[28 Pa.B. 1401]
[Continued from previous Web Page] § 73.111. Involuntary and voluntary unemployment insurance requirements.
A plan of credit involuntary unemployment insurance and a group policy and group certificate or an individual policy describing the plan shall comply with the following:
(1) Joint coverage basis. If joint unemployment coverage is provided, it shall be provided either on the basis of each debtor being insured for 100% of the monthly unemployment payment or on the basis of each debtor being insured for a specified portion of the monthly unemployment payment, with the total of these portions equal to 100% of the monthly unemployment payment.
(2) Joint contract.
(i) If joint unemployment coverage is provided, a group certificate or individual policy providing joint unemployment coverage shall be issued. Insurers may not issue two single unemployment coverage group certificates or two single individual policies.
(ii) The benefit payable in the case of simultaneous unemployment of both insureds may not exceed the benefit that would be payable if coverage were provided on only one debtor.
(3) Continuation of coverage. If joint unemployment coverage is provided and coverage on one of the insured debtors is terminated or voided for any reason other than for termination of the indebtedness, any remaining eligible debtor's coverage shall continue and an equitable adjustment of premium shall be made. The remaining eligible debtor's coverage shall continue under a single unemployment coverage group certificate or individual policy.
(4) Voiding coverage for ineligible employment. If a debtor who is not gainfully employed correctly stated employment status information in an application signed by the debtor, and if a group certificate or individual policy is issued, the insurer has the right to void coverage on the debtor, but only within 60 days from the date of issue of the group certificate or individual policy. This action shall be without prejudice to any claim for unemployment that commenced before the termination date.
(5) Voiding coverage for ineligible age. If a debtor exceeds the eligibility age for coverage and has correctly stated age information in an application signed by the debtor, and if a group certificate or individual policy is issued, the insurer has the right to void coverage on the debtor, but only within 60 days from the date of issue of the group certificate or individual policy. This action shall be without prejudice to any claim for unemployment that commenced before the termination date.
(6) Terminating coverage for ineligible age. When premiums are payable monthly based on the actual gross unpaid indebtedness, if a debtor who exceeds the age at which coverage is to terminate under a group certificate or individual policy has correctly stated age information in an application signed by the debtor, and premiums continue to be erroneously charged to the debtor, the insurer has the right to terminate coverage as of the next billing date. This action shall be without prejudice to any claim for unemployment that commenced before the termination date.
(7) Reducing excess coverage. If an identifiable charge is erroneously made to a debtor for an amount of coverage that exceeds the maximum dollar amount of coverage specified in the group policy and group certificate or individual policy, the insurer has the right to reduce the amount of coverage to the appropriate amount specified in the group policy and group certificate or individual policy, but only within 60 days from the date the identifiable charge is made to the debtor. If coverage is reduced, a refund shall be made of the difference between the actual amount charged and the appropriate amount that should have been charged.
(8) Contestability. A contestability provision may not be more restrictive than to provide that coverage on a debtor shall be incontestable after the group certificate or individual policy has been in force during the lifetime of the debtor for 2 years from the date of issue. Coverage shall be contested only based upon information contained in an insurance application signed by the debtor, a copy of which is furnished, not later than when coverage is contested, to the debtor, a secondary beneficiary or other claimant.
(9) Equitable premium or benefit adjustment. A provision specifying an adjustment of premiums or of benefits, or both, to be made if information relating to the age of a debtor has been fraudulently misstated shall be considered to be equitable if it places the debtor and the insurer in the position they would have been in had the age information been correctly stated. An adjustment may not be made unless the age information is contained in an application signed by the debtor, a copy of which is furnished, not later than the time the adjustment is made, to the debtor, a secondary beneficiary or other claimant.
(10) Renewal or refinancing. With respect to the renewal or refinancing of an existing insured indebtedness, the effective date of coverage on the renewed or refinanced indebtedness shall be the date on which the insurer originally insured the debtor with respect to the indebtedness that is renewed or refinanced, to the extent of the amount and term of the indebtedness outstanding at the time of renewal or refinancing.
(11) Truncated unemployment coverage.
(i) Truncated credit unemployment insurance may be provided only in connection with loans or credit transactions that are for a term greater than 60 months.
(ii) The truncated coverage period shall be at least 60 months.
(iii) If truncated coverage is elected by a debtor, at the time of the election of the insurance coverage, the debtor shall be informed in writing of the term of the insurance coverage and that the coverage will terminate prior to the scheduled maturity date of the indebtedness.
(iv) A group certificate or individual policy providing truncated credit insurance coverage shall disclose both the term of the truncated insurance coverage and that the term of insurance coverage will terminate prior to the scheduled maturity date of the indebtedness. The termination disclosure shall appear in prominent type on the first page of the group certificate or individual policy.
(12) Cancellation notice. A group certificate or individual policy providing involuntary unemployment or voluntary unemployment insurance shall contain a disclosure that the benefit provided by the group certificate or individual policy is related to unemployment and that if the insured debtor retires or no longer plans to work, the insured debtor has the right to contact the insurer or creditor to cancel the insurance coverage. This disclosure shall appear in prominent type on the first page of the group certificate or individual policy.
(13) Proof of unemployment. For involuntary unemployment coverage, proof of involuntary unemployment may not be limited to eligibility for unemployment compensation benefits.
§ 73.112. Involuntary unemployment insurance rate standards.
(a) Prima facie involuntary unemployment rates. Premium rates for credit involuntary unemployment insurance benefits, as described in § 73.110(a) (relating to involuntary unemployment insurance benefits), may not exceed the prima facie premium rates referenced in this section and published in the Pennsylvania Bulletin, unless higher premium rates are approved under § 73.122 (relating to deviated rates). Premium rates for benefits that differ from those benefits described in § 73.110(a) may not exceed premium rates that are actuarially consistent with the prima facie premium rates referenced in this section and published in the Pennsylvania Bulletin.
(b) Debtor insurance charge. The amount charged a debtor by a creditor for credit involuntary unemployment insurance may not exceed the premium amount charged by the insurer, as computed at the time the charge to the debtor is determined.
(c) Single premium rates for a 12-month benefit period and a full term coverage period. If premiums are payable on a single premium basis for insurance with a 12-month benefit period for a full term coverage period, the single premium prima facie premium rates for credit involuntary unemployment insurance on a single life shall be as published in the Pennsylvania Bulletin.
(d) Single premium rates for a 12-month benefit period and a limited term coverage period. For insurance with a limited term coverage period and a 12-month benefit period, the single premium prima facie premium rates shall be the prima facie premium rates published in the Pennsylvania Bulletin, for an installment period equal to the number of monthly installment payments in the limited term coverage period. The single premium shall be determined by multiplying the prima facie rate by the monthly installment payment, by the number of months in the limited term coverage period, divided by 1,000.
(e) Monthly premium rates for a 12-month benefit period and a full term coverage period. If premiums are payable on a monthly basis for insurance with a 12- month benefit period for a full term coverage period, the monthly prima facie premium rates for credit involuntary unemployment insurance on a single life shall be as published in the Pennsylvania Bulletin.
(f) Monthly premium rates for a 12-month benefit period and a limited term coverage period. For insurance with a limited term coverage period and a 12-month benefit period, the monthly prima facie premium rates shall be as published in the Pennsylvania Bulletin, for an installment period equal to the number of monthly installment payments in the limited term coverage period. The monthly premium shall be determined by multiplying the prima facie rate by the monthly installment payment, by the remaining number of months in the limited term period, divided by 1,000.
(g) Joint rates.
(1) When each debtor is insured for 100% of the monthly unemployment payment, the prima facie premium rates for joint credit involuntary unemployment insurance shall equal 180% of the prima facie premium rates for single involuntary unemployment coverage.
(2) When each debtor is insured for a specific portion of the monthly unemployment payment, the prima facie premium rates for joint credit involuntary unemployment insurance shall equal 100% of the prima facie premium rates for single involuntary unemployment coverage.
(h) Actuarially consistent rates. For credit involuntary unemployment insurance on any other basis, prima facie premium rates shall be actuarially consistent with the rate standards of subsections (c)--(f).
(i) Adjustment of prima facie rates and loss ratio standards. By July 20, 2001, and at least every 3 years thereafter, the Department will review the appropriateness of the prima facie premium rates referenced in this section based upon Commonwealth experience data for the preceding 3-calendar years. The nonclaim element of the prima facie premium rates may not be adjusted unless an adjustment is necessary under subsection (j). No adjustment to the prima facie premium rates will be made if the change in prima facie premium rates so determined would be less than 5%. If an adjustment to the prima facie premium rates is indicated, the Department will publish the new prima facie premium rates in the Pennsylvania Bulletin. If an adjustment to the loss ratio standards is indicated, the Department will propose a regulatory amendment to § 73.123 (relating to loss ratio standards) to reflect the change.
(j) Review of nonclaim elements. By July 20, 2007, and at least every 9 years thereafter, the Department will review the changes in the average term and amount of coverage, the changes in fixed and variable expenses, and the reasonable profit margin for insurance companies writing credit involuntary unemployment insurance in this Commonwealth. If this review indicates that a change in the nonclaim elements of the premium rates is necessary, the Department will propose a regulatory amendment to the loss ratio standards in § 73.123 and thereafter publish new prima facie premium rates in the Pennsylvania Bulletin.
§ 73.113. Voluntary unemployment insurance rate standards.
(a) Debtor insurance charge. The amount charged a debtor by a creditor for credit voluntary unemployment insurance may not exceed the premiums charged by the insurer, as computed at the time the charge to the debtor is determined.
(b) Premium rates based on loss ratio. The premium rates shall be based on a loss ratio not less than the loss ratio standard in § 73.123 (relating to loss ratio standards).
(c) Actuarial memorandum filing. The insurer shall include, with the rate filing made under § 73.136(a) (relating to filing of forms and rates), an actuarial memorandum which contains the basis of the claim costs used in computing the premium rates.
(d) Joint rates.
(1) When each debtor is insured for 100% of the monthly unemployment benefit, the premium rates for joint credit voluntary unemployment insurance shall equal 180% of the premium rates for single voluntary unemployment coverage.
(2) When each debtor is insured for a specific portion of the monthly unemployment benefit, the premium rates for joint credit voluntary unemployment insurance shall equal 100% of the premium rates for single voluntary unemployment coverage.
(e) Adoption of prima facie rates. If, in the opinion of the Commissioner, there is sufficient credit voluntary unemployment insurance experience data in this Commonwealth, the Commissioner may establish and adopt prima facie premium rates for voluntary unemployment and procedures for adjusting the prima facie premium rates.
(f) Review of nonclaim elements. By July 20, 1997, and at least every 9 years thereafter, the Department will review the changes in the average term and amount of coverage, changes in fixed and variable expenses, and the reasonable profit margin for insurers writing credit voluntary unemployment insurance in this Commonwealth. If this review indicates that a change in the loss ratio standard is necessary, the Department will propose an appropriate regulatory amendment to § 73.123 to reflect the change.
§ 73.115. Benefit exclusions.
Exclusions may be contained in a credit insurance plan as provided in §§ 73.104(a), 73.107(a) and 73.110(a) (relating to life insurance and life insurance with TPD benefit; A and H insurance benefits; and involuntary unemployment insurance benefits).
(1) The following exclusions may also be contained in a life insurance plan or a life insurance with TPD benefit plan:
(i) Death due to suicide within 1 year of the effective date of coverage.
(ii) TPD due to intentionally self-inflicted injury.
(iii) A preexisting conditions exclusion due to a condition for which the insured debtor received medical advice, consultation, diagnosis or treatment from a physician or podiatrist within 6 months before the effective date of coverage and due to which death occurs or TPD commences within 6 months after the effective date of coverage. This exclusion applies only if and to the extent that the total amount of all insurance that would otherwise be subject to the preexisting conditions exclusion exceeds $1,000.
(iv) For the application of the exclusions contained in subparagraphs (i)--(iii), the effective date of coverage for each portion of the insurance attributable to a different advance under an open end loan, is the date on which the advance or charge occurs, or if later, the date on which coverage is elected.
(2) The following exclusions may also be contained in an A and H insurance plan:
(i) Normal pregnancy.
(ii) Intentionally self-inflicted injury.
(iii) Nonscheduled aircraft flight.
(3) The following exclusions may also be contained in an involuntary unemployment insurance plan:
(i) Voluntary resignation of employment.
(ii) Voluntary leave of absence.
(iii) Voluntary forfeiture of salary, wages or income.
(iv) Retirement.
(v) Injury or disease.
(vi) Disability.
(vii) Strike or unionized labor dispute.
(viii) Discharge by employer for cause.
(ix) Involuntary unemployment for which severance pay is received by the debtor.
§ 73.116. Age requirements.
(a) Debtor age provisions. Plans of credit insurance as provided in §§ 73.104(a), 73.107(a) and 73.110(a) (relating to life insurance and life insurance with TPD benefit; A and H insurance benefits; involuntary unemployment insurance benefits) may provide for debtor age provisions not less favorable than any of the following:
(1) An age restriction making the debtor ineligible for coverage when one of the following applies:
(i) The debtor will have attained 65 years of age at the time the indebtedness is incurred.
(ii) The debtor will have attained 66 years of age on the scheduled maturity date of the indebtedness.
(2) A provision for coverage to terminate when the debtor attains a specified age not less than 66 years. If coverage is written on a single premium basis, the term of the insurance coverage on which the premium is based may not extend beyond the termination age.
(i) A debtor electing coverage that terminates when a specified age is attained shall be provided, at the time of election of insurance coverage, with a written disclosure specifying the age of the debtor at which the insurance will terminate.
(ii) A group certificate or individual policy providing coverage that terminates when a specified age is attained shall disclose the age of the debtor at which the insurance will terminate. The termination disclosure shall appear in prominent print on the first page of the group certificate or individual policy.
(b) Eligibility determination using age. An age restriction shall be used only to determine initial eligibility for coverage and may not be used as a basis for denying claims or terminating existing coverage, except as provided in subsection (a)(2) and in § 73.105 (3) and (4), § 73.108 (5) and (6) or § 73.111 (5) and (6).
§ 73.119. Combination coverage rate.
If an insurer combines two or more credit life, Credit A and H or credit unemployment insurance coverages which are provided under separate and distinct policy forms, and if the debtor may purchase only a package of these insurance coverages, the premium rate for the package shall be the sum of the separate approved premium rates for the applicable insurance coverages less a discount of 5% of the sum of the separate approved premium rates.
§ 73.120. Composite term premium rate.
Composite term premium rates may be used under the following conditions:
(1) The insurer shall include in the filing of the composite term premium rates a demonstration that the expected total premium to be collected by the insurer will not exceed the total premium that would be collected if term specific rates were charged.
(2) The composite term premium rates may not exceed by more than 10% any term specific rates within the composite term period.
§ 73.126. Voluntary unemployment experience reports.
The Commissioner may require, with a minimum of 6 months advance notice, that each insurer doing credit voluntary unemployment insurance business in this Commonwealth file a report of credit voluntary unemployment insurance written on a calendar year basis. The report shall follow the format specified for credit unemployment insurance of the Credit Insurance Experience Exhibit as required by the annual statement instructions and shall contain separate specific data for this Commonwealth, rather than an allocation of the company's countrywide experience.
§ 73.130. Election of coverage and disclosure requirements.
(a) Separate purchase of coverages. If more than one type of credit insurance coverage is offered for purchase in connection with an indebtedness and each coverage is provided under separate and distinct policy forms, the debtor shall be allowed to separately purchase each credit insurance coverage, unless the premium rate for a package policy is provided under § 73.119 (relating to combination coverage rate).
(b) Election of coverage. If an identifiable charge is made to the debtor for credit insurance coverage, no coverage may be provided unless the debtor is liable under the credit agreement and the coverage is elected and authorized by the proposed insured debtor in the insurance application. If joint life, joint life with TPD benefit, joint A and H, joint involuntary unemployment or joint voluntary unemployment coverage is offered, and an identifiable charge is made for the joint coverage, each proposed insured debtor shall be liable under the credit agreement, and shall elect the coverage by authorizing the insurance application. An insurer may require that only one of the joint debtors elect the credit insurance coverage if the following exist:
(1) The insurance application is mailed or electronically transmitted to the debtor and returned to the insurer or creditor by mail or electronically.
(2) The credit insurance application is completed after the application for the indebtedness is completed.
(c) Single life designation. In situations where two debtors are each liable for repayment of an indebtedness and insurance coverage on only one life is offered, both debtors shall be provided with the option to elect the coverage, if there is an identifiable charge to the debtor for the coverage. Only one of the debtors shall be provided with the opportunity to elect the single coverage if the following conditions are met:
(1) The insurance application is mailed or electronically transmitted to the debtor and returned to the insurer or creditor by mail or electronically.
(2) The credit insurance election is completed after the application for the indebtedness is completed.
(d) Notice of proposed insurance. With respect to section 6(4) of the act (40 P. S. § 1007.6(4)), the application and notice of proposed insurance shall be deemed to be prominently set forth in the financial instrument if set forth in a separate provision on the face or reverse side of the financial instrument in type at least equal in size and prominence to the type used for other provisions of the financial instrument.
§ 73.134. Compensation of producers and creditors.
(a) Compensation limits. Premium rates shall be presumed to be excessive if the compensation for writing and handling credit insurance paid to a creditor, producer or any affiliate, associate, subsidiary, director, officer, employe or other representative of the creditor or producer, exceeds:
(1) For credit life insurance and credit life insurance with TPD benefit, 27% of the prima facie premium rates referenced in § 73.106 (relating to life insurance rate standards) or 27% of the actuarially consistent premium rates for insurance for which prima facie rates are not published in the Pennsylvania Bulletin.
(2) For credit A&H insurance or involuntary unemployment insurance, 21% of the prima facie premium rates referenced in §§ 73.109 and 73.112 (relating to A&H insurance rate standards; and involuntary unemployment insurance rates standards) or 21% of the actuarially consistent premium rates for insurance for which prima facie rates are not published in the Pennsylvania Bulletin.
(b) Additional compensation. When a licensed producer, general producer, general agency or home office producer, having no direct or indirect affiliation or connection with the creditor, is involved in the solicitation of a credit insurance policy, the compensation of 27% as provided in subsection (a) shall be increased to 30% and the compensation of 21% as provided by subsection (b) shall be increased to 25% provided that the entire amount or any part of additional compensation shall be used solely as commission for the licensed producer, general producer, general agency or home office producer involved in the solicitation. The creditor is prohibited from receiving indirectly or directly all or any portion of the additional 3% or 4% commission.
(c) Compensation defined. For purposes of this chapter, ''compensation'' means money or anything else of value paid or credited to or on behalf of any group policyholder, producer, or general producer or withheld by any group policyholder producer, broker or general producer within or outside this Commonwealth in relation to business produced or to be produced or written or to be written in this Commonwealth and paid or credited by or on behalf of the insurer or by any affiliate of the insurer or by another person. Compensation includes the following:
(1) Commissions.
(2) Fees, including administrative fees, service fees, consulting fees and expense fees.
(3) Electronic data processing equipment used for purposes other than electronic rate books.
(4) Electronic data processing services other than the programming of existing electronic data processing equipment used in lieu of rate books or charts.
(5) Supplies, other than forms approved by the Commissioner and usual and customary claims and reporting forms and envelopes.
(6) Rental equipment of any type provided by an insurer, its agent or any related person without charge of actual cost or at a charge less than the usual cost.
(7) Advertising provided by an insurer, its agent or a related person without charge of actual cost or at a charge less than the usual cost.
(8) Communication devices provided by an insurer, its agent or a related person without charge of actual cost or at a charge less than the usual cost.
(9) Profit sharing plans.
(10) Experience rating refunds and credits.
(11) Dividends as provided in § 73.129 (relating to dividends).
(12) Dividends received by a producer of credit insurance business who owns in part or whole a reinsurance company which assumes the credit insurance business from the direct insurer, if any of the following criteria are met:
(i) The dividend payment on each share of stock represents more than a reasonable return on the producer's capital investment.
(ii) The direct insurer has contractually guaranteed to reassume any losses sustained by the reinsurer on the ceded business.
(13) Expense allowances or reimbursement.
(14) Stock plans and bonuses.
(15) Extension of credit.
(16) Reimbursement for expenditures.
§ 73.137. Compensating balances or special deposits.
(a) Definition. Compensating balances or special deposit accounts shall include the following:
(1) The deposit of premiums or money to the account of the insurer or an affiliate of the insurer when the account is either noninterest bearing or bearing interest at a rate less than the current market rate. The rate of interest will be considered less than usual if a higher rate of interest could be earned by combining the account with one or more other accounts, unless there is a business reason unrelated to the credit insurance program for maintaining separate accounts.
(2) The remittance of premiums to the insurer after the expiration of the grace period, except as provided in § 73.132(b) (relating to collection of premiums), on a regular basis thereby resulting in an arrearage period which is constant.
(3) The retention of premiums by a producer to whom the financial institution remits premiums beyond a reasonable period of time needed for the producer to remit premiums to an insurer, if the delay is a continuing practice in the premium paying process.
(4) Any other practice which unduly delays receipt of premiums by the insurer on a regular basis, or which involves the use of the financial resources of an insurer for the benefit of a financial institution.
(b) Illegal inducement. The use of compensating balances or special deposit accounts in connection with a credit insurance program constitutes a violation of section 635 of The Insurance Department Act of 1921 (40 P. S. § 271), section 346 of The Insurance Company Law of 1921 (40 P. S. § 471) and section 5(a)(4) of the Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(4)).
(c) Premium basis. The prohibition on compensating balances and special deposits applies regardless of whether premiums are due the insurer on the single premium basis or on the monthly outstanding balance premium basis.
(d) Nonapplicability. This section does not prevent an insurer from making deposits in a financial institution which deposits are not related to a credit insurance program.
§ 73.138. Financial statement reserves.
The following reserves for all credit insurance policies shall be maintained by insurers doing credit life insurance or credit A and H insurance business in this Commonwealth.
(1) The reserves for credit life insurance may not be less than the reserves as computed using the Commissioners 1980 Extended Term Mortality Table, using mortality rates applicable to male lives for insurance issued prior to or on or after July 20, 1998, with interest at the rate specified in section 301(c) of The Insurance Department Act of 1921 (40 P. S. § 7(c)).
(2) The reserves for single premium credit A and H insurance or TPD benefits may not be less than the mean of the amounts of unearned premium calculated from gross premiums in force on the following bases:
(i) The pro rata basis.
(ii) Rule of 78 basis.
(3) The reserves for monthly premium credit A and H insurance and TPD benefits may not be less than the amount of unearned premium calculated from gross premiums in force on the pro rata basis.
(4) The claim reserves for credit A and H insurance shall be calculated using a generally accepted actuarial method or other reasonable method acceptable to the Commissioner.
§ 73.139. Credit insurance on open end loans.
(a) General requirements. Credit insurance may be provided in connection with open end loans. This insurance is provided on the outstanding balance of the indebtedness, subject to any maximum dollar amount of coverage or limited benefit period specified in the group certificate or individual policy. If no indebtedness exists, the insurance amount shall be zero and shall remain so until an advance or charge occurs under the plan. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on open end loans.
(b) Identification. A credit insurance program designed for use with open end loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Symbols. The symbols used in this section shall have the following meaning:
(1) i = actual monthly interest rate (APR/12).
(2) i` = (i + .0025).
(3) n = log(z/(z-i))/log(1+i) rounded up to an integer.
(4) NFC = gross/net conversion rate for an open end loan with the monthly benefit equal to a minimum monthly payment that is based on a percentage of the current month's balance.
(5) z = minimum monthly payment expressed as a decimal fraction.
(d) Life benefit. The credit life insurance benefit shall be equal to the lesser of:
(1) The amount of the outstanding balance of the indebtedness at the time of death.
(2) The maximum dollar amount of coverage specified in the group certificate or individual policy.
(e) TPD benefit. The TPD benefit shall be equal to the lesser of:
(1) The amount of the outstanding balance of the indebtedness at the commencement of the TPD plus the amount any monthly interest accruing on the net unpaid indebtedness from the date TPD commences until the date the TPD benefit is paid.
(2) The maximum dollar amount of coverage specified in the group certificate or individual policy.
(f) A and H and involuntary unemployment benefit. The minimum monthly insurance benefit for A and H insurance and involuntary unemployment insurance shall be equal to the lesser of:
(1) The minimum loan payment for the month in which disability or unemployment commences, excluding indebtedness incurred after the disability or unemployment commences and repayments made during the month in which disability or unemployment commences.
(2) The maximum monthly dollar amount of coverage specified in the group certificate or individual policy.
(g) A and H and involuntary unemployment premium rates. If the A and H and involuntary unemployment premium rates are based on the net outstanding balance, the premium rates shall be determined as follows:
(1) If the benefit amount is based on a percentage of the current month's balance and the benefit is paid until the indebtedness existing at the time of disability or involuntary unemployment, including accrued interest, is repaid, the following adjustment shall be made:
(i) The monthly outstanding balance prima facie rates published in the Pennsylvania Bulletin shall be converted from rates to be applied to gross monthly outstanding balance, to rates to be applied to the net monthly outstanding balance. The following formula may be used:
NFC = (n/ani`) (Opn)
(ii) Each creditor shall have its A and H and involuntary unemployment rate based on the creditor's minimum repayment schedule and current annual percentage rate. The insurer shall review the minimum monthly installment and annual percentage rate of each creditor at least annually. If there is a change in the minimum repayment percentage or the annual percentage rate, and the resulting premium rate is greater than the current premium rate, the insurer may adjust the rate. If the resulting rate is lower than the current premium rate, the insurer shall adjust the rate if the change results in a rate reduction of greater than 5%.
(iii) Either the actual interest rate used in calculating the loan or interest rate intervals may be used when converting the gross premium prima facie rates published in the Pennsylvania Bulletin in accordance with subparagraphs (i) and (ii). When interest intervals are used, the monthly interest rate ''i'' shall be set equal to the midpoint of the range. The interest rate intervals shall be set so as to include all interest rates that produce the same loan duration for a specified playback percentage. The insurer shall include with the premium rate filing, required by § 73.136, a complete description of the method and formulas used to determine the interest rate intervals.
(2) For a benefit plan that is different than the plan described in paragraph (1), the insurer shall include with the premium rate filing, a description of the method and formulas used to determine the coverage period and benefit period, and a description of the method and formulas used to adjust the gross outstanding balance rates for a full coverage period and a full benefit period to net outstanding balance rates for the appropriate coverage period and benefit period. The insurer shall include the actuarial justification of the method.
(h) Furnishing of forms. Forms required to be furnished to a debtor as evidence of coverage need be furnished only once for each open end loan and may remain in force until terminated.
(i) Assumption of coverage. If an existing group policy providing insurance coverage in connection with open end loans is assumed by another insurer, the assuming insurer shall issue a replacement certificate to each existing certificate holder.
(j) Premium refund. Refund of premiums is not required in the event of termination of the coverage, except with respect to the termination of credit A and H, credit involuntary unemployment or credit voluntary unemployment insurance as provided in § 73.127(a)(2) (relating to refunds).
§ 73.140. Credit insurance on closed end variable interest loans.
(a) General requirements. Credit insurance may be provided in connection with closed end variable interest loans. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on closed end variable interest loans.
(b) Identification. A credit insurance program designed for use with closed end variable interest loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Disclosure. If premiums are payable on a single premium basis and life insurance coverage is provided, the individual policy or group certificate shall contain a disclosure that the insurance benefit may end prior to the maturity date of the loan. If premiums are payable on a single premium basis and A and H, involuntary unemployment or voluntary unemployment insurance coverage is provided, the individual policy or group certificate shall contain a disclosure that the insurance benefits may not be sufficient to pay the entire amount of the periodic loan payment or may end prior to the maturity date of the loan. The disclosure shall appear in prominent type on the first page of the individual policy or group certificate.
(d) Benefit amount. Subject to any policy limitations, if premiums are payable on a single premium basis, the monthly A and H insurance benefit and the involuntary unemployment insurance benefit shall equal the amount of the original monthly installment payment. Subject to any policy limitations, if premiums are payable on a monthly outstanding balance basis, the monthly A and H and involuntary unemployment insurance benefits shall equal the amount of the monthly installment payment amount on the day disability or unemployment began.
(e) Coverage term. If premiums are payable on a single premium basis, the term of the insurance shall extend until the original scheduled maturity date of the indebtedness, unless coverage terminates earlier in accordance with the policy or certificate provisions. If the term of the insurance extends to the original scheduled maturity date of the indebtedness, it may be extended for an additional 2 months to cover delinquencies or extensions due to increased interest rates. If premiums are payable on a monthly basis, the term of the insurance shall extend until the loan is repaid, unless coverage terminates earlier in accordance with the policy or certificate provisions.
(f) Refund. A refund of any unearned premiums shall be made as provided in § 73.127 (relating to refunds) if the indebtedness is prepaid prior to the original scheduled maturity date of the indebtedness as a result of a decline in interest rates. The refund shall be based on the term and interest rate applicable at the inception of the loan and the actual elapsed term.
(g) Premium determination. If premiums are payable on a single premium basis, the premium shall be based on the expected amount and term of coverage, in consideration of the amount financed, the expected loan term and the interest rate applicable to the loan at the time the insurance is elected.
§ 73.141. Credit insurance on lease transactions.
(a) General requirements. Credit insurance may be provided in connection with lease transactions. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on lease transactions.
(b) Identification. Any credit insurance program designed for use with lease transactions shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Lease filing. Insurers shall file a lease form and lease worksheet for each total monthly lease payment calculation method. An insurer, which has received approval of filed insurance forms, premiums and refund calculations for use with a particular monthly lease payment calculation method, may use the approved forms, premiums and refund calculations with any lease form providing for the same method. Approved insurance forms may be used with a different total monthly lease payment calculation method if the insurer files the lease form and receives approval of premium and refund calculations. The premium and refund calculations shall be consistent with the manner in which the newly filed total monthly lease payment is calculated.
(d) Lease payment methodology. Insurers shall include with the premium rate filing the methodology for calculating the actual monthly lease payment, including factors such as taxes, depreciation, interest, insurance premiums and service fees.
(e) Coverage basis. The decreasing credit life insurance benefit or credit life insurance with TPD benefit shall equal the decreasing term lease insurance amount, as defined in § 73.103 (relating to definitions). If the residual amount of a lease transaction is insured, the insurance shall be provided on a level term basis.
(f) Benefit amount. The monthly A and H insurance benefit and the involuntary unemployment insurance benefit shall equal the amount of each monthly lease payment, subject to any maximum monthly benefit specified in the group policy and group certificate or individual policy. No credit A and H or involuntary unemployment insurance may be provided on the residual amount.
(g) Payment to beneficiary. If the credit life or TPD proceeds are applied to continue lease payments, the difference between the sum of the remaining payments plus the amount of level insurance, if applicable, and the sum of the present value of the remaining payments plus the present value of the residual payment, if applicable, shall be paid to the named beneficiary or the estate of the debtor regardless of whether the benefit is paid to the creditor as a lump sum or in installments. The present value shall be calculated using an interest rate not less than 5%.
(h) Single premium calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, the single premium shall equal the sum of the following:
(1) The single premium for decreasing insurance with an amount of initial insured indebtedness equal to the initial amount of decreasing lease insurance, as defined in § 73.103, and with a number of equal monthly installments equal to the number of months in the lease term, less the number of monthly installments paid at the beginning of the lease.
(2) The single premium for level insurance with an amount of insurance equal to the amount of level lease insurance, as defined in § 73.103, and with a number of monthly installments equal to the number of months in the lease term.
(i) Single premium formula filing. Every insurer shall submit its formula for calculating the single premiums for the life, life with TPD, A and H, involuntary unemployment and voluntary unemployment insurance coverages consistent with the calculation of the monthly lease payment.
§ 73.142. Credit insurance on fixed residual loans.
(a) General requirements. Credit insurance may be provided in connection with motor vehicle fixed residual value financing. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on fixed residual loans.
(b) Identification. A credit insurance program designed for use with fixed residual value financing shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).
(c) Filing requirement. Every insurer shall file a fixed residual value financing loan form and the formula demonstrating the manner in which the actual installment payment will be calculated for each installment payment calculation method.
(d) Level life coverage. If the fixed residual value amount is insured, life insurance coverage shall be provided on a level term basis.
(e) A and H and involuntary unemployment coverage. The monthly A and H insurance benefit and the involuntary unemployment insurance benefit may not exceed the amount of each monthly installment payment. No credit A and H or involuntary unemployment insurance may be provided on the residual amount.
(f) Single premium gross calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, when the benefit is the gross unpaid indebtedness, the single premium shall equal the sum of the single premium for decreasing insurance with an amount of initial insured gross unpaid indebtedness equal to the sum of the schedule of installment payments and the single premium for level insurance with an amount of insurance equal to the fixed residual value.
(g) Single premium net calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, when the benefit is the net unpaid indebtedness, the single premium shall equal the sum of the single premium for decreasing insurance based on an initial amount financed minus an amount equal to the fixed residual value, and the single premium for level insurance with an amount of insurance equal to the fixed residual value.
(h) Payment to beneficiary. If the insurance benefit is the gross unpaid indebtedness, and if the life insurance or TPD proceeds are applied to continue the installment, the group policy and group certificate or individual policy providing the coverage shall provide that the difference between the sum of the remaining payments plus the amount of level insurance, if applicable, and the sum of the present value of the remaining payments plus the present value of the fixed residual value payment, if applicable, shall be paid to the named beneficiary or the estate of the debtor, regardless of whether the benefit is paid to the creditor as a lump sum or in installments. The present value shall be calculated using an interest rate of at least 5%.
§ 73.143. Credit insurance on balloon loans.
(a) General requirements. Credit insurance may be provided in connection with balloon loans. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on balloon loans.
(b) Identification. Any credit insurance program designed for use with balloon loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing for forms and rates).
(c) Disclosure. Every individual policy or group certificate shall contain a disclosure that neither the A and H nor the involuntary unemployment insurance benefit is provided on the balloon amount of the loan. The disclosure shall appear in prominent type on the first page of the individual policy or group certificate.
(d) Benefit amount.
(1) For credit life insurance or credit life insurance with TPD benefit, the balloon amount shall be included in determining the amount of gross unpaid indebtedness or net unpaid indebtedness.
(2) For credit A and H, involuntary unemployment or voluntary unemployment insurance, no monthly benefit may be provided on the balloon amount.
(e) Life insurance single premium gross calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis when the benefit is the gross unpaid indebtedness, the single premium shall equal the sum of the single premium for the decreasing insurance with an amount of initial insured gross unpaid indebtedness equal to the actual amount of initial insured gross unpaid indebtedness minus the balloon amount and the single premium for level insurance with an amount of insurance equal to the balloon amount.
(f) Life insurance single premium net calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis when the benefit is the net unpaid indebtedness, the single premium shall equal the sum of the single premium for the decreasing insurance based on the initial amount financed minus the balloon amount and the single premium for level insurance with an amount of insurance equal to the balloon amount.
[Pa.B. Doc. No. 98-447. Filed for public inspection March 20, 1998, 9:00 a.m.]
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