Cal. Code Regs. Tit. 10, § 1517 - Credit Disability Insurance: General Limitations

(a) Policies will ordinarily be considered acceptable if they provide for premium rates consistent with the Regulations of the Insurance Commissioner (Title 10, California Code of Regulations). In addition, in order to comply with the statutory requirement that policies be available on a monthly basis as well as annually, a schedule of premiums will be accepted, based upon a prorating throughout the bracketed period to which the Insurance Commissioner's presumptive rates apply.

(b) The "initial indebtedness" to which the foregoing premium rates are to be applied, shall include the total of the principal amount of the indebtedness plus all charges which are added to, and amortized over, the term of the loan. It is intended that the foregoing will include as "charges" both those charges which may be precomputed at the time of the making of the loan as well as those which may reasonably be estimated as arising over the course of the loan, predicated upon the assumption that such charges will be incurred in accordance with the terms of the lending agreement.

(c) The schedule of monthly premium payment rates shall be used both with respect to loans initially contracted for where the term of the loan is more or less than an exact number of years, and also for purposes of computing refunds which become due because of the prepayment of loans prior to their maturity. The actual computation of any refund resulting from a prepayment shall be in accordance with the formula approved by the Insurance Commissioner pursuant to Section 779.14 of the Insurance Code.

(d) A lender is not required to make credit disability insurance available; however, if credit disability insurance is made available it may be made subject to reasonable and objective standards, such as qualifying by a set of non-discretionary medical standards and must be offered on a voluntary basis, without conditions as to the acceptance of other benefits for which the borrower will be charged. The purchase of credit life insurance may not be a condition precedent to obtaining credit disability insurance, nor may the purchase of credit disability insurance be made a condition to obtaining credit life insurance. No sales techniques may be employed which are designed, or which may be reasonably expected, to restrict the ability of the borrower to select or reject either or both forms of insurance coverage based upon the borrower's consideration of the benefits to be received, the cost of the coverage, and the particular needs and circumstances of the individual borrower.

(e) In the event of an insured disability which extends beyond the elimination period set forth in the policy, the policy must provide for the payment in full of each installment which thereafter becomes due during the period of disability, without regard to the length of the period of disability which by then has elapsed. Coverage may not provide for a prorated payment based upon the fraction of the month during which the insured was disabled, although such computation will be permitted as an alternative to that described in the preceding sentence where in any event the amount payable under the policy is the greater of either of such alternatives.

(f) The statement required by Section 22314(g) of the Financial Code will ordinarily be approved when the content thereof makes the borrower generally aware of the coverage of the policy and which sets forth understandably the mechanics to be followed by the borrower in filing a claim under the policy. Such statement need not include a detailed description of the policy coverage, but should set forth the basic conditions under which coverage becomes applicable (including, particularly, the extent of the elimination period). Such statement may contain language indicating that it is not a full statement of the policy terms, and referring the borrower to the certificate of insurance for more details.

(g) Problems of a more specific nature have come to the attention of the Department, and the determination made with respect thereto, are the following:

(1) There may be no dollar limitation in a credit disability policy which restricts the insurer's obligation to any dollar amount which is less than the full amount of each loan payment, as required by the statute;

(2) No policy may restrict coverage to "permanent disabilities" if the borrower is disabled for the period required by the policy, even if the disability is temporary;

(3) A disability insurance policy may not define "disability" as the inability to perform "any occupation," but must relate the disability to the occupation of the borrower, at the time such disability occurs; and

(4) The term "disability" may not be restricted to those periods when an insured is under the regular and continuing care of a physician, if medical evidence furnished by the insured supports the contention of actual disability.

The foregoing are examples of specific policy provisions which are inappropriate and unacceptable.

Notes

Cal. Code Regs. Tit. 10, § 1517

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).
2. Change without regulatory effect amending subsections (a), (d)-(f) and NOTE filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).
3. Amendment of subsections (a), (b), (d), (e), (g)(2) and (g)(3) filed 8-4-98; operative 9-3-98 (Register 98, No. 32).

Note: Authority cited: Section 22150, Financial Code. Reference: Sections 22150, 22314 and 22315, Financial Code.

1. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).
2. Change without regulatory effect amending subsections (a), (d)-(f) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).
3. Amendment of subsections (a), (b), (d), (e), (g)(2) and (g)(3) filed 8-4-98; operative 9-3-98 (Register 98, No. 32).