Life Bureau Filing Guidance Note
Guidance Date: 04/08/2011
Guidance for Filing Insurance Policy Forms in Accordance with Insurance Law §1113(a)(1)(E) Authorizing the Acceleration of Death Benefits When an Insured Resides in a Nursing Home
On December 10, 2010, Governor David A. Paterson signed into law Chapter 563 of the Laws of 2010, which amended New York Insurance Law §§1113(a)(1), 3201(c)(11)(A), and 3230(f) and took effect January 1, 2011. Chapter 563 added a new subparagraph (E) to §1113(a)(1), which expands the definition of "life insurance" to include the accelerated payment of part or all of the death benefit when the insured has been a resident of a nursing home, as defined in Public Health Law § 2801, for a period of three months or more, with an expectation that the insured will remain a resident of a nursing home until death. Chapter 563 also amended Insurance Law §3201(c)(11)(A) to prohibit the Superintendent of Insurance (the "Superintendent") from approving a life insurance policy that provides for accelerated payment of death benefits or special surrender values pursuant to new Insurance Law §1113(a)(1)(E) (the "E Trigger") unless it also provides for such accelerated payments or special surrender values upon the diagnosis of a terminal illness. Further, Chapter 563 extended the requirements of Insurance Law §3230(f) to the E Trigger, including the disclosure requirements.
Some parties have inquired whether insurers must wait for the Superintendent to amend 11 NYCRR 41 (Regulation 143) before they may submit policy form filings that provide for the E Trigger. While the Department intends to amend Regulation 143 to address the E Trigger, insurers do not need to wait for the promulgation of the amendment. Pursuant to Insurance Law
§3201(b)(1), the Life Bureau is accepting for approval the submission of policy forms that provide for the acceleration of death benefits pursuant to the E Trigger. The Department will give these form filings priority review. The "re" line of the submission letter should reference "Section 1113(a)(1)(E)." An insurer may not use the certified process described in Circular Letter No. 6 (2004).
Insurance Law §1113(a)(1)(C) and (D) permit an insurer to write life insurance policies with accelerated death benefits that may be used to help provide financing for chronically ill insureds who reside in a nursing home for at least three months and may remain there for life, so long as the benefits are tax qualified under the federal Internal Revenue Code. The Department understands that Chapter 563 was intended to allow insurers to provide accelerated death benefits that may not qualify for favorable federal tax treatment when an insured is a resident of a nursing home. However, as Governor David A. Paterson noted in Approval Memorandum No. 34 of Chapter 563, "it is important that consumers be made aware of such tax implications before they purchase any policy allowed by this bill." Indeed, under Insurance Law §3201(c)(1), the Superintendent may disapprove any policy form if the Superintendent finds that the policy form contains a provision that is likely to mislead the policyholder. Therefore, a policy form filing should indicate how the insurer would disclose to the policyholder the potential tax implications of exercising the benefit under the E Trigger so as to not be misleading under Insurance Law §3201(c)(1).
In addition, the E Trigger only requires that there be an “expectation” that the insured will remain in a nursing home until death. As a result, the E Trigger may be subject to abuse. Thus, as Governor Paterson further stated in his Approval Memorandum, “the ‘expectation’ referenced in the bill must be based on an objective analysis.” One way that an insurer may base the expectation on an objective analysis is to require certification by a licensed health care practitioner that: (1) the insured has been a resident of a nursing home for three months or more, and it is expected that the insured will remain a resident of a nursing home until the insured’s death; and (2) the nursing home meets the definition of a “nursing home” as set forth in Public Health Law §2801(2). While an insurer is not limited to the foregoing analysis, the policy form filing should specify the manner in which the insurer will base the expectation on an objective analysis and ensure that the E Trigger will not be subject to abuse.
An E Trigger benefit may be added to policies providing for the acceleration of death benefits pursuant to Insurance Law
§1113(a)(1)(A), (B), (C), or (D), or may be offered as the only additional option for accelerating death benefits, in combination with the acceleration of payments upon the diagnosis of terminal illness, as required by Insurance Law §3201(c)(11)(A).
Further, the policy form filing must comply with requirements of 11 NYCRR 41 (Regulation 143), as applicable.
 Public Health Law §2801(2) defines “nursing home” as “a facility providing therein nursing care to sick, invalid, infirm, disabled or convalescent persons in addition to lodging and board or health-related service, or any combination of the foregoing, and in addition thereto, providing nursing care and health-related service, or either of them, to persons who are not occupants of the facility.”