adequacy of the claim reserves, however, shall be determined in the aggregate.   Statutory Authority  §§  12.1-13 ,  38.2-223 ,  38.2-1311  and  38.2-1314  of the Code of Virginia.  Historical Notes  Derived from Regulation 15, Case No. INS930382, § 4, eff. January 1, 1994.    14VAC5-320-40. Premium reserves.  A. General.
 1. Unearned premium reserves are required for all contracts with respect to the period of coverage for which premiums, other than premiums paid in advance, have been paid beyond the date of valuation.
 2. If premiums due and unpaid are carried as an asset, such premiums must be treated as premiums in force, subject to unearned premium reserve determination. The value of unpaid commissions, premium taxes, and the cost of collection associated with due and unpaid premiums must be carried as an offsetting liability.
 3. The gross premiums paid in advance for a period of coverage commencing after the next premium due date which follows the date of valuation may be appropriately discounted to the valuation date and shall be held either as a separate liability or, unless questioned by the Commission, as an addition to the unearned premium reserve which would otherwise be required as a minimum.
 B. Minimum standards for unearned premium reserves.
 1. The minimum unearned premium reserve with respect to any contract is the pro-rata unearned modal premium that applies to the premium period beyond the valuation date, with such premium determined on the basis of:
 a. The valuation net modal premium on the contract reserve basis applying to the contract; or
 b. The gross modal premium for the contract if no contract reserve applies.
 2. However, in no event may the sum of the unearned premium and contract reserves for all contracts of the company subject to contract reserve requirements be less than the gross modal unearned premium reserve on all such contracts, as of the date of valuation. Such reserve shall never be less than the expected claims for the period beyond the valuation date represented by such unearned premium reserve, to the extent not provided for elsewhere.
 C. Premium reserve methods generally. When computing premium reserves, the company may employ suitable approximations and estimates including, but not limited to, groupings, averages and aggregate estimation. Such approximations or estimates should be tested periodically to determine their continuing adequacy and reliability.   Statutory Authority  §§  12.1-13 ,  38.2-223 ,  38.2-1311  and  38.2-1314  of the Code of Virginia.  Historical Notes  Derived from Regulation 15, Case No. INS930382, § 5, eff. January 1, 1994.    14VAC5-320-50. Contract reserves.  A. General.
 1. Contract reserves are required, unless otherwise specified in subdivision 2, for:
 a. All individual and group contracts with which level premiums are used; or
 b. All individual and group contracts with respect to which, due to the gross premium pricing structure at issue, the value of the future benefits at any time exceeds the value of any appropriate future valuation net premiums at that time. The values specified in this subdivision shall be determined on the basis specified in subsection B of this section.
 2. Contracts not requiring a contract reserve are:
 a. Contracts which cannot be continued after one year from issue; or
 b. Contracts already in force before the effective date of these standards for which no contract reserve was required under the immediately preceding standards.
 3. The contract reserve is in addition to claim reserves and premium reserves.
 4. The methods and procedures for contract reserves should be consistent with those claim reserves for any contract, or else appropriate adjustment must be made when necessary to assure provision for the aggregate liability. The definition of the date of incurral must be the same in both determinations.
 B. Minimum standards for contract reserves; basis.
 1. Morbidity or other contingency. Minimum standards with respect to morbidity are those set forth in Appendix A. Valuation net premiums used under each contract must have a structure consistent with the gross premium structure at issue of the contract as this relates to advancing age of the insured, contract duration and period for which gross premiums have been calculated.
 Contracts for which tabular morbidity standards are not specified in Appendix A shall be valued using tables established for reserve purposes by a qualified actuary and acceptable to the Commission.
 2. Interest. The maximum interest rate is specified in Appendix A.
 3. Termination rates. Termination rates used in the computation of reserves shall be on the basis of a mortality table as specified in Appendix A except as noted in the following paragraph.
 Under contracts for which premium rates are not guaranteed, and where the effects of company underwriting are specifically used by policy duration in the valuation morbidity standard or for return of premium or other deferred cash benefits, total termination rates may be used at ages and durations where these exceed specified mortality table rates, but not in excess of the lesser of:
 a. Eighty percent of the total termination rate used in the calculation of the gross premiums, or
 b. Eight percent. Where a morbidity standard specified in Appendix A is on an aggregate basis, such morbidity standard may be adjusted to reflect the effect of company underwriting by policy duration. The adjustments must be appropriate to the underwriting and be acceptable to the Commission.
 4. Reserve method.
 a. For insurance except long-term care and return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated on the two-year full preliminary term method; that is under which the terminal reserve is zero at the first and also the second contract anniversary.
 b. For long-term care insurance, the minimum reserve is the reserve calculated on the one-year full preliminary term method.
 c. For return of premium or other deferred cash benefits, the minimum reserve is the reserve calculated as follows:
 -On the one year preliminary term method if such benefits are provided at any time before the twentieth anniversary;
 -On the two year preliminary term method if such benefits are only provided on or after the twentieth anniversary.
 The preliminary term method may be applied only in relation to the date of issue of a contract. Reserve adjustments introduced later, as a result of rate increases, revisions in assumptions (e.g., projected inflation rates) or for other reasons, are to be applied immediately as of the effective date of adoption of the adjusted basis.
 5. Negative reserves. Negative reserves on any benefit may be offset against positive reserves for other benefits in the same contract, but the total contract reserve with respect to all benefits combined may not be less than zero.
 C. Alternative methods and assumptions generally. Provided the contract reserve on all contracts to which an alternative method or basis is applied is not less in the aggregate than the amount determined according to the applicable standards specified above, a company may use any reasonable assumptions as to interest rates, termination and/or mortality rates, and rates of morbidity or other contingency. Also, subject to the preceding condition, the company may employ methods other than the methods stated above in determining a sound value of its liabilities under such contracts, including, but not limited to the following: the net level premium method; the one-year full preliminary term method; prospective valuation on the basis of actual gross premiums with reasonable allowance for future expenses; the use of approximations such as those involving age groupings, groupings of several years of issue, average amounts of indemnity, grouping of similar contract forms; the computation of the reserve for one contract benefit as a percentage of, or by other relation to, the aggregate contract reserves exclusive of the benefit or benefits so valued; and the use of a composite annual claim cost for all or any combination of the benefits included in the contracts valued.
 D. Tests for adequacy and reasonableness of contract reserves. Annually, an appropriate review shall be made of the company's prospective contract liabilities on contracts valued by tabular reserves, to determine the continuing adequacy and reasonableness of the tabular reserves giving consideration to future gross premiums. The company shall make appropriate increments to such tabular reserves if such tests indicate that the basis of such reserves is no longer adequate; subject, however, to the minimum standards of subsection B of this section.
 In the event a company has a contract or a group of related similar contracts, for which future gross premiums will be restricted by contract, Commission regulation, or for other reasons, such that the future gross premiums reduced by expenses for administration, commissions, and taxes will be insufficient to cover future claims, the company shall establish contract reserves for such shortfall in the aggregate.   Statutory Authority  §§  12.1-13 ,  38.2-223 ,  38.2-1311  and  38.2-1314  of the Code of Virginia.  Historical Notes  Derived from Regulation 15, Case No. INS930382, § 6, eff. January 1, 1994.    14VAC5-320-60. Reinsurance.    Increases to, or credits against reserves carried, arising because of reinsurance assumed or reinsurance ceded, must be determined in a manner consistent with these minimum reserve standards and with all applicable provisions of the reinsurance contracts which affect the company's liabilities.   Statutory Authority  §§  12.1-13 ,  38.2-223 ,  38.2-1311  and  38.2-1314  of the Code of Virginia.  Historical Notes  Derived from Regulation 15, Case No. INS930382, § 7, eff. January 1, 1994.    14VAC5-320-70. Severability.    If any provision in this chapter ( 14VAC5-320-10  et seq.) or the application thereof to any person or circumstance is held for any reason to be invalid, the remainder of the provisions in this chapter shall not be affected thereby.   Statutory Authority  §§  12.1-13 ,  38.2-223 ,  38.2-1311  and  38.2-1314  of the Code of Virginia.  Historical Notes  Derived from Regulation 15, Case No. INS930382, § 8, eff. January 1, 1994.    14VAC5-320-70:1. APPENDIX A. SPECIFIC STANDARDS FOR MORBIDITY, INTEREST AND MORTALITY.  APPENDIX A. SPECIFIC STANDARDS FOR MORBIDITY, INTEREST AND MORTALITY.
 I. MORBIDITY
 A. Minimum morbidity standards for valuation of specified individual contract accident and sickness insurance benefits are as follows:
 1. Disability Income Benefits Due to Accident or Sickness.
 a. Contract Reserves:
 Contracts issued on or after January 1, 1965 and prior to January 1, 1986:
 The 1964 Commissioners Disability Table (64 CDT).
 Contracts issued on or after January 1, 1994:
 The 1985 Commissioners Individual Disability Tables A (85CIDA):
 Or
 The 1985 Commissioners Individual Disability Tables B (85CIDB).
 Contracts issued during 1986 through 1993:
 Optional use of either the 64CDT or the appropriate 1985 tables (85CIDA and/or 85CIDB).
 Each company shall elect, with respect to all individual contracts issued in any one statement year, whether it will use Tables A or Tables B as the minimum standard. The company may, however, elect to use the other tables with respect to any subsequent statement year.
 b. Claim Reserves:
 The minimum morbidity standard in effect for contract reserves on currently issued contracts, as of the date the claim is incurred.
 2. Hospital Benefits, Surgical Benefits and Maternity Benefits (Scheduled benefits or fixed time period benefits only).
 a. Contract Reserves:
 Contracts issued on or after January 1, 1955, and before January 1, 1982:
 The 1956 Intercompany Hospital-Surgical Tables.
 Contracts issued on or after January 1, 1982:
 The 1974 Medical Expense Tables, Table A, Transactions of the Society of Actuaries, Volume XXX, pg. 63. Refer to the paper (in the same volume, pg. 9) to which this table is appended, including its discussions, for methods of adjustment for benefits not directly valued in Table A: "Development of the 1974 Medical Expense Benefits," Houghton and Wolf.
 b. Claim Reserves:
 No specific standard. See 5, below.
 3. Cancer Expense Benefits (Scheduled benefits or fixed time period benefits only).
 a. Contract Reserves:
 Contracts issued prior to January 1, 1986:
 Any tables established for reserve purposes by a qualified actuary and acceptable to the Commission provided, however that the 1974 Cancer Tables as published by Nelson & Warren, Inc. (74N&W Tables) shall not be used unless:
 (1) A qualified actuary renders an opinion annually in writing indicating that the use of such tables is appropriate and produces reserves which are based on credible experience or other assumptions designed to place a sound value on the insurer's liabilities; or
 (2) An additional reserve is held in addition to the reserve calculated pursuant to the 74N&W Tables, which additional reserve shall be based on the difference between the company's calculated reserve and the reservation which would be produced by use of the 1985 NAIC Cancer Claim Cost Tables (NAIC Tables) in an amount not less than the following:
 (a) As of 12/31/94: the additional reserve divided by three; and
 (b) As of 12/31/95: two times the additional reserve divided by three; and
 (c) As of 1/1/96 and all years thereafter: the full amount of reserve as required and calculated in accordance with the NAIC Tables.
 Contracts issued on or after January 1, 1986:
 The NAIC Tables
 b. Claim Reserves:
 No Specific standard. See 5, below.
 4. Accidental Death Benefits.
 a. Contract Reserves; Contracts issued on or after January 1, 1965:
 The 1959 Accidental Death Benefits Table.
 b. Claim Reserves:
 Actual amount incurred.
 5. Other Individual Contract Benefits.
 a. Contract Reserves:
 For all other individual contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.
 b. Claim Reserves:
 For all benefits other than disability, claim reserves are to be determined as provided in the standards.
 B. Minimum morbidity standards for valuation of specified group contract accident and sickness insurance benefits are as follows:
 1. Disability Income Benefits Due to Accident or Sickness.
 a. Contract Reserves:
 Contracts issued prior to January 1, 1994:
 The same basis, if any, as that employed by the company as of December 31, 1993;
 Contracts issued on or after January 1, 1994;
 The 1987 Commissioners Group Disability Income Table (87CGDT).
 b. Claim Reserves:
 For claims incurred on or after January 1, 1994;
 The 1987 Commissioners Group Disability Income Table (87CGDT);
 For claims incurred prior to January 1, 1994:
 Use of the 87CGDT is optional.
 2. Other Group Contract Benefits.
 a. Contract Reserves:
 For all other group contract benefits, morbidity assumptions are to be determined as provided in the reserve standards.
 b. Claim Reserves:
 For all benefits other than disability, claim reserves are to be determined as provided in the standards.
 II. INTEREST
 A. For contract reserves the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the accident and sickness insurance contract.
 B. For claim reserves on policies that require contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the claim incurral date.
 C. For claim reserves on policies not requiring contract reserves, the maximum interest rate is the maximum rate permitted by law in the valuation of single premium immediate annuities issued on the same date as the claim incurral date, reduced by 100 basis points.
 III. MORTALITY
 A. Except as provided in subsection B, the mortality basis used shall be according to a table (but without use of selection factors) permitted by law for the valuation of whole life insurance issued on the same date as the accident and sickness insurance contract.
 B. Other mortality tables adopted by the NAIC and promulgated by the Commission may be used in the calculation of the minimum reserve if appropriate for the type of benefits and if approved by the Commission. The request for such approval must include the proposed mortality table and the reason that the standard specified in subsection A is inappropriate.     14VAC5-320-70:2. APPENDIX B. GLOSSARY OF TECHNICAL TERMS USED.  APPENDIX B. GLOSSARY OF TECHNICAL TERMS USED.
 As used in this valuation standard, the following terms have the following meaning:
 ANNUAL-CLAIM COST. The net annual cost per unit of benefit before the addition of expenses, including claim settlement expenses, and a margin for profit or contingencies. For example, the annual claim cost for a $100 monthly disability benefit, for a maximum disability benefit period of one year, with an elimination period of one week, with respect to a male at age 35, in a certain occupation might be $12, while the gross premium for this benefit might be $18. The additional $6 would cover expenses and profit or contingencies.
 CLAIMS ACCRUED. That portion of claims incurred on or prior to the valuation date which result in liability of the company for the payment of benefits for medical services which have been rendered on or prior to the valuation date, and for the payment of benefits for days of hospitalization and days of disability which have occurred on or prior to the valuation date, which the company has not paid as of the valuation date, but for which it is liable, and will have to pay after the valuation date. This liability is sometimes referred to as a liability for "accrued" benefits. A claim reserve, which represents an estimate of this accrued claim liability, must be established.
 CLAIMS REPORTED. When a company has been informed that a claim has been incurred, if the date reported is on or prior to the valuation date, the claim is considered as a reported claim for annual statement purposes.
 CLAIMS UNACCRUED. That portion of claims incurred on or prior to the valuation date which result in liability of the company for the payment of benefits for medical services expected to be rendered after the valuation date, and for benefits expected to be payable for days of hospitalization and days of disability occurring after the valuation date. This liability is sometimes referred to as a liability for unaccrued benefits. A claim reserve, which represents an estimate of the unaccrued claim payments expected to be made (which may or may not be discounted with interest), must be established.
 CLAIMS UNREPORTED. When a company has not been informed, on or before the valuation date, concerning a claim that has been incurred on or prior to the valuation date, the claim is considered as an unreported claim for annual statement purposes.
 DATE OF DISABLEMENT. The earliest date the insured is considered as being disabled under the definition of disability in the contract, based on a doctor's evaluation or other evidence. Normally this date will coincide with the start of any elimination period.
 ELIMINATION PERIOD. A specified number of days, weeks, or months starting at the beginning of each period of loss, during which no benefits are payable.
 GROSS PREMIUM. The amount of premium charged by the company. It includes the net premium (based on claim-cost) for the risk, together with any loading for expenses, profit or contingencies.
 GROUP INSURANCE. The term group insurance includes blanket insurance and franchise insurance and any other forms of group insurance.
 LEVEL PREMIUM. A premium calculated to remain unchanged throughout either the lifetime of the policy, or for some shorter projected period of years. The premium need not be guaranteed; in which case, although it is calculated to remain level, it may be changed if any of the assumptions on which it was based are revised at a later time.
 Generally, the annual claim costs are expected to increase each year and the company, instead of charging premiums that correspondingly increase each year, charges a premium calculated to remain level for a period of years or for the lifetime of the contract. In this case the benefit portion of the premium is more than needed to provide for the cost of benefits during the earlier years of the policy and less than the actual cost in the later years. The building of a prospective contract reserve is a natural result of level premiums.
 LONG-TERM CARE INSURANCE. Any insurance policy or rider advertised, marketed, offered or designed to provide coverage for not less than 12 consecutive months for each covered person on an expense incurred, indemnity, prepaid or other basis; for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care, mental health or substance abuse services provided in a setting other than an acute care unit of a hospital. Such term also includes a policy or rider which provides for payment of benefits based upon cognitive impairment or the loss of functional capacity. Long-term care insurance may be issued by insurers; fraternal benefit societies; health services plans; health maintenance organizations; cooperative non-profit life benefit companies or mutual assessment life, accident and sickness insurers or any similar organization to the extent it is otherwise authorized to issue life or accident and sickness insurance. Long-term care insurance shall not include any insurance policy which is offered primarily to provide basic Medicare supplemental coverage, basic hospital expense coverage, basic medical-surgical expense coverage, hospital confinement indemnity coverage, major medical expense coverage, disability income or related asset-protection coverage, accident only coverage, specified disease or specified accident coverage, or limited benefit health coverage.
 MODAL PREMIUM. This refers to the premium paid on a contract based on a premium term which could be annual, semi-annual, quarterly, monthly, or weekly. Thus if the annual premium is $100 and if, instead, monthly premiums of $9 are paid then the modal premium is $9.
 NEGATIVE RESERVE. Normally the terminal reserve is a positive value. However, if the values of the benefits are decreasing with advancing age or duration it could be a negative value, called a negative reserve.
 PRELIMINARY TERM RESERVE METHOD. Under this method of valuation the valuation net premium for each year falling within the preliminary term period is exactly sufficient to cover the expected incurred claims of that year, so that the terminal reserves will be zero at the end of the year. As of the end of the preliminary term period, a new constant valuation net premium or stream of changing valuation premiums) becomes applicable such that the present value of all such premiums is equal to the present value of all claims expected to be incurred following the end of the preliminary term period.
 PRESENT VALUE OF AMOUNTS NOT YET DUE ON CLAIMS. The reserve for "claims unaccrued" (see definition), which may be discounted at interest.
 RESERVE. The term "reserve" is used to include all items of benefit liability, whether in the nature of incurred claim liability or in the nature of contract liability relating to future periods of coverage, and whether the liability is accrued or unaccrued. A company under its contracts promises benefits which result in:
 1. Claims which have been incurred, that is, for which the company has become obligated to make payment, on or prior to the valuation date. On these claims, payments expected to be made after the valuation date for accrued and unaccrued benefits are liabilities of the company which should be provided for by establishing claim reserves; or
 2. Claims which are expected to be incurred after the valuation date. Any present liability of the company for these future claims should be provided for by the establishment of contract reserves and unearned premium reserves.
 TERMINAL RESERVE. This is the reserve at the end of a contract year, and is defined as the present value of benefits expected to be incurred after that contract year minus the present value of future valuation net premiums.
 UNEARNED PREMIUM RESERVE. This reserve values that portion of the premium paid or due to the insurer which is applicable to the period of coverage extending beyond the valuation date. Thus if an annual premium of $120 was paid on November 1, $20 would be earned as of December 31 and the remaining $100 would be unearned. The unearned premium reserve could be on a gross basis as in this example, or on a valuation net premium basis.
 VALUATION NET MODAL PREMIUM. This is the modal fraction of the valuation net annual premium that corresponds to the gross modal premium in effect on any contract to which contract reserves apply. Thus if the mode of payment in effect is quarterly, the valuation net modal premium is the quarterly equivalent of the valuation net annual premium.     14VAC5-320-70:3. APPENDIX C. RESERVES FOR WAIVER OF PREMIUM.  APPENDIX C. RESERVES FOR WAIVER OF PREMIUM.
 (Supplementary Explanatory Material)
 Waiver of premium reserves involve several special considerations. First, the disability valuation tables promulgated by the NAIC are based on exposures that include contracts on premium waiver as in-force contracts. Hence, contract reserves based on these tables are NOT reserves on "active lives" but rather reserves on contracts "in force." This is true for the 1964 CDT and for both the 1985 CIDA and CIDB tables.
 Accordingly, tabular reserves using any of these tables should value reserves on the following basis:
 Claim reserves should include reserves for premiums expected to be waived, valuing as a minimum the valuation net premium being waived.
 Premium reserves should include contracts on premium waiver as in-force contracts, valuing as a minimum the unearned modal valuation net premium being waived.
 Contract reserves should include recognition of the waiver of premium benefit in addition to other contract benefits provided for, valuing as a minimum the valuation net premium to be waived.
 If a company is, instead, valuing reserves on what is truly an active life table, or if a specific valuation table is not being used but the company's gross premiums are calculated on a basis that includes in the projected exposure only those contracts for which premiums are being paid, then it may not be necessary to provide specifically for waiver of premium reserves. Any company using such a true "active life" basis should carefully consider, however, whether or not additional liability should be recognized on account of premiums waived during periods of disability or during claim continuation.
                     Website addresses provided in the Virginia Administrative Code to documents incorporated by reference are for the reader's convenience only, may not necessarily be active or current, and should not be relied upon. To ensure the information incorporated by reference is accurate, the reader is encouraged to use the source document described in the regulation.
                     As a service to the public, the Virginia Administrative Code is provided online by the Virginia General Assembly. We are unable to answer legal questions or respond to requests for legal advice, including application of law to specific fact. To understand and protect your legal rights, you should consult an attorney.

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                   Table of Contents   »  Title 14. Insurance  »  Agency 5. State Corporation Commission, Bureau of Insurance  »  Chapter 323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values

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                      Virginia Administrative Code

                      Chapter 323. Rules Governing Preneed Life Insurance Minimum Standards for Determining Reserve Liabilities and Nonforfeiture Values  14VAC5-323-10. Authority.  This chapter is promulgated by the commission, pursuant to §  38.2-223  of the Code of Virginia and in accordance with §§   38.2-1369 ,  38.2-3206  through  38.2-3209 , and  38.2-4120  of the Code of Virginia and  14VAC5-319-40 , to approve, recognize, permit, and prescribe the use of the 1980 Commissioners Standard Ordinary (CSO) Life Valuation Mortality Table for use in determining the minimum standard of valuation of reserves and the minimum standard nonforfeiture values for insurers offering preneed insurance in this Commonwealth.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 25, Issue 8 , eff. January 1, 2009; amended, Virginia Register  Volume 31, Issue 9 , eff. January 1, 2015.    14VAC5-323-20. Definitions.  The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
 "2001 CSO Mortality Table" means that mortality table, which is included in the Proceedings of the NAIC (2nd Quarter 2002), consisting of separate rates of mortality for male and female lives, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the NAIC in December 2002. Unless the context indicates otherwise, the "2001 CSO Mortality Table" includes both the ultimate form of that table and the select and ultimate form of that table and includes both the smoker and nonsmoker mortality tables and the composite mortality tables. It also includes both the age-nearest-birthday and age-last-birthday bases of the mortality tables.
 "Commission" means the State Corporation Commission.
 "NAIC" means the National Association of Insurance Commissioners.
 "Preneed insurance," "preneed insurance contract," or "preneed insurance policy" means a life insurance policy, or other life insurance contract which at issue, whether by assignment or otherwise, has for a purpose, the funding of a preneed funeral contract as defined in §  54.1-2800  of the Code of Virginia.
 "Ultimate 1980 CSO" means the Commissioners 1980 Standard Ordinary Life Valuation Mortality Table without any selection factors, incorporated into the 1980 NAIC amendments to the Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance models, and adopted by the NAIC in December 1983. It is a mortality table consisting of separate rates of mortality for male and female lives, developed by the Society of Actuaries Committee to recommend new mortality tables for valuation of standard individual ordinary life insurance, as set forth in Transactions, Society of Actuaries, Vol. XXXIII (1981), pp. 673 and 674.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 25, Issue 8 , eff. January 1, 2009.    14VAC5-323-30. Minimum valuation mortality standards.  For preneed insurance contracts, and similar policies and contracts, the minimum mortality standard for determining reserve liabilities and nonforfeiture values for both male and female insureds shall be the Ultimate 1980 CSO.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 25, Issue 8 , eff. January 1, 2009.    14VAC5-323-40. Minimum valuation interest rate standards.  A. The interest rates used in determining the minimum standard for valuation of preneed insurance shall be the calendar year statutory valuation interest rates as defined in  §  38.2-1371  of the Code of Virginia.
 B. The interest rates used in determining the minimum standard for nonforfeiture values for preneed insurance shall be the calendar year statutory nonforfeiture interest rates as defined in §  38.2-3209  of the Code of Virginia.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 25, Issue 8 , eff. January 1, 2009; amended, Virginia Register  Volume 31, Issue 9 , eff. January 1, 2015.    14VAC5-323-50. Minimum valuation method standards.  A. The method used in determining the standard for the minimum valuation of reserves of preneed insurance shall be the method defined in §§   38.2-1368  and   38.2-1369  of the Code of Virginia.
 B. The method used in determining the standard for the minimum nonforfeiture values for preneed insurance shall be the method defined in §  38.2-3209  of the Code of Virginia.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 25, Issue 8 , eff. January 1, 2009; amended, Virginia Register  Volume 31, Issue 9 , eff. January 1, 2015.    14VAC5-323-60. Transition provisions.  A. For preneed insurance policies issued on or after January 1, 2009, and before January 1, 2012, the 2001 CSO Mortality Table may be used as the minimum standard for reserves and minimum standard for nonforfeiture benefits for both male and female insureds pursuant to the requirements of the rules entitled "Use of the 2001 CSO Mortality Table in Determining Minimum Reserve Liabilities and Nonforfeiture Benefits ( 14VAC5-321 )."
 B. If an insurer elects to use the 2001 CSO Mortality Table as a minimum standard for any preneed insurance policy issued on or after January 1, 2009, and before January 1, 2012, the insurer shall provide, as a part of the actuarial opinion memorandum submitted in support of the company's asset adequacy testing, an annual written notification to the domiciliary commissioner. The notification shall include:
 1. A complete list of all preneed insurance policy forms that use the 2001 CSO as a minimum standard;
 2. A certification signed by the appointed actuary stating that the reserve methodology employed by the company in determining reserves for the preneed insurance policies issued after January 1, 2009, and using the 2001 CSO as a minimum standard, develops adequate reserves (for the purposes of this certification, the preneed insurance policies using the 2001 CSO as a minimum standard cannot be aggregated with any other insurance policies.); and
 3. Supporting information regarding the adequacy of reserves for preneed insurance policies issued after January 1, 2009, and using the 2001 CSO as a minimum standard for reserves.
 C. Preneed insurance policies issued on or after January 1, 2012, shall use the Ultimate 1980 CSO in the calculation of minimum nonforfeiture values and minimum reserves.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 25, Issue 8 , eff. January 1, 2009.    14VAC5-323-70. Severability.  If any provision of this chapter or the application thereof to any person or circumstance is for any reason held to be invalid, the remainder of the chapter and the application of the provision to other persons or circumstances shall not be affected thereby.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 25, Issue 8 , eff. January 1, 2009.    Documents Incorporated by Reference (14VAC5-323)   Transactions, Society of Actuaries, Vol. XXXIII, 1981, pp. 673 and 674
                     Website addresses provided in the Virginia Administrative Code to documents incorporated by reference are for the reader's convenience only, may not necessarily be active or current, and should not be relied upon. To ensure the information incorporated by reference is accurate, the reader is encouraged to use the source document described in the regulation.
                     As a service to the public, the Virginia Administrative Code is provided online by the Virginia General Assembly. We are unable to answer legal questions or respond to requests for legal advice, including application of law to specific fact. To understand and protect your legal rights, you should consult an attorney.

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14VAC5-341-90. Policy conditions.

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                   Table of Contents   »  Title 14. Insurance  »  Agency 5. State Corporation Commission, Bureau of Insurance  »  Chapter 341. Rules Governing Standards for the Content of Dwelling Property Insurance Policies

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                      Virginia Administrative Code

                      Chapter 341. Rules Governing Standards for the Content of Dwelling Property Insurance Policies  14VAC5-341-10. Scope and applicability.  A. This chapter sets forth the standards of content for policies of dwelling property insurance covering solely owner-occupied dwellings, including condominium units. This chapter applies to insurers licensed to do business in Virginia and issuing policies of dwelling property insurance pursuant to the provisions of Chapter 21 (§  38.2-2100  et seq.) of Title 38.2 of the Code of Virginia.
 B. Compliance with this chapter is required for policies delivered or issued for delivery in Virginia with effective dates on and after December 31, 2023. Insurers and rate service organizations shall submit filings for compliance with this chapter no later than May 1, 2023.
 C. No insurer shall represent to a prospective purchaser or a policyholder that a dwelling property policy subject to the provisions of this chapter is a homeowners policy as defined in §  38.2-130  of the Code of Virginia.
 D. This chapter does not apply to policies that:
 1. Are lender-placed;
 2. Insure owner-occupied farms;
 3. Insure manufactured homes as defined in §  46.2-100  of the Code of Virginia, except for policies insuring manufactured homes as defined in §  46.2-653.1  of the Code of Virginia;
 4. Are issued pursuant to Chapter 27 (§  38.2-2700  et seq.) of Title 38.2 of the Code of Virginia;
 5. Are issued pursuant to Chapter 48 (§  38.2-4800  et seq.) of Title 38.2 of the Code of Virginia; or
 6. Primarily insure the personal property of renters.
 E. Insurers shall file with the commission all policies or endorsements for approval before use.
 F. Policies and endorsements shall not be less favorable than the provisions set forth in this chapter. Insurers may provide broader and more favorable coverages, terms, and conditions than those set forth in this chapter. Insurers may use any policy language that is not less favorable to the insured and complies with provisions of this chapter.  Statutory Authority  §§  12.1-13  and  38.2-223  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022; amended, Virginia Register  Volume 39, Issue 10 , eff. December 31, 2022.    14VAC5-341-20. Severability.  If a provision of this chapter or its application to a person or circumstance is for any reason held to be invalid by a court, the remainder of this chapter and the application of the provisions to other persons or circumstances shall not be affected.
   Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022.    14VAC5-341-30. Definitions.  The following words and terms when used in this chapter shall have the following meanings unless the context clearly indicates otherwise:
 "Actual cash value" means the amount equal to the replacement cost minus depreciation of damaged or stolen property at the time of the loss.
 "Aircraft" means a machine or device capable of atmospheric flight, including hobby or model aircraft, drones, self-propelled missiles, and spacecraft.
 "Business" means a trade, profession, or occupation whether full-time, part-time, or occasional activity, including (i) farming, (ii) the rental of the whole or a part of the residence premises by an insured, (iii) the business use of part of the residence premises, or (iv) home-sharing.
 "Business" shall not include:
 1. The occasional rental of the whole or a part of the residence premises for dwelling purposes;
 2. The rental or holding for rental of a part of the residence premises for no more than two roomers or boarders for use as a primary residence;
 3. The rental of a part of the residence premises as a private garage;
 4. The rental of a part of the residence premises as an office, school, or studio; or
 5. The insured's use of the residence premises for remote work under an agreement with the insured's employer.
 "Commission" means the State Corporation Commission.
 "Condominium unit" means a dwelling as defined in §  55.1-1900  of the Code of Virginia.
 "Dwelling" means any residential structure specifically named in the policy.
 "Farms" or "farming" means the use of land and buildings primarily for agricultural purposes with the objective of raising animals to produce food for sale or distribution to the public and growing crops for sale or distribution to the public.
 "Fixtures" means permanently installed components of the dwelling or other structures including wells; plumbing systems; pumps; air conditioning equipment, systems, and parts; heating equipment, systems, and parts; hot water heaters; lighting systems; or built-in appliances and other components where removal would deface or damage the dwelling.
 "Functional replacement cost" means the cost to repair or replace the damaged dwelling or other structures with less costly common construction materials and methods that are functionally equivalent to materials and methods used in the original construction.
 "Home-sharing" means rental of the whole or a part of the residence premises for lodging purposes through an online-enabled application, website, or digital network during the policy term (i) for more than seven consecutive or random days or (ii) that generates revenue of more than $2,500. An individual occupying the residence premises through home-sharing is not a roomer, boarder, tenant, or guest.
 "Hovercraft" means a self-propelled air cushioned vehicle that can travel over land and water.
 "Insured" means (i) any person named as an insured in the policy, (ii) if residents of the named insured's household, the named insured's spouse if not a named insured, and relatives of either, and (iii) other persons younger than 21 years of age in the care of an insured.
 "Motor vehicle" means a vehicle that is self-propelled or designed for self-propulsion and is designed or licensed for use on public roads.
 "Occasional rental" means rental of the whole or a part of the residence premises for lodging purposes during a policy term (i) for seven or fewer consecutive or random days or (ii) that generates revenue of up to $2,500 . Occasional rental does not include home-sharing as defined in this section.
 "Pollutant" means solid, liquid, gaseous, thermal, or radioactive irritants or contaminants, including acids, alkalis, chemicals, fumes, vapors, and waste.
 "Recreational motor vehicle" means a motor vehicle designed for recreational use off public roads and not subject to motor vehicle registration.
 "Replacement cost" means the cost to repair or replace the damaged or stolen property with material of like kind and quality without deduction for depreciation.
 "Residence employee" means an employee of an insured who provides maintenance or domestic services for the residence premises.
 "Residence premises" means the dwelling, other structures, and grounds at the location named in the policy.
 "Theft" means an act of stealing or attempt to steal, including loss of property from a known place under circumstances when a probability of theft exists.
 "Vacant" means a dwelling (i) that has not been occupied as a residence for more than 30 consecutive days immediately before a loss and (ii) where most of the named insured's personal property has been removed such that the dwelling is not functional as a customary place of residence. A dwelling is not occupied if the dwelling is being used without the permission of an insured. A dwelling under construction or being remodeled, repaired, or renovated is not vacant.
 "Vandalism" or "malicious mischief" means the willful and malicious damage to or destruction of the property excluding loss by pilferage, theft, burglary, or larceny.  Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022.    14VAC5-341-40. Mandatory property coverages.  A. Insurers shall provide coverage for the dwelling on the residence premises, including fixtures.
 1. Insurers shall also provide coverage for materials and supplies while located on the residence premises and intended for use in construction, alteration, or repair of the dwelling or other structures.
 2. For a dwelling that is a condominium unit, insurers shall provide a limit of liability of at least $5,000 for the dwelling and fixtures that are the responsibility of the condominium unit owner.
 B. Insurers shall provide coverage for other structures and the fixtures of other structures on the residence premises.
 1. Insurers shall provide a limit of liability of at least 10% of the dwelling limit of liability. Upon request of the named insured, an insurer may provide any other limit of liability for other structures coverage that is not less than 5.0% of the dwelling limit of liability.
 2. Insurers may exclude coverage for other structures that are used for business or rented or held for rental, unless the structure is (i) rented to roomers, boarders, or tenants of the dwelling or (ii) rented for use solely as a private garage.
 3. For condominium units, insurers shall provide coverage for other structures and fixtures of other structures that are the responsibility of the condominium unit owner.
 C. Insurers shall provide coverage for (i) breakage of glass or safety glazing material that is part of a dwelling or other structure and (ii) damage to covered property by glass that is part of a dwelling or other structure. This coverage does not increase the limit of liability that applies to the damaged covered property. Insurers may exclude loss if the dwelling was vacant.
 D. Insurers shall provide coverage for the expenses incurred for the removal of debris of covered property damaged by a covered cause of loss and the expense for the removal of fallen trees that damage covered property. Expenses for debris removal are included within the limit of liability applicable to the damaged property.
 E. Insurers shall provide coverage for contractual fire department service charges and volunteer fire department service charges as follows:
 1. Contractual fire department   service charges where the fire department is called to save or protect insured property from a covered cause of loss. Insurers may limit this coverage to a residence premises not located within the limits of a city, municipality, or fire protection district furnishing fire department services.
 2. Fire department service charges made by volunteer fire departments pursuant to §  38.2-2130  of the Code of Virginia.
 3. Insurers shall provide at least $250 of coverage for each type of fire department service charges.
 4. Insurers may not apply a deductible to the coverages in subdivisions 1 and 2 of this subsection.
 F. Insurers shall offer ordinance or law coverage, subject to the exclusions or limitations within this chapter, pursuant to §  38.2-2124  of the Code of Virginia at the dwelling limit of liability within the policy or as an endorsement. This limit of liability is in addition to the limit of liability applicable to the dwelling. Insurers may make other limits of liability available for insureds to purchase. When ordinance or law coverage is provided within the policy or as an endorsement,  14VAC5-341-70  A 3 does not apply.
 G. Insurers shall provide coverage of at least 10% of the dwelling limit of liability for the increase in necessary living expenses when the dwelling is uninhabitable due to a covered cause of loss. Insurers shall provide coverage of at least 20% of the household and personal property limit of liability for condominium units.
 1. Insurers shall provide this coverage for the time reasonably required to return the dwelling to a habitable condition or for the insured's household to become settled in any permanent quarters.
 2. Insurers shall provide additional living expense coverage for at least two weeks while a civil authority limits access to the residence premises as a result of damage to neighboring premises by a covered cause of loss.
 3. Insurers may exclude living expenses that do not continue.
 4. This coverage is not limited by the expiration date of the policy.
 5. Insurers may not apply a deductible to this coverage.
 H. Insurers shall provide coverage of at least 10% of the dwelling limit of liability for the fair rental value of any part of the dwelling or other structure. Insurers shall provide coverage of at least 20% of the household and personal property limit of liability for condominium units.
 1. Insurers shall provide this coverage for the time reasonably required to restore the dwelling or other structures to a tenantable condition following damage caused by a covered cause of loss.
 2. Insurers shall provide fair rental value coverage for at least two weeks while a civil authority limits access to the residence premises as a result of damage to neighboring premises by a covered cause of loss.
 3. Insurers may exclude expenses that do not continue.
 4. Insurers may exclude coverage for loss or expense due to cancellation of a lease or agreement.
 5. This coverage is not limited by the expiration date of the policy.
 6. Insurers may not apply a deductible to this coverage.
 I. Insurers shall provide coverage for damage to trees, shrubs, plants, or lawns caused by fire, lightning, explosion, riot, civil commotion, aircraft, or vehicles not owned or operated by a resident of the residence premises. When expanded or open causes of loss are provided by the policy, insurers shall also include coverage for damage to trees, shrubs, plants, or lawns caused by vandalism and malicious mischief, and actual or attempted burglary.
 1. Insurers shall provide a limit of liability for this coverage of at least 5.0% of the dwelling limit of liability.
 2. Insurers may limit the amount of coverage to no more than $250 for each tree, shrub, or plant on the residence premises. The limit of coverage includes debris removal coverage when the tree, plant, or shrub does not cause damage to covered property.
 J. Insurers shall provide coverage for loss or damage to property while removed or being removed from the residence premises because the property is endangered by a covered cause of loss.
 1. Coverage is provided for damage from any cause subject to the exclusions and limitations permitted in this chapter.
 2. Insurers shall provide this coverage for at least 30 days for each removal.
 3. This coverage is not limited by the expiration date of the policy.
 4. This coverage does not increase the limit of liability that applies to the damaged covered property.
 K. Insurers shall provide coverage for the cost of making reasonable repairs to protect covered property from further damage when the repairs are directly attributable to damage caused by a covered cause of loss. The repairs are included as part of the amount of the loss.
 L. If expanded or open causes of loss are provided by the policy, insurers shall pay the cost incurred to tear out and replace the part of the dwelling or other structure necessary to gain access to the system or appliance from which the water or steam escaped if a loss to the dwelling or other structures is caused by water or steam escaping from a system or appliance. Insurers may exclude loss to the system or appliance from which the water or steam escapes.
 M. Insurers shall provide coverage for direct physical loss to the dwelling, other structures, and household and personal property involving collapse of a dwelling or other structure or any part of a dwelling or other structure:
 1.   Caused by one or more of the following:
 a. The causes of loss in  14VAC5-341-60  C;
 b. Hidden decay;
 c. Hidden insect or vermin damage;
 d. Weight of contents, equipment, animals, or people;
 e. Weight of rain that collects on a roof; or
 f. Use of defective materials or methods in construction, remodeling, or renovation if the collapse occurs during the construction, remodeling, or renovation.
 2. Loss to an awning, fence, patio, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf, or dock is not included under subdivisions 1 b through 1 f of this subsection unless the loss is a direct result of the collapse of a building.
 3. Collapse does not include settling, cracking, shrinking, bulging, or expansion. A building that is in danger of falling down or caving in is not in a state of collapse.
 4. This coverage does not increase the limit of liability applicable to the damaged covered property.
 5. Insurers may exclude collapse when providing only basic causes of loss set forth in  14VAC5-341-60  B.  Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022; amended, Virginia Register  Volume 42, Issue 7 , eff. December 1, 2025.    14VAC5-341-50. Optional coverage for household and personal property.  A. Insurers may offer coverage for household and personal property. If offered:
 1. Insurers shall provide coverage for household and personal property on the residence premises that is owned or used by an insured.
 2. At the request of the named insured at the time of loss, insurers shall provide coverage for household and personal property owned by a:
 a. Guest while the property is on the residence premises or
 b. Residence employee while the property is on the residence premises.
 B. Insurers shall provide coverage for the insured's property (i) on the residence premises during an occasional rental or (ii) on the part of the residence premises occupied by roomers, boarders, or tenants.
 C. Insurers shall provide coverage for household and personal property while it is being moved to the insured's new principal residence within the United States. Insurers shall provide coverage for property while it is being moved for 30 days from the date that moving the   property begins. The household and personal property limit of liability applies to property being moved to another location. If the move began during the policy term, coverage may not be limited by the expiration of the policy.
 D. Insurers shall provide coverage for the following types of household and personal property at limits of at least the following:
 1. $500 total per loss on cemetery property on or off the residence premises including monuments, headstones, grave markers, and urns.
 2. $100 total per loss on coin collections, medals, gold, platinum, and silver, except goldware and gold-plated ware shall not be deemed to be gold and silverware and silver-plated ware shall not be deemed to be silver.
 3. $500 total per loss on passports, tickets, or stamp collections.
 4. $1,000 total per loss on watercraft, trailers used with watercraft, and watercraft furnishings, equipment, and outboard motors. This limit does not apply to rowboats or canoes.
 5. $500 on trailers, semi-trailers, and campers not otherwise covered in this chapter.  Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022.    14VAC5-341-60. Causes of loss.  A. Insurers shall provide, at a minimum, the basic causes of loss in subsection B of this section. If an insurer provides expanded causes of loss, the causes of loss may be no less favorable than the causes of loss in subsections B and C of this section. If an insurer provides open causes of loss, the causes of loss may be no less favorable than the causes of loss in subsection D of this section. The same causes of loss shall apply to the dwelling and other structures. Insurers may offer basic, expanded, or open causes of loss for household and personal property.
 B. When providing basic causes of loss, insurers shall provide coverage for direct loss caused by the following:
 1. Fire or lightning.
 2. Windstorm or hail. Insurers may exclude loss to:
 a. The interior of the dwelling or other structure or the household and personal property within caused by rain, snow, sand, or dust unless the rain, snow, sand, or dust enters through an opening caused by the force of wind or hail;
 b. Windmills, wind pumps, or towers; crop silos or contents; or metal smokestacks;
 c. Grain, hay, straw, or other crops, when outside;
 d. Overhead structures, including supports and screening, constructed principally of cloth, metal, fiberglass, or plastic erected to provide protection from the elements;
 e. Signs;
 f. Satellite dishes; radio or television antennas, including lead-in wiring, masts, or towers;
 g. Fences; seawalls or property line and other free-standing walls;
 h. Greenhouses, hothouses, slathouses, trellises, pergolas, cabanas, or outdoor equipment pertaining to the service of the residence premises;
 i. Wharves, docks, piers, boathouses, bulkheads, or other structures located over or partially over water and the household and personal property on or within;
 j. Property damaged by water from sprinklered equipment or from other piping, unless the equipment or piping was damaged as a direct result of wind or hail; or
 k. Watercraft while not inside a fully enclosed building. This provision does not apply to rowboats or canoes.
 3. Explosion.
 4. Riot or civil commotion.
 5. Aircraft.
 6. Vehicles.
 7. Sudden or accidental damage from smoke or soot, other than smoke from agricultural smudging or industrial operations.
 C. Insurers may offer the following expanded causes of loss. If provided, coverage shall be for direct loss to the covered property from the causes of loss listed in subsection B of this section and the following causes of loss:
 1. Vandalism, malicious mischief, and burglary. Insurers may exclude loss if the dwelling was vacant. If a covered cause of loss ensues, insurers shall provide coverage for the ensuing loss.
 2. Falling objects. Insurers may exclude loss to:
 a. Property within the dwelling or other structure that is caused by a falling object unless the falling object first damages the exterior of the roof or walls of the dwelling or other structure; or
 b. The falling object itself.
 3. Weight of ice, snow, or sleet that damages the (i) dwelling, (ii) other structure, or (iii) household and personal property contained in a dwelling or other structure if the weight of ice, snow, or sleet first damages the dwelling or other structure. Insurers may exclude loss to:
 a. Awnings and their supports; or
 b. Fences, pavements, patios, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.
 4. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, or of an appliance for heating water, but excluding loss caused by or resulting from freezing.
 5. Freezing of plumbing, heating, or air conditioning systems, and domestic appliances. Insurers may exclude loss caused by or resulting from freezing while a dwelling is under construction, vacant, or unoccupied for a period in excess of four consecutive days unless the insured has (i) exercised due diligence in maintaining heat in the dwelling or other structure or (ii) drained the systems and appliances and shut off the water supply.
 6. Accidental discharge, leakage, or overflow of water or steam from within a plumbing, heating, or air conditioning system, or domestic appliance. This does not include loss caused by or resulting from freezing.
 7. Sudden and accidental injury from electrical currents artificially generated to electrical appliances, devices, fixtures, and wiring.
 D. Insurers may offer open causes of loss. If provided, insurers shall provide coverage for direct loss to the dwelling and other structures and may exclude direct loss caused by any of the following:
 1. Wear and tear; marring or scratching; deterioration; inherent vice; latent defect; mechanical breakdown; rust, mold, or wet or dry rot; pollutants, smog, smoke from agricultural smudging or industrial operations; settling, cracking, shrinkage, bulging, or expansion of pavements, patios, foundations, walls, floors, roofs, or ceilings; or birds, vermin, rodents, insects, or animals owned or kept by an insured. If a covered cause of loss ensues, insurers shall provide coverage for the ensuing loss.
 2. Vandalism and malicious mischief, burglary, or glass breakage if the dwelling was vacant. If a covered cause of loss ensues, insurers shall provide coverage for the ensuing loss.
 3. Continuous or repeated seepage or leakage of water or steam from within a plumbing, heating, or air conditioning system or domestic appliance over a period of weeks, months, or years. This exclusion does not apply to household and personal property.
 4. Windstorm, hail, ice, snow, or sleet to any of the following property:
 a. Overhead structures, including supports and screening, constructed principally of cloth, metal, fiberglass, or plastic, erected to provide protection from the elements;
 b. Outdoor radio or television antennas including the lead-in wiring, masts, or towers;
 c. Fences;
 d. Seawalls or property line and other free-standing walls;
 e. Greenhouses, hothouses, slathouses, trellises, pergolas, or cabanas;
 f. Outdoor equipment pertaining to the service of the residence premises; or
 g. Wharves, docks, piers, boathouses, bulkheads, or other structures located over or partially over water and the household and personal property on or within.
 5. Theft of property that is not an integral part of the dwelling or other structure at the time of loss or from a dwelling or other structure that is under construction.
 6. Collapse, except as required by subsection M of  14VAC5-341-40 .  Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022.    14VAC5-341-70. Permitted exclusions.  A. For all causes of loss, regardless of any other cause of loss or event contributing concurrently or in any sequence to the loss, insurers may exclude loss caused directly or indirectly by any of the following:
 1. Water, as follows:
 a. Flood, ground surface water, waves, seiche, tidal water or tidal waves, overflow of a body of water, or spray from any of these, whether natural or manmade;
 b. Water that backs up through sewers or drains;
 c. Water that overflows or is discharged from a sump pump or other type of system designed to remove subsurface water that is drained from the foundation area;
 d. Water below the surface of the ground including water that exerts pressure on or flows, seeps, or leaks through (i) sidewalks; (ii) driveways; (iii) foundations; (iv) swimming pools; (v) walls; (vi) basements or floors; or (vii) doors, windows, or other openings; or
 e. Material carried or moved by water referred to in subdivisions 1 a, 1 b, and 1 c of this subsection.
 The exclusions for water loss in subdivisions 1 a through 1 e of this subsection do not apply to an ensuing loss caused by fire or explosion.
 2. Earth movement, natural or man-made, including earthquake, volcanic eruption, landslide, mudflow, or other earth movement caused by sinking, rising, shifting, or expansion. Insurers shall provide coverage for an ensuing loss caused by fire, explosion, or breakage of glass that is a part of the dwelling or other structure.
 3. Enforcement of ordinances or laws regulating the construction, repair, or demolition of dwellings or other structures. Insurers shall provide coverage when an ordinance or law requires the use of safety glass in replacement of damaged glass that is a part of the dwelling or other structure.
 4. Interruption of power or other utility service furnished to the residence premises if the interruption takes place away from the residence premises. Insurers shall provide coverage for the ensuing loss if a covered cause of loss ensues on the residence premises because of the power interruption.
 5. Enemy attack by armed forces including action taken by military, naval, or air forces in resisting an actual or immediately impending enemy attack, including invasion, insurrection, rebellion, revolution, civil war, usurped power, or action taken by governmental authority in hindering, combating, or defending against the event; order of civil authority except acts of destruction at the time of and for preventing the spread of fire, provided that the fire did not originate from an excluded cause of loss.
 6. Nuclear reaction, nuclear radiation, or radioactive contamination as set forth in §  38.2-2102  of the Code of Virginia.
 7. Freezing, thawing, or by the pressure of ice, snow, or water to fences, pavements, patios, swimming pools, foundations, retaining walls, bulkheads, piers, wharves, or docks.
 8. The exclusions in subdivisions 1 through 7 of this subsection apply even if one or more of the following concurrently contribute to the loss:
 a. Weather conditions;
 b. Acts or decisions including the failure to act or decide of a person, group, organization, or governmental body;
 c. Faulty, inadequate, or defective:
 (1) Planning, zoning, development, surveying, or siting;
 (2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, or compaction;
 (3) Materials used in repair, construction, renovation, or remodeling; or
 (4) Maintenance.
 B. Insurers may exclude direct loss caused by:
 1. An intentional act by a person insured under the policy that was directed or committed by that person, but only with respect to that person.
 2. Neglect of the insured to use all reasonable means to protect the property during and after a loss.
 C. Insurers may exclude coverage for the following types of property:
 1. Accounts, bills, currency including virtual or digital, deeds, evidences of debt, money, scrip, stored value cards, smart cards, securities, bullion, manuscripts , letters of credit, bank notes, or notes other than bank notes;
 2. Aircraft and parts except insurers shall provide coverage for (i) drones without cameras and drones that are not capable of carrying people or cargo; or (ii) hobby aircraft or model aircraft that is not capable of carrying people or cargo;
 3. Animals, birds, or fish;
 4. Business property, except household and personal property is not business property unless the property is in that part of the residence premises rented and occupied for home-sharing;
 5. Electronic equipment that is permanently installed in a motor vehicle;
 6. Tapes, wires, records, discs, or other media used with electronic equipment in a motor vehicle while the property is in or on a motor vehicle;
 7. Motor vehicles, motorized bicycles, and hovercraft except (i) vehicles used to service the residence premises, (ii) utility trailers that are not licensed for road use, and (iii) electric mobility devices designed to assist an individual that has a disability;
 8. Property of (i) tenants , (ii) roomers and boarders not related to the insured, and (iii) home-share occupants during the period of their home-sharing rental;
 9. Property rented to others, except as provided in subsection B of  14VAC5-341-50 ;
 10. Property that is unlawful to own or possess under state or federal law; or
 11. Property that is separately described and specifically insured by this insurance or other insurance.  Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022.    14VAC5-341-80. Loss settlement provisions.  A. Insurers shall include loss settlement provisions in accordance with this section.
 B. When providing only basic causes of loss for the dwelling and other structures, insurers may provide loss settlement on an actual cash value basis. When providing actual cash value loss settlement, insurers shall apply actual cash value loss settlement as follows:
 1. Subject to the limit of liability, insurers may pay the smaller of the following amounts:
 a. Cost to repair or replace with like kind and quality; or
 b. Actual cash value of the damaged property.
 2. Insurers may apply actual cash value loss settlement to:
 a. Household and personal property;
 b. Outdoor radio and television antennas; satellite dishes;
 c. Awnings; or
 d. Property described under subsections A and B of  14VAC5-341-40 , and permanently installed flooring (including wall-to-wall carpeting) when providing only basic causes of loss set forth in subsection B of  14VAC5-341-60 .
 C. If the loss settlement provision in subsection B of this section does not apply, insurers shall apply replacement cost less settlement as follows:
 1. Insurers shall apply replacement cost loss settlement to the dwelling and other structures, including permanently installed flooring. Wall-to-wall carpeting is permanently installed flooring.
 2. Insurers may limit replacement cost settlement to the following:
 a. The limit of liability applicable to the dwelling or other structures;
 b. The replacement cost of the dwelling or other structures or a part of the dwelling or other structure on the residence premises and intended for the same occupancy and use; or
 c. The amount spent in repairing or replacing the dwelling or other structures or a part of the dwelling or other structure and intended for the same occupancy and use.
 3. The insured may assert a claim for the actual cash value of the dwelling or other structures without prejudicing the insured's right to make further claim for the difference between the actual cash value and the replacement cost in accordance with §  38.2-2119  B of the Code of Virginia. The claim for the difference must be made within six months of (i) the last date on which the insured received a payment for actual cash value or (ii) date of entry of a final order of a court of competent jurisdiction declaratory of the right of the insured to full replacement cost, whichever shall last occur.
 4. When the repair or replacement cost is $2,500 or less, insurers shall be liable for the full cost of repair or replacement before the repair or replacement has been completed.
 5. Insurers may apply an insurance-to-value ratio for replacement cost loss settlement as follows:
 a. Insurers may require an insurance-to-value ratio of no more than 80% before full replacement cost loss settlement applies.
 b. If the insurance-to-value ratio is less than 80% for the damaged dwelling or other structure, an insurer may limit its liability for loss to the larger of the following:
 (1) The actual cash value of that part of the dwelling or other structure; or
 (2) That proportion of the full cost of repair or replacement without deduction for depreciation of that part of the dwelling or other structure damaged or destroyed that the whole amount of insurance applicable to the dwelling or other structure for the cause of loss bears to 80% of the full replacement cost of the dwelling or other structure.
 c. In calculating the 80% insurance-to-value ratio, insurers shall disregard the cost of (i) excavations; (ii) underground flues and pipes; (iii) underground wiring and drains; and (iv) brick, stone, and concrete foundations, piers, and other supports that are below the under surface of the lowest basement floor, or where there is no basement, that are below the surface of the ground inside the foundation walls.
 6. Insurers may provide replacement cost loss settlement on household and personal property as authorized by §  38.2-2119  B of the Code of Virginia.
 D. Insurers may offer functional replacement cost loss settlement for the property described in subsections A and B of  14VAC5-341-40 , under the conditions outlined in this subsection.
 1. Functional replacement cost is only permitted at the option of the insured.
 2. Insurers may not apply functional replacement cost loss settlement to property that qualifies for an amount of insurance equal to 80% or more of the full replacement cost of the dwelling or other structure.
 3. Insurers shall provide the notice required by §  38.2-2119  C of the Code of Virginia.
 4. Insurers may limit functional replacement cost loss settlement to the following:
 a. The limit of liability applicable to the dwelling or other structures;
 b. The amount necessary to repair or replace the damaged property with functionally equivalent property at a lower cost than would be required to replace the damaged property with material of like kind and quality; or
 c. The amount spent in repairing or replacing the dwelling or other structure or part of the dwelling or other structure intended for the same occupancy and use.
 E. Insurers shall determine loss to property that is part of a pair or set in a reasonable and fair proportion of the total value of the pair or set.
 F. Insurers shall adjust losses with the named insured and shall pay the named insured unless another payee is specifically named.
 G. Insurers shall restore the limits of liability after a loss .
 H. Insurers may apply a property deductible unless prohibited or otherwise limited in this chapter. Insurers may apply a special property deductible for the following causes of loss (i) wind, (ii) hail, or (iii) theft. No more than one deductible may be applied to a loss. The amount of any property deductible may not exceed 10% of the dwelling limit of coverage.
 I. Insurers may (i) take all or part of the damaged property at the agreed or appraised value or (ii) repair, rebuild, or replace the damaged property with other of like kind and quality within a reasonable time. Within 30 days after receiving the insured's proof of loss, the insurer shall provide notice to the insured of the insurer's decision to (i) take the property at the agreed or appraised value or (ii) repair, rebuild, or replace the damaged property.  Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022.    14VAC5-341-90. Policy conditions.  A. Insurers shall include the following statutory conditions:
 1. The nuclear clause set forth in §  38.2-2102  of the Code of Virginia;
 2. The conditions set forth §  38.2-2104  of the Code of Virginia:
 a. Assignment of the policy.
 b. The time that coverage begins and ends.
 3. The conditions set forth in §  38.2-2105  of the Code of Virginia:
 a. Abandonment.
 b. Appraisal.
 c. Mortgagee interests and obligations.
 d. Pro rata liability.
 e. Requirements in case loss occurs.
 f. Suit.
 g. When loss payable.
 B. Insurers shall include the following conditions:
 1. If an insurer adopts revisions of the forms or endorsements that would broaden coverage currently provided without additional premium charge, the insurer shall automatically apply the broadened coverage from the effective date of the revisions.
 2. If a named insured dies, insurers shall modify the definition of insured as follows:
 a. The named insured includes:
 (1) The spouse, if not already a named insured and if a resident of the household at the time of the death; and
 (2) The legal representative with respect to the residence premises and property of the deceased insured at the time of the death.
 b. Insured also includes:
 (1) Members of the deceased's household who were insured at the time of the named insured's death, but only while residents of the residence premises; and
 (2) Persons having proper temporary custody of the insured property until the appointment and qualification of the legal representative.
 3. Insurers may not invalidate the policy if the insured waives, in writing, before a loss any right of recovery against a party for loss occurring on the residence premises. If not waived, the insurer may require from the insured an assignment of all right of recovery against a party for loss to the extent that the insurer made payment.
 4. Terms or conditions in the policy that are less favorable than those provided for in this chapter or the applicable statutes are construed to conform to this chapter and those statutes.
 5. Insurers shall include the relevant termination provisions in §§  38.2-2113  and  38.2-2114  of the Code of Virginia in the policy. In addition, the following apply:
 a. Return premium calculations resulting from an insurer-initiated termination shall be pro rata.
 b. Terminations for non-payment of premium shall be calculated pro rata.
 c. Return premium calculations resulting from an insured-initiated termination may be short rate except the penalty may not be more than 10% of the pro rata premium for the expired time.
 d. Insurers may not refuse to renew the policy except in accordance with the provisions of §§  38.2-2113  and  38.2-2114  of the Code of Virginia.
 C. Insurers may include any of the following conditions. Insurers may:
 1. Restrict the application of the policy to loss during the policy term.
 2. Void the entire policy (i) if, whether before or after the loss, an insured has willfully concealed or misrepresented any material fact or circumstance concerning the insurance or the interest of the insured in the insurance or (ii) in the case of fraud or false swearing by the insured relating to the insurance.
 3. Require the insured to notify the police if loss is by theft.
 4. Require that coverage under the policy is excess over a service agreement, home warranty, or similar service warranty.
 5. Require that a bailee for hire may not benefit under the policy.
 6. Elect to waive a policy provision. Any waiver of a policy provision by the insurer must be in writing.
 7. Exclude coverage, refuse to pay claims, or refuse to provide benefits under a policy if those actions would expose the insurer to a violation of applicable trade or economic sanctions, laws, or regulations, including those administered and enforced by the U.S. Treasury Department's Office of Foreign Assets Control.  Statutory Authority  §§  12.1-13 ,  38.2-223 , and  38.2-2108  of the Code of Virginia.  Historical Notes  Derived from Virginia Register  Volume 38, Issue 11 , eff. January 1, 2022.
                     Website addresses provided in the Virginia Administrative Code to documents incorporated by reference are for the reader's convenience only, may not necessarily be active or current, and should not be relied upon. To ensure the information incorporated by reference is accurate, the reader is encouraged to use the source document described in the regulation.
                     As a service to the public, the Virginia Administrative Code is provided online by the Virginia General Assembly. We are unable to answer legal questions or respond to requests for legal advice, including application of law to specific fact. To understand and protect your legal rights, you should consult an attorney.

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