Illinois Life, Accident and Health Law

Partnership for Long-Term Care (cont.)

A long term care partnership insurance Shopper's Guide must be provided to all prospective applicants of a long term care partnership policy or certificate as well as a policy summary. This is the equivalent to the Buyer's Guide that must be provided to the purchaser of life insurance. The policy summary must explain how the LTC benefit interacts with other policy components, including deductions from death benefits, and must illustrate benefit amounts, the length of the benefit and any other lifetime guaranteed benefit provided by the policy. An insurer or insurance producer who is found to have violated any requirement of Illinois relating to the regulation of long term care partnership policies or certificates, or the marketing of such insurance, will be subject to a monetary fine of up to three times the amount of any commissions paid for each policy involved in the violation, or up to $10,000, whichever is greater. Whenever a LTC policy is to be replaced, a "Notice Regarding Replacement" must be provided at the time of application. This notice is very similar to the notice required when a Medigap policy is being replaced.

Prohibited Provisions

Accident policies may not contain a probationary period. The probationary period under sickness policies may not generally exceed 30 days except for certain specified causes not treated on an emergency basis. Insurance coverage may not be issued as a dividend unless a cash equivalent is also offered as an option. In addition, hospital confinement indemnity coverage may not exclude emergency confinement in a federally operated hospital. Accident and health insurance contracts issued in this State may include exclusions or limitations. Exclusions or limitations may apply only to: (1) pre-existing conditions; (2) mental or emotional disorders or addictions; (3) pregnancy (but will cover complications of pregnancy); (4) rehabilitative care; (5) losses resulting from war or military service, participation in a felony or riot, intentionally self-inflicted injury or aviation; (6) cosmetic surgery, except for necessary reconstructive surgery following an accident, trauma or disease; (7) expenses related to eye glasses or hearing aids; (8) treatment in a government hospital; (9) routine physical examinations or custodial care; (10) territorial limitations; (11) specified complications; and (12) foot or dental care.

Health Maintenance Organizations (cont.)

Cancellation — According to Illinois law, an HMO may not cancel a group or individual contract or evidence of coverage except for one or more of the following reasons: Failure to pay the premium due under the contract or evidence of coverage for which the enrollee is legally responsible; Fraud or material misrepresentation in enrollment or in the use of services or facilities; Material violation of the terms of the contract or evidence of coverage; Failure of the enrollee to establish a satisfactory patient-physician relationship; Any other cause approved by the Director of Insurance.

Health Maintenance Organizations (cont.)

Complaint Procedures — Every HMO must submit for the Director's approval a system for resolving grievances concerning the provision of health care services or other matters concerning operation of the HMO. Each HMO must submit any proposed changes to the system to the Director of Insurance for prior approval; maintain records of each complaint for three years after the grievance is resolved; submit an annual report to the Director of Insurance by March 1st which includes the total number of grievances handled, a compilation of causes underlying the grievances and the outcome of the grievances. Every HMO must have a complaint committee. Complaints are resolved by a majority vote. The complaint committee may, but is not required to, hear any grievance which alleges or indicates possible malpractice.

Benefit Standards

Coverage on a spouse may not be terminated because the insurer has reason to terminate coverage on the insured, except for nonpayment of premium. Upon an insured's death, a covered spouse automatically becomes the insured. In addition, pregnancy benefits must be extended after coverage terminates if the pregnancy began while the policy was in force. Coverage must also apply to live donors of the insureds receiving transplants. Convalescent care benefits may be conditioned to the insured's entering the convalescent facility within less than 14 days after being discharged from the hospital. A recurrent disability provisions may not specify that recurrent disabilities be separated by more than six months. Accidental death and dismemberment benefits (AD&D) must be payable if the loss occurs within 90 days of the accident. Disability income benefits must be payable if the loss occurs within 30 days of the accident. If a loss covered by a policy is continuing at the time the policy is terminated, coverage of the loss must be extended for one year, unless the benefit period or maximum benefit amount ends sooner. Illinois regulations also define and establish specific minimum benefit standards for the following types of medical expense related insurance: Basic hospital expense coverage Basic medical-surgical expense coverage Hospital confinement indemnity coverage Major medical expense coverage Disability income protection Accident-only coverage Specified disease, specified accident, and limited benefit health insurance coverage

Health Maintenance Organizations (cont.)

Every HMO must have simplified procedures for resolving complaints. The procedures do not have to include review of the complaint by the grievance committee, but a log, file, or other similar records must be maintained to identify the general nature of the complaints. Resolution of a complaint does not preclude an enrollee's access to review by the grievance committee of a grievance. A grievance must be determined within 60 days. The determination may be extended for up to 30 days in the event of a delay in obtaining documents or records necessary for the resolution of the grievance. The enrollee must receive written acknowledgment of a grievance within ten days after it is received by the HMO. Any documentation furnished to members of the grievance committee must be made available to the enrollee at least five days before hearing of the grievance. The HMO may not present any evidence without the enrollee having been given the opportunity to be present. Notification in writing of the determination of the grievance committee must be mailed to the enrollee within five business days.

Illinois Health Insurance Portability and Accountability Act (HIPAA) (cont.)

Guaranteed Issue — New statutes passed recently also provide important guarantees with regard to health insurance coverage. All small employers are guaranteed to be able to have health insurance made available to them. Insurers cannot refuse to cover small groups (i.e., 2 to 50 employees) based on the health history of group members. Larger groups are not guaranteed the availability of coverage, but once they have coverage they are guaranteed renewability. Renewability of any group may be denied for failure to pay the premium, fraud or failure to meet participation or contribution requirements. In addition, health insurance coverage for an individual must be made available to those who are eligible. To be eligible, one must: (1) have at least eighteen (18) months of aggregate creditable coverage; (2) have been covered or been offered coverage under a group health or similar plan (i.e., governmental, church, etc.) during the most recent creditable period; (3) not be eligible for Medicare, Medicaid or a group health plan and is not currently covered by such; (4) have not had the most recent coverage canceled for non-payment or fraudulent acts; or (5) have elected and exhausted any option of continuation of health insurance coverage under COBRA or any other plan available. Employees who lose group coverage for some reason may purchase health insurance as soon as possible without proving insurability. Enrollment periods must be provided for employees and their beneficiaries where applicable. Renewability — State law provides for the guaranteeing of health insurance coverage for all group health plans unless the plan has: (1) engaged in fraud; (2) terminated coverage; (3) failed to pay the premium; (4) moved beyond the service area; or (5) terminated association membership. With regard to individual plans, a similar guarantee of renewability is also provided unless an individual has engaged in the aforementioned acts (i.e., fraud, non-payment, etc.).

Illinois Health Insurance Portability and Accountability Act (HIPAA) (cont.)

HMO Affiliation Period — A HMO which offers health insurance coverage in connection with a group health plan and which does not impose any pre-existing condition exclusion with respect to any particular coverage may impose an affiliation period for the coverage, but only if the period is applied uniformly without regard to any health status-related factors, and the period does not exceed two (2) months for a regular enrollee (or three months in the case of a late enrollee). An affiliation period means a period which, under the terms of the coverage offered by the HMO, must expire before the health insurance becomes effective. A HMO is not required to provide health care services or benefits during this period and no premium may be charged to the participant or beneficiary for any coverage during the period. The affiliation period must begin on the enrollment date and run concurrently with any waiting periods under the plan. Prohibited Discrimination — A group health plan may not establish eligibility rules for the enrollment of any individual based on any of the following health status related factors including: health status; claims experience; receipt of health care; genetic information; medical history; physical and mental medical condition; disability; or evidence of insurability. No discrimination regarding rates may occur with regard to individuals covered by a group health plan. Coverage Renewability — An insurer may not cancel, nonrenew or discontinue group health coverage except for the following reasons: (1) nonpayment of premium; (2) fraud or intentional misrepresentation; (3) violation of participation or contribution rules; or (4) the insurer ceases to offer coverage in the small or group market and withdraws according to State law. In a case where the employer elects to discontinue offering all health insurance coverage in the small group market, the coverage may only be discontinued if the insurer provides to the Insurance Department and all covered participants (and beneficiaries) at least 180 days advance notice. In addition, all health insurance policies must be discontinued and not renewed.

Health Maintenance Organizations

Health Maintenance Organizations (Section 125, 1-2; 4-1 through 4-16; 5-3; 5421.10 through .40 and .100 through .141; and Regulation 6101) — Every HMO must provide its enrollees with a description of the services and information as to where and how to secure them. The HMO must issue evidence of coverage to each subscriber within 30 days from the effective date of coverage. No contract or evidence of coverage issued by an HMO may contain any provision which limits or excludes payments of health care services to or on behalf of the enrollee because the enrollee or any covered dependent is eligible for it is receiving medical assistance benefits. Contracts issued by an HMO which provide benefits for health care services must provide for the payment of actual expenses incurred for any emergency or accident care without reduction for benefit deductibles or coinsurance amounts, in the examination and testing of a victim of sexual assault to establish whether sexual contact did or did not occur, and to establish the presence or absence of venereal disease or infection and examination and treatment of injuries and trauma sustained by a victim of such offense. Whenever the Department of Public Health finds that it has paid all or part of any health care services for which an HMO is obligated to pay under this Section, the Department of Public Health is entitled to receive reimbursement for its payment from the organization. Producers licensed to solicit HMO coverage must satisfy similar requirements as a producer selling other accident and health plans (i.e., 18 years old, pass a Class 1-B examination, not have committed an act for which the license could be suspended, etc.).

Group Insurance Regulations

Illinois insurance law and regulations also describe the compliance rules with regard to group health insurance policies issued and delivered in this State.

Disclosure and Replacement Requirements

Illinois law states that accident only or specified disease policies must contain a prominent notice on the face or first page that coverage or benefits are limited. Except for single premium nonrenewable policies, notice of the insured's unconditional right to return the policy within 10 days for a full refund must appear prominently on the face or first page. This is the 10 day free-look period provision. An outline of coverage must also be delivered with the policy. A notice on the outline must urge the insured to read the policy carefully. If the policy issued is different from the one applied for, this fact must also appear in a face page notice. A provision describing a policy's renewability or non-renewability must also appear on the policy's face page. Any riders or endorsements added after policy issuance must be accepted in writing by the insured unless the insurer is exercising a specially reserved right under the policy, they are mandated by law or they were requested by the insured in writing. In addition, State law specifies that phrases such as usual and customary must be specifically defined in the policy. Also, any limitations for pre-existing conditions must be described in a separate paragraph labeled "Pre-existing Conditions Limitations." Accident and health applications must include a question that asks if the policy applied for is intended to replace any existing coverage. If so, and the existing coverage is other than an accident only or single premium nonrenewable policy, a notice must be provided to and signed by the applicant. The notice must urge applicants to consider whether: (1) existing health conditions may not be immediately or fully covered by the new policy; (2) they have a right and it may be in their best interests to seek the advice of their existing insurer or producer about the replacement; or (3) providing false or incomplete answers to medical history questions on the application may cause claims to be denied. A notice regarding replacement must also be provided by a producer who attempts to replace any accident and health policy.

Health Maintenance Organizations (cont.)

In addition, a HMO may not deny enrollment of children under their parents plan on any of the following grounds: (1) the child was born out of wedlock; (2) the child was not claimed as a dependent on the parents income tax return; or (3) the child does not reside with the parent or in the service area covered by the health care plan. A group contract delivered or issued for delivery in Illinois that covers employees or members for health care services must provide that employees or members whose coverage under the group contract would otherwise terminate because of termination of employment or membership must be entitled to continue their coverage under that group contract, for themselves and their eligible dependents, subject to all of the group contract's terms and conditions.

What power does the have in connection to any examination, investigation or hearing?

In connection with any examination, investigation, or hearing, the Director has the power to --subpoena witnesses --administer oaths --examine them under oath concerning the business, conduct or affairs of any insurer or person.

Disclosure and Replacement

Individual LTC policies must contain a renewability provision. The provision must be captioned, appear on the face page of the policy, and clearly state the duration of renewability and the duration of the term of coverage for which the policy is issued and of which it may be renewed. Any limitations with respect to pre-existing conditions must appear as a separate paragraph and be appropriately captioned. Any limitations must be in accordance with Illinois law. Applications forms for LTC insurance must include a question designed to elicit information as to whether the proposed policy is intended to replace any other accident and sickness or LTC policy presently in force. After determining that a sale will involve replacement, the insurer or agent must furnish the applicant with a notice regarding replacement of accident and sickness or LTC coverage. One copy of the notice must be retained by the applicant, and an additional copy signed by the applicant must be retained by the insurer. The notice must follow the format prescribed by Illinois law. Direct response insurers must deliver the notice upon issuance of the policy. All other insurers must furnish the notice prior to issuance or delivery of the policy.

Unfair Insurance Trade Practices

Marketing and Sales Practices — Illinois law provides specific guidelines with regard to sales and marketing practices. Any producer or insurer engaging in such activities will be subject to license suspension, revocation and possible monetary penalties. 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. The following is a further list of unfair sales and marketing practices as identified by State regulations.

Health Maintenance Organizations (cont.)

Medical Services Provided — Illinois law states that the following minimum standards meet the requirement for basic health care services, provided that the enrollee's primary care physician has determined that they are medically necessary and, if required by the HMO, they are authorized on a prospective and timely basis by the HMO's medical director. Physician services including primary care, consultation, referral, surgical, anesthesia, or others as needed by the enrollee in any level of service delivery; Outpatient diagnostic, imaging, pathology services and radiation therapy; 120 days of non-mental health inpatient services per year, including all professional services, medications, surgically implanted devices, and supplies used by the enrollee on an inpatient basis; Emergency services for accidental injury or emergency illness 24 hours a day, 7 days a week. This includes outpatient visits and referrals for emergency mental health problems; Maternity care, including prenatal and post-natal care and care for complications, and care for the newborn child from the moment of birth; Blood transfusion services, processing, and the administration of whole blood and blood components and derivatives; Preventative health services; Ten days inpatient mental health care per year; and Treatment for alcoholism and drug abuse, including diagnosis, detoxification and treatment of the medical complications of the abuse or addiction, inpatient rehabilitation services, and outpatient rehabilitative therapy.

Minimum Standards For Individual Policies

Minimum Standards of Accident and Health Policies (Section 2007) — The purpose of this Illinois law is to establish standards for the benefits provided by an accident and health policy issued in the State of Illinois. Further, in addition to establishing minimum benefit standards for accident and health policies, this regulation prohibits specific policy provisions, requires the inclusion of certain disclosure provisions and establishes replacement rules. State law requires specific Medicare Supplement definitions. When certain terms are used, they must include a definition no more restrictive than that provided in the State regulation. Total disability may mean the inability to perform the duties of any occupation for which the insured is suited by education, training, and experience, but may not be based on an insured's inability to perform "any occupation whatsoever" or "any and every duty" of his or her occupation.Prohibited Provisions

Health Maintenance Organizations (cont.)

No contract issued by an HMO which provides coverage for health care services may deny reimbursement for an otherwise covered expense incurred for any organ transplant procedure solely on the basis that such procedure is deemed experimental or investigational. Every contract issued by an HMO for persons who are residents of Illinois must contain coverage for screening by low-dose mammography for all women 35 years of age or older for the presence of occult breast cancer. No contract offered by an HMO may deny coverage for the removal of breast implantswhen the removal of the implants is medically necessary for the treatment of a sickness or injury. This Section does not apply to surgery performed for removal of breast implants that were implanted solely for elective cosmetic reasons. No HMO that provides coverage for prescribed drugs approved by the federal Food and Drug Administration for the treatment of certain types of cancer may exclude coverage of any drug on the basis that the drug has been prescribed for the treatment of a type of cancer for which the drug has not been approved by the Federal Food and Drug Administration. The drug, however, must be approved by the Federal Food and Drug Administration and must be recognized by medical authorities for the treatment of the specific type of cancer for which the drug has been prescribed. No contract or evidence of coverage issued by an HMO which provides for coverage of dependents of the principal enrollee may contain any limitation relative to the eligibility or coverage of newborn infants of a principal enrollee from and after the moment of birth (i.e., 31 days of automatic coverage). No contract issued by an HMO which provides for coverage of dependents of the principal enrollee may limit coverage for a child solely on the basis that he or she is handicapped or an adopted child. If the child is handicapped, proof of incapacity must be provided to the HMO within 31 days of its request for coverage information.

Partnership for Long-Term Care

Partnership for Long-Term Care (Sections 2012 and 2018) — The State of Illinois allows insurers to offer a special kind of LTC policy called a partnership policy. It is the result of public-private partnership between the State, insurers and consumers. It is designed to avert the need for people, usually of moderate means, to impoverish themselves before Medicaid takes over their nursing home expenses. Before becoming eligible for Medicaid, an individual must spend down to certain limits. Those individuals with a partnership policy can protect their assets to the extent the policy pays for their LTC expenses. Partnership policies must be approved by the Insurance Department and meet State requirements. Not all insurers may offer partnership policies since they may not be suitable for all individuals. Illinois law states that the purpose of the Partnership for Long Term Care Act is to promote the public interest, to promote the availability of long term care partnership insurance coverage, to protect applicants of long term care partnership insurance policies from unfair or deceptive sales or enrollment practices, and to facilitate public understanding and comparison of long term care partnership insurance coverages. Further, these plans are designed to protect the assets of individuals while providing a variety of benefits. A LTC policy is any insurance contract approved as a partnership policy by the Director of Insurance and issued for delivery to any resident of Illinois which is designed to provide, within the terms and conditions of the policy, contract or certificate, benefits on an expense-incurred or prepaid basis for necessary care as a result of limited functional capacity in a setting other than an acute care hospital, for at least one year from the date of claim after a considerable elimination period. Some long term care coverage is provided by Medicaid. For example, long term care services under the Medicaid home and community based services waiver for the aged and the disabled and persons with HIV or AIDS.

Illinois Health Insurance Portability and Accountability Act (HIPAA) (cont.)

Pre-existing Conditions — According to HIPAA, the limitations found in a pre-existing condition exclusion appearing in a medical plan are allowed only if treatment, advice, care or diagnosis for the condition is received by the insured within six months prior to an employee's attempt to enter a new group medical plan. If an insured is suffering from an undiagnosed condition that is later uncovered, the pre-existing condition limitation does not apply. Maternity, births and adoptions will not be subject to pre-existing condition language, even if genetic information is available suggesting that members of a person's family may develop a particular condition. However, the latter two must be added to the policy within thirty days after birth or adoption. If an employee has twelve (12) months of creditable coverage from a previous plan, he or she may use that to reduce the pre-existing condition exclusion waiting period under a new plan. For example, Dan worked for an employer and had coverage under the employer's health plan from March 1, 2002 until April 5, 2003. He then changed jobs. Since he was covered by the previous plan for more than twelve months (March 1, 2003 is called his enrollment date), no pre-existing condition exclusion can be applied. In addition, the twelve months of creditable coverage does not have to come from a single employer.

Health Maintenance Organizations (cont.)

Pre-existing Conditions — An HMO may impose deductible and co-payment pre-existing condition limitations as a condition to receiving health care services. A pre-existing condition may not be defined more restrictively than a condition for which medical advice or treatment was recommended or received by a physician within a one year period preceding the effective date of coverage under the health care plan, or the existence of symptoms which would have caused an ordinarily prudent person to seek diagnosis, care or treatment within a one year period preceding the effective date of coverage under the health care plan. A pre-existing coverage may only be limited for a period of up to one year from the effective date of coverage.

LTC Training

Producers who sell any type of LTC insurance must complete no less than four (4) hours of LTC continuing education (C.E.) each renewal period. These hours may be applied toward the 24 credit hour C.E. requirement as well.

Reinstatement

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 shall be required after the due date

HMO Guaranty Association

Section 125 / 6-1 through 6-19 describes the Ilinois HMO Guaranty Association. The purpose of the Association is similar to that of the Illinois Life and Health Guaranty Association. That is to protect enrollees of HMOs who reside in this State against the failure in the performance of contractual obligations (i.e., paying claims) due to financial impairment or insolvency. Nonresidents enrolled in these plans may also be protected if they live in a State which has an Association similar to that of Illinois. Members of the Association are subject to assessments in order to provide funds for the operation of the Association. The Association is also authorized to assist the Director in the detection and prevention of health care plan impairments or insolvencies. The Association provides for a natural life limit of $300,000.

Limited Health Service Organizations

Sections 130:1002; 130-3001 through 3005; and 130-3008 through 4003 describe limited health service organizations. This organization is any arrangement whereby any organization provides limited health care services from providers selected by the HMO. It is also any arrangement consisting of arranging for such services on a prepaid per capita basis, through insurance or other means. Limited health service includes ambulance care services, dental care services, vision care services, pharmaceutical services, clinical laboratory services and foot care services (i.e., podiatrist). Limited health service does not include hospital, medical, surgical or emergency services except when those services are essential to the delivery of the limited health service. A Limited Health Service Organization (LHSO) is any organization formed under the laws of Illinois to provide one or more limited health care plans under a system which causes any part of the risk of limited health care delivery to be borne by the organization or its providers.

Advertising of Health Insurance

Sections 149 and 2002 describe State law with regard to advertising. Advertising includes all media, but does not include the following: (1) material in an insurer's internal company communications; (2) material not intended for use with the public; (3) personal communications not intended to induce a sale; and (4) general announcements about eligibility for new group coverage. Advertising for accident and health policies must avoid any type of misrepresentation or defamation. Any type of false information, embellishment, deception, exaggeration, or minimization is prohibited. Confusing or ambiguous presentations must be avoided. The Director of Insurance possesses the power to decide whether an advertisement violates Illinois law. The following are prohibited: Omissions which cause an advertisement to be misleading. General assertions about coverage or benefits, such as "this policy will help you pay your medical bills," which will not hold literally and equally true for everyone. Wording limitations as if they were advantages, such as "even pre-existing conditions are covered after two years." Stating a weekly or monthly benefit amount when benefits are actually payable on a daily basis. Not stating clearly and prominently if coverage is limited. Implying cost savings because a policy is direct marketed. Not disclosing limitations on any benefit mentioned. Using phrases like "no medical exam required," which imply that medical history is not a consideration, when pre-existing conditions may be excluded. Using a testimonial that is not the true, current opinion of the endorser, or that is taken out of context (testimonials must be retained by the insurer for 4 years or until the insurer is next examined). Using words or symbols similar to those of a governmental agency. If a policy limits or excludes pre-existing conditions, applications sent along with direct response advertisements for that policy must contain a statement certifying that applicants understand the effect of the pre-existing conditions exclusion. A blank line for the applicant's signature must accompany the statement. Insurers must maintain a file showing a copy of every advertisement, when, where, and how each advertisement was used, and the form number of the policy being advertised. Advertisements must be kept in the file for four years or until the insurer's next regular examination, whichever comes later.

Unfair Practices

Sections 364 of State insurance law describe the unfair 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 health insurance solely because someone is blind or partially blind, although blindness existing at the time of policy issue may be excluded from disability coverage; (6) attempting to boycott, coerce, or intimidate which would result in a restraint of trade in the insurance business; or (7) unfairly discriminating against anyone because of that person's race, creed, color, religion, or national origin. Illinois law states that no 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. It is illegal for an insurer to refuse to insure or refuse to continue insurance to an individual solely because of a physical handicap, disability or blindness except when such action is based on soundactuarial principles. For example, an insurer may exclude from coverage disabilities consisting solely of blindness or partial blindness when such condition existed at the time the policy was issued. No individual or group policy of health insurance may be cancelled or non-renewed for any individual based on that person's participation in a qualified clinical cancer trial. Such trial must meet the following criteria: (1) the effectiveness of the treatment has not been determined relative to established therapies; (2) the trial is under clinical investigation; (3) the trial is approved by the FDA or approved and funded by the Center for Disease Control (CDC), the National Institute of Health (NIH), or other federal program; and (4) the patient's primary care physician, if any, is involved in the coordination of the care. In addition, an insurer may not require a provider, as a condition of participation by the provider, to purchase ophthalmic goods or services, including but not limited to eyeglass frames, in a quantity or dollar amount in excess of the quantity or dollar amount and enrollee purchases under the terms of the policy.

Illinois Health Insurance Portability and Accountability Act (HIPAA)

State legislation was recently passed that has expanded health insurance coverage. The specific regulation is called the Health Insurance Portability and Accountability Act. Key provisions included in this recent law include but are not limited to: Portability — Provisions in HIPAA regarding portability do not allow employees to take specific insurance from one job to another. It places limitations on pre-existing condition exclusions and allows employees to use evidence of prior insurance coverage to reduce or eliminate the length of any pre-existing condition exclusion when employees become covered by another medical expense plan. The portability provision applies to almost all group health plans that have at least two participants (i.e., employees) on the first day of the plan year. A creditable coverage certificate must be issued to qualified employees by employers upon request. If an individual (and/or family) was covered by another group plan previously, with no gaps in coverage of 63 days or more, he or she is qualified to receive a certificate (assuming they are attempting to receive coverage under a new plan). In other words, if an employee has been without coverage for at least 63 days between jobs, the full pre-existing condition period applies. The purpose of this certificate is to prove creditable coverage and also to reduce a pre-existing waiting period. For instance, an employee who has one month of creditable coverage may apply this toward the satisfaction of one month (i.e., month to month) of "pre-existing waiting period." Establishing Eligibility — State law prohibits a group health policy from establishing eligibility for enrollment or coverage based upon a person's individual health status, physical or mental medical condition or history, genetic background, claim history (i.e., experiences), evidence of insurability, disability or whether the person has received health care in the past.

Temporary Insurance Producers

Temporary Insurance Producers (Sections 500-60 and 65) — There are two types of temporary insurance producer licenses according to Illinois law. One type is issued to those who expect to become permanently licensed producers (i.e., producer applicants). These individuals who have not yet taken the licensing exam, but who are: (1) sponsored by an insurer; (2) enrolled in a training course that satisfies the State pre-licensing education requirement; and (3) otherwise meet all the qualifications for holding a producer's license. This temporary license is good for 90 days and may be issued only once in a person's 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. The other form of temporary license may be issued upon the death of a licensed producer (or in the case where the producer becomes disabled or enters the armed services). Upon death, this type of temporary license may be issued to: (1) the 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. The holder of this license may only engage in activities related to the continuance of existing business, such as renewing policies or collecting premiums due the estate or the firm. The holder of a temporary license is not permitted to solicit or sell new insurance. The license is good for 180 days from the producer's death, renewable for additional 180 day periods at the Director's discretion. A temporary license will not be issued if any officer, director, member, or employee of the firm is a licensed insurance producer. In addition, this licensed person must be identified and held responsible for the business entity.

Required Provisions

The LHSO must issue a group contract or certificate to each subscriber. The certificate must be provided to the subscriber or enrollee within 30 days after the effective date of coverage and it must identify the benefits and services provided. All such group plans must provide limited health services for a period of 12 months from the date of issue; and must renew the contract from year to year unless there has been 31 days written notice of termination. Every LHSO must establish and maintain a complaint system providing reasonable procedures for resolving complaints initiated by enrollees. Once a LHSO is notified by the Director that someone has filed a complaint against the organization, it has 21 days to respond to the complaint. Solicitations of enrollees by the LHSO may not violate any provisions of law relating to solicitation or advertising by health professionals. No LHSO may cause or knowingly permit the use of advertising or solicitation which is untrue or misleading or any form of evidence of coverage which is deceptive. No person may apply, procure, solicit, negotiate, or place for others any evidence of coverage of an LHSO, unless that person holds a valid limited lines producer license or a producer'slicense to sell accident and health insurance policies. Every subscriber must be issued an evidence of coverage which contains a clear and complete statement of: (1) the limited health services to which each enrollee is entitled; (2) eligibility requirements indicating the conditions which must be met to enroll in a limited health care plan; (3) any limitation of the services or benefits to be provided, and exclusions, including any co-payment, or other charges; (4) the terms or conditions upon which coverage may be canceled or otherwise terminated; (5) where and in what manner information is available as to where and how services may be obtained; and (6) the method for resolving complaints. Any amendment to the evidence of coverage may be provided to the subscriber in a separate document. Limited health service organizations shall be subject to the provisions of the Health Maintenance Organization Act and all other Illinois law related to accident and health insurance. According to State law, LHSOs are deemed to be domestic insurers.

Managed Care

The State of Illinois has strict laws and regulations with regard to managed care plans which transact insurance coverages and provides medical services throughout this State.

Licensing and Registration

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

Illinois Law Pertinent to Health Insurance Only

The following information forms the basis for which State examination questions will be based with regard to health insurance policies sold and issued for delivery in Illinois.

Get Ready for Your Sample Examination

You have nearly completed the Study Manual portion of your Illinois Life, Accident and Health Law course. What steps are left to complete this course? Take the following state insurance law sample exam; the state specific insurance law is a very important part of your studies. Once you have completed the sample examination, return to your dashboard where you can: Access and take the sample Final Exams in the Exam Center Review the Crunch Time Facts found in Facts Utilize any additional study tools you may have purchased with your package:On Demand LecturesFlashcards Good luck!

Disclosure Regulations

Section 500-155 of State law specifies that all insurance policies that 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 bear the name and signature of the licensee who solicited and wrote the application.

TRUE OR FALSE The director can propose legislation, then create and pass laws?

The Director DOES NOT propose legislation, make laws or pass laws. The Director enforces the insurance laws and regulations currently in existence.

Advertising and Sales (cont.)

All advertisements must clearly identify the issuing insurer and the policy in question. The actual trade name of the insurer must be included. Dividend illustrations must include a statement that dividends are not guaranteed. In addition, if the terms "non-medical" or "no exam required" are used, but health history questions must be answered to apply for a policy, this must be disclosed in the advertisement. Insurers 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. Advertisements must be kept in the file for four years or until the insurer's next regular examination, whichever comes later.

Annual Report

An annual report must also be made to the Director by the viatical settlement provider by March 1st describing transactions performed. Records must be maintained of all transactions and must be available to the Superintendent for five (5) years. The Director must be notified in writing of any change of business address within 30 days of the change.

Free-Look Period

An individual long term care insurance policyholder or person insured under a direct-response long term care policy must have the right to return the policy within 30 days of its delivery and to have the premium refunded directly to him or her if, after examination of the policy, the policyholder is not satisfied for any reason. This involves the free-look or right to examine provision.

Business Entities

Business Entities (Sections 500-30 and 35) — Any firm, corporation, partnership or business entity acting as a producer must obtain an insurance producer license. The business entity must also submit the appropriate forms and fee to the Director. Each registered firm 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 other members, officers or directors licensed as producers must also be disclosed. Any changes in these personnel or in the address of the firm must be reported within 30 days. This license will remain in effect until suspended or revoked by the Director for just cause.

Renewability

Guaranteed renewable and noncancellable may not be used in any long term care policy without explanatory language in accordance with the disclosure requirements of Illinois law. No policy may contain renewal provisions less favorable to the insured than guaranteed renewable. The term guaranteed renewable may only be used when the insured has the right to continue the long term care insurance in force by the timely payment of premiums, and when the insurer has no unilateral right to make any change in any provisions of the policy or rider while the insurance is in force, and cannot refuse to renew the policy, except that rates may be revised by the insurer on a class basis. The term noncancellable may only be used when the insured has the right to continue the long term care insurance in force by the timely payment of premiums, during which period the insurer has no right to unilaterally make any change in any provision of the insurance or in the premium rate.

Obtaining an Insurance 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.

Felony Convictions

In the State of Illinois, according to Section 500-95, any licensee 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.

What is the process and procedure for The Director filing an examination report?

The Director must inform persons being examined (i.e., producer) what an examination report says before filing the report or making it public. The examinee then has 14 days in which to state written objections and ask the Director for a hearing. The Director must provide 10 days advance notice of the time and place of the hearing.

Extension of Benefits

Termination of LTC insurance must be written without prejudice to any benefits payable for institutionalization if the institutionalization began while the long term care insurance was in force and continues without interruption after termination. Such extension of benefits beyond the period the long term care insurance was in force may be limited to the duration of the benefit period, if any, or to payment of the maximum benefits, and may be subject to any policy waiting period and all other applicable provisions of the policy.

Illustrations (cont.)

"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 basic illustration 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. Another type of illustration is a self-supporting illustration. This is an illustration of a policy for which it can be demonstrated that for all illustrated points in time on or after the fifteenth policy anniversary, the twentieth 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 policy owner value available.

Illustrations (cont.)

"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 basic illustration 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. Another type of illustration is a self-supporting illustration. This is an illustration of a policy for which it can be demonstrated that for all illustrated points in time on or after the fifteenth policy anniversary, the twentieth 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 policy owner value available.

Buyer's GuideBuyer's Guide

A Buyer's Guide must be provided to all accident and sickness policy applicants who are old enough to qualify for Medicare. This applies to all accident and sickness policies, not just those advertised as Medicare Supplement policies. The Guide must be given to the applicant at the time application is made, and a confirmation of receipt of the Buyer's Guide must be obtained by the issuer. Direct response issuers must deliver the Guide to the applicant upon request, but no later than at the time the policy is delivered. Advertising for Medicare Supplement policies must: (1) not refer to Medicare on the envelope, return envelope, or address side of any reply card; (2) prominently state that the insurer and producer are not connected with the Medicare program; (3) clearly represent itself as an insurance advertisement; and (4) clearly state that requested information will be delivered by a representative of the insurer.

Illustrations (cont.)

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, tenth and twentieth 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. A 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 shown in a supplemental illustration must not be more favorable to the policy owner than the corresponding elements based on the scale 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.

What are the potential consequences for a licensed producer who violates or helps violate any order issued as a result of an investigation?

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.

Insurance Director (cont.)

According to Section 132 of Illinois law, the Director is authorized to conduct "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 nondiscriminatory. 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 (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. The 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. Section 403 of Illinois law also stipulates that the 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.

Insurance Director (cont.)

Additional duties of the Insurance Director include but are not limited to: Computes the reserves of life insurers but does not activate these reserves. Issues insurance licenses to producers and insurers. Suspends or revokes insurance licenses after a hearing for cause shown. Examines, audits and regulates insurers for solvency. Approve and regulate insurance premium rates. Regulates and oversees insurance advertising. Examines domestic insurers once every five years. Issues cease and desist orders for cause shown. 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 after it becomes final may be fined up to $1,000 per violation. In addition, any person subject to an order by the Director is entitled to a judicial review (i.e., appeal). 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. 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. Engage in any other necessary act in order to enforce Illinois insurance law.

Medicare Supplements/Medigap (cont.)

Additional minimum standards with which all insurers selling Medicare Supplement policies must comply include: (1) stating all initial and subsequent terms of eligibility; (2) ensuring that the policy does not duplicate any coverage provided by Medicare; (3) identifying any probationary or elimination periods (usually no greater than 365 days) included; (4) establishing a processfor approving or disapproving proposed premium increases (and establishing a policy of holding public hearings to discuss such changes); (5) providing consumers with literature that defines all key terminology in the policy and how the policy treats recurrent conditions; and (6) establish standards for Medicare Select policies. Insurers are also required to establish standards for claim payments, marketing practices, permitted compensation arrangements, and reporting practices. Termination of the policy must be without prejudice to any continuous loss which commenced while the policy was in force, but the extension of benefits beyond the period during which the policy was in force may be conditioned upon the continuous total disability of the insured, limited to the duration of the policy benefit period or payment of the maximum benefits. Benefits and premiums under the Medigap policy may be suspended for up to 24 months at the request of the policyholder if he or she becomes eligible for Medicaid. The policyholder must notify the issuer within 90 days of eligibility. The issuer must refund the premium for the period of Medicaid eligibility. If the policyholder loses eligibility, the Medicare Supplement policy must be automatically reinstated as of the date of Medicaid termination, provided the insured gives 90 days' notice and pays the premium due for the period.

Viatical Settlement Provider (cont.)

Advantages — While upon 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 one 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 called an accelerated benefits rider. Generally, this rider limits withdrawals, which are fully taxable, to a maximum of 50% of the face amount while 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 received over what was paid in premiums.

Advertising and Sales (cont.)

Advertisements must be truthful and cannot be misleading. The content of an ad must be complete and cannot be deceptive. The Director makes the final determination whether or not an ad is unfair, misleading or deceptive. The information that an insurer must disclose must not be made obscure or intermingled with the ad text so as to be confusing. Ads may not omit material information or use words or illustrations that are misleading which induce a prospect to buy insurance. The following disclosure requirements apply to all advertisements to be used in the State of Illinois: 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; Ads may not state that the policy holder will be entitled to receive a stated portion of earnings from the insurer's general account; 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 upon the answer to health history questions; Any limitation of benefits must be clearly displayed for a policy containing graded or modified benefits, or if coverage decreases, increases or premiums change, these facts have to be displayed prominently in the policy; Ads must not describe or imply that future dividends will be sufficient to pay for the policy without future premiums; Ads describing a direct-response insurer may not imply that there is a cost savings since no commission is paid to a producer; and The actual title of the policy must be displayed in an advertisement and it cannot be misleading according to policy benefits.

Illinois Law and Regulations Pertinent to Life Insurance Only

Advertising and Sales (Section 909) — Illinois law and regulations stipulate minimum standards and guidelines for insurance advertising and sales in order to assure full and truthful disclosure to the public of all information. Advertising, according to Illinois law, is defined as any type of communication intended: (1) to create interest in life insurance or annuities or in an insurer, or; (2) to induce someone to buy, increase, modify, change, reinstate or retain a policy. This definition applies to sales aids of all kinds including prepared sales talks or audio visual aids used in such presentations, descriptive literature and other sales aids. Communications are not considered advertising if they are used only within the insurerand are not intended for public dissemination. Communications with policy holders other than material urging them to purchase, increase, modify, reinstate or retain a policy is also not considered to be advertising. In addition, 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. It must be truthful, clear, concise and complete. Every insurer must establish and maintain control over advertisements of its policies. Advertisements are the responsibility of the insurer regardless of by whom written, created, designed or presented. The Director of Insurance possesses the power to determine whether advertising meets these State qualifications. Other forms of advertising include radio, television, newspaper, magazine or billboard advertisements.

Unfair Claims Practices (cont.)

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 (2) years. Records kept may be of the paper type or on computer disk as long as all information is accessible. An insurer must affirm or deny a claim within a reasonable time. In addition, the insurer must also offer payment within thirty (30) days after they have affirmed their liability (as long as the claim is not in dispute). No claim may be denied based on information obtained in a telephone conversation or personal interview unless documented in the claim file. If an insured is filing a claim under two or more similar policies with the same insurer and the same claim form is required by both policies, only one copy of the form needs to be submitted for both claims. Additional information required by either policy may be requested. If the insurer realizes that additional benefits would be payable if additional information were submitted by the insured, the insurer must assist the insured to do what is necessary in order to obtain such benefits. Insurers are not permitted to require that a claimant or insured submit to a polygraph or similar examination as a condition for receiving a claim payment. They are also not allowed to require that a claimant complete a proof of loss form in less time than that allowed by the policy (i.e., 90 days in health insurance). If a claim is unresolved forty-five (45) 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. If a disability claim is settled on a lump sum basis, the payment must be accompanied by a written explanation of the settlement including a comparison of the different methods of settlement.

Medicare Supplements/Medigap (cont.)

All issuers must offer a Medicare Supplement policy which contains the following "core" benefits: (1) coverage of Part A eligible expenses for hospitalization to the extent not covered by Medicare from the 61st day through the 90th date in any benefit period; (2) coverage of Part A eligible expenses for hospitalization for each Medicare lifetime inpatient reserve day used; (3) upon exhaustion of hospital inpatient coverage, including lifetime reserve days, coverage of Part A eligible expenses for hospitalization, subject to a lifetime maximum benefit of an additional 365 days; (4) coverage under Parts A and B for the reasonable cost of the first three pints of blood or packed red blood cells, unless replaced in accordance with federal regulations; and (5) coverage for the coinsurance amount of eligible expenses under Part B regardless of hospital confinement, subject to the Part B deductible. Additional benefits may be included as well.

Duties of Agents

All life insurance or annuity applications must contain two statements. One must be signed by the applicant and the other signed by the producer, indicating 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, the producer must: (1) sign and provide the applicant a "Notice Regarding Replacement of Life Insurance or Annuity." This notice suggests that the applicant acquire as much information as possible before deciding to replace existing coverage. The policies proposed for replacement must be listed on the form; and (2) submit the application to the replacing insurer with a copy of the signed notice provided to the applicant and a signed notice addressed to the existing insurer which identifies the insured and the policies proposed for replacement.

Accelerated Benefits (cont.)

All policy and certificate forms must be filed with the Department of Insurance for review and approval prior to use. In addition, the insurer must file an actuarial memorandum that describes the accelerated benefits, the risks, the expected costs, and the calculation of statutory reserves in compliance with applicable valuation and nonforfeiture law. The insurer must disclose and maintain descriptions of the bases and procedures used to calculate its accelerated benefit provisions in its files. Prior to paying any benefits, the insurer may require medical evidence of the terminal illness or qualifying condition. Insurers must evaluate the medical evidence and may order their own medical examinations. Settlement options may include one or a combination of lump sumpayments, installment payments, or any other form of payment upon which the policyholder and the insurer agree. The policyholder and any irrevocable beneficiary must provide their written consent to the payment of any accelerated benefits. If there is a premium or cost of insurance charge assessed, the insurer must give the applicant an illustration demonstrating the effect of the payment of the accelerated benefit on the policy. A written disclosure including a brief description of the accelerated benefit, definitions of the conditions or occurrences triggering 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. A disclosure statement is also required at the time the accelerated benefit payment is submitted. The statement must be present that indicates that accelerated benefits may be taxable. When a policyholder requests a "living benefit," the insurer must send a written statement to the policyholder and any irrevocable beneficiary which demonstrates any effect that the payment of the accelerated benefit will have on the policy. 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. Disclosure forms must be filed with the Department of Insurance for approval before they may be used.

Illustrations (cont.)

An illustration used in the sale of a life insurance policy must be clearly labeled "life insurance illustration" and 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 Settlement Provider

Any individual, corporation, partnership or firm who 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). No entity may act as a viatical settlement provider without a license. A viatical settlement provider is not an insurer or any financial institution. The 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 one may act as a viatical producer without a life and health insurance producer license. A viaticated policy is a life insurance policy purchased from a viator and held by a viatical settlement provider. A viatical settlement provider is not an insurer or any financial institution. Therefore, a life insurance company does not engage in viatical settlements. In addition, a life insurance company shall 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 shall not include: A licensed insurance company, bank, savings bank, finance company or other licensed lending institution, investment company or pension plan; or The issuer of a life insurance policy providing accelerated benefits according to the Illinois insurance code.

What is the role and responsibility of the examinee, to the director, during an investigation?

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.

What are the potential fines and charges if anyone refuses to cooperate when subpoenaed?

Anyone who refuses to attend when subpoenaed or refuses to cooperate may be fined up to $2,000 and charged with contempt of court. Further refusal may result in another fine or imprisonment or both.

Unfair Practices

As mentioned previously in Sections 5/236 and 5/424, Illinois law describes the unfair 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 someone is blind or partially blind, although blindness existing at the time of policy issue may be excluded from disability coverage; (6) attempting to boycott, coerce, or intimidate which would result in a restraint of trade in the insurance business; or (7) unfairly discriminating against anyone because of that person's race, creed, color, religion, or national origin. Further, 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. It is illegal for an insurer to refuse to insure or refuse to continue insurance to an individual solely because of a physical handicap, disability or blindness except when such action is based on sound actuarial principles. For example, an insurer may exclude from coverage disabilities consisting solely of blindness or partial blindness when such condition existed at the time 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 such as the Air Force, Army, Coast Guard, National Guard, Marines, Navy or Armed Reserve Forces.

Who pays the Audit Expenses? Who pays the witness fee?

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.

Bond Requirements

Bond Requirements (Section 500-130) — A producer who brokers 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 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. A license will terminate automatically if there is no bond in force when a bond is required. 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). An individual producer is responsible for assuring that a producer bond is in effect and in the correct coverage amount. This entity must have been in existence for five years, have common membership and been formed for a purpose other than obtaining a surety bond. The bond may be canceled by the surety company with 30 day's written notice provided to the principal (i.e., bond holder). Upon receiving notice or 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 injured under the terms of the bond requests the producer to provide the name of the surety and the bond number, the producer must provide the information within three (3) working days after receiving the request.

Fiduciary Duties and Responsibilities (cont.)

Books and Records — Licensees must maintain accurate books and records of account reflecting all insurance and insurance related operations. All transactions and amounts receivable must be posted to the books and records no less than every thirty (30) days. All books and records for a calendar or fiscal year must be maintained for at least seven (7) years thereafter. The licensee must maintain a cash receipts register of all money received. The register must include: the date the money is received; the amount received; the name of the insured, insurer or licensee making the payment; and the policy number or description of the receipt. Licensees must also maintain a cash disbursements register as well. This 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.

Change of Address

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.

Continuing Education

Continuing Education (Section 500-35) — This section of Illinois law states that before each license renewal, an insurance producer must satisfactorily complete at least 24 credit hours of continuing education. Three (3) of the 24 hours of course study must consist of classroom ethics instruction. The Director may not approve a course of study unless the course provides for classroom, seminar, or self-study instruction methods. A course given in a combination instruction method of classroom or seminar and self-study shall be deemed to be a self-study course unless the classroom or seminar certified hours meets or exceeds two-thirds of total hours certified for the course. The self-study material used in the combination course must be directly related to and complement the classroom portion of the course in order to be considered for credit. An instruction method other than classroom or seminar shall be considered as self-study methodology. Self-study credit hours require the successful completion of an examination covering 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. The self-study credit hours contained in a certified course shall be considered classroom hours when at least two-thirds of the hours are given as classroom or seminar instruction. The compliance date is the 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. An individual insurance producer who allows his or her license to lapse may, within twelve (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 shall be required after the due date. In addition, a licensed producer who is unable to comply with license renewal procedures due to military service may request a waiver of those procedures.

Controlled Business

Controlled Business (Section 500-125) — Controlled business = a disproportionate amount of insurance written on a producer's own life, person, property, or risks; or the life, person, property, or risks of the producer's spouse, employer, 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 month period (i.e., the next year). For example, if a producer's commissions during the past two years on sales of controlled business exceed the commissions 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.

Defamation

Defamation (Section 149) — This involves anyone (i.e., producer or insurer) making a false or malicious statement concerning the financial condition of an insurer in order to injure intentionally any authorized insurer's business or reputation. This is also illegal and is punishable by a monetary fine of not less than $200 nor more than $10,000. License suspension or revocation is also possible.

Continuation or Conversion

Group long term care policies must provide covered individuals with a basis for continuation or conversion of coverage. A policy provision which maintains coverage under the existing group policy when coverage would otherwise terminate, and which is subject only to the continued payment of premium identifies the basis for continuation of coverage. Group policies which restrict provision of benefits and services to or contain incentives to use certain providers or facilities may provide continuation benefits which are substantially equivalent to the benefits of the existing group policy. A policy provision that an individual whose coverage under the group policy would otherwise terminate, and who has been continuously insured under the group policy for at least six months immediately prior to termination, is entitled to be issued a converted policy by the insurer, without evidence of insurability. A converted policy is an individual LTC policy providing benefits identical to, substantially equivalent to, or in excess of those provided under the group policy from which conversion is made. Written application for a converted policy must be made no later than 31 days after termination of coverage under the group policy. The converted policy will be effective on the day following the termination of coverage under the group policy. The policy must be guaranteed renewable. Continuation of coverage or the issuance of a converted policy is mandatory, except where termination of group coverage resulted from an individual's failure to make any required premium payment or contribution; or the terminating coverage is replaced no later than 31 days after termination by group coverage which is substantially equal to the terminating policy. Illinois law states that no long term care policy may be canceled, non-renewed, or otherwise terminated because of the age or deterioration of the mental or physical health of the insured; contain a provision establishing a new waiting period in the event existing coverage is converted to or replaced by a new or other form within the same company, except with respect to an increase in benefits voluntarily selected by the insured; or provide coverage for skilled nursing care only or provide significantly more coverage for skilled care in a facility than coverage for lower levels of care.

Suitability in the Sale of Life Insurance and Annuities (cont.)

Duties of Insurers and Producers — In recommending to a consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or a series of insurance transactions, the insurance producer / agent, or the insurer if no producer is involved, shall have reasonable grounds for believing that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer as to the consumer's investments and other insurance products and as to the consumer's financial situation and needs.Prior to the execution of a purchase or exchange of an annuity resulting from a recommendation, an insurance producer, or an insurer if no producer is involved, shall 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. Recordkeeping — Insurers, general agents, independent agencies and insurance agents shall maintain or be able to maintain records of the information collected from the consumer used in making the recommendations that were the basis for insurance transactions for seven (7) years after the insurance transaction is completed by the insurer. An insurer is permitted, but not required, to maintain documentation on behalf of an insurance agent. 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 C.E. requirement for a resident producer.

Exemptions

Exemptions (Sections 500-15 and 20) — State licensing and registration requirements do not apply to the following: (1) salaried insurance company officers or employees engaged only in the usual executive, administrative or clerical duties; (2) salaried clerical or administrative employees in the office of a producer, limited lines producer or business entity, 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 employed by insurance companies only to inspect, rate, or classify risks or train licensees; (6) advisory organizations and individuals who furnish information related to mass merchandised life or health insurance which is administered on a group basis; or (7) a person whose activities in Illinois are limited to advertising without the intent to solicit insurance.

Fiduciary Duties and Responsibilities

Fiduciary Duties and Responsibilities (Section 500-115 and Regulation 3113) — Any premiums handled by an insurance producer, limited lines producer, temporary licensee, business entity or surplus lines producer must be held in a fiduciary capacity. A fiduciary is one that must act with a high degree of trust since he or she is handling the monies of the public. It also means that the producer must consider these funds as being held in trust for another party (i.e., the insurer or client). These funds collected may not be misappropriated, misused or commingled with personal funds. A single instance of misusing, misappropriating, or improperly 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 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.

Illustrations (cont.)

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. A copy must also be provided to the applicant. If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued, must be sent with the policy and must be labeled as a "Revised Illustration." If no illustration is used by a producer in the sale of a life insurance policy, or if the policy is applied for other than as illustrated, the producer must certify to that effect in writing on a form provided by the insurer. On the same form the applicant must acknowledge that no illustration conforming to the policy applied for was provided, and further acknowledge an understanding that the illustration conforming to the policy as issued will be provided no later than at the time of policy delivery. This form must be submitted to the insurer at the time of policy application. If the basic illustration or revised illustration is sent to the applicant or policy owner by mail from the insurer, it must include instructions for the applicant or policy owner to sign the duplicate copy of the summary page of the illustration for the policy issued and return the signed copy to the insurer. A 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.

License Suspension, Revocation or Denial (cont.)

If the Director non-renews, suspends or revokes a license (or denies an application for a license), he or she shall notify the applicant or licensee in writing of the action taken and the reason for such action. This notice shall 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 nor more than 30 days after the mailing of the notice of hearing. In addition to or instead of any applicable denial, suspension or revocation of a license, 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. The Director shall make such information public as he or she deems necessary. A person whose license is revoked or whose application is denied, according to Illinois law, is ineligible to apply for any license for 3 years after the revocation or denial. A person who has had a license suspended, revoked or denied may not be employed by or contracted with an insurer, or engaged in any insurance activities while the suspension or revocation is in effect.

What is the maximum fine for those persons found in direct (or assisted in the) violation of any law, regulation, or prior order?

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.

Life and Health Insurance Guaranty Association

Illinois Insurance Guaranty Fund (Sections 531.01 through 531.19) — The Life and Health Insurance Guaranty Fund consists of all life and health insurers authorized to do business in Illinois. The purpose of this Association is to protect the public against the failure of an insurer to pay claims due to insolvency. If a member suffers financial trouble, the Association will fulfill that member's contractual obligations to: (1) policy owners who are Illinois residents; and (2) beneficiaries of Illinois policy owners, regardless of where the beneficiaries reside. Funds needed to make payments are derived by assessing member insurers. Again, this Fund was formed to protect the public from the failure of insurance companies to meet their obligations (i.e., pay claims) under individual and group life insurance policies, health insurance policies, annuity contracts and various other supplemental life and health insurance contracts. The Association also assists the Director of Insurance to detect and prevent insolvencies among member insurers. 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) obligations for benefits to be provided by any HMOs or under any vision services, dental services or pharmaceutical services plan; or (5) any non-guaranteed portion of a variable life or variable annuity contract. The Association is responsible for a limited amount of coverage. The Association's liability for the contractual obligations of an insolvent insurer will be no greater than what the obligations of the insurer would have been in the absence of insolvency. Therefore, the Association will not pay more than the benefit amount or policy limit specified in the contract issued by the insolvent insurer. The aggregate liability of the Association under all outstanding policies covering any one life does not exceed the following maximums: $300,000 for all life insurance death benefits; $100,000 in net cash surrender value; $250,000 in present value of annuity benefits; $300,000 for all disability and long-term care insurance benefits; and $500,000 for medical, hospital and surgical policies.

Maintaining an Insurance 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.

Outline of Coverage

Illinois law specifies that an outline of coverage must be delivered to a prospective applicant for long term care insurance at the time of initial solicitation through means which prominently direct the attention of the recipient to the document and its purpose. The outline of coverage must include: (1) a description of the principal benefits and coverage provided in the policy; (2) a statement of the principal exclusions, reductions and limitations contained in the policy; (3) a statement of the terms under which the policy or certificate may be continued in force or discontinued, including any reservation in the policy of a right to change premium; (4) a statement that the outline of coverage is a summary only; (5) a description of the terms under which the policy or certificate may be returned and premium refunded; and (6) a brief description of the relationship of cost of care and benefits.

Illustrations (cont.)

Illinois law states that a basic illustration must conform to the following 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.

Limitations and Exclusions

Illinois law states that no policy may limit or exclude coverage by type of illness, treatment, medical condition or accident, except as follows: (1) pre-existing conditions or disease; (2) mental or nervous disorders although this does not permit an exclusion or limitation of benefits on the basis of Alzheimer's Disease or senile dementia; (3) alcoholism and drug addiction; (4) illness, treatment, or medical condition arising out of war, participation in a felony, service in the armed forces or any auxiliary units, or suicide, attempted suicide, or intentionally self-inflicted injury; (5) aviation; or (6) treatment provided in a government facility. This does not prohibit exclusions and limitations for payment of services provided outside the United States.

Exemptions

Illinois replacement regulations do not apply to: credit life; group life and group annuities; life coverage in a tax-qualified pension or profit-sharing retirement or employee benefit plan; variable life and variable annuities; transactions where the replacing insurer and existing insurer are the same; or situations where total existing coverage to be replaced represents less than $500 in cash value and less than $5,000 in face amount.

Advertising and Sales (cont.)

In addition, testimonials or third-party endorsements must be genuine and represent the current opinion of the party making them. If this third-party has a financial interest in the insurer, this fact must be disclosed. In other words, any proprietary relationship between the endorsing organization and the insurer must be disclosed. An advertisement may also contain statistical information as long as it includes accurate, relevant and recent facts. The source of any statistics must also be identified. Further, no ads may include information implying that the policy is a special offer nor can they describe an enrollment period as special or limited when the insurer uses the successive enrollment periods as its usual marketing method. An enrollment period during which a particular policy may be purchased must not be offered in Illinois unless at least six (6) months have passed since the last offer of coverage. The ad must specify the date by which the application must be mailed. This must not be less than ten days nor more than forty days after the enrollment period is first advertised. No ads may include any unfair or incomplete comparisons of benefits, dividends or rates.

Illustrations (cont.)

In the case of policies for which illustrations are used, the insurer must provide each policy owner with an annual report on the status of the policy. For universal life policies, the report 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 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. For all policies other than universal life, the 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 writing life insurance policies that 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 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).

Insurance Producers

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 (i.e., fire) (4) casualty (5) personal lines property and casualty (6) motor vehicle. In addition to licensed producers, limited lines producers or temporary insurance producers, the only individuals permitted to service or offer advice concerning the benefits, advantages, or disadvantages of any insurance contract are: attorneys licensed to practice law and performing duties incidental to that position bank trust officers, actuaries, and CPAsperforming professional duties incidental to their position; or licensed public adjusters acting within the scope of that license. Class A misdemeanor = Acting as a producer without a license. Class 4 felony = If funds are misused, misappropriated or illegally commingled. Section 500-25 of Illinois law states that a resident individual applying for an insurance producer license must pass a State examination unless exempt. The State examination shall test the knowledge of the candidate concerning the lines of insurance for which the application is made. All candidates must file a request to take the examination, pay an application fee and a testing service fee as well. Part I (i.e., the general portion of the exam) Part II (i.e., Illinois law and regulations) must be passed within ninety (90) days of one another. A candidate that 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.

Agent Responsibilities

It is the responsibility of the producer to provide 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 entitled Statement of Policy Cost and Benefit Information which contains: (1) the producer's name and address, or the procedure for getting 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. The life solicitation rules also apply to all life insurance sales, including fraternal benefit life insurance, but not to the following: annuities; credit life; group life; franchise life; variable life; or life insurance in pension and employee benefit plans subject to ERISA (i.e., the Employee Retirement Income Security Act of 1974). 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 riders such as accidental death, waiver of premium or guaranteed insurability. 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. All producers must identify the product that they are selling as life insurance if such is the case. They may not refer to themselves as financial planners, investment advisors or financial consultants. No presentation may include a reference to the time value of money unless it is clearly presented or stated. Failure to provide a Buyer's Guide or Policy Summary at the required time will be considered a form of misrepresentation.

License Fees

License Fees (Section 500-135) — Monetary fees charged by the Insurance Department are prescribed by Illinois law. They include: (1) a $180 fee payable once every two years for a producer's license; (2) a $150 registration fee 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 nonresident license; (5) a $200 fee every two years for a nonresident 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; and (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 generally are 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.

License Suspension, Revocation or Denial

License Suspension, Revocation or Denial (Section 500-70) — This section of Illinois law and regulations specifies strict rules for license suspension, revocation or denial. These rules will be enforced by the Director of Insurance or any deputies or appointees delegated with appropriate authority by the Director. 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: --Making 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 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; 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.

Limited Lines Producer

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 having a certificate of authority under the Limited Health Service Organization Act. Limited insurance representatives need not take the State examination nor 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. A limited lines producer license remains in effect for as long as the appointing insurance company pays the required fee.

Misrepresentation

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 an insurer or producer compares policies unfairly in a misleading way in order to induce a policyholder to lapse existing coverage he, she or it has engaged in twisting, which is a form of misrepresentation. Any form of misrepresentation is illegal and may be punishable by a monetary fine of not less than $200 nor more than $10,000. Following a hearing, the license of the guilty party may be suspended or revoked by the Director of Insurance. Illinois law regarding misrepresentation also applies to persons who disseminate false advertisements or unauthorized individuals who distribute invitations to inquire, questionnaires or requests for information designed to result in solicitation for the purchase of insurance. An insurer may void an insurance contract due to misrepresentation or false warranty made by the insured (or his representative), only if the false information has been made part of the contract and it was made with actual intent to deceive or materially affect the acceptance of the risk or hazard assumed by the insurer.

License Requirements

No individual, corporation, partnership or other entity may act as a viatical settlement provider with securing and holding the proper license. The initial license fee 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 shall 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 and trustworthy and intends to act in good faith; (3) has a good business reputation and is qualified for the license applied for; and (4) if a corporation, is incorporated under the laws of this State. 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 or not to suspend or revoke a provider license.

Long-Term Care Insurance (cont.)

No long term care insurance policy or certificate may use a definition of "pre-existing condition" which is more restrictive than the following, according to Illinois law. Pre-existing condition means the existence of symptoms which would cause an ordinarily prudent person to seek diagnosis, care or treatment, or a condition for which medical advice or treatment was recommended by, or received from a provider of health care services, within six months preceding the effective date of coverage for an insured person. No long term care insurance policy may be issued for delivery in the State of Illinois if the policy: (1) conditions eligibility for any benefits on a prior hospitalization requirement; or (2) conditions eligibility for benefits provided in an institutional care setting on the receipt of a higher level of institutional care. A long term care insurance policy containing any limitations or conditions for eligibility other than those identified previously must clearly label those limitations or conditions, including any required number of days of confinement, in a separate paragraph of the policy entitled "Limitations or Conditions on Eligibility for Benefits." A LTC policy containing a health benefit advertised, marketed or offered as a home health care or home care benefit may not condition receipt of benefits on a prior confinement requirement. In addition, a policy conditions eligibility of noninstitutional benefits on the prior receipt of institutional care must not require a prior institutional stay of more than 30 days for which benefits are paid. LTC policies may be written on a guaranteed renewable or noncancellable basis. Illinois law states that the renewability provision appearing in the policy cannot be less favorable than guaranteed renewable. These policies may include the following exceptions: (1) pre-existing conditions; (2) mental or nervous disorders; (3) alcoholism or drug addiction; (4) war; (5) participation in a felony, riot or insurrection; (6) suicide or attempted suicide; (7) service in the armed forces; (8) treatment in a government facility; or (9) territorial limitations. The policy must also include a conversion period of 31 days without the necessity of proving insurability.

Nonresidents

Nonresidents (Section 500-40) — A nonresident 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) the person has submitted the proper request and paid the required fee (3) the person has submitted to the Director the application for 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. Nonresidents must file an affidavit stating 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 nonresident has the same legal effect as personal service on the nonresident. Whenever a nonresident's State of residence places stricter requirements or limitations on Illinois residents, Illinois will place those same strict requirements or limitations upon residents of that other State. A nonresident producer who changes his or her business or residence address must notify the Illinois Director of Insurance within 30 days of the change. If the nonresident producer moves to another State, he or she must notify the State of Illinois of the change and submit certification from the new resident State within 30 days as well. No fee or application is required. The Director may verify the nonresident producer's status at any time to confirm that all license requirements have been satisfied. A person licensed as a surplus lines producer shall receive a nonresident license granting the same scope of authority as granted under the license issued by the producer's home State. 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.

Other Unfair Practices

Other Unfair Practices (Section 236 and 424) — Illinois law describes the unfair 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 someone is blind or partially blind, although blindness existing at the time of policy issue may be excluded from disability coverage; (6) attempting to boycott, coerce, or intimidate which would result in a restraint of trade in the insurance business; or (7) unfairly discriminating against anyone because of that person's race, creed, color, religion, or national origin. Further, 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. It is illegal for an insurer to refuse to insure or refuse to continue insurance to an individual solely because of a physical handicap, disability or blindness except when such action is based on sound actuarial principles. For example, an insurer may exclude from coverage disabilities consisting solely of blindness or partial blindness when such condition existed at the time 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 such as the Air Force, Army, Coast Guard, National Guard, Marines, Navy or Armed Reserve Forces.

Pre-Licensing Education

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. The pre-licensing study requirement must be satisfied for each line of insurance the applicant wishes to solicit. The required hours for each line include: (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); or (5) personal lines / property and casualty, 20 hours. Pre-licensing courses designed to meet these requirements must follow specific guidelines and be approved by the Director of Insurance. Courses approved may be classroom study or correspondence study (i.e., home study). Once the appropriate pre-licensing education course is completed, the candidate must pass the State examination.

Fiduciary Duties and Responsibilities (cont.)

Premium Fund Trust Account (Section 3113) — A special account must be established for premium funds if the producer: (1) holds premiums for 15 days or more before paying them to the insurer (2) deposits premiums into any kind of account or otherwise uses the premiums for any length of time. The 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. If a producer must establish a Premium Fund Trust Account, all premiums handled by the producer must be deposited in the account. The account may not be used as a general operating account or claims payment account. The only disbursements permitted by the account are: (1) net premium remittances due an insurer or another producer; (2) return premiums due insureds; or (3) commissions or non-premium monies such as fees, late charges, interest or other amounts legally due the producer. A transfer from one premium fund account to another which is held in the same name is not considered a disbursement. The account may not be used for general operations or claim payments. Strict account records must be kept which list the dates and amount of transactions and identify the sources and destinations of funds by name, type and policy number.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. governmentsecurities or CDs with maturities of not more than one year; (3) repurchase agreements; (4) commercial paper; or (5) money market vehicles. The insurer must authorize the producer in advance and in writing to make the investment and to keep the interest earned on the investment. Return premiums must be paid to an insured or credited to the insured's account within 15 days of receipt from the insurer or other producer.

Sales Requirements

Producers and insurers must satisfy specific requirements when selling Medicare Supplement policies. These rules include: (1) immediately identify themselves as producers and communicate the name of the insurer they represent; (2) provide prospects a clearly printed or typed rendering of their name, address, telephone number, and insurance company; (3) be able to prove that they recommend an appropriate policy based on the prospect's circumstances, including existing coverage; (4) completely disclose the applicant's medical history, if required; (5) complete a policy checklist showing how much of various hospital and medical expenses would be paid by Medicare, by existing coverage, by the supplement being sold, and by the applicant; (6) provide a copy of the policy checklist to both the applicant and the company; (7) deliver an outline of coverage with the policy; and (8) send premium refunds to applicants within two weeks of receiving them. Producers selling Medicare Supplement policies must avoid any type of misrepresentation or defamation. Specifically, they must not: (1) imply that the policy is approved or recommended by any government body; (2) lead anyone to think they represent any government agency; (3) use terms like "Medicare adviser" that might make people think their compensation is unrelated to sales; or (4) promise services which they do not provide.

Qualifications

Qualifications (Sections 500-30 and 70) Illinois law stipulates that in order to obtain a producer's license, applicants must apply to the State on a form 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. Payment of the appropriate State required fees must also accompany the application. An applicant for a producer's license must satisfy several requirements including: (1) be at least 18 years of age or older or of "full age"; (2) be competent, trustworthy and of good business reputation; (3) complete an approved pre-licensing course of study for the lines of authority for which the individual has applied; (4) file or post a bond, unless exempt; (5) pass a State examination; (6) if working for one insurer, he or she must be sponsored by an insurer; (7) has not committed any act that is a ground for denial, suspension, or revocation of a license; (8) pay the appropriate fees. A person whose license is suspended or 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. A person whose license has been suspended, revoked or denied may not be employed, contracted by, licensed with, appointed by or engaged in any insurance capacity with any insurer or insurance organization.

Unfair Claims Practices (cont.)

Rebating (Sections 151 through 153) — Anything of value offered by a producer or insurer to an applicant that is not specified in the policy, as an inducement or incentive to purchase insurance is considered rebating. An offer of a rebate or an agreement to accept a rebate is illegal. In other words, a rebate is any type of inducement to purchase or to renew insurance which is not specified in the policy. The most common form of rebating occurs when a producer offers a "kick-back" of commissions. Offering to buy, sell, give or option any type of securities, stocks, bonds, mutual funds, season tickets to sporting events, a leather jacket or briefcase or any dividends or income from securities or property is also rebating. Other forms of rebating include: (1) a producer pays 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; or (4) offering to provide a favor or anything else of value to the client. Rebating, according to Illinois law, is a Class B misdemeanor. 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. No one will be excused from testifying at a rebating hearing on the grounds of self-incrimination. Testimony provided concerning a rebate, or evidence produced, will not be used in any criminal investigation or proceeding against the party providing the information, except for perjury committed during the testimony. The following are examples of transactions not considered rebating: Reductions of premiums to policy owners out of accumulated surplus on nonparticipating policies; or Accepting as payment a client's bona fide obligation to pay the amount of the premium plus an applicable and legal interest.

Duties of Insurers

Replacing insurers also have duties regarding replacement. With every application, insurers must require signed statements from both the applicant and the producer indicating whether replacement is involved in the sale. 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 working days, the notice that identifies the insured and the policies proposed for replacement. In addition, the replacing insurer must either delay the issuance of the policy for at least 20 days or provide the applicant a 20-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.

Required Fees

Required Fees (Section 500-135) — The required license fees according to Illinois law were described on page 12-6 (i.e., "License Fees"). Section 500-135 further states that all fees paid to and collected by the Director shall 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.

Illustrations

Section 1406 states that the purpose of this regulation is to provide rules for life insurance policy illustrations that will: (1) protect consumers and encourage consumer education; (2) to prescribe standards to be followed when illustrations are used; and (3) specify the disclosures that are required in connection with illustrations. Insurers must eliminate the use of footnotes and define terms used in illustrations in language that would be easily understood by the average person. These regulations apply to all individual and group life insurance policies sold and issued in the State of Illinois other than 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).

Viatical Settlements

Section 159 of Illinois insurance law states that a viatical settlement provider is a business firm that purchases life insurance contracts from their owners who are suffering from a catastrophic or life threatening illness or condition. The firm who purchases the policy is then the new policy owner. Since the new owner now possesses all the rights of ownership, 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 policy owner/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. This amount will vary depending upon the terminal illness or chronically ill condition of the insured. Terminally ill generally means having an illness or sickness that can reasonably be expected to result in death within twenty-four months or less. Chronically ill generally means being unable to perform at least two activities of daily living.

Under Age 65 Disabled

Section 363 also states that an insurer who issues Medicare Supplement policies shall not deny coverage to an applicant under 65 years of age who meets any of the following criteria: Becomes eligible for Medicare by reason of disability if the person makes application for a Medicare supplement policy within 6 months of the first day on which the person enrolls for benefits under Medicare Part B; for a person who is retroactively enrolled in Medicate Part B due to a retroactive eligibility decision made by the Social Security Administration, the application must be submitted within a 6-month period beginning with the month in which the person received notice of retroactive eligibility to enroll; Has Medicare and an employer group health plan (either primary or secondary to Medicare) that terminates or ceases to provide all such supplemental health benefits; Is insured by a Medicare Advantage plan that includes a Health Maintenance Organization, a Preferred Provider Organization, and a Private Fee-For-Service or Medicare Select plan and the applicant moves out of the plan's service area; the insurer goes out of business, withdraws from the market, or has its Medicare contract terminated; or the plan violates its contract provisions or is misrepresented in its marketing; or Is insured by a Medicare supplement policy and the insurer goes out of business, withdraws from the market, or the insurance company or agents misrepresent the plan and the applicant is without coverage. In addition, insurers must also make available to persons eligible for Medicare by reason of disability each type of Medicare Supplement policy the issuer makes available to persons eligible for Medicare by reason of age. No insurer may charge individuals who become eligible for Medicare by reason of disability and who are under the age of 65 premium rates for any medical supplemental insurance benefit plan offered by the issuer that exceed the issuer's highest rate on the current rate schedule filed with the Division of Insurance for that plan to individuals who are age 65 or older. Further, insurers shall also provide the aforementioned rights for 6 months after the effective date of the amendatory Act of the 95th General Assembly, to any person who had enrolled for benefits under Medicare Part B prior to this amendatory Act of the 95th General Assembly who otherwise would have been eligible for coverage.

Accelerated Benefits

Section 4 and Regulation 1407 of Illinois insurance law 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 generally result in the insured's death within two years or less (i.e., 24 months), 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 is 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 the following requirements. A certain percentage of the death benefit will be paid to the insured while still living if he or she has been diagnosed with a terminal illness.

Long-Term Care Insurance

Section 5:351A-1; 5:351A-3 through 11, and Regulation 2012 and 2018 of Illinois law describes regulations pertaining to long-term care insurance. Long-term care insurance provides nursing home benefits to an insured and may include benefits for care and treatment in accordance with the practices of any established church or religious denomination which teaches reliance on spiritual treatment through prayer for healing. It pays a daily benefit (i.e., $150 per day) when an insured is confined to a nursing home or approved skilled nursing facility. Benefits found in a LTC policy include custodial care, skilled nursing care, intermediate or home health, personal care, respite care, adult day care and others. Remember that a LTC policy does not cover hospital confinement or care in an acute care unit of a hospital. Further, LTC insurance does not include insurance which primarily provides basic Medicare supplement coverage, basic hospital expense coverage, basic medical-surgical expense coverage, disability income, accident only coverage or specified disease coverage. Long-term care coverage is solicited on an individual or group policy basis. A long term care insurance policy which is issued for delivery in Illinois may be sold to: (1) one or more employers or labor organizations, for employees, former employees, members, or former members; (2) any professional, trade or occupational association for its members or former or retired members; or (3) a group other than those described earlier but appointed by the Director of Insurance. These policies are designed to provide benefits for not less than 12 consecutive months. A traditional LTC policy is one that provides coverage on an expense incurred, indemnity, prepaid or other basis that provides one or more necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance or personal care services. This care is provided in a setting other than an acute care unit of a hospital.

Replacement of Insurance Policies

Section 917 of State insurance law specifies that the purpose of Illinois replacement regulations is to require that specific steps be followed in replacement situations. These steps are designed to: (1) make sure policy owners get the information they need to make a decision that reflects their own best interests; and (2) reduce opportunities for misrepresentation and incomplete disclosure. Replacement is defined as a sale that results in existing coverage being lapsed, forfeited, surrendered or terminated in any way; continued under any nonforfeiture 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. Any life insurance or annuity policy in force including those under a binding or conditional receipt or within an unconditional refund period is considered to be existing life insurance. Coverage obtained through a dividend option is not included.

Life Insurance Solicitation Regulations

Section 930 of Illinois law states that the purpose of life solicitation rules is to require insurers to deliver at least certain minimum information designed to help buyers select the most appropriate plan of life insurance for their needs, understand the basic features of the policy under consideration and evaluate the relative costs of similar plans of life insurance.

Commissions and Compensation Paid to Producers

Sections 151 and 500-80 of Illinois law states that an insurance producer, limited lines producer, or business entity is only permitted to pay commissions, service or brokerage fees or other considerations to an individual who holds a license at the time the insurance service is provided. This means that 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 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. Any commission or service fee received on a contract or policy that is later canceled, within the first half of the contract or policy period, for any reason, must be returned to the insured by the insurance producer or business entity at a prorated amount. The prorated amount is based on the length of the term of the policy or contract compared to the time that the contract or policy was in force. There shall be no compensation or service fee assessed or received on a contract or policy by the insurance producer or business for processing a cancellation. As mentioned in Section 151, agents and brokers are prohibited from paying or accepting rebates. Any unfair inducement used to persuade an individual to purchase insurance is illegal and prohibited.

Medicare Supplements/Medigap

Sections 363 to 363-a, 500-75 and Regulation 2008 of Illinois law describes the following minimum standards apply to all Medicare Supplement or Medigap policies delivered or issued for delivery in Illinois (individual and group policies). The policy may not exclude or limit benefits for losses incurred more than six months from the effective date of coverage because the losses involved a pre-existing condition. A pre-existing condition may not be defined more restrictively than a condition for which medical advice was given or treatment was recommended by or received from a physician within six months before the effective date of coverage. Losses resulting from sickness may not be indemnified on a different basis than losses resulting from accidents. Benefits designed to cover cost sharing amounts under Medicare must be changed automatically to coincide with any changes in the applicable Medicare deductible amount and co-payment percentage factors. Premiums may be modified to correspond with these changes. Coverage for a spouse may not be terminated solely because of the occurrence of an event specified for termination of coverage of the insured, except for nonpayment of premium. In addition, Medigap policies must be guaranteed renewable for life and meet the following criteria: (1) the issuer may not cancel or non-renew the policy solely because of the health status of the individual; (2) the issuer may not cancel or non-renew the policy for any reason other than nonpayment of premium or material misrepresentation; (3) if a group policy is terminated by the group policyholder and not replaced, the issuer must offer certificate holders an individual policy which either provides for continuation of benefits in the group policy, or provides benefits which meet the requirements of this subsection; (4) if an individual terminates membership in a group policy, the issuer must either allow the individual to convert the policy, or offer the individual continuation of coverage under the group policy; or (5) if one group policy is replaced by another, the succeeding issuer must offer coverage to all persons covered under the old policy on its date of termination. The new policy may not exclude coverage for pre-existing conditions that would have been covered under the old policy.

The Insurance Director enforces and carry's out stat insurance law. -List four powers bestowed upon the director.

Sections 401 and 401.1; 132; 402, 403 and 431; and 500-110 state that the Insurance Director is the individual charged with enforcing and carrying out the State's insurance laws. The Director has the power to: (1) create 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. The Director may ask the State Attorney General to use the courts to enforce administrative orders or court decisions.

Suitability in the Sale of Life Insurance and Annuities

Sections 909, 3117 and 3120 of Illinois law also describes regulations applying to the suitability of annuity and variable annuity products with regard to consumers, and advertising of life insurance and such annuity contracts. The 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. This law does not apply to: (1) direct response solicitations; or (2) contracts used to fund any of the following: an employee pension or welfare benefit plan that is governed by ERISA 1974; a 401(k), 403 (b) or other such plan; a government or church plan; a nonqualified deferred compensation arrangement established or maintained by an employee or plan sponsor; settlements of personal injury litigation or any dispute or claim resolution process; or formal prearranged or pre-need funeral plans.

Disclosure Requirements

State law requires that other information be disclosed as well. 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 with or prior to policy delivery. Policy Summary must be delivered as well no later than the policy itself. Buyer's Guides and Policy Summaries must also be given to any prospective purchaser upon request. Producers also possess other responsibilities. Again, before beginning a sales presentation, producers must provide prospects the full name of the insurer they represent and verbalize that they are acting as producers. They may not use terms like "investment adviser" or "financial planner" to imply that their compensation is not related to sales. References to policy dividends must include a statement that dividends are not guaranteed. 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. Guaranteed and non-guaranteed benefits may not be shown as a single sum unless they are also shown separately. 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.

List 5 situations where the director or an appointee may examine the financial condition, operations, or sales activities of

The Director or an appointee 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. The Director does not propose legislation, make laws or pass laws. He or she enforces the insurance laws and regulations currently in existence.

Disclosure Requirements

The State of Illinois also requires disclosure on the part of the Medigap insurer. The regulation specifically states that the policy must include a renewal or continuation provision on the face or first page of the policy. The provision must include any reservation by the issuer of the right to change premiums and any automatic renewal premium increases based on the policyholder's age. All riders or endorsements issued after the date of issue or at reinstatement or renewal which reduce or eliminate benefits or coverage require signed acceptance by the insured. This does not apply if the change is made on the insured's request, if the issuer is exercising a specifically reserved right under the policy, or if the change is required to reduce or eliminate benefits to avoid duplication of Medicare benefits. Further, Illinois law states that payment of benefits may not be based on standards described as "usual and customary," "reasonable and customary," or words of similar import. If the policy contains any limitations for pre-existing conditions, the limitations must appear as a separate paragraph in the policy and be labeled as "Pre-existing Conditions Limitations." In addition, the policy must include a notice printed on the face or first page of the policy or attached to the policy stating that the policyholder may return the policy within 30 days of its delivery and receive a full premium refund if he or she is not satisfied for any reason (free-look provision).

Advertising and Sales (cont.)

The following are types of unfair advertising as stipulated by Illinois law: Presenting information in an ambiguous or confusing way. Using words like "investment, investment plan, founder's plan, expansion plan, charter plan, profit, profit sharing, savings plan or interest plan" in a way that might lead people to thinkthat something other than insurance is involved, or that they receive preferential treatment of any kind, or they are receiving something not available to others. Failing to clearly indicate in the policy title or accompanying language that the product is life insurance or an annuity. Not clearly describing any premium increases, benefit decreases or limitations. Stating, without the Director's prior approval, that direct marketing of policies results in cost savings. Using a testimonial that is not the true 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. 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. Using enrollment periods if they are fewer than six months between the closing of one enrollment period and the opening of the next. Using words or symbols similar to those of a governmental agency.

Life and Health Insurance Guaranty Association (cont.)

The funds necessary to carry out the powers and duties of the Association are derived from assessments from member insurers. Assessments shall be due not less than 30 days after written notice to the member insurers and shall accrue interest from the due date. There are two classes of assessments: (1) a Class A assessment for the purpose of meeting administrative expenses of the Fund; and (2) a Class B assessment with regard to an impaired or insolvent domestic, foreign or alien insurer. Further, the law states that the 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. The Fund is obligated to pay covered claims within thirty (30) days after an insurer is liquidated. The Fund is not responsible for any interest on any judgment entered against the insured or the insolvent insurer.

Disclosure Requirements (cont.)

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 shall communicate the change to the insured / viator within twenty days after the change. A viatical settlement provider may only sell, transfer or assign a viaticated policy to another licensed viatical settlement firm 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. No finder's or other fee may be paid by the viatical settlement provider to a viator's physician, attorney or accountant. In addition, a witnessed document must also be completed which states that the viator understands that the insured has a catastrophic illness and that the insurance policy is being purchased by a viatical settlement provider. 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 offering viatical settlement services. Settlement providers are also required to have in place anti-fraud initiatives reasonably calculated to detect, prosecute and prevent fraudulent viatical or life settlement acts. Anti-fraud initiatives must include fraud investigators (who may be an employee of the provider or an independent contractor) and a specific anti-fraud plan which must be submitted to the Superintendent.

Sales Requirements (cont.)

The receipt of an outline of coverage must be acknowledged by every applicant for Medicare Supplement insurance. If the policy issued is different from the one applied for, a new outline of coverage (in 12-point type) must accompany the policy and a notice to the insured must appear on the first page of the outline. Outlines of coverage delivered with limited benefit types of policies must contain a notice on the face or first page that is not a Medicare Supplement. This outline must also identify any benefit limitations, exceptions, or reductions in the policy. First years commissions on Medicare Supplement policies may not exceed 200% of the commission for selling the policy in the second year. Commissions for renewals must be provided for no fewer than five (5) years. The loss ratios for group plans must be at least 75%; sponsored group plans must be 65%; and individual plans must be 65%. The insurer must also inform the consumer with regard to State requirements for issuing rebates or credits to policyholders if the policy's loss ratio does not comply with Illinois insurance law. The uniform methodology used to calculate and report loss ratio information must also be provided as well as assuring public access to loss ratio information of the insurer. Whenever a Medicare Supplement policy is being replaced, a "Notice Regarding Replacement" must be provided to the prospect. This notice must be provided to the prospect at the time of application. If a direct-response insurer replaces the policy, it must provide this notice at the time the policy is issued and delivered. Any insurer or producer engaging in any unfair practices regarding these policies may be fined not less than $250 nor more than $2,500 for each offense. No person or insurer may offer or sell a Medicare Supplement policy that has not been approved by the Director. Anyone knowingly violating this provision of Illinois law (regarding non-approved policies) may be fined up to $5,000 and be charged with a Class 3 felony.

Disclosure Requirements

These agreements 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 policy owner and additional terms of the transaction. The contract must also include additional disclosure provisions such as: Possible alternatives to or options that can be used in conjunction with viatical settlement contracts for persons with catastrophic or life threatening illnesses, including but not limited to accelerated benefits; The fact that some or all of the proceeds received may be taxable and that assistance should be sought from a personal tax advisor; That settlement proceeds may be subject to the claims of creditors; 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; The policy owner'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; The fact that a consequence of the viatical settlement will be the loss of some or all of the death benefit payable under the life insurance policy to the beneficiary; The date by which the funds will be available to the viator and the source of the funds; and A statement that all 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).

Exemptions

This regulation applies to the traditional forms of life insurance. It does not apply to: (1) annuities; (2) credit life insurance; (3) group life coverage; (4) insurance policies issued in conjunction with pension or welfare plans as defined by ERISA; (5) franchise life insurance; and (6) variable life insurance. A Buyer's Guide must be provided to each buyer. The exact wording of the Buyer's Guide is prescribed by law. It may contain nothing less and nothing more, according to Illinois law. This guide includes a description of the various forms of life insurance that are available. It is designed to assist the buyer in selecting the amount of coverage to carry, the right type of policy to purchase and a method in which to compare the cost of life insurance plans by utilizing a cost index. All insurers soliciting life insurance, except for direct-response insurers, must provide a buyer's guide to prospective purchasers.

Traditional Long-Term Care

Traditional Long-Term Care (Section 2012) — This Regulation applies to all long term care insurance policies issued for delivery in Illinois by any insurer. Long term care insurance means any accident and health insurance policy or rider advertised, marketed, offered, or designed to provide coverage for at least 12 consecutive months for each covered person for one or more necessary or medically necessary diagnostic, preventive, therapeutic, rehabilitative, maintenance, or personal care services, provided in a setting other than an acute care unit of a hospital. Long term care insurance does not include any policy which is offered primarily to provide basic Medicare Supplement coverage, basic hospital expense coverage, basic medical-surgical expense coverage, hospital confinement indemnity coverage, major medical expense coverage, disability income or related asset protection coverage, accident only coverage, specified disease or specified accident coverage, or limited benefit health coverage.

Unfair Claims 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: failing to provide claim forms (and an explanation of how to complete them) in a timely fashion; knowingly misrepresenting relevant policy provisions and coverages to claimants; failing to acknowledge with reasonable promptness relevant communications regarding claims; failing to adopt and implement reasonable standards for prompt investigation and settlement of claims; engaging 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; refusing to pay claims without conducting a reasonable investigation based on all available information; failing to affirm or deny coverage within reasonable time after receiving a proof of loss form (i.e., claim form); attempting 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; compelling claimants to take legal action to recover amounts due by offering substantially less than amounts ultimately recovered; failing to make a good faith attempt at a prompt, fair and equitable claim settlement when the liability of the insurer is clear; failing to provide a reasonable and prompt explanation when legitimately denying a claim.

How many days with in filling the report OR of the hearing must the director issue a written order?

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.