FILING INFORMATION NOTICE 2023-2
DATE: June 15, 2023
FROM: Karen Z. Schutter, Insurance Compact Executive Director
RE: Proportion of Accidental Death Benefit in Relation to All Cause Death Benefit for Individual Life Insurance Forms Submitted to the Interstate Insurance Product Regulation Commission (Commission)
Purpose: Filing Information Notices explain steps or clarifications in the process for filing and review of product filings under the applicable Uniform Standards.
Statutory References: Articles II(11), IV(3) and (6), X(2), and XVI(2) of the Interstate Insurance Product Regulation Compact as adopted by Compacting States.
Operating Procedure References: Section 103 of the Operating Procedure for the Filing and Approval of Product Filings (“Product Filing Rule”).
Uniform Standards: Additional Standards for Accidental Death Benefits (IIPRC-L-08-LB-I-AD-1); Additional Standards for Accidental Death and Dismemberment Benefits (IIPRC-L-08-I-AD-2).
BACKGROUND:
From time to time, the Office of the Interstate Insurance Product Regulation Commission (Compact Office) receives forms where the accidental death benefit is a multiple of the all-cause life insurance benefit. The Uniform Standards do not permit a stand-alone accidental death benefit policy. For instance, a life insurance policy where the death benefit is $10,000 and the accidental death benefit is $50,000 or $100,000. The scope of the Additional Standards for Accidental Death Benefit requires accidental death benefits to be in addition to, and not in lieu of, a death benefit payable if death occurs due to any cause.
The purpose of this Filing Information Notice is to explain the Compact Office approach on the acceptable ratio of the amount of an accidental death benefit in relation to an individual life insurance policy’s all-cause death benefit under the applicable Uniform Standards referenced above (referred to collectively as “Additional Standards for Accidental Death Benefits”). Until such time as permitted by the Commission, including by way of amending the Additional Standards for Accidental Death Benefits, the ratio of accidental death benefit amount to all-cause death benefit amount shall not exceed 3 to 1.
Most accidental death benefit features submitted for review by the Compact Office provide a benefit equal to one to three times the amount of the base life insurance benefit, with the most common providing two times the amount of the base life insurance benefit. From time to time, a rider will be submitted that provides an accidental death benefit amount that is more than three times the all-cause death benefit such as $10,000 all-cause death benefit with $100,000 accidental death benefit. In such cases, the Compact Office issues an objection based on the proportion of the life insurance death benefit to the accidental death benefit as an illusory life insurance benefit under the applicable life insurance policy standard. An illusory life insurance benefit is misleading and therefore a concern under the Fairness provision of the Uniform Standards for life insurance policies, §2 (C.)(1), as provided below.
§2 GENERAL FORM REQUIREMENTS C. FAIRNESS (1) The policy shall not contain inconsistent, ambiguous, unfair, inequitable or misleading clauses, provisions that are against public policy as determined by the Interstate Insurance Product Regulation Commission or contain exceptions and conditions that unreasonably affect the risk purported to be assumed in the general coverage of the policy.
The Compact Office has informally reached out to its members to confirm the industry practice demonstrated by the Compact filings that a reasonable proportion of accidental death benefit incidental to an all-cause benefit should not exceed 3 to 1. The Compact Office recently presented this issue to the members of the Product Standards Committee who agreed this was a reasonable proportion in the absence of clear guidance by way of a Uniform Standard.
This Filing Information Notice does not apply to group Uniform Standards.
FILING PROCEDURES:
To facilitate the submission and review of a product filing where the accidental death benefit is a multiple of the all-cause life insurance benefit, the following filing procedure shall apply:
- The proportion of the accidental death benefit amount shall not exceed more than three times the life insurance death benefit amount that the accidental death benefit is attached to within the policy or by rider or endorsement.
- If the accidental death benefit amount exceeds more than three times the life insurance death benefit, the Compact Office will issue an objection based on the Fairness provision of the Uniform Standards for base policies.
CONCLUSION:
Until such time as permitted by the Commission, including by way of amending the Additional Standards for Accidental Death Benefits, the proportion of accidental death benefit pursuant to the Additional Standards for Accidental Death Benefits shall not exceed three times the amount of all-cause life insurance death benefit for Compact submissions.