Kentucky Life & Health Insurance Guaranty Association

Covered Contracts

KRS 304.42-030(2)(a). This subtitle shall provide coverage to the persons specified in subsection (1) of this section for policies and contracts of direct, nongroup life insurance, health insurance, which for purposes of this subtitle includes health maintenance organization subscriber contracts and certificates, or annuities and supplemental contracts to any of these and for certificates issued under direct group policies and contracts.

Non-Covered Contracts

§304.42-030(2)(b). 1. Any portion of a policy or contract not guaranteed by the member insurer, or under which the risk is borne by the policy or contract owner; 2. Any policy or contract of reinsurance, unless assumption certificates have been issued pursuant to the reinsurance policy or contract; 3. Except as otherwise provided in paragraph (c) of this subsection, any portion of a policy or contract to the extent that the rate of interest on which it is based: a. Averaged over the period of four (4) years prior to the date on which the association becomes obligated with respect to such policy or contract, exceeds a rate of interest determined by subtracting two (2) percentage points from Moody’s corporate bond yield average averaged for that same four (4) year period or for such lesser period if the policy or contract was issued less than four (4) years before the association became obligated; and b. On and after the date on which the association becomes obligated with respect to the policy or contract, exceeds the rate of interest determined by subtracting three (3) percentage points from Moody’s corporate bond yield average as most recently available; 4. Any portion of a policy or contract issued to a plan or program of an employer, association, or other person to provide life, health, or annuity benefits to its employees, members, or others to the extent that such plan or program is self-funded or uninsured including, but not limited to, benefits payable by an employer, association, or other person under: a. A multiple employer welfare arrangement as defined in 29 U.S.C. sec. 1144; b. A minimum premium group insurance plan; c. A stop-loss group insurance plan; or d. An administrative services only contract; 5. Any portion of a policy or contract to the extent that it provides for: a. Dividends or experience rating credits; b. Payment of any fees or allowances to any person, including the policy or contract owner, in connection with the service to or administration of such policy or contract; or c. Voting rights; 6. Any policy or contract issued in this state by a member insurer at a time when it did not have a certificate of authority to issue such policy or contract in this state; 7. Any unallocated annuity contract; 8. A portion of a policy or contract to the extent that the assessments required by KRS 304.42-090 with respect to the policy or contract are preempted by federal or state law; 9. An obligation that does not arise under the express written terms of the policy or contract issued by the member insurer to the enrollee, certificate holder, policyholder, contract owner, or policy owner, including without limitation: a. Claims based on marketing materials; b. Claims based on side letters, riders, or other documents that were issued by the member insurer without meeting applicable policy or contract form filing or approval requirements; c. Misrepresentations of or regarding policy or contract benefits; d. Extracontractual claims; or e. A claim for penalties or consequential or incidental damages; 10. 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; 11. A policy or contract providing any hospital, medical, prescription drug or other health care benefits pursuant to: a. Medicare Part C or Part D, 42 U.S.C. secs. 1395w-21 to w-154; b. Medicaid, 42 U.S.C. secs. 1396 to 1396w-5; or c. Any regulations issued pursuant to the sections referenced in subdivision a. or b. of this subparagraph; and 12. Structured settlement annuity benefits to which a payee or beneficiary has transferred his or her rights in a structured settlement factoring transaction as defined in 26 U.S.C. sec. 5891(c)(3)(A), regardless of whether the transaction occurred before or after the section became effective.

Non-Resident Coverage

KRS 304.42-030(1)(b) - Yes - Covers nonresident persons but only under the following conditions: a. The member insurer which issued the policies or contracts is domiciled in this state; b. The states in which the persons reside have associations similar to the association created by this subtitle; and c. The persons are not eligible for coverage by an association in any other state due to the fact that the insurer or health maintenance organization was not licensed in the state at the time specified in the state’s guaranty association law.

KRS 304.42-030(3)(a) The benefits that the association may become obligated to cover shall in no event exceed the lesser of the contractual obligations for which the member insurer is liable or would have been liable if it were not an impaired or insolvent insurer, or with respect to any one (1) life, regardless of the number of policies or contracts: 1. In life insurance, three hundred thousand dollars ($300,000) in death benefits, but not more than one hundred thousand dollars ($100,000) net cash surrender and net cash withdrawal values for life insurance; 2. For health insurance benefits: a. One hundred thousand dollars ($100,000) for coverages not defined as disability income insurance, health benefit plans, or long-term care insurance, including any net cash surrender and net cash withdrawal values; b. Three hundred thousand dollars ($300,000) for disability income insurance and long-term care insurance; and c. Five hundred thousand dollars ($500,000) for health benefit plans; and 3. In annuity benefits, two hundred fifty thousand dollars ($250,000) in the present value of annuity benefits, including net cash surrender and net cash withdrawal values; except with respect to each payee of a structured settlement annuity or beneficiary or beneficiaries of the payee if 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. (b) In no event shall the association be obligated to cover more than: 1. An aggregate of three hundred thousand dollars ($300,000) in benefits with respect to any one (1) life under subparagraphs 2. and 3. of paragraph (a) of this subsection, except with respect to benefits for health benefit plans as stated in paragraph (a) of this subsection, in which case the aggregate liability of the association shall not exceed five hundred thousand dollars ($500,000) with respect to any one (1) individual; or 2. With respect to one (1) owner of multiple nongroup 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.

Discretionary Triggers

KRS 304.42-080(1). If a member insurer is impaired. (Eff. 7/15/98)

Mandatory Triggers

KRS 304.42-080(2). If a member insurer is insolvent. (Eff. 7/15/98)

Foreign Triggers

No separate provision.

"Impaired Insurer"

KRS 304.42-050(10). A member insurer which after June 17, 1978, is not an insolvent insurer and is placed under an order of rehabilitation or conservation by a court of competent jurisdiction. (eff. 7/15/98)

"Insolvent Insurer"

KRS 304.42-050(11). A member insurer which after June 17, 1978, is placed under an order of liquidation by a court of competent jurisdiction with a finding of insolvency.

"Member Insurer"

KRS 304.42-050(12). “Member insurer” means any insurer or health maintenance organization licensed or authorized to transact in this state any kind of insurance or health maintenance organization business for which coverage is provided under KRS 304.42-030, and includes any insurer or health maintenance organization whose license or certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn, but does not include: (a) A nonprofit hospital, medical-surgical, dental, and health service corporation, as defined by Subtitle 32 of this chapter; (b) A fraternal benefit society; (c) A mandatory state pooling plan; (d) An assessment or cooperative insurer or any entity that operates on an assessment basis; (e) An insurance exchange; (f) Any entity similar to the above; or (g) A limited health service organization;

KRS 304.42-060(1). For purposes of administration and assessment, the association shall maintain three (3) accounts: (a) The health account; (b) The life insurance account; and (c) The annuity account.

Assessment Limits

KRS 304.42-090(5)(a). Subject to the provisions of paragraph (b) of this subsection, the total of all assessments authorized by the association with respect to a member insurer for each account shall not in any one (1) calendar year exceed two percent (2%) of the member insurer’s average annual premiums received in this state on the policies and contracts covered by the account during the three (3) calendar years preceding the year in which the member insurer became an impaired or insolvent insurer. If the maximum assessment, together with the other assets of the association in any other account, does not provide in any one (1) year in any other account an amount sufficient to carry out the responsibilities of the association, the necessary additional funds shall be assessed as soon thereafter as permitted by this subtitle.

Assessment Classes

KRS 304.42-090(2). There shall be two (2) classes of assessments: (a) Class A assessments shall be made for the purpose of meeting administrative and legal costs and other expenses. Class A assessments may be authorized and called whether or not related to a particular impaired or insolvent insurer; (b) Class B assessments shall be authorized and called to the extent necessary to carry out the powers and duties of the association under KRS 304.42-080 with regard to an impaired or insolvent insurer.

KRS 304.42-030(2)(b)3. Guaranty Association excludes from coverage: Except as otherwise provided in paragraph (c) of this subsection, any portion of a policy or contract to the extent that the rate of interest on which it is based: a. Averaged over the period of four (4) years prior to the date on which the association becomes obligated with respect to such policy or contract, exceeds a rate of interest determined by subtracting two (2) percentage points from Moody’s corporate bond yield average averaged for that same four (4) year period or for such lesser period if the policy or contract was issued less than four (4) years before the association became obligated; and b. On and after the date on which the association becomes obligated with respect to the policy or contract, exceeds the rate of interest determined by subtracting three (3) percentage points from Moody’s corporate bond yield average as most recently available;

KRS 304.42-130. Yes. Up to 20% of assessment amount may be offset for next 5 years; applies only to Class B assessments (including administrative expenses directly incurred or allocated to each insolvency). Class A assessments not eligible for offset.

§ 304.42-050 (17) (a) “Premiums” means amounts or considerations, by whatever name called, received on covered policies or contracts less returned premiums, considerations, and deposits, and less dividends and experience credits. (b) “Premiums” does not include: 1. Amounts or considerations received for any policies or contracts or for the portions of policies or contracts for which coverage is not provided under KRS 304.42-030(2), except that assessable premium shall not be reduced on account of KRS 304.42-030(2)(b)3. relating to interest limitations and KRS 304.42-030(3)(b) relating to limitations with respect to one (1) individual and one (1) policy or contract owner; and 2. With respect to multiple nongroup policies of life insurance owned by one (1) owner, whether the policy or contract owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, premiums in excess of one million dollars ($1,000,000) with respect to these policies or contracts, regardless of the number of policies or contracts held by the owner; r of policies or contracts held by the owner;

§304.42-190 “Advertising Restrictions” No person, including a member insurer, agent, affiliate of a member insurer, life settlement provider, or life settlement broker shall make, publish, disseminate, circulate, or place before the public, or cause directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any advertisement, announcement, or statement which uses the existence of the Insurance Guaranty Association of this state for the purpose of sales, solicitation, or inducement to purchase any form of insurance or other coverage covered by the Kentucky Life and Health Insurance Guaranty Association Act. This section shall not apply to the Kentucky Life and Health Insurance Guaranty Association or any other entity which does not sell or solicit insurance or coverage by a health maintenance organization.