Sec. 31.10.13.07. Type 2 or Type 3 Benefit

A. No deferred benefit of Type 2 or Type 3, or any provision for a withdrawal benefit, may be used in any individual policy of health insurance unless the policy is guaranteed renewable.

B. An individual policy containing a provision for a Type 2 or Type 3 benefit shall make further provision for a withdrawal benefit. In the event of discontinuance by the policyholder on or after the fifth anniversary of the effective date of the policy, or any earlier date which the policy may specify, the withdrawal benefit shall be payable. The value of the withdrawal benefit before any reduction because of provision for claim payments offset (see §F of this regulation), shall be not less than an amount computed (without provision for claim payments offset for the purpose of this section) in the same manner as the minimum reserve required with respect to the Type 2 or Type 3 benefit to which it is related but on a 5-year preliminary term basis with an interest rate of 5 percent per annum, using mortality and morbidity tables which are approved by the Commissioner as acceptable for reserve purposes.

C. If the policy gives the policy owner the option of electing one of two or more withdrawal benefits, the right of election shall extend for at least 60 days after the date the policy ceases to be in force, and one of the withdrawal benefits shall be designated as the automatic benefit in event the policy owner does not make a timely election.

D. If the policy gives the policy owner the option of electing one of two or more withdrawal benefits, and one of these benefits provides for extended insurance, the extended insurance benefit shall be in effect from the date the policy lapses until the earlier of the date the policyholder exercises his option to elect an alternate benefit or until the date an alternate benefit becomes effective as an automatic withdrawal benefit. The insurer may deduct the cost of the extended insurance benefit from the value of an alternate withdrawal benefit which later becomes effective.

E. If the policy provides a cash surrender nonforfeiture benefit upon lapse before the expiry date stated in the policy, the insurer may provide the policyholder the option of electing an arrangement for automatic premium loans. The insurer may charge the amount advanced as automatic premium loans, together with interest thereon at an effective rate not to exceed 8 percent per annum, against the cash surrender value or against the value of any other withdrawal benefit which may later become effective under the policy.

F. Claim Payments Offset. An individual health insurance policy may provide that a Type 2 benefit or a Type 3 benefit, or any withdrawal benefit associated with a Type 2 or Type 3 benefit, shall be reduced because of prior claim payments under the policy. No provision may be used which could cause the amount of a Type 2 or Type 3 benefit, or any associated withdrawal benefit, to be reduced by more than the amount of any currently incurred and prior claims.