Model Laws Could Provide Options & Protection for Policyholders

The National Conference of Insurance Legislators (NCOIL) has proposed a model law that would strengthen protections of terminally ill and elderly patients. The law relates to another law proposed by the group earlier this year. Model laws are not guaranteed to be introduced in state legislatures. For Florida to enact these proposals, each model law must be championed by a state senator or state representative who will then see it through the legislative process.

Together, the laws apply to policyholders who are aged 60 or older, or who can prove to their life insurance companies that they are terminally or chronically ill. (The proposed bills describe what kind of documentation is needed for the latter.) These policyholders would have several options for managing their policies and the proceeds, and the insurance company — and its agents — would be required to disclose all the options to each policyholders.

The options available include: claiming accelerated benefits; assigning the policy as a gift; selling the policy under a viatical or “life settlement” contract; replacing the policy; “refinancing” the policy; or converting the policy, from term to permanent or from life insurance to long-term care insurance.

The notification requirement would kick in when a qualifying policyholder asks to surrender part or all of the policy or requests an accelerated death benefit. When an insurer notifies a policyholder that his policy may lapse, the notice should also include the information on alternatives.

If the law is approved by the membership of NCOIL, it should be available for state legislatures to introduce in 2011.

Model laws are drafted and presented to legislatures when an industry or advocacy group identifies an issue that needs to be addressed at the state level, instead of the federal level. States often use model laws as starting points, adding or deleting measures appropriate for their unique needs. A good example of a model law is the Uniform Commercial Code.

Resource: InsuranceNewsNet “Model Law Would Require Insurers to Tell Consumers About Settlements” 9/17/10

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