Insurance

Administration

Rule R590-91: Credit Life Insurance and Credit Accident and Health Insurance

Effective Date: 03/25/2022

Admin. Code Reference: R590-91

Rule Type: Current Rule

R590. Insurance, Administration.

R590-91. Credit Life Insurance and Credit Accident and Health Insurance.

R590-91-1. Authority.

This rule is promulgated by the commissioner pursuant to Section 31A-2-201.

R590-91-2. Purpose and Scope.

(1) The purpose of this rule is to:

(a) protect the interests of debtors and the public in this state; and

(b) establish a system of reasonable rating, policy form, and operating standards for credit insurance transactions.

(2) This rule applies to each credit insurance transaction within the scope of Title 31A, Chapter 22, Part 8, Credit Life and Accident and Health Insurance.

R590-91-3. Definitions.

Terms used in this rule are defined in Sections 31A-1-301 and 31A-22-802. Additional terms are defined as follows:

(1) "Credit insurance" means credit life insurance and credit accident and health insurance.

(2) "Open-end credit" means credit extended by a creditor under an agreement in which:

(a) the creditor reasonably contemplates repeated transactions;

(b) the creditor imposes a finance charge from time to time on an outstanding unpaid balance; and

R590-91-4. Rights and Treatment of Debtors.

(1)(a) If a creditor requires insurance, the creditor shall give the debtor the option to:

(i) furnish the required amount of insurance through an existing insurance policy the debtor owns or controls; or

(ii) obtain insurance coverage through any insurer authorized to transact insurance business in this state.

(b) If this subsection applies, the creditor shall inform the debtor of the debtor's right to provide alternative coverage before the transaction is completed.

(2) Evidence of coverage for credit insurance shall comply with Sections 31A-22-806 and 70C-6-104.

(3)(a) If the named insurer does not accept the risk, the insurer shall notify the debtor that the insurer did not accept the risk and did not provide the insurance.

(b) A substituted insurer, if any, shall deliver the policy or certificate according to Subsection 31A-22-806(5).

(4) No subsequent certificate is needed on an open-end credit arrangement after the initial indebtedness.

(5) Each policy application must identify the producer, if any, and provide the information required by Subsection 31A-22-806(4)(b).

(6)(a) If a debtor is covered by a group credit insurance policy in which each individual pays a single premium to the insurer, the policy shall include a provision indicating that if the policy is terminated for any reason, the debtor's insurance coverage shall continue for the period for which the debtor's premium has been paid.

(b) If a debtor is covered by a group credit insurance policy with a premium paid to the insurer on a monthly outstanding balance basis, the policy shall include a provision indicating that the debtor shall be given at least 30 days notice before the policy is terminated.

(i) the debtor obtains replacement coverage from the same or another insurer;

(ii) in the same or greater amount; and

(iii) the replacement coverage takes place without lapse of coverage.

(d) The insurer shall provide the notice required in Subsection (5)(b) or, at the insurer's option, the creditor may provide the notice.

(7) If the creditor adds any identifiable insurance charge or premium for credit insurance to the indebtedness, and the creditor adds any direct or indirect finance, carrying, credit, or other service charge on the insurance charge or premium, the following shall occur:

(a) the creditor must remit the insurance charge or premium to the insurer; and

(b) the insurer shall collect the insurance charge or premium within 60 days after the insurance charge or premium is added to the indebtedness.

(8) A provision in an individual policy or certificate that sets a maximum limit on total payments shall only apply to the individual policy or certificate that contains the provision.

(9) For credit life insurance, when the indebtedness of a debtor is prepaid in a manner other than a lump sum accident and health payment, or as a result of the debtor's death:

(a) any credit life insurance covering the indebtedness shall be terminated; and

(b) the debtor shall be refunded the credit life insurance premium according to the formula in Section R590-91-9.

(10)(a) For credit accident and health insurance, when the indebtedness of a debtor is prepaid in a manner other than a lump sum accident and health payment or as a result of the debtor's death:

(i) any credit accident and health insurance covering the indebtedness shall be terminated; and

(ii) the debtor shall be refunded the credit accident and health insurance premium according to the formula in Section R590-91-9.

(b) If there is a pending claim under the coverage when the indebtedness is paid, the refund amount may be determined as if the indebtedness was paid after the benefit payments terminated.

(d) A refund shall be computed as if the indebtedness was paid at the end of the disability period.

(11)(a) If an indebtedness is prepaid from the proceeds of a debtor's credit life insurance policy or from a disability claim lump sum payment under the debtor's credit insurance policy, the insurer shall be responsible for ensuring that the following are paid to the insured debtor if living, or to the debtor's named beneficiary, other than the creditor, or to the debtor's estate:

(i) when the indebtedness is prepaid from the proceeds of a credit life insurance policy, or from the proceeds of a lump sum total and permanent disability benefit under credit life insurance coverage, the credit accident and health insurance premium refund made according to the formula in Section R590-91-9; or

(ii) when the indebtedness is prepaid from a lump sum disability claim under credit accident and health insurance coverage, the credit life insurance premium refund made according to the formula in Section R590-91-9.

(b) For a debt paid under Subsection (11)(a), the benefit amount in excess of the amount required to repay the indebtedness after crediting any unearned interest or finance charges.

(12)(a) A credit life insurance benefit shall be consistent with the premium charge.

(b) Credit life insurance on preauthorized lines of credit not exceeding the commitment period may be written for the preauthorized amount on a nondecreasing or level term plan.

(d) When the insurance amount exceeds the unpaid indebtedness, the excess is payable to the debtor's named beneficiary, other than the creditor, or to the debtor's estate.

(13) A dividend on a participating individual credit insurance policy shall be payable to each individual insured.

R590-91-5. Policy Forms and Reserves.

(1) Credit insurance shall be issued in a form described in Section 31A-22-803.

(2) Each policy form, certificate, notice of proposed insurance, application, endorsement, and rider to be delivered or issued for delivery in this state shall be filed with the commissioner as required by Sections 31A-21-201, 31A-22-807, and 31A-22-808.

(3) Each filing is subject to the general filing requirements of Rule R590-228, Submission of Credit Life and Credit Accident and Health Insurance Form and Rate Filings.

(4) The commissioner may prohibit a form if the benefits provided are not reasonable in relation to the premium charged.

R590-91-6. Reasonableness of Benefits in Relation to Premium.

(1) If any insurer files a form for approval that provides coverage that is different from the coverage described in Sections R590-91-7 and R590-91-8, the insurer shall demonstrate to the commissioner's satisfaction that the premium rates for the coverage will develop or may reasonably be expected to develop a loss ratio not less than that contemplated for standard coverage at the premium rates described in Sections R590-91-7 and R590-91-8.

(2) If the debtor is not specifically charged for credit insurance, the standards in Section 31A-22-807 and Section R590-91-11 are not required to be used.

(3) For the purposes of Subsection (2), the debtor is specifically charged for credit insurance if:

(a) an identifiable charge for insurance is disclosed in the credit or other instrument furnished to the debtor that sets out the credit transaction's financial elements; or

(b) there is a differential in finance, interest, service, or other similar charge made to debtors who are in like circumstances, except for their insured or noninsured status.

(4) Any charge described in Subsection (3) that exceeds the premium rate standards in Sections R590-91-7 and R590-91-8, as adjusted under Section R590-91-10, shall be filed with the commissioner.

R590-91-7. Credit Life Insurance Prima Facie Rates.

(1) Subsections (3) and (4) refer to credit life insurance prima facie premium rates for the insured portion of an indebtedness payable in equal monthly installments, when the insured portion of the indebtedness decreases uniformly by the amount of the monthly installment paid.

(2) Subsections (5), (6), and (7) refer to the prima facie premium rates for other benefit types alone or in combination with the benefit types in Subsections (3) and (4).

(3) If a premium is payable on a monthly outstanding balance basis, the prima facie rate shall be $0.65 per month per $1,000 of outstanding insured indebtedness.

(4) If a premium is payable on a single premium basis, the single premium prima facie rate per $100 of the initial indebtedness shall be ((N+1)/20)(Op):

(a) N is the credit term in months; and

(b) Op is the rate specified in Subsection (3).

(5) If a premium is payable on a single premium basis when the benefit provided is level term, the single premium prima facie rate per $100 of the initial indebtedness shall be (N/10)(Op):

(a) N is the credit term in months; and

(b) Op is the rate specified in Subsection (3).

(6) The joint coverage rate for Subsection (3), (4), or (5) may not be greater than 170% of the specific rate for the type of coverage.

(7) A combination of the appropriate rate for level term and the appropriate rate for decreasing term, with equal decrements, shall be used if coverage provided is a combination of level term and decreasing term, with equal decrements.

(8) If the benefits provided are other than the benefits described in Subsections (1) through (7), the benefit rates shall be actuarially consistent with the rates in Subsections (1) through (7).

(9)(a) The premium rates in Subsections (1) through (8) shall apply to each credit life insurance policy that is issued with or without evidence of insurability, that is offered to all eligible debtors, and that contains:

(i) no exclusion, except suicide within one year of the incurred indebtedness; and

(ii) either no age restriction or an age restriction making ineligible for coverage:

(A) a debtor age 65 or over at the time the indebtedness is incurred; or

(B) a debtor age 66 or over on the maturity date of the indebtedness.

(b) Insurance written for an open-end credit plan may:

(i) exclude from insurance eligibility debtor classes determined by age; and

(ii) provide for the insurance to stop or reduce the insurance amount when the debtor reaches age 65.

(c) Insurance written for an open-end credit plan where the amount of insurance is based on or limited to the outstanding unpaid balance may not include any provision excluding or denying a claim for death resulting from a preexisting condition, except for a condition that:

(i) the insured debtor received medical diagnosis or treatment within six months before the effective date of coverage; and

(ii) caused or substantially contributed to the insured debtor's death within six months after the effective date of coverage.

(d) The exclusion in Subsection (9)(c) shall apply to the initial indebtedness and all subsequent advances on an individual basis, only where evidence of individual insurability has not been required.

(e) The effective date of coverage for each part of the insurance attributable to a subsequent advance or increase to the outstanding balance is the date on which the advance or increase is posted to the plan account.

R590-91-8. Credit Accident and Health Insurance Prima Facie Rates.

(1) Subsections (3) and (4) refer to credit accident and health insurance prima facie premium rates for the insured portion of an indebtedness repayable in equal monthly installments, when the insured portion of the indebtedness decreases uniformly by the amount of the monthly installment paid.

(2) Subsections (5), (7), (8), and (9) refer to the prima facie premium rates for other benefit types alone or in combination with the benefit types in Subsections (3) and (4).

(3) If a premium is payable on a single-premium basis for the duration of the coverage, the premium shall be as indicated on "R590-91 Attachment: Credit Disability Insurance" available on the department's website https://insurance.utah.gov.

(4) If a premium is paid on a premium rate per month per thousand of outstanding insured indebtedness, the premium shall be computed according to:

(a) the formula in Subsection (4)(c); or

(b) a formula approved by the commissioner that produces a rate actuarially equivalent to the single premium rate defined in Subsection (3).

(i) SPn = single premium rate per $100 of initial insured indebtedness repayable in n equal monthly installments;

(ii) OPn = monthly outstanding balance premium rate per $1,000; and

(iii) n = original payment period in months.

(5) The actuarial equivalent of Subsections (3) and (4) shall be used if the coverage provided is a constant maximum indemnity for a given time period.

(6) An appropriate combination of the premium rate for a constant maximum indemnity for a given time period and the premium rate for a maximum indemnity that decreases in equal amounts per month shall be used if the coverage provided is a combination of a constant maximum indemnity for a given time period after which the maximum indemnity begins to decrease in equal amounts per month.

(7) If the benefit provided is different from the benefits described in Subsections (1) through (6), the benefit rate shall be actuarially consistent with the rates in Subsections (3), (4), (5), and (6).

(8) The outstanding balance rate for credit accident and health insurance may be a term specified rate or a single composite term outstanding balance rate applicable to any loan made under an open-end credit plan.

(9)(a)(i) For an open-end credit plan, the monthly rate per $1,000 of outstanding principal balance shall be the rate calculated using the formula in Subsection (4) where n is the number of monthly indemnity payments required to completely extinguish the debt.

(ii) The rate shall be further reduced to appropriately account for the critical period, if applicable.

(b) The critical period factors shall be filed with the department and shall not exceed the factors based on the 1968 Credit A and H Two Composite Tables published by the NAIC (Proceedings - 1968 Vol. II).

(10) The premium rates in Subsections (1) through (9) shall apply to each credit accident and health insurance policy that is issued with or without evidence of insurability, that is offered to all eligible debtors, and that contains:

(a) no provision excluding or denying a disability claim resulting from a preexisting condition, except for a condition that:

(i) the insured debtor received medical advice, diagnosis, or treatment within six months before the effective date of the debtor's coverage; and

(ii) caused the insured debtor's loss within the six months after the effective date of coverage;

(b) no other provision that excludes or restricts liability for a disability caused in a specified manner, except for a provision that excludes or restricts coverage in the event of:

(i) normal pregnancy; and

(ii) an intentionally self-inflicted injury;

(d) no age restriction or an age restriction only making ineligible for coverage:

(i) a debtor age 65 or over at the time the indebtedness is incurred; or

(ii) a debtor who will have reached age 66 or over on the maturity date of the indebtedness;

(e) a daily benefit equal to 1/30th of the monthly benefit payable under the policy for the indebtedness; and

(f) a definition of disability that is no more restrictive than a definition requiring that:

(i) the insured be unable to perform the principal duties of the insured's occupation for 12 months from the time the insured's disability occurred; and

(ii) the insured be unable to perform the principal duties of any occupation the insured is reasonably qualified for by education, training, or experience after 12 months from the time the insured's disability occurred.

(11) Subsection (10)(f) may not apply to lump sum disability coverage.

(12) Insurance written for an open-end credit plan may:

(a) exclude from insurance eligibility debtor classes determined by age; and

(b) stop insurance coverage or reduce the amount of insurance when the debtor reaches age 65.

R590-91-9. Refund Formulas.

(1) A refund formula shall be at least as favorable to the debtor as the formulas in this section.

(2) The refund formulas in this section are the minimum requirements for a plan described in Subsections (2)(a) through (c).

(a)(i) The pro rata unearned gross premium method shall provide the minimum refund amount for level term credit insurance and credit insurance coverage under which premiums are collected from the debtor on a basis other than the single premium basis.

(ii) Refund = t/n(original gross single premium)

(A) t = the number of remaining months; and

(B) n = the original loan term in months.

(b)(i) The Rule of 78 or sum of the digits unearned premium method shall provide the minimum refund amount for insurance coverage that:

(A) reduces in equal amounts per month; and

(B) the premiums are collected on a single premium basis.

(ii) Refund = (t(t+1)/n(n+1))(original gross single premium)

(A) t = the number of remaining months; and

(B) n= the original loan term in months.

(c) A combination of the pro rata method and the Rule of 78 method or, at the option of the insurer, the pro rata method shall be used for:

(i) credit life insurance provided as a combination of level and decreasing term coverage; and

(ii) credit accident and health insurance when the insured is:

(A) covered for a constant maximum indemnity for a given time period; and

(B) after the time period the maximum indemnity begins to decrease in equal amounts per month.

(3) For net indebtedness insurance, another type of insurance, and another mode of premium payment, each insurer shall:

(a) file for approval each formula and factor for a refund; and

(b) include in the policy:

(i) each formula and factor for a refund; or

(ii) reference each formula and factor filed and approved by the commissioner.

(4) For net indebtedness, the acceptable methods of refund calculations are:

(a) the actuarial method, also known as the U.S. Rule or the pure premium method; or

(b) an arithmetic average of refunds due under pro rata and Rule of 78 methods.

(5) When credit insurance is terminated:

(a) no charge may be made for the first 15 days of a loan month; and

(b) a full month may be charged for 16 days or more of a loan month, unless a refund is made on a pro rata basis for each day within the loan month.

(6) If the total of all refunds due to a debtor or joint debtors is less than $5, no refund is required.

R590-91-10. Adjustment of Prima Facie Rates.

When the commissioner determines that it is necessary to revise the prima facie rates, the commissioner shall publish by order and after a hearing, the revised prima facie rates before September 1. The new prima facie rates shall be effective January 1 of the following year.

R590-91-11. Rating Procedures for Direct Business Only.

(1) An insurer may file for approval and use a rate that is higher than a prima facie rate if the higher rate is expected to produce a minimum loss ratio that Section 31A-22-807 requires.

(2) An insurer may use a rate that is lower than the insurer's filed rate without notifying the commissioner.

R590-91-12. Disclosure to Debtor.

(1) When a premium or identifiable charge is payable by a debtor for credit insurance coverage, the following information must be disclosed to the debtor at the time the debtor applies for the insurance:

(a) the optional nature of the coverage;

(b) each premium or identifiable charge separately listed by type of coverage;

(d) any age restriction regarding eligibility for insurance coverage at the time the indebtedness is incurred or stopped due to the debtor reaching a specific age.

(2) The disclosures in Subsection (1) shall be made to the principal debtor.

(3) The principal debtor shall receive a copy of the disclosures.

(4) The disclosures shall be retained in accordance with state and federal law.

(5) The disclosure language shall be prominently displayed near the signature space for the election to obtain coverage.

(6) The disclosures in Subsection (1) may be made in conjunction with:

(a) the Federal Truth-In-Lending disclosure;

(b) a Notice of Proposed Insurance;

(d) the policy or certificate.

(7) If, during the term of the loan, the insurance is insufficient to pay off the scheduled outstanding loan balance, the policy or certificate must clearly and prominently disclose to the prospective insured that the insurance is insufficient to pay off the outstanding loan balance.

(8) Each credit insurance policy and certificate shall clearly describe the benefit amount and the term of coverage.

(9) When the amount of credit life insurance exceeds the unpaid indebtedness:

(a) the certificate or policy shall clearly disclose the excess; and

(b) the excess shall be paid to the debtor's named beneficiary, other than the creditor, or to the debtor's estate.

(10) If any policy or certificate has a preexisting condition exclusion, the exclusion shall be clearly and prominently disclosed.

R590-91-13. Severability.

If any provision of this rule, Rule R590-91, or its application to any person or situation is held invalid, such invalidity does not affect any other provision or application of this rule that can be given effect without the invalid provision or application. The remainder of this rule shall be given effect without the invalid provision or application.

KEY: insurance law

Date of Last Change: March 25, 2022

Notice of Continuation: September 22, 2026

Authorizing, and Implemented or Interpreted Law: 31A-2-201