Alabama Life & Disability Insurance Guaranty Association

Contact Information

Alabama Life & Disability Insurance Guaranty Association
2009 Eagle Ridge Drive
Birmingham, AL 35242
(p) 205.879.2202 (f) 205.879.2292
Association Web site: http://www.allifega.org
State Insurance Department: http://www.aldoi.gov/

Law Summaries Report

[ Current as of January 01, 2020 ] ]

Coverages

Covered Contracts

§27-44-3(b)(1) This chapter shall provide coverage to the persons specified in subsection (a) for direct, non-group life, disability, or annuity policies or contracts, and for certificates under direct group policies and contracts, and for supplemental contracts to any of these, in each case issued by member insurers, except as limited by this chapter. Annuity contracts and certificates under group annuity contracts include allocated funding agree-ments, structured settlement annuities, and any immediate or deferred annuity contracts. (Amended effective 1/1/13)

Non-Covered Contracts

§27-44-3(b)(2) This chapter shall not provide coverage for any of the following: “ a. A portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract owner. “ b. A policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract. “ c. A portion of a policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value: “ 1. Averaged over the period of four years prior to the date on which the member insurer be-comes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. “ 2. On and after the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available. “ d. A portion of a policy or contract issued to a plan or program of an employer, association or other person to provide life, disability, or annuity benefits to its employees, members or others, to the extent that the plan or program is self-funded or uninsured, including, but not limited to, benefits payable by an employer, association, or other person under any of the following: “ 1. A multiple employer welfare arrangement as defined in Section 3(40) of the Employee Re-tirement Income Security Act of 1974 (29 U.S.C. Section 1002(40)). “ 2. A minimum premium group insurance plan. “ 3. A stop-loss group insurance plan. “ 4. An administrative services only contract. “ e. A portion of a policy or contract to the extent that it provides for any of the following: “ 1. Dividends or experience rating credits. “ 2. Voting rights. “ 3. Payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract. “ f. A policy or contract issued in this state by a member insurer at a time when it was not licensed or did not have a certificate of authority to issue the policy or contract in this state. “ g. A portion of a policy or contract to the extent that the assessments required by Section 27–44–9 with respect to the policy or contract are preempted by federal or state law. “ h. An obligation that does not arise under the express written terms of the policy or contract issued by the insurer to the contract owner or policy owner, including without limitation: “ 1. Claims based on marketing materials. “ 2. Claims based on side letters, riders, or other documents that were issued by the insurer without meeting applicable policy form filing or approval requirements. “ 3. Misrepresentations of or regarding policy benefits. “ 4. Extra-contractual claims, including, without limitation, claims relating to bad faith in the payment of claims, punitive or exemplary damages or attorneys' fees and costs. “ 5. A claim for penalties or consequential or incidental damages. “ i. A contractual agreement that establishes the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or its trustee, which in each case is not an affiliate of the member insurer. “ j. An unallocated annuity contract. “ k. A portion of a policy or contract to the extent it provides for interest or other changes in value to be determined by the use of an index or other external reference stated in the policy or contract, but which have not been credited to the policy or contract, or as to which the policy or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. If a policy's or contract's interest or changes in value are credited less frequently than annually, then for purposes of determining the values that have been credited and are not subject to forfeiture under this subsection, the interest or change in value determined by using the procedures defined in the policy or contract will be credited as if the contractual date of crediting interest or changing values was the date of impairment or insolvency, whichever is earlier, and will not be subject to forfeiture. “ l. A policy or contract providing any hospital, medical, prescription drug, or other health care ben-efits pursuant to Part C or Part D of Subchapter XVIII, Chapter 7 of Title 42 of the United States Code (commonly known as Medicare Part C and D) or any regulations issued pursuant thereto. (Amended effective 1/1/13)

Non-Resident Coverage

§27-44-3(a)(2). The Act covers nonresidents under all the following conditions: 1. The insurer that issued the policies or contracts is domiciled in this state. 2. The states in which the persons reside have associations similar to the association created by this chapter. 3. The persons are not eligible for coverage by an association in any other state due to the fact the insurer was not licensed in the state at the time specified in the state's guaranty association law. (Amended effective 1/1/13)

Benefit Limits

§27-44-3(c) The benefits that the association may become obligated to cover shall in no event exceed the lesser of: “ (1) The contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer. “ (2) a. With respect to one life, regardless of the number of policies or contracts: “ 1. Three hundred thousand dollars ($300,000) in life insurance death benefits, but not more than one hundred thousand dollars ($100,000) in net cash surrender and net cash withdrawal values for life in-surance. “ 2. In disability insurance benefits: “ (i) One hundred thousand dollars ($100,000) for coverages not defined as disability income insurance or basic hospital, medical, and surgical insurance or major medical insurance or long-term care insurance including any net cash surrender and net cash withdrawal values. “ (ii) Three hundred thousand dollars ($300,000) for disability income insurance and three hundred thousand dollars ($300,000) for long-term care insurance. “ (iii) Five hundred thousand dollars ($500,000) for basic hospital, medical, and surgical in-surance or major medical insurance. “ 3. Two hundred fifty thousand dollars ($250,000) in the present value of annuity benefits, in-cluding net cash surrender and net cash withdrawal values. “ b. With respect to each payee of a structured settlement annuity (or beneficiary or beneficiaries if the payee is deceased), two hundred fifty thousand dollars ($250,000) in present value annuity benefits, in the aggregate, including net cash surrender and net cash withdrawal values, if any. “ c. However, in no event shall the association be obligated to cover more than either of the following: “ 1. An aggregate of three hundred thousand dollars ($300,000) in benefits with respect to any one life under paragraphs a. and b. except with respect to benefits for basic hospital, medical, and surgical insur-ance and major medical insurance under paragraph a.2., in which case the aggregate liability of the association shall not exceed five hundred thousand dollars ($500,000) with respect to any one individual. “ 2. With respect to one owner of multiple non-group policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, more than five million dollars ($5,000,000) in benefits, regardless of the number of policies and contracts held by the owner. “ d. The limitations set forth in this subsection are limitations on the benefits for which the association is obligated before taking into account either its subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the association's obligations under this chapter may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to its subrogation and assignment rights. (Amended effective 1/1/13)

Triggers

Discretionary Triggers

§27-44-8(a) If a member insurer is an impaired insurer. (Amended effective 1/1/13)

Mandatory Triggers

§27-44-8(b). If a member insurer is an insolvent insurer. (Amended effective 1/1/13)

Foreign Triggers

No separate provision. (Amended effective 1/1/13)

"Impaired Insurer"

§27-44-5(9) A member insurer which, after the effective date of this act, is not an insolvent insurer and is placed under an order of rehabilitation or conservation by a court of competent jurisdiction. (Amended effective 1/1/13)

"Insolvent Insurer"

§27-44-5(10) INSOLVENT INSURER. A member insurer which, after the effective date of this act, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency. (Amended effective 1/1/13)

"Member Insurer"

§27-44-5(11) MEMBER INSURER. An insurer licensed or that holds a certificate of authority to transact in this state any kind of insurance to for which coverage is provided under Section 27–44–3, and includes an insurer whose license or certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn, but does not include any of the following: a. A hospital or medical service organization, whether profit or non-profit. b. A health care services plan. c. A cooperative hospital association. d. A health maintenance organization. e. A fraternal benefit society. f. A mandatory state pooling plan. g. A mutual assessment company or other person that operates on an assessment basis. h. An insurance exchange. i. An organization that has a certificate or license limited to the issuance of charitable gift annuities. j. An entity substantially similar to any of the above. (Amended effective 1/1/13).

Account Structure

§27-44-6. Three accounts: disability insurance account, life insurance account and annuity account.

Assessments

Assessment Limits

§27-44-9(e). One percent (1%) of premiums received during the calendar year preceding the assessment in state for policies covered by the account.

Assessment Classes

§27-44-9(b) There shall be two classes of assessments, as follows: (1) Class A assessments shall be authorized and called for the purpose of meeting administrative and legal costs and other expenses . Class A assessment may be authorized and called whether or not related to a particular impaired or insolvent insurer. (2) Class B assessments shall be authorized and called to the extent necessary to carry out the powers and duties of the association under Section 27–44–8 with regard to an impaired or insolvent insurer. (Amended effective 1/1/13)

Interest Rate Adjustments

§ 27–44–3 c.1. Guaranty Association excludes from coverage: A portion of a policy or contract to the extent that the rate of interest on which it is based, or the interest rate, crediting rate or similar factor determined by use of an index or other external reference stated in the policy or contract employed in calculating returns or changes in value: 1. Averaged over the period of four years prior to the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for such lesser period if the policy or contract was issued less than four years before the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier. 2. On and after the date on which the member insurer becomes an impaired or insolvent insurer under this chapter, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available. (Added effective 1/1/13).

Tax Offsets

§27-44-13(a). Yes. Up to 20% of assessment amount may be offset for 5 years after payment. Covers all assessments but administrative expenses.

Definition of Premium

§ 27–44–5(15) PREMIUMS. Direct gross insurance premiums and annuity considerations received on covered policies or contracts, less returned premiums and considerations thereon and dividends paid or credited to policyholders on such direct business. “Premiums” do not include premiums and considerations on contracts between insurers and reinsurers. (Amended effective 1/1/13)

Advertising Prohibition

No provision. § 27-44-19 entitled “Prohibited advertisement of chapter in insurance sales” was repealed in 1983.

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National Organization of Life & Health Insurance Guaranty Associations
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Phone Number: 703.481.5206