California Code of Regulations › Title 10 - Investment › Chapter 3 - Commissioner of Financial Protection and Innovation › Subchapter 6 - California Financing Law › Article 7 - Credit Insurance › Section 1517 - Credit Disability Insurance: General Limitations

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(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.