IL State Portion of Life Insurance Test

Notice of Replacement

- When a life agent makes a life insurance proposal and knows or should know that the purchase of such policy will replace an existing life insurance policy, the replacement rule applies - Replacement means any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuities will be replaced

Illinois Laws and Rules: Insurance Director - Additional Duties

1. Computes the reserves of life insurers but does not activate these reserves. 2. Issues insurance licenses to producers and insurers. 3. Suspends or revokes insurance licenses after a hearing for cause shown. 4. Examines, audits and regulates insurers for solvency. 5. Approve and regulate insurance premium rates. 6. Regulates and oversees insurance advertising. 7. Examines domestic insurers once every five years. 8. Issues cease and desist orders for cause shown. 9. Refers information concerning producers who break insurance laws to the Attorney General who may then prosecute such individuals for any criminal activities. The Insurance Director does not prosecute producers. 10. Engage in any other necessary act in order to enforce Illinois insurance law.

UNFAIR INSURANCE TRADE PRACTICES - MARKETING AND SALES PRACTICES: Unfair Claims Practices (Sections 154.5 to 154.6 and 919) — An insurer will be deemed to be engaging in an unfair or improper claim practice if it:

1.Fails to provide claim forms (and an explanation of how to complete them) in a timely fashion; 2.Knowingly misrepresents relevant policy provisions and coverages to claimants; 3.Fails to acknowledge, with reasonable promptness, relevant communications regarding claims; 4.Fails to adopt and implement reasonable standards for prompt investigation and settlement of claims; 5.Engages in activity which results in a disproportionate number of valid complaints to the Department of Insurance or a disproportionate number of lawsuits filed by insureds or claimants; 6. Refuses to pay claims without conducting a reasonable investigation based on all available information; 7. Fails to affirm or deny coverage within a reasonable time after receiving a proof of loss form (i.e., claim form); 8.Attempts to settle a claim for less than the face amount (if life insurance) or less than the amount a reasonable person would believe the claimant was entitled; 9.Compels claimants to take legal action to recover amounts due by offering substantially less than amounts ultimately recovered; 10. Fails to make a good faith attempt at a prompt, fair, and equitable claim settlement when the liability of the insurer is clear; 11. Fails to provide a reasonable and prompt explanation when legitimately denying a claim.

ILLUSTRATIONS Section 1406 - Basic Illustration Requirements

1.the illustration must be labeled with the date on which it was prepared 2. each page must be numbered and show its relationship to the total number of pages in the illustration; 3.if the age of the proposed insured is shown as a component of the tabular detail, it must be issue age plus the numbers of years the policy is assumed to have been in force; 4. the assumed dates of payment receipt and benefit pay-out within a policy year must be clearly identified; 5. guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium must be shown and clearly labeled as "guaranteed;" 6. if the illustration shows any non-guaranteed elements, they cannot be based on a scale more favorable to the policy owner than the insurer's illustrated scale at any duration, and must be clearly labeled as "non-guaranteed 7. the guaranteed elements, if any, must be shown before corresponding non-guaranteed elements, and must be specifically referred to on any page that shows or describes only the non-guaranteed elements; 8. the value available upon surrender must be identified by the name this value is given in the policy being illustrated, and must be the amount available to the policy owner in a lump sum after a deduction of surrender charges, policy loans and policy loan interest, where applicable; 9.illustrations may describe policy benefits and values in graphic or chart form in addition to the tabular form; and 10. if the illustration shows that the premium payer may have the option to allow policy charges to be paid using non-guaranteed values, the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays. A basic illustration must include a narrative summary that has a brief description of the policy being illustrated, a prominent statement that it is a life insurance policy, a brief description of the premium cost, a brief description of any policy features or options, a brief definition of key terms used in the illustration, and a statement containing in substance the following wording: "This illustration assumes that the currently illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown." Following the narrative summary, a basic illustration must include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable. This summary must be shown for at least the fifth (5th), tenth (10th), and twentieth (20th) policy years, and at age 70, if applicable. A basic illustration must include the following tabular detail for at least each policy year from 1-to-10 and for every 5th policy year thereafter, ending at policy maturity (i.e., age 100), or final expiration, and except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, is to change: (1) the premium outlay and mode the applicant plans to pay, and the contract premium, as applicable; (2) the corresponding guaranteed death benefit, as provided in the policy; and (3) the corresponding guaranteed value available upon surrender, as provided in the policy.

LIFE INSURANCE SOLICITATION REGULATIONS - Section 930 - DISCLOSURE REQUIREMENTS

A Buyer's Guide must be provided to prospective purchasers before accepting any premium. In a direct-response sale, the Buyer's Guide must be provided to purchasers either with or prior to policy delivery. Also, a Policy Summary must be delivered by no later than the policy itself. Buyer's Guides and Policy Summaries must also be given to any prospective purchaser upon request Producer also must: 1. provide prospects eith the full name of the insurer they represent and verbalize that they are acting as producers. Cannot use terms such as investment advisor or financial planner. 2. References to policy dividends must include a statement that dividends are not guaranteed 3. Policy comparisons must also take into consideration the time value of money. This is the fact that a dollar today is worth more than a dollar in the future 4. Any references to the Life Insurance Cost Indexes must explain that they are useful only for comparing similar policies. Whenever dividends are reflected, a statement must explain that they are based on the company's current dividend scale and are not guaranteed.

OBTAINING A LICENSE - BOND REQUIREMENTS (Section 500-130)

A PRODUCER WHO BROKERS (insurance brokers represent the buyer) business must POST A BOND with the state. The bond must be: 1. executed by an authorized surety company; 2.payable to any parties who do not receive funds that the producer should have paid them in connection with an insurance transaction; 3.continuous in form so that it remains in effect indefinitely unless canceled; and 4. the amount must be at least $2,500 or 5% of the premiums brokered in the previous year, whichever is greater, but not more than $50,000 in total aggregate liability. A PRODUCER WHO DOES NOT BROKER BUSINESS DOES NOT NEED TO MAINTAIN A BOND INDIVIDUAL PRODUCER IS RESPONSIBLE FOR ASSURING THAT A PRODUCER BOND IS EFFECT AND IN THE CORRECT COVERAGE AMOUNT. Producers of a business entity must possess a similar bond in the name of the business entity. The same amounts are required with regard to a business entity (i.e., $2,500 or 5% of the premiums brokered). MUST HAVE BEEN EXISTENCE FOR 5 (fIVE) YEARS, HAVE COMMON MEMBERSHIP AND BEEN FORMED FOR ANOTHER PURPOSE OTHER THAN OBTAINING A BOND. THE BOND MAY BE CANELED BY THE SURETY COMPANY WITHIN 30 DAY'S WRITTEN NOTICE PROVIDED TO THE PRINCIPAL (bond holder). . Upon receiving notice of cancellation, the Director must then immediately notify the licensee. The producer's license may be revoked if the producer acts without a bond that is required by Illinois law. In addition, if a party that is injured under the terms of the bond requests the producer to provide the name of the surety company and the bond number, the producer must provide the information WITHIN THREE (3) WORKING DAYS AFTER RECEIVING THE REQUEST.

COBRA/CONVERSION

A federal law that requires employers with 20 or more employees to include a continuation of benefits provision for former employees and their dependants Guarantees that the particpant can continue the group coverage at their own expense at group rates if their participation in the group plan is terminated because of a qualifying event

NON-RESIDENTS (Section 500-40)

A non-resident may apply for a producer's license or a limited insurance representative's license if: 1. the applicant holds a similar license in good standing in his or her resident State 2.he person has submitted the proper request and paid the required fee; 3. The person has submitted the application to the Director for the license submitted in his or her home state (or a completed "uniform application") 4 .the person's home state awards licenses to Illinois residents on the same basis. MUST FILE AN AFFIDAVIT which states that the Director will be their agent for service of lawful process in any legal action or proceeding against them (i.e., service of process Service on the Director of Insurance, in place of the non-resident, has the same legal effect as personal service on the non-resident. Whenever a non-resident's state of residence places stricter requirements or limitations on Illinois residents, Illinois will place those same strict requirements or limitations on residents of that other state. A NON RESIDENT PRODUCER WHO CHANGES BUSINESS OR RESIDENCE ADDRESS MUST NOTIFY THE ILLINOIS DIRECTOR INSURANCE WITHIN 30 DAYS OF THE CHANGE. Same thing if producer moves to another state and submit certification from the new resident state within 30 days. NO application or fee is required. Limited line insurance is any authority granted by the home state that restricts the authority of the license to less than the total authority in the associated major line.

FIDUCIARY RESPONSIBILITIES - PREMIUM FUND TRUST ACCOUNT (Section 3113) Books and Records —

ALL TRANSACTIONS AND AMOUNTS MUST BE POSTED TO BOOKS AND RECORDS NO LESS THAN EVERY 30 (THIRTY) DAYS. MUST BE MAINTAINED FOR AT LEAST 7 (sEVEN) YEARS MUST KEEP CASH RECEIPTS REGISTER MUST INCLUDE THE DATYE WHICH MONEY IS RECEIVED, AMOUNT RECEIVED, NAME OF INSURED, INSURER OR LICENSEE WHO IS MAKING THE PAYMENT AND THE POLICY NUMBER. MUST ALSO CONTAIN A CASH DISBURSEMENTS REGISTER. MUST INCLUDE the date disbursed or endorsed to insurers, insureds, other licensees, or transferred to another account; the check number if applicable; the amount disbursed; the name of the insured, insurer, or the other account to which payment was made; the policy number; and a written record if the disbursement was a commission. Licensees must also prepare and maintain monthly financial institution reconciliations of their premium trust account, and must maintain positive running balances in the account.

ILLINOIS LAW AND REGULATIONS PERTINENT TO LIFE INSURANCE ONLY - ADVERTISING AND SALES (Section 909)

According to Illinois law, advertising is defined as any type of communication that is intended: 1.to create interest in life insurance, or annuities, or in an insurer, 2.to induce a person to buy, increase, modify, change, reinstate, or retain a policy definition applies to sales aids of all kinds including prepared sales talks or audio / visual aids that are used in such presentations, descriptive literature, and other sales aids. COMMUNICATIONS ARE NOT CONSIDERED ADVERTISING IF THEY ARE ONLY USED WITHIN THE INSURER AND ARE NOT INTENDED FOR PUBLIC DISSEMINATION. a general announcement that employees are eligible for new group insurance is also not considered advertising, according to Illinois law ADVERTISING MAY NOT BE MISLEADING IN ANY WAY. Advertisements are the responsibility of the insurer regardless of by whom they are written, created, designed, or presented. T OTHER FORMS OF ADVERTISING INCLUDE RADIO, TELEVISION, NEWSPAPER, MAGAZINE OR BILLBOARDS. Following are Unfair Advertising by IL Law 1. Presenting INFORMATION IN AN AMBIGIOUS OR CONFUSING WAY 2.Using words such as "investment, investment plan, founder's plan, expansion plan, charter plan, profit, profit sharing, savings plan or interest plan" in a way that MAY LEAD PEOPLE TO BELIEVE that something other than insurance is involved, or that they receive preferential treatment of any kind, or they are receiving something not available to others. 3. FAILING TO CLEARLY INDICATE, either in the policy title or accompany language, THAT THE PRODUCT IS LIFE INSURANCE or AN ANNUITY 4. NOT CLEARLY DESCRIBING ANY PREMIUM INCREASES, benefit decreases or limitations 5. Stating, without the Director's prior approval, that direct marketing of policies results in cost savings. 6. Using a TESTIMONIAL THAT IS NOT THE TRUTH or is not the current opinion of the endorser, or that is taken out of context. Any financial connections between the company and the person giving the testimonial, other than union wages, must be disclosed in the advertisement. 7. Using outdated, misleading, or irrelevant statistics or not providing the source of statistics. STATISTICAL INFORMATION MUST BE ACCURATE AND RELEVANT OR IT MAY NOT BE UTILIZED. 8. Using enrollment periods if they are fewer than six months between the closing of one enrollment period and the opening of the next. 9. Using words or symbols that are similar to those of a governmental agency.

MAINTAINING A LICENSE — REQUIRED FEES (Section 500-135)

According to Illinois law, the required license fees were described in Chapter 12 under the heading "License Fees". Section 500-135 further states that all fees that are paid to and collected by the Director will be paid promptly after receipt thereof, together with a detailed statement of such fees, into a special fund in the State Treasury to be known as the Insurance Producer Administration Fund. The moneys deposited into this fund may be used only for payment of the expenses of the Department of Insurance in its execution, administration, and enforcement of the insurance laws of this state.

DOCUMENTATION OF SLIDES 36 AND 37

All insurers are required to maintain detailed records of claims paid and denied. Documentation must include the claim number, line of coverage, date of loss, date of payment or denial, or the date that the claim file is closed without payment. Claim records must be kept for all open and closed claim files during the current year and for the previous TWO YEARS (2) PAPER TYPE OR ON COMPUTER DISK NO CLAIMS MAY BE DENIED BASED ON INFORMATION THAT WAS OBTAINED IN A TELEPHONE CONVERSATION or personal interview unless docuemented in a claim file. INSERS ARE NOT PERMITTED TO REQUIRE A CLAIMNANT OR INSURED TO SUBMIT TO A POLYGRAPH OR SIMILAR EXAM AS A CONDITION FOR RECEVING A CLAI PAYMENT. not required to submit proof of loss form in less time than is required by the policy (90 days for health insurance, example) IF A CLAIM IS UNRESOLVED 45 (FORTY FIVE) DAYS FROM BEING REPORTED, a reasonable explanation must be provided to the insured or beneficiary by the insurer. Disability insurers are not permitted to misrepresent the policy provisions in order to UNDULY INFLUENCe the claimant into settling for a lump sum.

MAINTAINING A LICENSE — LICENSE SUSPENSION, REVOCATION OR DENIAL (Section 500-70) CONTINUED

After director prevents renewal or revokes license, notice must be sent by certified or registered letter to the licensee or applicant's last known address on record with the Department. The licensee or applicant may then make written demand to the Director, within 30 days after the date of mailing, for a hearing before the Director to determine the reasonableness of the Director's action. The hearing must be held not less than 20 days or more than 30 days after the mailing of the notice of hearing. ****************An individual may, after a hearing, be subject to a civil penalty of up to $10,000 for each cause for denial, suspension, or revocation. Once a license is suspended or revoked, the licensee must promptly deliver it to the Director in person or by mail************** NO LICENSE FOR THREE YEARS AFTER REVOCATION OR DENIAL.

REPLACEMENT OF INSURANCE POLICIES - Section 917 - DUTIES OF AGENTS

All life insurance or annuity applications must contain two statements. One signed by applicant. Other signed by producer. Both statement must indicate whether the sale involves replacement. If the existing insurer and the replacing insurer are the same, nothing further is required even if the sale involves replacement. In all other replacement situations, producer must sign and provide applicant with NOTICE REGARDING REPLACEMENT OF LIFE INSURANCE OR ANNUITY. This notice suggests applicant should acquire as much information as possible before deciding to replace existing coverage. Proposed policies for replacement must be on form. Producer must also submit application to replacing insurer with copy of signed noticeprovided to the applicant and a signed notice addressed to the existing insurer which identifies the insured and the policies proposed for replacement.

VIATICAL SETTLEMENTS - Section 159 Advantages

Although after an initial inspection of these arrangements, it may appear that those in need of cash when terminally ill are being taken advantage of, viatical settlement arrangements involve the sale of property just as if a person was selling his or her home. When a person is suffering from a terminal illness, such as AIDS, cancer, or heart disease, and cash is needed to pay for continuing medical or extended care, a viatical settlement provides a way for the afflicted individual to raise needed funds prior to death. During the past decade, insurers began to offer a rider that could be added to a life insurance policy to provide for the aforementioned contingency. This rider, as reviewed earlier, is referred to as an accelerated benefits rider. Generally, this rider limits withdrawals, which are fully taxable, to a maximum of 50% of the face amount; however, numerous insurers only permit anywhere from 25-40% of the face amount to be withdrawn. Therefore the viatical settlement arrangement allows terminally ill insureds to receive a larger "living benefit." In addition, the terminally ill policy owner/insured will be required to pay taxes only on the excess that's received over what was paid in premiums

VIATICAL SETTLEMENTS - Section 159 ANNUAL REPORT

An annual report must also be made to the Director by the viatical settlement provider by March 1 which describes the transactions performed. Records must be maintained of all transactions and must be available to the Superintendent for FIVE YEARS (5) years. The Director must be notified in writing of any change of business address within THIRTY DAYS (30) OF THE CHANGE

OBTAINING A LICENSE - PRE-LICENSING EDUCATION (Section 500-30)

An application for a producer's license must be accompanied by proof that the applicant has completed a pre-licensing study course. Required Hours: 1. Life insurance, 20 hours - (7.5 hours of which must be in class) 2. accident and health, 20 hours (7.5 hours of which must be in class); 3. fire or property insurance, 20 hours (7.5 hours of which must be in class) 4. casualty insurance, 20 hours (7.5 hours of which must be in class) 5. personal lines / property and casualty, 20 hours. Courses that are approved may be classroom study or correspondence study (i.e., home study) then must pass state exam

REINSTATEMENT (Section 500-35)

An individual insurance producer who allows his or her license to lapse may, within 12 months after the due date of the renewal fee, be issued a license without the necessity of passing a written examination. However, a penalty in the amount of double the unpaid renewal fee will be required after the due date.

BUSINESS ENTITIES (Sections 500-30 and 35)

Any firm, corporation, partnership or business entity that is acting as a producer must obtain an insurance producer license. The business entity must also submit the appropriate forms and fee to the Director *Must appoint at least one licensed producer who will be responsible for the firm's compliance with the state's insurance laws, rules, and regulations. All others must be disclosed.************ ANY CHANGES IN THESE PERSONNEL OR IN THE ADDRESS OF THE FIRM MUST BE REPORTED WITHIN 30 DAYS.

VIATICAL SETTLEMENT PROVIDER

Any individual, corporation, partnership, or firm that pays a sum to the owner of a life insurance contract in return for the ownership of the contract is a viatical settlement provider (i.e., viatee). Requires license. owner of the policy who sells or assigns the contract to another for a fee may be referred to as the viator. A viatical settlement agent is an individual who attempts to negotiate such a settlement between the firm (i.e., provider) and the policyholder (i.e., viator). No person may act as a viatical producer without a life and health insurance producer license. A viaticated policy is a life insurance policy that is purchased from a viator and held by a viatical settlement provider. A viatical settlement provider is not an insurer or any financial institution. A Life insurance company does not engage in viatical settlements. a life insurance company must respond to a request for verification of coverage from a viatical settlement provider or viatical settlement broker within 30 calendar days of the date the request is received. Again, a viatical settlement provider does not include: 1.A licensed insurance company, bank, savings bank, finance company, or other licensed lending institution, investment company, or pension plan; or 2. The issuer of a life insurance policy that provides accelerated benefits according to the Illinois insurance code. The viatical settlement provider must obtain from the attending physician of the viator, a written statement that the viator is of sound mind and under no undue influence. A consent to release medical records must also be included. These records will always remain confidential. The names of a licensed viatical provider and producers must always appear in any advertisement that offers viatical settlement services.

Illinois Laws and Rules: Insurance Director: Court and Hearings

Any person being examined must provide free access to all relevant files and securities to the Insurance Director and must aid with the examination as much as possible. In connection with any examination, investigation, or hearing, the Director has the power to subpoena witnesses, administer oaths and examine them under oath concerning the business, conduct or affairs of any insurer or person. Those who refuse will be fined up to $2,000 and charged with contempt of court. Further refusal may result in another fine or imprisonment or both. Audit expenses for hiring independent appraisers, actuaries, accountants, or insurance examiners to help with an examination are paid by the insurer being examined. At inquiries and hearings, the fees of witnesses called by the Director will be paid by the Insurance Department. The fees of any witnesses called by other parties will be paid for by those other parties. The Director must inform persons being examined (i.e., producer) what an examination report says before filing the report or making it public. A person being examined then has 14 days in which to state written objections to the report and ask the Director for a hearing. The Director must provide 10 days advance notice of the time and place of the hearing. Within 90 days of filing the report, or within 90 days of the hearing if one is held, the Director of Insurance must issue a written order based upon the report and any hearing. If the person examined is found to have violated any law, regulation, or prior order, the Director may order the person or company to take any appropriate action. Anyone who violates or helps violate any order issued as a result of an examination may be fined up to $10,000. A licensed producer who violates or helps violate any order issued as a result of an investigation of a producer's activities may face license suspension or revocation in addition to a $20,000 fine.

Limited Lines Producer (Section 500-100)

Any person who is 18 years of age or older and competent, trustworthy, and of good business reputation may obtain a limited insurance representative's license to transact the following types of coverage on behalf of an insurer by whom they were appointed: 1. Baggage Insurance: trip cancellation, or limited travel, health, or accident insurance sold in connection with transportation on a common carrier; 2. Industrial Life or Industrial Accident and Health Insurance 3. Legal Expense Insurance 4. coverage written by local mutual district, county and township insurance companies 5. HMO enrollments of public aid or Medicare recipients 6. limited health care plans issued by an organization that has a certificate of authority under the Limited Health Service Organization Act. Limited insurance representatives are not required to take the State examination or complete any bonding or pre-licensing study requirements that applicants for producer licenses must satisfy. These representatives must be appointed by the companies they represent, but they may represent more than one insurer.

Insurance Licensing: Insurance Producers - (Sections 500-15, 20, 25 and 30)

Any person who sells, solicits, negotiates, procures, renews, or binds insurance policies must secure a producer's license for the line of authority or class of insurance being transacted. Lines of insurance include: 1. life 2. accident and health; 3. property 4. casualty; 5. personal lines property and casualty 6. motor vehicle. the only individuals who are permitted to service or offer advice concerning the benefits, advantages, or disadvantages of any insurance contract are: 1. attorneys licensed to practice law and performing duties incidental to that position; 2. bank trust officers, actuaries, and CPAs performing professional duties incidental to their position; 3. or licensed public adjusters acting within the scope of that license. ACTING AS A PRODUCER WITHOUT A LICENSE IS A CLASS A MISDEMANOR. IF FUNDS ARE MISUED, MISAPPROPRIATED OR ILLEGALY COMMINGLED, A CLAS 4 FELONY HAS BEEN COMMITTED. Section 500-25 of Illinois law states that a resident individual who applies for an insurance producer license must pass a State examination unless exempt. All candidates must file a request to take the examination, pay an application fee, as well as a testing service fee. Part I (i.e., the general portion of the exam) and Part II (i.e., Illinois law and regulations) must be passed within ninety (90) days of one another. A candidate who fails the exam or fails to appear for an exam is not entitled to a refund. This individual must apply again and pay the appropriate fees as well.

VIATICAL SETTLEMENTS - Section 159 License Revocation

The Director has the right to suspend or revoke this license if: (1) there was any misrepresentation in the application for the license; (2) the holder of the license has been guilty of fraudulent or dishonest practices; (3) the provider has a history of making unreasonable or untimely payments to viators; (4) the licensee has been convicted of a felony, moral turpitude, or any misdemeanor of which fraud is an element; or (5) the licensee has violated any provisions of Illinois insurance law. A hearing must be held by the Director whenever he or she is determining whether to suspend or revoke a provider license.

FIDUCIARY RESPONSIBILITIES (Section 500-115 and Regulation 3113)

Any premiums that are handled by an insurance producer, limited lines producer, temporary licensee, business entity, or surplus lines producer must be held in a FIDUCIARY CAPACITY (position of trust). producer must consider these funds as being held in trust for another party (i.e., the insurer or client). FUNDS THAT ARE COLLECTED MAY NOT BE MISAPPROPRIATED, MISUED OR COMMINGLED WITH PERSONAL FUNDS. ****************************** Single instance of the above of withholding $150 or less of premium funds is a Class A misdemeanor. A repeat offense or subsequent conversions is a Class 4 felony. When a producer intentionally and knowingly misappropriates, converts to personal use, or illegally withholds premiums in excess of $150, the producer is guilty of a Class 3 felony. Producers may also be charged with larceny for such illegal acts. ************************************ Producers may collect premiums that are due within 90 days of a policy's issue. Premiums that are paid to the producer are considered received by the insurer. Producers may also add a late payment charge of not more than 1.5% per month to overdue balances on open accounts. This late charge is intended to induce the payment of premiums.

SUITABILITY IN THE SALE OF LIFE INSURANCE AND ANNUITIES - Sections 909, 3117 and 3120 Annuity Training

As of 6/30/12, all producers who sell annuity products must complete a one-time, four (4) hour annuity suitability training course. These hours may also be used toward the biennial continuing education requirement for a resident producer.

MAINTAINING A LICENSE — CONTROLLED BUSINESS (Section 500-125)

CONTROLLED BUSINESS IS A DISPROPORTIONATE AMOUNT OF INSURANCE THAT IS WRITTEN ON PRODUCER'S OWN LIFE, PERSON, PROPERTY OR RISKS OR THE LIFE OF THE PERSON, PROEPRTY OR RISKS OF THE PRODUCER'S SPOUSE MEPLOYER, EMPLOYEES OR PARTNERS. No producer's license will be issued or renewed if the Director of Insurance has reason to believe that the producer has written more controlled business than non-controlled business in either of the LAST TWO CALENDAR YEARS; or will write more controlled business than non-controlled business in the coming twelve (12) month period (i.e., the next year). EXAMPLE: f a producer's commissions during the past two years on sales of controlled business exceed the commissions that are received from sales on all other business sold to the public, the Director will find that the producer is engaging in controlled business. Controlled business may also be measured by premium amounts as well.

LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION - ILLINOIS INSURANCE GUARANTY FUND (Sections 531.01 through 531.19)

Consists of all life and health insurers authorized to do business in Illinois PURPOSE OF THIS ASSOCIATION IS TO PROTECT THE PUBLIC AGAINST THE FAILURE OF AN INSURER TO PAY CLAIMS DUE TO INSOLVENCY. PROTECT THE PUBLIC FROM THE FAILURE OF INSURANCE COMPANIES TO MEET THEIR OBLIGATIONS. If that occurs, Association will fulfill member's contractual obligations to : 1. policy owners who are Illinois residents; 2.beneficiaries of Illinois policy owners, regardless of where the beneficiaries reside. ALSO ASSISTS DIRECTOR TO DETECT AND PREVENT INSOLVENCIES AMONG MEMBERS. This law does not apply to: 1. any portion of a covered risk borne by the policy owner; 2. obligations under any contract which is assumed by the impaired or insolvent insurer under a contract of reinsurance; 3. obligations for benefits to be provided by any burial, fraternal benefit society or mutual benefit society; 4. (4) obligations for benefits to be provided by any HMOs or under any vision services, dental services or pharmaceutical services plan; 5. any non-guaranteed portion of a variable life or variable annuity contract. ASSOCIATION IS RESPONSIBLE FOR LIMITED AMOUNT OF COVERAGE. ASSOCIATION WILL NOT PAY MORE THAN THE BENEFIT AMOUNT OR POLICY LIMIT SPECIFIED IN THE CONTRACT ISSUED BY THE INSOLVENT INSURER. FUNDS ARE DERIVED FROM ASSESSMENTS FROM MEMBER INSuRERS. ASSESSMENT IS DUE NOT LESS THAN 30 DAYS AFTER WRITTEN NOTICE AND SHALL ACRUE FROM DUE DATE. Two (2) classes of assesments: 1. Class A Assessment for purpose of meeting administrative expenses of the fund 2. A Class B assessment with regard to an impaired or insolvent domestic, foreign or alien insurer. he Fund does not apply to all of the following types of insurance: accident insurance; mortgage guaranty or other suretyship obligations; marine insurance other than inland marine; insurance in warranties or service contracts; any claim servicing arrangement; any policy providing retroactive insurance of known loss; any bonding obligation other than employee fidelity bonds; and any insurance which is provided or reinsured under the Federal Crop Insurance Program or National Flood Insurance Program FUND IS OBLIGATED TO PAY COVERED CLAIMS WITHIN THIRTY (30) DAYS.

Illinois Laws and Rules: Insurance Director - Section 132 - Market Conduct Examinations

Director is authorized to perform "market conduct" examinations. This involves a non-financial examination of an insurance company's business practices. This regulation also indicates that the Director may examine the market conduct of producers as well. These examinations are to ensure that the practices, transactions and conduct of an insurer and its producers is ethical, honest, fair and non-discriminatory. Illinois regulations allow the Director to examine: 1. any insurer conducting insurance business in this State 2. any licensed producer 3. any individual engaged in adjusting losses 4. any entity financing premiums 5. any individual(s) promoting or soliciting shares or capital contributions to an insurer or aiding in the formation of such company; or 6. Any person having a contract pertaining to the management or control of an insurer as general agent, managing general agent or attorney-in-fact. Director may examine all books and records of any insurer and its producers, officers and directors at any time (i.e., at reasonable hours). In addition, the Director must notify the insurer or person who is the subject of an examination or audit, of the content of the examination before making it public. The insurer or its employees (i.e., directors, officers, etc.) may request a hearing within ten days of receiving the report. The Director will then conduct a hearing and issue a written order based on the report and the hearing within 90 days. Any insurer or person that violates or aids in violating a written order issued by the Director is guilty of a business offense and may be fined up to $5,000.

ILLUSTRATIONS Section 1406 - Basic Illustration CONTINUED

If a basic illustration is used by a producer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed by the applicant, must be submitted to the insurer. signed copy of the basic illustration and a revised basic illustration, if any, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, must be retained by the insurer until THREE(3) YEARS after the policy is no longer in force.

OBTAINING A LICENSE - LICENSE FEES (Section 500-135)

Fees include: 1. a $180 fee that is payable once every two years for a producer's license 2. $150 registration fee that is payable once every two years for a business entity 3. a $50 fee for the issuance of a temporary producer's license; 4. a $250 fee for a non-resident license 5. a $200 fee every two years for a non-resident limited insurance producer license 6. a $500 annual fee for a viatical settlement broker; 7. a $1,000 annual fee for registration of an educational provider; 8. a $50 certification fee for each certified pre-licensing or continuing education course, and a $20 annual fee for renewing the course certification. Fees are generally paid into a special fund in the State Treasury called the Insurance Producer Administration Fund, which is used only to pay the Insurance Department's expenses in administering, executing, and enforcing the State's insurance laws.

Rebating (Sections 151 through 153)

If a producer or insurer offers any item of value to an applicant that is not specified in the policy AS AN INDUCEMENT OR INCENTIVE TO PURCHASE INSURANCE, it is considered rebating. (rebate) COMMON FORM IS KICK BACK COMMISSIONS. Other forms of rebating include: 1.a producer paying the premium for coverage on behalf of a client; 2.providing the customer a special advantage regarding the date of the policy or age of issue; 3.providing the customer with any paid employment or contract for services; 4.offering to provide a favor or any other item of value to the client. CLASS B MISDEMANOR In addition, no commission may be earned on a sale which involves rebating. If a commission was paid, the insurer may attempt to reclaim it NOT CONSIDRED REBATING: 1. Reductions of premiums to policyowners out of an accumulated surplus on non-participating policies; or 2. Accepting as payment a client's bona fide obligation to pay the amount of the premium plus an applicable and legal interest.

REPLACEMENT OF INSURANCE POLICIES - Section 917 - DUTIES OF INSURERS

If replacement is involved, the replacing insurer must: 1. require the producer to submit copies of the notices described above 2. send the applicant a Buyer's Guide; and 3. send the existing insurer, WITHIN THREE (3) WORKING DAYS, the notice that identifies the insured and the policies proposed for replacement Replacing insurer must either DELAY THE ISSUANCE OF THE POLICY FOR AT LEAST 20 DAYS OR PROVIDE THE APPLICANT WITH A 20 (TWENTY) DAY UNCONDITIONAL REFUND PERIOD UPON POLICY DELIVERY. If the refund period option is selected, the replacing insurer must promptly send a Policy Summary to the existing insurer as well.

FIDUCIARY RESPONSIBILITIES - PREMIUM FUND TRUST ACCOUNT (Section 3113) CONTINUED

If the balance in the account ever becomes less than the amount of deposits less the amount of legal withdrawals, the producer is guilty of misusing fiduciary funds and financial irresponsibility. INVESTMENTS MADE WITH PREMIUM FUNDS MUST BE MADE THROUGH THE ACCOUNT AND MAY ONLY BE MADE IN: 1. specified savings or checking accounts 2. U.S. government securities or certificates of deposit (CDs) with maturities of not more than one year 3. repurchase agreements; 4. commercial paper 5. money market vehicles. RETURN PREMIUMS MUST BE PAID TO AN INSURED WITHIN 15 DAYS OF RECEIPT FROM THE INSURER OR OTHER PRODUCER

SUITABILITY IN THE SALE OF LIFE INSURANCE AND ANNUITIES - Sections 909, 3117 and 3120 Recordkeeping

Must keep records for SEVEN (7) YEARS AFTER THE INSURANCE TRANSACTION IS COMPLETED BY THE INSURER.

POLICY PROVISIONS (Section 5/224)

Illinois insurance law describes the provisions which must be included in life insurance policies that are issued in this state. The standard provisions that appear in such policies were reviewed in Chapter two. The following are provisions that appear in life insurance policies that are modified by Illinois insurance law: GRACE PERIOD: Includes a grace period of 30 DAYS (THIRTY) or ONE MONTH PROOF OF DEATH: when there is a claim due to the death of the insured, settlement shall be made upon receipt of a proof of death and not later than 2 (TWO) MONTHS after the receipt of such proof PAYMENT OF PROCEEDS IN INSTALLMENTS: If the policy provides for the payment of proceeds in installments, the insurer shall pay interest at a rate of 10% per annum (unless the claim is paid within 31 days of the date of death).

MAINTAINING A LICENSE —

Illinois law and regulations provide for specific requirements which must be satisfied in order for a producer to maintain an insurance license. In addition, if these requirements are not satisfied, the Director of Insurance may revoke or suspend the producer's license.

MAINTAINING A LICENSE — CHANGE OF ADDRESS (Section 500-35)

Illinois law specifically requires prompt action of any producers whose residence or business address has been changed, modified, or altered. If a producer's business, residence, or email address changes, the Director of Insurance must be notified in writing within 30 days of any modification.

OBTAINING A LICENSE

In the State of Illinois, a license candidate must satisfy several requirements in order to obtain an insurance license for any or all lines of insurance.

Group Life Certificate

Instead of a policy, the participants under a group plan are issued certificates of insurance as evidence that they have coverage. Must contain: 1. Group policy # 2. Description of protection 3. names of the insured, beneficiaries and dependants 4. rights and conditions

ILLINOIS LAW AND REGULATIONS PERTINENT TO LIFE INSURANCE ONLY - ADVERTISING AND SALES (Section 909) CONTINUED

MUST BE TRUTHFUL AND CANNOT BE MISLEADING. DIRECTOR MAKES FINAL DETERMINATION AS TO WHETHER AN AD IS UNFAIR, MISLEADING OR DECEPTIVE. The following disclosure requirements apply to all advertisements to be used in the State of Illinois: 1. Dividends must not be described in a deceptive manner. For instance, stating that a dividend paid on a life insurance policy is guaranteed is illegal; 2.Ads cannot state that the policy holder will be entitled to receive a stated portion of earnings from the insurer's general account; 3. If the terminology "non-medical" or "no medical exam required" are used when coverage is not guaranteed issue, the ad must disclose that issuance of the policy may be dependent on the answer to health history questions; 4. Any limitation of benefits must be clearly displayed for a policy that contains graded or modified benefits, or if coverage decreases, increases, or premiums change, these facts are required to be displayed prominently in the policy; 5. Ads must not describe or imply that future dividends will be sufficient to pay for the policy without future premiums; 6. Ads which describe a direct-response insurer cannot imply that there is a cost savings since no commission is paid to a producer; and 7. The actual title of the policy must be displayed in an advertisement and it cannot be misleading according to policy benefits.

Misrepresentation (Sections 149 and 154)

Misrepresenting the terms, benefits, or dividends of a policy or circulating or allowing false representations is considered to be misrepresentation. IF A PRODUCER OR INSURER COMPARES POLICIES UNFAIRLY TO INDUCE A POLICYHOLDER TO LAPSE EXISTING COVERAGE, HE HAS ENGAGED IN TWISTING, WHICH IS A FORM OF MISREPRESENTATION. FINE NO LESS THAN $200 BUT NO MORE THAN $10,000

VIATICAL SETTLEMENTS - Section 159 LICENSE REQUIREMENTS

No individual, corporation, partnership, or other entity may act as a viatical settlement provider without securing and holding the proper license. T he initial license fee that is payable to the Insurance Department is $3,000. All subsequent renewals require a fee of $1,500. Once an application for a viatical settlement provider license is filed and the appropriate fee is paid, the Director of Insurance will make an investigation of the applicant. A license may be issued if the Director finds that the applicant: (1) has provided a detailed plan of operation; (2) is competent, trustworthy, and intends to act in good faith; (3) has a good business reputation and is qualified for the license applied for; and (4) is incorporated under the laws of this state (if it is a corporation).

LIFE INSURANCE SOLICITATION REGULATIONS - Section 930

PURPOSE OF LIFE SOLICITATION RULES IS TO REQUIRE INSURERS TO DELVIER AT LEAST CCERTAIN MINIMUM INFORMATION DESIGNED T O HELP BUYERS SELECT THE MOST APPROPRIATE PLAN FOR THEIR NEEDS, UNDERSTAND BASIC FEATURES OF POLICY AND EVALUATE RELATIVE COSTS OF SIMILAR PLANS. This applies to traditional forms of life insurance. Exemptions: 1.annuities 2.credit life insurance 3.group life coverage; 4.insurance policies that are issued in conjunction with pension or welfare plans as defined by ERISA 5. franchise life insurance; 6. variable life insurance BUYER'S GUIDE must be provided to each buyer. DESIGNED TO ASSIST THE BUYER in selecting the amount of overage to carry, the right type of policy to purchase, and a method by which to compare the cost of life insurance plans by utilizing a cost index.

REPLACEMENT OF INSURANCE POLICIES - Section 917 - REPLACEMENT EXEMPTIONS

Replacement regulations DO NOT APPLY TO 1. Credit Life 2. Group Life and Group Annuities 3. Life coverage in a tax qualified pension or profit sharing retirement or employee benefit plan 4. variable life and variable annuities 5. transactions in which the replacing insurer and existing insurer are the same 6. situations in which total existing coverage to be replaced represents less than $500 in cash value and less than $5,000 in face amount.

REPLACEMENT OF INSURANCE POLICIES - Section 917

SPECIFIES THE PURPOSE OF ILLINOIS REPLACE REGULATION IS TO ENSURE THAT SPECIFIC STEPS ARE FOLLOWED IN REPLACEMENT SITUATIONS. Steps are designed to 1. ensure that policyowners receive the information they need to make a decision which reflects their own best interests 2. reduce opportunities for misrepresentation and incomplete disclosure.

DISCLOSURE REGULATIONS

Section 500-155 of Illinois law specifies that all insurance policies which are solicited by an insurance producer, limited insurance representative, or temporary insurance producer must identify the name of the producer, representative, or firm. An individual life or accident and health application and a master policy application for life or accident and health group coverages must include the name and signature of the licensee who solicited and wrote the application.

COMMISSIONS AND COMPENSATION PAID TO PRODUCERS

Sections 151 and 500-80 of Illinois law states a person may only receive a commission or other valuable consideration if he or she holds a valid insurance license in the lines of authority in which the sale takes place. Except for commissions that are deductible from premiums on insurance policies or contracts for insurance, an insurance producer or business entity does not have the right to a commission or compensation from an insured or prospective insured for or on account of the transaction of insurance business unless the right to compensation is stated on a separate written memorandum that clearly specifies the amount or extent of the service fee and that document is provided to the applicant or insured before the performance of the service or the issuance of the policy, whichever is first. As mentioned in Section 151, agents and brokers are prohibited from paying or accepting rebates. Any unfair inducement that is used to persuade an individual to purchase insurance is illegal and prohibited.

Illinois Laws and Rules: Insurance Director - Duties

Sections 401 and 401.1; 132; 402, 403 and 431; and 500-110 state the Insurance Director is the individual charged with enforcing and carrying out the State's insurance laws. Has the power to: 1. make reasonable rules and regulations for carrying out the intent of the law 2. Investigate to see if the law has been broken; 3. conduct any investigations, examinations, or hearings required to administer the law 4. take action to enforce the law or any rule or regulation May ask the State Attorney General to use the courts to enforce administrative orders or court decisions. may examine the financial condition, operations, or sales activities of: 1. any company transacting or proposing to transact insurance in the State 2.any person promoting or proposing to promote stock or otherwise helping to form an insurance company 3. any person with a contract to manage operations or sales territories for an insurance company 4. any licensed producer or anyone applying for a producer's license, or any registered firm 5. anyone in the business of adjusting claims or financing premiums DOES NOT propose legislation, make laws or pass laws. Enforces already existing laws.

FIDUCIARY RESPONSIBILITIES - PREMIUM FUND TRUST ACCOUNT (Section 3113)

Special Account must be established for premium funds if producer: 1. holds premiums for 15 days or more before paying them to the insurer; or 2. deposits premiums into any kind of account or otherwise uses the premiums for any length of time account must be maintained in a federal or state chartered bank or a savings and loan institution that is located in the State of Illinois. The words Premium Fund Trust Account must appear on account records, checks, and any other account data. THE ONLY DISBURSEMENTS THAT ARE PERMITTED BY THE ACCOUNT ARE: 1. net premium remittances that are due to an insurer or another producer; 2. Return premiums that are due to insureds; 3. Commissions or non-premium monies such as fees, late charges, interest, or other amounts that are legally due to the producer. TRANSFER FROM ONE PREMIUM FUND TO ANOTHER, WHICH IS HELD IN THE SAME NAME, IS NOT CONSIDERED DISBURSEMENT. CANNOT BE USED FOR GENERAL OPERATIONS OR CLAIM PAYMENTS.

UNFAIR INSURANCE TRADE PRACTICES - MARKETING AND SALES PRACTICES

State law prohibits unfair claim practices; falsification of records; deceptive statements by an insurer or producer regarding the financial condition of a competing insurer (i.e., defamation); unfair discrimination in rating based upon race, color, religion, or national origin; rebating or other illegal inducements; engaging in coercion, boycott, or intimidation; or charging a higher rate due to the physical handicap of an applicant or insured.

EXEMPTIONS (Sections 500-15 and 20)

State licensing and registration requirements do not apply to the following 1. Salaried insurance company officers or employees who are engaged only in the usual executive, administrative, or clerical duties 2. salaried clerical or administrative employees in the office of a producer, limited lines producers or business entities, although these persons may complete applications and accept premiums as long as they do not receive commissions or payment based on the volume of applications, premiums, or enrollments they process on behalf of their employer; 3. persons who administer, furnish information to, or enroll individuals in group plans, as long as they are not paid commissions; 4. in-house employee benefit plan administrators, as long as they are not compensated by the insurance companies that issue the products selected for the employee benefit plan; 5. persons or organizations that are employed by insurance companies only to inspect, rate, or classify risks or train licensees; 6. advisory organizations and individuals who provide information related to mass merchandised life or health insurance which is administered on a group basis; 7. a person whose activities in Illinois are limited to advertising without the intent to solicit insurance.

MAINTAINING A LICENSE — CONTINUING EDUCATION (Section 500-35)

States that before each license renewal, an insurance producer must complete at least 24 CREDIT HOURS of continuing education. THREE (3) OF THE 24 HOURS OF COURSE STUDY MUST CONSIST OF CLASSROOM ETHICS INSTRUCTION. Director may not approve a course of study unless the course provides for classroom, seminar, or self-study instruction methods. An instruction method other than classroom or seminar will be considered as self-study methodology. Self-study credit hours require the successful completion of an examination which covers the self-study material. The examination may not be self-evaluated. However, if the self-study material is completed through the use of an approved computerized interactive format whereby the computer validates the successful completion of the self-study material, no additional examination is required. SELF STUDY CREDIT HOURS CONTAINED IN A CERTIFIED COURSE WILL BE CONSIDERED CLASSROOM HOURS WHEN AT LEAST TWO THIRDS OF THE HOURS ARE GIVEN AS CLASSROM OR SEMINAR INSTRUCTION. COMPLIANCE DATE: producer's birth month biennially. A maximum of twelve (12) credit hours may be carried over to the next reporting / renewal period. Courses may not be taken for credit more than once in a two-year period. PRODUCER WHO ALLOWS LICENSE TO LAPSE MAY WITHIN TWELVE (12) MONTHS AFTER DUE DATE OF RENEWAL FEE BE ISSUED A LICENSE WITHOUT NECESSITY OF PASSING A WRITTEN EXAMINATION. unpaid renewal fee will be doubled. LICENSED PRODUCER WHO IS UNABLE TO COMPLY WITH LICENSE RENEWAL PROCEDURES DUE TO MILITARY SERVICE MAY REQUEST A WAIVER.

ILLINOIS LAW AND REGULATIONS PERTINENT TO LIFE INSURANCE ONLY - ADVERTISING AND SALES (Section 909) CONTINUED AGAIN

TESTIMONIALS OF THIRD-PARTY ENDORSEMENTS must be genuine and represent the current opinion of the party that is making them. ANY PROPRIETARY RELATIONSHIP that exists between the endorsing organization and the insurer must be disclosed. AN ENROLLMENT PERIOD DURING WHICH A PARTICULAR POLICY MAY BE PURCHASED MUST NOT BE OFFERED IN IL ULESS SIX (6) MONTHS HAVE PASSED SINCE THE LAST OFFER OF COVERAGE. Ad must specify the date by which the application is required to be mailed. THIS MUST NOT BE LESS THAN 10 (TEN) DAYS and NOT MORE THAN 40 (FORTY) DAYS AFTER ENROLLMENT PERIOD IS FIRST ADVERTISED. ALL ADS MUST BE MAINTAINED FOR FOUR (4) YEARS or UNTIL THE INSURER IS EXAMINED OR AUDITED. ACTUAL TRADE NAME OF INSURER MUST BE INCLUDED IN ADS. MUST STATE DIVIDENDS ARE NOT GUARANTEED. INSURER MUST ALSO MAINTAIN RECORDS SHOWING: 1. a copy of every advertisement; 2. when, where, and how each advertisement was used; and 3. the form number of the policy being advertised. Violators of these laws are subject to a fine of up to $1,000 for each violation and also be subject to license suspension or revocation.

MAINTAINING A LICENSE — LICENSE SUSPENSION, REVOCATION OR DENIAL (Section 500-70)

The Director of Insurance may place on probation, suspend, revoke, or refuse to issue or renew an insurance producer's license; or may levy a civil penalty in accordance with Illinois law for any one or more of the following causes: Providing incorrect, misleading, incomplete, or materially untrue information (i.e., material misrepresentations) on a license application; Willfully violating any state insurance law, regulation, or order of the Director ; Improperly withholding, stealing, misusing, misappropriating, commingling, converting, or failing to properly remit premiums related to insurance transactions (i.e., larceny); Obtaining or attempting to obtain an insurance license through fraud or misrepresentation; Intentionally misrepresenting the terms of an actual or proposed insurance contract; Knowingly accepting insurance business from an unlicensed individual; Committing any insurance unfair trade or marketing practice; Using fraudulent, coercive, or dishonest practices; Having an insurance producer's license denied, suspended, or revoked in any other state, province, or territory; Failing to appear in response to a subpoena without a reasonable excuse; Failing to pay state income tax, a penalty or interest, or comply with any administrative or court order directing payment of such tax, or a failure to pay any assessment due the Department of Revenue; Forging a name to an application for insurance or to a document related to an insurance transaction; Cheating or improperly using notes or any other reference material on a state examination for an insurance license; Having been convicted of a felony; Failing to comply with an administrative or court order imposing a child support obligation; Engaging in fraud, coercion, or dishonesty in any business practice, or demonstrating incompetence, untrustworthiness, or financial irresponsibility; Failing to make satisfactory repayment to the Illinois Student Assistance Commission for a delinquent or defaulted student loan.

Unauthorized Entities

The State Regulation of Insurance is in the public interest. One of the insurance regulators' larger concerns is with unauthorized entities transacting insurance in the state. Reasons: 1. Criminal activity 2. adverse economic impact on authorized insured. 3. potential for unpaid claims due to dishonesty

Insurance Licensing: Licensing and Registration

The State of Illinois identifies specific regulations for persons who are required to be insurance licensed and insurers that want to secure a certificate of authority.

Defamation (Section 149) —

This involves any person (i.e., producer or insurer) making a false or malicious statement concerning the financial condition of an insurer in order to intentionally injure any authorized insurer's business or reputation. This is also illegal and is punishable by a FINE NO LESS THAN $200 BUT NO MORE THAN $10,000 . License suspension or revocation is also possible.

TEMPORARY INSURANCE PRODUCERS (Sections 500-60 and 65) - Producer Applicant Temporary License

Two Types of Temporary Producer Licenses Producer Applicants: have not taken the exam yet but are 1. sponsored by an insurer; 2. enrolled in a training course that satisfies the state pre-licensing education requirement; 3. otherwise meet all of the qualifications for holding a producer's license. ONLY GOOD FOR 90 DAYS AND ONLY ISSUED ONCE PER LIFETIME For any six-month period, if more than half of a company's temporary licensees fail to become permanently licensed before their temporary licenses expire, the Director of Insurance may cease issuing temporary licenses to that company's applicants.

Illinois Laws and Rules: Insurance Director - Cease and Desist Orders

Whenever an insurer or person is conducting business in a manner that the Director feels is threatening its solvency, or in a manner hazardous to the public, the Director may issue a cease and desist order along with a notice of hearing. The notice must specify the time and place for the hearing which may be not less than 20 nor more than 30 days after service of notice, and must include a description of the grounds for which the Director feels there is a violation of Illinois regulations. If such grounds are found to be true, the Director may take any action necessary to rectify the violations. Section 431 states that anyone who violates a cease and desist order once it becomes final may be fined up to $1,000 per violation. Anyone failing to comply with the Director's order may be subject to a fine of up to $100 per day, for every day, that the violation continues, up to a maximum of $5,000. The insurance license of the guilty party may be suspended or revoked as well. These cease and desist powers are additional to any others provided to the Director by Illinois law.

OBTAINING A LICENSE - QUALIFICATIONS (Sections 500-30 and 70

applicants must apply to the state on a form that is provided by the Director of Insurance. Applicants must declare, under penalty of license refusal, suspension, or revocation, that the information on the form is true and complete to the best of their knowledge. Requirements: 1.being at least 18 years of age or older or of "full age"; 2. being competent, trustworthy and of good business reputation 3. completing an approved pre-licensing course of study for the lines of authority for which the individual has applied 4. filing or posting a bond, unless exempt; 5. passing a state examination; 6. if working for one insurer, he or she must be sponsored by an insurer; 7. having not committed any act that is grounds for denial, suspension, or revocation of a license; and 8. paying the appropriate fees. person whose license is suspended, revoked, or whose application for a license is denied pursuant to Illinois law, is ineligible to apply for any license for three (3) years following the suspension, revocation, or denial.

Illinois Laws and Rules: Insurance Director - Section 403 - Civil Penalty

civil penalty herein is a general penalty that applies only in situations where no specific monetary penalty is otherwise required by law. If any applicable regulation specifies a different penalty for a specific unfair act, the other penalty will apply. Therefore, any person, agent or insurer who willfully violates Illinois insurance law will be subject to a fine of up to $1,000 for every offense. Each day during which a violation occurs is considered a separate offense. All penalties assessed are payable to the general revenue fund of the State of Illinois.

REPLACEMENT OF INSURANCE POLICIES - Section 917 - REPLACEMENT

defined as a sale that results in existing coverage being lapsed, forfeited, surrendered, or terminated in any way; continued under any non-forfeiture option; reduced in benefit, term of coverage, or cash value; reissued with a reduction in cash value; or pledged as collateral for a loan or subjected to substantial borrowing for more than 25% of its cash value.

FELONY CONVICTIONS

ection 500-95, in the State of Illinois, any licensee who is convicted of a felony must report this fact and provide any relevant documents concerning it to the Director of Insurance within 30 days of the entry date of the judgment (i.e., conviction). Within the 30-day period, the person must also provide the Director with a copy of the judgment, the probation or commitment order, and any other relevant documents.

ILLUSTRATIONS Section 1406 All Policies EXCECPT Universal Life

he report must include the following information: (1) current death benefit; (2) annual premium; (3) current cash value; (4) current dividend and the application of current dividend; and (5) the amount of any outstanding loan. Insurers that write life insurance policies and do not include non-forfeiture values are required to provide only an annual report for those years when a change has been made to non-guaranteed policy elements by the insurer. In addition to any penalties that are authorized by Illinois Insurance Law, an insurer or insurance producer who violates any provision of this regulation may be in violation of other state laws that are subject to monetary or other penalties (i.e., license suspension).

TEMPORARY INSURANCE PRODUCERS (Sections 500-60 and 65) - Issued Upon the Death of Licensed Producer Temporary License

issued upon the death of a licensed producer (or in the case of a producer becoming disabled or entering the armed services). may be issued to: 1. executor or administrator of the deceased producer's estate; 2. the deceased's surviving spouse, next of kin, or legal guardian if no executor or administrator exists for the estate. older of this license may only engage in activities that are related to the continuance of existing business, such as renewing policies or collecting premiums due the estate or the firm. HOLDER OF THIS POLICY IS NOT PERMITTED TO SOLICIT OR SELL NEW INSURANCE. GOOD FOR 180 DAYS FROM PRODUCER'S DEATH AND RENEWABLE FOR ADDITIONAL 180 DAYS AT PRODUCER'S DISCRETION. TEMPORARY LICENSE WILL NOT BE ISSUED IF ANY OFFICER, DIRECTOR, MEBER OR EMPLOYEE OF THE FIRM IS A LICENSED INSURANCE PRODUCER. THIS LICENSED PERSON MUST BE IDENTIFIED AND HELD RESPONSIBLE FOR THE BUSINESS ENTITY.

ILLUSTRATIONS Section 1406 - supplemental illustration

may be provided so long as it is attached to, accompanied by or preceded by a basic illustration that complies with Illinois regulations. The non-guaranteed elements that are shown in a supplemental illustration must not be more favorable to the policyowner than the corresponding elements based on the scale that is used in the basic illustration. The supplemental illustration must contain the same statement required of a basic illustration that non-guaranteed elements are not guaranteed. It must also include a notice referring to the basic illustration for guaranteed elements and other important information. contain the following basic information: (1) name of insurer; (2) name and business address of the producer; (3) name, age, and sex of the proposed insured; (4) the underwriting or rating classification upon which the illustration is based; (5) the generic name of the policy, the product name, and the applicable form number; (6) initial death benefit; and (7) dividend option election or application of non-guaranteed elements, if applicable.

VIATICAL SETTLEMENTS - Section 159 DISCLOSURE REQUIREMENTS

must be in writing and must conform with state law while being approved by the Superintendent of Insurance. The contract must include the sum to be received by the policyowner and additional terms of the transaction. The contract must also include additional disclosure provisions such as: 1. Possible alternatives to or options that can be used in conjunction with viatical settlement contracts for persons who have catastrophic or life threatening illnesses, including but not limited to accelerated benefits; 2. The fact that some or all of the proceeds that are received may be taxable and that assistance should be sought from a personal tax advisor; 3. That settlement proceeds may be subject to the claims of creditors; 4. The fact that receipt of viatical benefits may adversely affect the recipient's eligibility for Medicaid or other government means-based programs, benefits, or entitlements; 5.The policyowner's right to rescind (i.e., unconditional rescission) a viatical settlement contract before the earlier of the 30th day after the date upon which the viatical settlement contract is executed by both parties, or the 15th day after the date upon which payment is received by the viator; 6. The fact that a consequence of the viatical settlement will be the loss of some or all of the death benefit that is payable under the life insurance policy to the beneficiary; 7. The date by which the funds will be available to the viator and the source of the funds; and 8. A statement that all of the information obtained by the settlement provider concerning the viator may be disclosed as necessary to effect the settlement contract between the viator and the settlement provider (if the insured / viator is asked to provide information, they will be asked to consent to the disclosure and may be asked to renew their permission to share information every two years). If such contract is rescinded by the viator, the viatical settlement provider shall notify the life insurer within 20 days of receiving notice of the rescission from the viator. The insurer must also make certain disclosures to the viator as well including, but not limited to: (1) the affiliation, if any, between the settlement provider and the issuer of the insurance policy; (2) the name and address of the provider; and (3) the dollar amount of the current death benefit that will be payable to the provider. If the settlement provider transfers ownership or changes the beneficiary of the insurance policy, it must communicate the change to the insured / viator within twenty (20) days after the change. A viatical settlement provider may only sell, transfer, or assign a viaticated policy to another licensed viatical settlement firm.

ILLUSTRATIONS Section 1406 Universal life policies,

must include the following information: (1) the beginning and end date of the current report period; (2) the policy value at the end of the previous report period and at the end of the current report period; (3) the total amounts that have been credited or debited to the policy value during the current report period, identifying each by type, such as interest, mortality, expenses, and riders); (4) the current death benefit at the end of the current report period on each life that is covered by the policy; (5) the net cash surrender value of the policy as of the end of the current report period; (6) the amount of outstanding loans, if any, as of the end of the current report period. If the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect must be included in the report

Other Unfair Practices (Section 236 and 424)

nfair practice of rating or other discrimination and other unfair practices including: 1. falsifying insurer records 2.false advertising of an insurer's financial condition; 3.unfairly discriminating in favor of certain individuals within a class 4.unfairly discriminating against physically challenged or disabled persons unless the basis for this treatment is actuarially sound (i.e., unless it involves "fair" discrimination); 5.refusing, limiting, or charging more for life or health insurance solely because a person is blind or partially blind, although blindness that exists at the time of policy issue may be excluded from disability coverage; 6.ttempting to boycott, coerce, or intimidate which would result in a restraint of trade in the insurance business 7. unfairly discriminating against any person because of that person's race, creed, color, religion, or national origin. Additionally, Illinois law states that NO life or health insurer may unfairly discriminate between individuals of the same class and equal expectation of life in the issuance of its policies, premiums or rates, dividends, or the terms and conditions of the policy. For example, an insurer may exclude from coverage disabilities that consist solely of blindness or partial blindness when such condition existed at the time that the policy was issued. No life insurer may refuse to insure or continue to insure an individual solely because of the individual's status as a member of the U.S. armed services (e.g., the Air Force, Army, Coast Guard, National Guard, Marines, Navy, or Armed Reserve Forces).

guaranteed elements

policy benefits, premiums, values, credits, and charges that are guaranteed and determined at issue. Each of these elements has a non-guaranteed counterpart in the basic illustration that is not guaranteed or determined at issue.

SUITABILITY IN THE SALE OF LIFE INSURANCE AND ANNUITIES - Sections 909, 3117 and 3120

purpose of these regulations is to set forth standards and procedures for recommendations to consumers that result in a transaction involving annuity products so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. THIS LAW APPLIES TO ANY RECOMMENDATION TO PURCHASE OR EXCHANGE AN ANNUITY THAT IS MADE TO A CONSUMER BY AN INSURANCE PRODUCER OR AN INSURER IF NO PRODUCER IS INVOLVED THAT RESULTS IN THE RECOMMENDED PURCHASE OR EXCHANGE. LAW DOES NOT APPLY TO: 1. direct response solicitations; or 2. contracts that are used to fund any of the following: a. an employee pension or welfare benefit plan that is governed by ERISA 1974; b. a 401(k) plan, c. 403 (b) plan, d. a government or church plan e. a non-qualified deferred compensation arrangement that is established or maintained by an employee or plan sponsor f. settlements of personal injury litigation, or any dispute or claim resolution process; g. formal prearranged or pre-need funeral plans.

ILLUSTRATIONS Section 1406

purpose of this regulation is to provide rules for life insurance policy illustrations that will: 1. protect consumers and encourage consumer education; 2. prescribe standards to be followed when illustrations are used 3. specify the disclosures that are required in connection with illustrations. Insurers must eliminate the use of footnotes and define terms that are used in illustrations in language that can be easily understood by the average person. THIS DOES NOT INCLUDE VARIABLE CONTRACTS, ANNUITY CONTRACTS, CREDIT LIFE INSURANCE, GROUP TERM LIFE INSURANCE AND LIFE INSURANCE POLICIES WITH GUARANTEED DEATH BENEFITS OF $10,000 OR LESS (or illustrated death benefits less than $15,000) "Illustration" includes a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years and is one of the following three types 1. a BASICillustration - which is a ledger or proposal used in the sale of a life insurance policy that demonstrates both guaranteed and non-guaranteed elements 2.a SUPPLEMENTAL illustration - is an illustration furnished in addition to a basic illustration that may be presented in a different format, but may only depict a scale of non-guaranteed elements; and 3. an IN-FORCE illustration - is an illustration furnished at any time after the policy depicted has been in force for one year or more. SELF-SUPPORTING ILLUSTRATION: illustration of a policy for which it can be demonstrated that for all illustrated points in time on or after the fifteenth (15th) policy anniversary, the twentieth (20th) policy anniversary for last-survivor policies, or upon policy expiration if sooner, the accumulated value of all policy cash flows equals or exceeds the total policyowner value available.

LIFE INSURANCE SOLICITATION REGULATIONS - Section 930 - AGENT RESPONSIBILITIES

responsibility of the producer to provide both a policy summary as well as the Buyer's Guide to the consumer. The policy summary must also be provided at or prior to policy delivery. This is a separate document that is titled Statement of Policy Cost and Benefit Information which contains: 1. the producer's name and address, or the procedure for obtaining answers to questions about the policy 2. the issuing insurer's full name and address 3. the policy's generic name 4. the policy loan interest rate (if a whole life policy 5. life insurance cost indexes for 10 and 20 years; 6. cash dividends information with a statement that they are not guaranteed; 7. the annual premium for the basic policy and any rider premium; 8. guaranteed death benefit and the cash surrender value; and 9. the guaranteed endowment value if applicable. In policies where the death benefit does not exceed $5,000, the insurer may deliver a condensed version of the policy summary information. COST INDICES are not required for any optional rider such as accidental death, waiver of premium, or guaranteed insurability. (indices is plural of index) When these indices are used, they must be explained clearly and that they are available for the consumer to make comparisons of policies with regard to cost only. All insurers must keep a file with a copy of each required form for three (3) years. FAILURE TO PROVIDE A BUY'ERS GUIDE or Policy Summary at the required time will be considered a form of misrepresentation.

ACCELERATED BENEFITS -

states that the purpose of this regulation is to govern accelerated benefit provisions in individual and group life insurance and to provide required standards of disclosure. THIS REGULATION DOES NOT APPLY TO LONG-TERM CARE INSURANCE. Benefits may be accelerated if A TERMINAL MEDICAL CONDITION which would result in death WITHIN TWO (2) YEARS OR LESS or any condition which requires continuous confinement in an eligible institution where the insured is expected to remain until death occurs. A QUALIFIED COVERED CONDITION s a medical condition which, when it occurs, may result in the payment of an accelerated benefit up to 75% of the policy's face amount. No policies, contracts, riders, endorsements, or amendments which provide accelerated benefits may be issued for delivery in Illinois unless they meet certain requirements. PRIOR TO PAYING ANY BENEFITS, INSURER MAY REQUIRE MEDICAL EVIDENCE OF TERMINAL ILLNESS or qualifying condition. SETTLEMENT OPTIONS MAY INCLUDE ONE EOR COMBO OF LUMP SUM PAYMENTS, INSTALLEMENT PAYMENTS, OR ANY OTHER FORM OF PAYMENT UPON WHICH POLICYHOLDER AND INSURER AGREE. WRITTEN DISCLOSURE including a brief description of the accelerated benefit, definitions of the conditions or occurrences which trigger payment of the benefits, and an explanation of any effect of the payment of a benefit on the policy must be provided to the applicant statement must be present which indicates that ACCERATED BENEFITS MAY BE TAXABLE. when the insurer pays an accelerated or living benefit, it must issue a new or amended schedule page to the policy to REFLECT ANY NEW OR REDUCED FACE AMOUNT OF THE POLICY. Must be filed with department of insurance for approval before they may be used

VIATICAL SETTLEMENTS - Section 159

states that viatical settlement providers are business firms that purchase life insurance contracts from their owners who are suffering from a catastrophic or life threatening illness or condition. The firm that purchases the policy is then the new policyowner. it changes the beneficiary to itself so that when the insured dies, the policy proceeds are paid to the firm. Upon the transfer of ownership, the business entity is now responsible for paying the premium and experiences a profit when the insured party dies. The former policyowner/insured receives a lump-sum amount in return for "selling" the life insurance contract to the viatical settlement provider firm. This lump-sum amount is a percentage of the policy's face amount. Amount will vary depending on the terminal illness or chronically ill condition of insured.

SUITABILITY IN THE SALE OF LIFE INSURANCE AND ANNUITIES - Sections 909, 3117 and 3120 - Duties of Insurers and Producers

the insurance producer / agent (or the insurer if no producer is involved) must have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts that are disclosed by the consumer as to the consumer's investments and other insurance products and as to the consumer's financial situation and needs. must make reasonable efforts to obtain information concerning: (1) the consumer's financial status; (2) the consumer's tax status; (3) the consumer's investment objectives; and (4) any other reasonable information.

"Non-guaranteed Elements"

the premiums, benefits, values, credits or charges under a policy of individual or group life insurance that are not guaranteed or not determined at the time of issuance.