SECTION 3.3040. Prohibited Policy Provisions

(a) No policies or riders for additional coverage may be issued as a dividend unless an equivalent cash payment is offered to the policyholder as an alternative to such a dividend policy or rider.

(b) All riders or endorsements added after date of issue, except those by which the insurer effectuates a request made in writing by the policyholder or exercises a specifically reserved right under the policy or those which increase benefits, shall require signed acceptance by the policyholder.

(c) A disability policy or a specified disease policy may contain a "return of premium" or "cash value benefit" so long as:

(1) the policy provides for return of 100% of all premiums paid less the claims paid by the time the insured attains age 65;

(2) the policy contains a reasonable nonforfeiture benefit and provides for the value to be paid automatically upon lapse or death;

(3) the surrender value percentages are not less than those calculated assuming 1958 CSO Mortality, 5.0% interest, five-year preliminary term;

(4) an acceptable method of reserving is approved by this department concurrent with approval of the policy. Reserves should equal or exceed the cash value at all durations;

(5) the nonforfeiture values are calculated assuming a zero percent future claim offset;

(6) the nonforfeiture values are defined for all policy years (nonforfeiture values may be shown only for the first 20 policy years, but under these conditions the contract must define the method used to determine the nonforfeiture values after the 20th contract year);

(7) the interim nonforfeiture values are defined when premiums are paid within a contract year (i.e., date premium paid as a death benefit);

(8) the policy does not require the insured to wait until a certain attained age without providing any interim nonforfeiture benefits; and

(9) the policy does not tie the return of premium to anything less than 100% of the premiums paid less claims paid.

(d) Policies providing hospital confinement indemnity coverage may not contain provisions excluding coverage because of confinement in a hospital operated by the federal government.

(e) No policy may contain a provision for the reduction of disability benefits payable if the insured is not employed at the time disability commences or is not employed away from his or her place of residence at the time disability commences. However, this section shall not be construed to preclude the use of a provision for reduction in disability benefits payable to an insured who has retired by actively leaving the job market and who has not actively sought employment within 90 days prior to the commencement of disability.

(f) Policies providing convalescent or extended care benefits following hospitalization may not condition such benefits upon admission to the convalescent or extended care facility within a period of less than 14 days after discharge from the hospital.

(g) When accidental death and dismemberment coverage is part of the insurance coverage offered under the contract, the insured shall have the option to include all eligible insureds under such coverage.

(h) Any policy providing a specific benefit for the recipient in a transplant operation shall also provide reimbursement of any medical expense of a live donor to the extent that the benefits remain and are available under the recipient's policy, after benefits for the recipient's own expenses have been paid. In the event of such coverage, the otherwise existing coverage of a donor shall be secondary to benefits under the recipient's policy.

(i) The previous enumeration of specifically prohibited policy provisions shall in no way be construed as a limitation on the authority of the commissioner to disapprove other policy provisions including, but not limited to, provisions respecting limitations, exceptions, reductions, or eliminations of coverage not otherwise specifically authorized by statute or regulation, which policy provisions are deemed by the commissioner to be unjust, unreasonable, or unfairly discriminatory either to the policyholder, subscriber, beneficiary, or to any person insured under the policy.

(j) A noncancellable disability income policy may contain a premium refund benefit which does not provide a withdrawal value if and only if all of the conditions in paragraphs (1)-(8) of this subsection are met. Those conditions are as follows:

(1) the amount of premium being refunded is equal to all or a stated portion of the premiums paid, less claims paid, during a specified time or interval during the premium-paying period for the policy;

(2) a premium refund may be paid at one or more specified times or intervals during the premium-paying period of the policy;

(3) the interval between successive possible payments is no greater than 10 years;

(4) the policy provides for the benefit to be paid automatically upon death of the insured or termination of the policy on account of age or duration;

(5) the policy provides that the insured may discontinue the benefit on any anniversary date with a corresponding reduction of premiums;

(6) an acceptable method of reserving is approved by the board concurrent with the approval of the policy;

(7) the premium to be paid for the benefit is fully disclosed to a prospective insured and is stated separately in the policy specifications page; and

(8) the benefit is not to be marketed or titled as a cash-value or return-of-premium benefit.

Source Note: The provisions of this §3.3040 adopted to be effective January 26, 1977, 2 TexReg 159; amended to be effective April 3, 1991, 16 TexReg 1750.