Md. Code Regs. 31.09.01.08

Current through Register Vol. 51, No. 24, December 2, 2024

Section 31.09.01.08 - Policy Provisions

A. With respect to each insured employee or member, an individual policy which identifies the insured employee or member by name shall be issued covering himself or his dependents, or both. The policy shall contain all of the provisions required by B-----M of this regulation, except that any provision or portion thereof which in the opinion of the Commissioner is not applicable to the plan of insurance shall, to the extent inapplicable, not be incorporated in the policy. In lieu of any of the provisions required by this chapter, the Commissioner may approve any provision which he deems more favorable to the policyholder.

B. Grace Period. A grace period of not less than 30 days shall be allowed within which the payment of any premium payable under the policy (except the first premium) may be made, during which grace period the policy shall continue in full force. If a claim arises under the policy during the grace period, the insurer may deduct the amount of any premium due from the policy proceeds.

C. Incontestability. The policy shall be incontestable as to life insurance benefits (exclusive of additional benefits relating to disability or accidental death), except for nonpayment of premium, after it has been in force during the lifetime of the insured for a period of 2 years from its date of issue.

D. Entire Contract. The policy shall provide that it, or it together with any application for a policy if a copy of the application is endorsed upon or attached to the policy when issued, shall constitute the entire contract between the insurer and the policyholder, and if the application is so made a part of the policy, that all statements contained in the application shall, in the absence of fraud, be deemed representations and not warranties.

E. Misstatement of Age. The policy shall provide that if the age of the insured or any other person whose age is considered in determining the premium or benefit has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium would have purchased at the correct age or ages.

F. Payment of Claims. The policy shall provide that any benefits becoming payable by reason of the death of the insured shall be made to the person entitled to them upon receipt of due proof of death.

G. Beneficiary. The policy shall have endorsed on it, or on an application attached to it, the name of the beneficiary and reserve to the policy owner the right to change the beneficiary unless the owner elects to designate a beneficiary irrevocably. The policy may also provide that if the beneficiary designated in the policy does not make a claim under the policy or does not surrender the policy with due proof of death within the period stated in the policy, which may not be less than 30 days after the death of the insured, or if the beneficiary is the estate of the insured, or is a minor, or dies before the insured, or is not legally competent to give a valid release, then the insurer may make any payment under the policy to the estate of the insured, or to any relative of the insured by blood or legal adoption or connection by marriage, or to any person appearing to the insurer to be equitably entitled to payment by reason of having been named beneficiary, or by reason of having incurred expense for the maintenance, medical attention, or burial of the insured. The policy may also include a similar provision applicable to any other payment due under the policy. At the option of the insurer, the policy may also provide that no designation or change of beneficiary shall be binding on the insurer until endorsed on the policy by the insurer, or otherwise accepted by the insurer, and that the insurer may refuse to endorse the name of any proposed beneficiary who does not appear to the insurer to have an insurable interest in the life of the insured. If the policy provides that the proceeds may be payable in installments or as an annuity, the policy shall include a table showing the amount and period of the installment or annuity if determinable at issue.

H. Reinstatement. The policy shall provide that unless it has been surrendered for its cash surrender value, or its cash surrender value has been exhausted by reason of policy indebtedness, or the paid-up term insurance, if any, has expired, the policy may be reinstated at any time within 3 years from the due date of the first premium in default upon written application to the insurer and the production of evidence of insurability satisfactory to the insurer, and the payment of all premiums in arrears and payment or reinstatement of any other indebtedness to the insurer upon the policy and the payment of interest at a specified rate not exceeding an effective rate of 6 percent per annum compounded annually on all premiums in arrears and indebtedness.

I. Nonforfeiture Values. The policy shall contain nonforfeiture provisions not less favorable to the policyholder in every respect than those required under Insurance Article, Title 16, Subtitle 3, Annotated Code of Maryland, for a policy of ordinary life insurance issued on the same plan of insurance and containing the same benefits.

J. Policy Loans. The policy shall contain a provision that after 3 full years premiums have been paid and after the policy has a cash surrender value and while no premium is in default beyond the grace period for payment, the insurer will advance, on proper assignment or pledge of the policy and on the sole security of the policy, at a specified rate of interest not exceeding an effective rate of 6 percent per annum, an amount equal to or, at the option of the person entitled to payment, less than the loan value of the policy. The loan value of the policy shall be at least equal to the cash surrender value at the end of the then current policy year, provided that the insurer may deduct, either from the loan value or from the proceeds of the loan, any existing indebtedness not already deducted in determining the cash surrender value including any interest then accrued but not due, any unpaid balance of the premium for the current policy year, and interest on the loan to the end of the current policy year. The policy may also provide that if interest on any indebtedness is not paid when due, it shall then be added to the existing indebtedness and shall bear interest at the same rate, and that if and when the total indebtedness on the policy, including interest due or accrued, equals or exceeds the amount of the loan value of the policy, then the policy shall terminate and become void, but not until at least 30 days notice has been mailed by the insurer to the last known address of the insured or policy owner and of any assignee of record at the home office of the insurer. The policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for 6 months after application therefor. The policy, at the insurer's option, may provide for automatic premium loan, subject to an election of the person entitled to elect. At the option of the insurer, this provision may be omitted in a policy of term life insurance.

K. Dividends.

(1) If the policy is issued on a participating basis, it shall provide that the insurer shall annually ascertain and apportion any divisible surplus under the policy which will accrue on the policy anniversary or other dividend date specified in the policy and that dividends arising from this apportionment shall be credited annually beginning not later than the end of the third policy year. The payment of any dividend payable on or after the end of the third policy year may not be made contingent upon the payment of any premium due on or after the date when the dividend becomes payable.

(2) The policy shall provide that the person entitled to the dividend shall have the right, at his option, to have the dividend arising from the participation:

(a) Paid in cash;

(b) Applied to the payment of premium if any then be due;

(c) Applied to provide paid-up additions to the policy; or

(d) Left to accumulate at a rate of interest not less than that specified in the policy.

(3) However, in the case of a term policy, the policy need not provide the options of §K(2)(c) or (d) of this regulation.

(4) The policy shall further provide that a specified option shall become effective if the person entitled to the dividend fails to notify the insurer in writing of his election not later than 30 days following the date on which any dividend is payable.

L. Conversion on Termination of Eligibility. A yearly or more frequently renewable term wholesale life insurance policy shall contain a provision that if the coverage is not continued as a wholesale life insurance policy because the employee or dependent has attained the limiting age or because of termination of employment with the sponsor or termination in an eligible class of employees, or termination of membership in the sponsor, or termination of membership in an eligible class of membership of the sponsor or where a member ceases to practice the profession or occupation with respect to which the policy was issued, the persons covered under the policy shall be entitled to have issued to them by the insurer, without evidence of insurability, individual policies of life insurance without disability or accidental death benefits, provided:

(1) Application for the individual policy shall be made and the first premium paid to the insurer within 31 days after the termination or attainment of a limiting age;

(2) The individual policy shall, at the option of the person, be on any one of the forms, except term insurance, then customarily issued by the insurer at the age and for the amount applied for;

(3) The individual policy shall be in an amount not in excess of the amount of life insurance which is discontinued under the wholesale life insurance policy, less the amount of any life insurance for which the person is or becomes eligible under the same or any other wholesale life or group life insurance policy within 31 days after the discontinuance; and

(4) The premium on the individual policy shall be at the insurer's then customary rate applicable to the form and amount of the individual policy, to the class of risk to which the person then belongs, and to his age attained on the effective date of the individual policy.

M. Conversion on Termination or Nonrenewal of Case. A yearly or more frequently renewable term wholesale life insurance policy shall contain a provision that if the policy is not continued as a wholesale life insurance policy because of nonrenewal of the case by the insurer or by the sponsor, every employee, member, or dependent insured at the date of discontinuance who has been so insured for at least 5 years before discontinuance shall be entitled to have issued to him by the insurer an individual policy of life insurance subject to the same conditions provided in §L of this regulation, except that the amount of insurance on that person under the converted policy may not exceed the smaller of:

(1) The amount of the person's protection terminating under the wholesale life insurance policy less the amount of any life insurance for which he is or becomes eligible under any group life or wholesale life insurance policy issued or reinstated by the same or another insurer within 31 days after discontinuance; or

(2) $2,000.

Md. Code Regs. 31.09.01.08