Life Regulations 1: Policy Provisions, Underwriting Restrictions, Loan and Death Benefit Interest, Accelerated Benefits and Viatical Settlements (Indiana Outline II.A)

Outline: Indiana-Specific Content Outline, section II (Life Regulations, 8 of the 35 scored Indiana items), part A, Policies and Contracts: 1. Policy provisions (backdating, right to examine, payment of claims, incontestability); 2. Underwriting restrictions; 3. Interest on loans; 4. Interest on death benefits; 5. Accelerated death benefits; 6. Viatical settlements. Chapter 14 covers parts B and C of section II.

Chapter 2 gave short Indiana boxes on grace, incontestability, free look and loans; this chapter gives the full text. The questions come from one statute listing what an individual life policy must and must not contain (IC 27-1-12) and a few Department rules (760 IAC). Expect numbers: 10 days, six months, 30 days, 8 percent, 15 and 30 days, two business days.

Two ground rules frame everything. A life policy form must be filed with the department before issue or delivery and may not be used if the department gives written notice within 30 days of filing that it does not comply (IC 27-1-12-13). The required-provision section does not reach industrial, group or reinsurance contracts or policies on substandard, underaverage or impaired risks, and a policy may always be more favorable to the policyholder (IC 27-1-12-6(a), (b)).

13.1 Backdating (Outline II.A.1.a)

Backdating gives a policy a date earlier than the date it is issued. Producers use it to "save age" (a date just before a birthday keeps the lower-age premium). Indiana limits it rather than forbidding it: a life policy may not purport to be issued or to take effect more than six months before the original application was made (IC 27-1-12-8(2)). The test runs from the application, not from delivery. A date seven months back breaks the rule; a date exactly six months back does not, because the text says "more than".

The same section lists other prohibited provisions, all of them testable:

The incontestability clause runs "from its date" (IC 27-1-12-6(a)(3)), so a backdated policy has already used part of its contestable period when issued. The statute does not say who pays premium for the backdated months.

13.2 Right to Examine, the Free Look (Outline II.A.1.b)

The text is IC 27-1-12-43.

• Which policies. An individual life policy other than credit life, and an individual variable life policy, sold after June 30, 1994.
• The right. A full refund of all money paid if the policy is returned within 10 days after the policyholder receives it.
• Where. To the insurer, to the producer through whom it was purchased, or to any agent of the insurer.
• The notice. A notice of the right is prominently printed on the first page.

The 10 days run from receipt by the policyholder, not from the application, policy date or issue date, and the refund is of all money paid. Keep the neighboring figures apart:

Without replacement in the stem, the answer is 10 days; with it, the 20-day refund notice.

13.3 Payment of Claims (Outline II.A.1.c)

The outline prints "Re: 27-1-12-16 (C)". That subsection concerns a trustee named by will; the general rules sit in two other sections. Learn all three.

• Settlement within two months. On a death claim, settlement is made on receipt of due proof of death and of the claimant's interest, and not later than two (2) months after receipt of the proof (IC 27-1-12-6(a)(10)).
• Interest on late cash payment. See Section 13.7 (IC 27-1-12-35).
• Trustees. "Proceeds" in IC 27-1-12-16 means any benefit payable on the insured's death under a life policy, group certificate, annuity or accident and health policy. Proceeds payable to a trustee under an inter vivos trust in existence at death are paid directly to the trustee, even if the trust is revocable and holds nothing else (16(B)). A policy may name a trustee named by will, even if the will is not yet written. The company must pay that trustee within sixty (60) days after receipt of proof of probate at its home office, unless it first receives written notice of an objection to probate, a suit contesting the will or trust, or a petition to construe it (16(C)).
• If notice of a contest arrives, the company may delay payment for not more than one year from the date of death, then pay the clerk of the probate court, who gives full acquittance, or interplead. If no trustee claims the proceeds within one year after death, the company may pay those otherwise entitled (16(d)).
• Not part of the estate. Proceeds collected by the trustee are not part of the testator's estate and are not subject to the insured's debts or to transfer, inheritance or estate taxes beyond what applies to any named beneficiary (16(e)).

13.4 Incontestability (Outline II.A.1.d)

The outline prints "Re: 17-1-12-6", a typo for IC 27-1-12-6. The rule is in subdivision (a)(3).

1. Period. Incontestable after the policy has been in force during the lifetime of the insured for two (2) years from its date. A death inside the period leaves the contest open.
2. Statutory exceptions. Nonpayment of premiums and violation of policy conditions on naval and military service in time of war.
3. Optional exceptions. At the company's option, provisions on total and permanent disability benefits and on additional insurance specifically against death by accident may also be excepted.
4. No fraud exception in the text. Textbooks say "except for fraud" (national model); teach the Indiana clause as written, and answer a generic stem with the generic rule.
5. Representations. Statements in the application are, in the absence of fraud, representations and not warranties (6(a)(5)).

Group life has its own clause: contestable only for nonpayment after two years from the date of issue, eligibility defenses never barred (IC 27-1-12-41(b)(2)). For policies issued after June 30, 2008, an insurer may not, after two years from issue, allege stranger-originated insurance to deny proceeds, but may seek to void the policy at any time for lack of insurable interest at issue (IC 27-1-12-44). Title 27 has no suicide section, so a suicide limitation is a contract term (Chapter 2).

13.5 Underwriting Restrictions: 760 IAC 1-39 (Outline II.A.2)

The outline cites 760 IAC 1-39-3 through 1-39-7. The rule covers group and individual life and health insurance; Chapter 15 returns to it. Definitions are in 1-39-3.

Application questions (1-39-4). An insurer may ask medically specific questions needed for an informed decision to accept or rate a risk, but:

• no question may be directed toward, or designed to establish, the applicant's sexual orientation;
• questions about having or being diagnosed with HIV are allowed if factual, objective and aimed at the existence of the condition;
• other medical questions must not be a proxy for sexual orientation, must cover a finite period, be specific and objective, and let the applicant explain affirmative answers; and
• questions about a sexually transmitted disease (having, diagnosis, advice to seek treatment) are permitted.

Testing (1-39-5). An insurer may require HIV tests at its own expense if the test is necessary for a decision based on sound actuarial principles, the applicant is told of the test and gives written consent, and the protocol is followed. An adverse decision needs two positive ELISA tests and one Western Blot that is not negative, from the same sample, by a qualified laboratory. The commissioner may approve an FDA-approved alternative no less accurate. Results are confidential: only the applicant, the applicant's physician, the underwriting department, affiliates' underwriters and reinsurers (bound by the rule) and the Medical Information Bureau, to which the insurer may report only that unspecified test results were abnormal, under a general code, never that HIV was found.

Underwriting and rating (1-39-6). Sexual orientation may not be used in underwriting or insurability. Insurers must direct support organizations not to investigate it. Marital status, living arrangements, occupation, gender, medical history, beneficiary designation and zip code or other territorial classification may not be used to establish or aid in establishing it. Territorial rates are allowed only on sound actuarial principles or actual or reasonably anticipated experience. No adverse decision may rest on records showing the applicant sought HIV testing or counseling (not applicable to someone seeking treatment or diagnosis for a specific condition).

No HIV-only limits (1-39-7). An accepted risk may not carry a maximum dollar amount or an exclusion limited solely to HIV, AIDS or a related condition. Policies covering only specified diseases are outside this section. Section 1-39-8 withdraws approval from policies not in compliance.

Section 1-39-2 was not read for this book; confirm any point outside these sections with the Department.

13.6 Interest on Policy Loans (Outline II.A.3)

The outline cites IC 27-1-12.3-2. The loan right is in the required-provision list (IC 27-1-12-6(a)(8)); this chapter regulates the rate.

Scope. "Policy" means a life policy, fraternal benefit certificate or annuity contract providing loans. "Policy loan" includes a loan on the policy, a premium loan, and a loan on a certificate or annuity. The chapter does not apply to contracts issued before September 1, 1981 unless the policyholder agrees in writing, and no other statute governs loan rates unless a later one says so (12.3-1, 12.3-5, 12.3-6).

Required provision. Policies issued after August 31, 1983 must permit either a maximum rate of not more than 8 percent a year, or an adjustable rate:

• The maximum is the greater of the published monthly average (Moody's corporate bond yield average, monthly average corporates) for the month ending two months before the determination, or the rate used to compute cash surrender values; plus 1 percent.
• It is redetermined at least once every 12 months and not more often than every three months, at an interval stated in the policy.
• If the new maximum is higher than the last rate, the insurer may raise the rate up to it. If lower, the rate must come down to it. No change of less than one-half percent is made.
• The latest rate applies to the unpaid amount of all earlier loans (12.3-2).

Insurer duties (12.3-3). Tell the policyholder the initial rate at a cash loan (soon after a premium loan), give reasonable advance notice of any increase, and state whether the rate is fixed or variable and how often it may change. Lapse protection (12.3-4): a policy may not terminate in a policy year solely because a rate rise went unpaid that year. Unpaid interest is added to principal and bears interest at the loan rate (IC 27-1-12-19). The company may defer a loan six months after application except a loan to pay premiums, and the policy does not lapse until total debt equals or exceeds cash value and 30 days after mailed notice to the insured and any assignee who gave an address (6(a)(8)).

Hypothetical. Moody's two months back is 5.4 percent, cash-value rate 4 percent: maximum 6.4 percent. A 5.0 percent loan rate may rise to 6.4. If the maximum were 5.3, the 0.3 difference is under one-half percent, so no change; if it fell to 4.4, the rate must drop to 4.4.