An agent sells a life insurance policy with an accelerated death benefit for chronic illness. Under California law, what must the agent disclose to the client?

Why A is correct

California law, CIC Sections 10295 et seq. and 10234.93, requires an agent to explain that an accelerated death benefit payable on chronic illness is not long-term care insurance. The ADB advances a portion of the life death benefit, whereas LTC insurance pays for care services, and the ADB is not designed to fund the ongoing cost of care. The agent must provide a notice describing the difference so the consumer understands that the rider is not a substitute for long-term care coverage.

Why the other options are wrong

• B) An ADB does not guarantee coverage of long-term care costs; it advances a limited portion of the death benefit and is not a care policy. Care costs are not paid by the rider; it only advances a limited part of the life benefit.
• C) California law does not require the client to purchase a separate LTC policy; it requires disclosure of the difference between the products. The statute requires disclosure, not a tied sale, so no separate policy purchase is mandated.
• D) ADB proceeds for a chronically or terminally ill insured are generally income-tax-free under IRC Section 101(g), not always taxable. The tax-favored treatment under Section 101(g) applies in qualifying cases, so blanket taxability is wrong.

Memory hook

ADB is not LTC: one advances death benefits, the other pays for care, and you must say so.