SECTION 4.1115. Requirements for Benefits Represented To Be Qualified for Favorable Federal Tax Treatment

(a) On or after the effective date of this subchapter, no life insurance contract providing for acceleration-of-life-insurance benefits may be represented to be tax-qualified under federal law governing taxation of such benefits unless such benefits meet the requirements set forth in subsections (b) - (d) of this section.

(b) Acceleration-of-life-insurance benefits described as tax-qualified must be limited to insureds who have a "qualified terminal illness" or a "qualified long-term care illness," as those terms are defined (and terms used within the definitions are defined) in paragraphs (1) - (3) of this subsection.

(1) An insured has a "qualified terminal illness" if a physician certifies that, as of the date of the certification, the insured has a terminal illness, as defined in §4.1102(b) of this title (relating to Acceleration-of-Life-Insurance: Scope of Benefits).

(2) An insured has a "qualified long-term care illness" if the insured has a "long-term care illness" as defined in §4.1102(b) of this title, and a licensed health care practitioner, acting within the scope of their license, certifies, within 12 months before the approval of the insured's request to exercise the acceleration-of-life-insurance provision, that the insured's illness or physical condition has caused the insured to:

(A) be unable to perform, without substantial assistance from another individual, at least two activities of daily living for a period of at least 90 days due to functional incapacity;

(B) be disabled at a level similar to the level described in subparagraph (A) of this paragraph, as determined by rules promulgated by the United States Secretary of the Treasury, in consultation with the United States Secretary of Health and Human Services, under section 7702B of the Internal Revenue Code of 1986, as amended by the Health Insurance Portability and Accountability Act of 1996; or

(C) require substantial supervision to protect the insured from threats to the insured's health and safety due to the impairment of cognitive ability.

(3) The following words and terms, when used in this section, have the following meanings unless the context clearly indicates otherwise.

(A) Activities of daily living--Bathing, continence, dressing, eating, toileting and transferring, as those terms are defined in §3.3804(b) of this title (relating to Definitions).

(B) Impairment of cognitive ability--The deterioration or loss in intellectual capacity requiring substantial supervision for protection of self and others, as established by the clinical diagnosis of any licensed practitioner in this state authorized to make such a diagnosis. Such diagnosis must include the patient's history and physical, neurological, psychological and/or psychiatric evaluations, and laboratory findings.

(C) Substantial supervision--Continual supervision (that may include cueing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect a cognitively impaired individual from threats to the individual's health or safety.

(c) Any acceleration-of-life-insurance benefit paid to an insured with a qualified long-term care illness is limited in use to payment for instances in which the individual has incurred expenses for qualified long-term care services, as defined in section 7702B of the Internal Revenue Code of 1986, as amended by the Health Insurance Portability and Accountability Act of 1996. Such payments will not fail to meet this test solely because they are made on a per diem or periodic basis without regard to expenses incurred during the period.

(d) Any acceleration-of-life-insurance benefit provision providing for payment of expenses incurred for qualified long-term care services by an insured with a qualified long-term care illness:

(1) may not pay or reimburse expenses incurred under Medicare or that would be reimbursable under Medicare but for the application of a deductible or coinsurance amount, except expenses that are reimbursable under Medicare only as a secondary payor;

(2) may coordinate benefits with Medicare benefits; and

(3) must meet all requirements of §4.1114 of this title (relating to Requirements for Acceleration-of-Life-Insurance Benefits That Fund Long-Term Care Expenses).

Source Note: The provisions of this §4.1115 adopted to be effective March 1, 1998, 23 TexReg 1585; transferred effective April 16, 1999, 24 TexReg 3092; transferred effective September 1, 2023, as published in the July 28, 2023, issue of the Texas Register, 48 TexReg 4127; amended to be effective January 24, 2024, 49 TexReg 250