Life & Health Exam Chapter 15

Certificates of Insurance - Conversion Privileges

A group life insurance policy must provide certificates to each individual insured stating: -Protection provided -Beneficiaries and their relationship to the insured -Right, upon termination of employment or membership in the eligible class, to purchase a comparable individual policy within 31 days -Right, upon termination of the group policy (or portion of it insuring the insured), if insured for at least 5 years, to purchase a comparable individual policy within 31 days -Right to continuing coverage, upon termination (as described in the two previous bullet points), if the insured dies during the 31 days during which he/she had the right to purchase the comparable individual policy

Misstatement of Age

A provision is required to correct a misstatement of age by recalculating the amount payable under the policy to give the payment the actual premium would have purchased if the age had been stated correctly at the date of issue.

Grace Period

An insurance policy is required to have a provision that allows a grace period of 1 month (at least 30 days) for late payment of premiums during which the policy remains in force. The insurer may charge up to 6% per annum based on the number of days the premium is late.

Limitation of Liability

An insurer may limit its liability under a life insurance policy, annuity, or pure endowment contract to a determinable amount not less than the full reserve of the policy and of dividend additions thereto only in the event of death occurring as a result of war, suicide, or aviation.

Burden of Determining Authorization

Any producer soliciting, negotiating, or procuring an insurance or health care service application in Washington must make a good faith effort to determine whether the issuing entity is authorized to transact such business in Washington or is a licensed surplus lines broker.

The Commissioner has minimum benefit standards for each of the following categories of individual policies:

Basic hospital expense, basic medical-surgical expense, and major medical expense Hospital confinement indemnity and disability income protection Accident only, specified (dread) disease, and specified accident Medicare Supplement Limited benefit coverage

The Commissioner has specific standards for full and fair disclosure regarding:

Conditions of eligibility Non-duplication of coverage provisions Provisions for dependent coverage and preexisting conditions Renewability and termination of insurance Probationary and elimination periods Limitations, exceptions, and reductions Requirements for replacement Recurrent conditions Definitions of terms

Unlicensed Activities

Conducting the business of insurance without required or proper licensure is a Class B felony. Any criminal penalty imposed under this rule is in addition to, and not in lieu of, any other civil or administrative penalty authorized under state law. If the Commissioner has cause to believe any person has conducted unlicensed insurance activities, he/she may: -Issue and enforce a cease and desist order -Suspend or revoke a license, and/or -Assess a civil penalty of not more than $25,000 for each violation, after providing notice and an opportunity for a hearing

Outline of Coverage/Disclosure (continued)- Replacement

Disability insurance applications must ask whether the insurance is intended to replace any other such insurance presently in force. If a sale involves replacement, the insurer or its producer must give the applicant a replacement notice before delivering the policy.

Disclosure- Purpose

Disclosure rules require insurers to provide information that will improve the buyer's ability to select the most appropriate life insurance plan for the buyer's needs. The idea is to improve the buyer's understanding of the policy's basic features and the buyer's ability to evaluate the costs of similar life insurance plans.

Outline of Coverage/Disclosure- Prohibited Policy Provisions - A health policy may not:

Establish a probationary or waiting period exceeding 6 months Issue, even by rider, additional coverage as a dividend unless offering the policyholder a cash payment Exclude coverage for a preexisting condition for more than 12 months from issuance Provide a Return of Premium benefit (i.e. free look period) Exception-A disability income policy under certain conditions. Exclude coverage for confinement in a hospital operated by the federal government for emergency services if providing hospital confinement indemnity coverage

Reply to the Insurance Commissioner

Every licensee must promptly reply in writing to an inquiry of the Commissioner about his/her insurance business. It is the licensee's responsibility to see that the Commissioner receives the reply within 15 days after the licensee receives the inquiry.

Duties of Replacing Insurers- Each replacing insurer must:

Inform its producers of regulation concerning replacement Require, with each application, a statement signed by the applicant as to whether such proposed insurance or annuity will replace existing life insurance or annuity Require with each application a statement signed by the producer as to whether he/she knows replacement is or may be involved

Advertising -

Knowingly disseminating any false, deceptive, or misleading representation or advertising about a person in the conduct of his/her insurance business.

Misrepresentations in Application

Knowingly making a false or misleading statement, or failing to reveal a material fact, in an application. Any person who does so is guilty of a gross misdemeanor and may have his/her license revoked.

Licensees may request a waiver of the continuing insurance education requirement for the following reasons:

Medical Waiver-A request based on a medical condition of the licensee that must be accompanied by a statement from the treating provider describing the illness or injury. Military Waiver-A request based on activation to military service. The request must be accompanied by a copy of the licensee's "Letter of Mobilization." The licensee must designate a representative (including the name and address of the individual given power-of-attorney by the licensee), by name and address, to whom the license renewal notice or other correspondence can be sent during the licensee's active military' service.

The Contract - Representations

The application of the policy holder is required to be attached to the policy and becomes part of the contract. Statements made by the policyholder or persons insured are deemed representations and not warranties. No statement made by a person insured under the group policy may be used in any contest unless a copy of the instrument containing the statement has been furnished to such person or to his/her beneficiary.

Disbursements or withdrawals may be made only for the following reasons:

-For bank charges -For premium payments to entitled persons (insurers) -For return premium payments to entitled persons (insureds) -For commission and other payments to the account's producer -For transferring fiduciary funds between separate premium accounts A producer must establish and maintain records and an appropriate accounting system for all premiums and return premiums he/she receives. Such records are subject to inspection by the Commissioner for 5 years immediately after the transaction's date.

Purchase or Exchange of Annuities

-In recommending a purchase or exchange of an annuity, the producer (or the insurer, if no producer is involved) must have reasonable grounds to believe that the recommendation is suitable for the customer based on facts disclosed by the customer about their investments, other insurance, financial situation, tax status, needs, and objectives. The producer is required to make reasonable efforts to obtain this information from the customer. -The recommendation must be reasonable under all the circumstances known at the time. The producer (or insurer, if no producer is involved) is not responsible, however, if the customer refuses to provide relevant information, provides incomplete or inaccurate information, or decides to ignore the recommendation and make another purchase. Insurers are required to set up systems to assure that producers meet these requirements.

Other Eligible Groups- In addition to employee groups, group life insurance may be provided to:

-Members of a labor union, or classes of members determined by conditions pertaining to their employment, with premiums paid by the union out of union funds or a combination of union funds and member contributions (member contributions permitted only if 75% of eligible members elect to contribute), and a minimum group size of 25 members at date of issue -Public employees, issued to a department head, trustee, or association (formed for purposes other than obtaining insurance), for all employees of the department or association or classes thereof determined by conditions pertaining to their employment, with premiums paid in whole or in part by the employees or members (75% of eligible employees must elect to take part); similar rules apply for members of the Washington state patrol -Group of more than one employer or more than one union through a trust or association set up by the group -Members of a credit union, or classes of members determined by conditions pertaining to their age or membership in the credit union or both, with premiums paid out of credit union funds or a combination of credit union funds and member funds contributed specifically for the insurance, and a minimum group size of 25 members at date of issue; other financial institutions may also constitute a group -Debtors of a creditor, or classes thereof determined by conditions pertaining to the indebtedness or the purchase giving rise to the indebtedness, limited by the amount of the debt, with premiums paid out of creditor funds, charges collected from the debtors, or both -Members of associations in existence for at least one year, for purposes other than purchasing insurance, and provided that beneficiaries must be other than the association, its officers, or trustees

In making rates, due consideration shall be given to:

-Past and prospective loss experience within the state -Past and prospective operating expenses and investment income -A reasonable margin for underwriting profit and contingencies -Dividends, savings and unabsorbed premium deposits allowed or returned by insurers to their policyholders, members, or subscribers -Conflagration and catastrophe hazards, where present

When replacement is involved, the producer must also:

-Present a completed Notice Regarding Replacement to the applicant upon application -Obtain a list of all existing life policies and/or annuity contracts to be replaced -Leave the original or a copy of any written sales presentation with the applicant -Submit a copy of the Notice Regarding Replacement to the replacing insurer with the application

When using an illustration to sell a life policy, an insurer and its producers may not:

-Represent the policy as anything other than life insurance -Describe non-guaranteed elements in a misleading manner -Imply that non-guaranteed elements' payment or amount is guaranteed -Use an illustration that does not meet the requirements in the rules and prohibitions, above, or that reflects policy performance more favorable than that produced by the insurer's illustrated scale -Give an applicant an incomplete illustration -Falsely imply that premium payments are not required for each policy year to maintain the illustrated death benefits -Use the term "vanish" or "vanishing premium," or a similar term for using non-guaranteed elements to pay a portion of future premiums -Use an illustration that is lapse-supported or that is not self-supporting If used, a non-guaranteed interest rate may not exceed the earned interest rate underlying the disciplined current scale.

Initial appointments/affiliations are continuous. Each appointment or affiliation is effective until the first of the following occurs:

-The insurance producer's license is revoked, terminated, or nonrenewed -The appointment or affiliation renewal fee is not paid; or Notice of termination is electronically submitted to the Commissioner

A health policy may not limit or exclude coverage by type of illness, accident, treatment or medical condition. Exceptions: A policy may limit or exclude coverage for:

A covered dependent child's preexisting conditions or congenital anomalies, but not reconstructive surgery because of a congenital disease or anomaly Mental or emotional disorders, alcoholism, and drug addiction Pregnancy, but not its complication War or act of war (whether declared or undeclared) Participation in a felony, riot, or insurrection Service in the armed forces or auxiliary units Suicide (whether the victim was sane or insane), attempted suicide, or intentionally self-inflicted injury Aviation Interscholastic sports Cosmetic surgery, but not reconstructive surgery incidental to disease or, for a covered dependent child, because of a congenital disease or anomaly Foot care Treatment provided in a government hospital and benefits provided under Medicare or other governmental program, but not emergency treatment or Medicaid Dental care or treatment Eyeglasses, hearing aids, and examination for the prescription or fitting Rest cures, custodial care, transportation, and routine physical examinations Services provided outside of territorial limitations

Insurability

A group life insurance policy shall contain a provision setting forth the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance under the policy to furnish evidence of individual insurability.

Incontestability- group life policy

A group life policy may not be contested after it has been in force for 2 years except for nonpayment. No statement made by an insured individual under the policy relating to his/her insurability shall be used in contesting the validity of the insurance after his/her the insurance has been in force for 2 years and, even within the 2 years, the statement must be in a signed written instrument.

Grace Period- group life policy

A group life policy must have a grace period of 31 days for the payment of premiums during which the coverage remains in force, unless the policyholder has given advance notice of discontinuing the policy.

Life Policy Clauses and Provisions- Policy Loans

A life insurance policy is required to have a provision allowing the insured to borrow up to the cash value of the policy (this means a whole life policy, since term policies don't have cash value) after a full 3 years' premiums have been paid. A fixed-rate interest may not exceed 8% per year. If a variable interest rate is used (based on an index), the rate will be determined at least once every 12 months, but not more often than once every 3 months. Any interest not paid when due is added to the existing indebtedness and bears the same interest rate. When total indebtedness under the policy, if any, equals the policy's loan value, the policy terminates and becomes void as full settlement of the indebtedness. The insurer is required to give the policyholder notice of the pending termination at least 30 days before it is scheduled to occur. The term "policy loan" includes any premium loan made under a policy to pay one or more past due premiums.

Policy Settlement

A life insurer may hold a policy's proceeds according to the terms of an agreement it has with the policyholder or, if the policy has matured, with the beneficiaries. An insurer must pay interest on death benefits payable under a life policy. A life policy's proceeds may be reduced by any unpaid premiums due for the current policy year and the principal and accrued interest of any unpaid policy loan.

Shared Commissions

A producer, general agent, or broker may not compensate an unlicensed person for helping him/her place insurance in Washington. A licensee may not be compensated for placing insurance for which he/she is not licensed.

Entire Contract

All policies are required to have a provision stating that the policy plus the application, if it has been attached and made a part of the policy, constitute the entire contract between the insured and the insurer, and that any statements made by the applicant or by the insured shall, in the absence of fraud be considered representations and not warranties. This does not apply if the policy contains a clause making the policy incontestable from the date of issue. No application for the issuance of any insurance policy is admissible in evidence in any action relative to such policy or contract, unless a true copy of the application was attached to or otherwise made a part of the policy when issued and delivered. However, this does not apply to policies or contracts of industrial life insurance. If any policy of life or disability insurance delivered in this state is reinstated or renewed, and the insured or the beneficiary or assignee of the policy makes written request to the insurer for a copy of the application, if any, for such reinstatement or renewal, the insurer must, within 15 days after receipt of such request at its home office or at any of its branch offices, deliver or mail to the person making such request, a copy of such application. If such copy is not so delivered or mailed, the insurer will be precluded from introducing the application as evidence in any action or proceeding based upon or involving the policy or its reinstatement or renewal.

Incontestability

All policies must have a provision that makes the policy incontestable after it has been in force, during the lifetime of the insured, for 2 years from the date of issue, except for nonpayment of premiums. The insurer may also exclude benefits for total and permanent disability or that give additional insurance for accidental death.

Outline of Coverage-

An applicant must receive an Outline of Coverage before an individual disability policy may be delivered. The Outline of Coverage must state: Coverage category/categories Benefits and coverage Limitations, exceptions, and reductions Renewal provisions Insurer's right to change premiums That the Outline of Coverage is a policy summary only; the policy itself is the reference for governing contractual provisions

Group Life- Eligible Groups Employee Groups

An employer may establish group life insurance. Employees eligible for insurance under the policy must be all of the employees of the employer, or all of any class or classes determined by conditions pertaining to their employment. The policy must cover at least 2 employees at date of issue. The policy may provide that the term "employees" shall include: -Employees of one or more subsidiary corporations -Employees, individual proprietors, and partners of one or more affiliated corporations, proprietors or partnerships if they are under common control through stock ownership, contract or otherwise -Individual proprietor or partners if the employer is an individual proprietor or a partnership -Retired employees Premiums must be paid by the employer either entirely from employer funds, entirely from funds contributed by the insured employees, or a combination of both. Insurance under any group life insurance policy may be extended to insure the spouse and dependent children of each insured employee or member who so elects and which insurance on the life of any one family member including a spouse is not in excess of the amount on the life of the insured employee or member. Premiums for the insurance on the family members must be paid by the policyholder, either from the employer's funds, funds contributed to him/her, employee's funds, trustee's funds, or labor union funds.

Limitation of Liability

An insurer of a group life policy may provide that it is not liable or is liable in reduced amount for losses resulting from war or aviation. The insurer may provide that any amount in excess of $1,000 on an individual life may be reduced to $1,000 or to any greater amount upon attainment of age 65 or older or upon the anniversary of the policy nearest to the attainment of such age.

Health Laws- Marketing Methods and Practices Outline of Coverage/Disclosure

Except as noted in this section, these rules apply to every group and individual policy of disability insurance and to every subscriber contract of an issuer that relates its benefits to Medicare, or is advertised, marketed, or designed primarily as a supplement to reimbursements under Medicare for the hospital, medical, or surgical expenses of persons eligible for Medicare.

Conversion

If the insurance on an individual covered under the policy, other than a child insured, ceases because of termination of employment or of membership in the class or classes eligible for coverage under the policy, such individual is entitled to have issued to him/her by the insurer, without evidence of insurability, an individual policy of life insurance without disability or other supplementary benefits. This is conditioned on the application for the individual policy being made and the first premium paid to the insurer within 31 days after the termination, and provided that: -the individual policy is, at the option of such individual, on any one of the forms, except term insurance, then customarily issued by the insurer at the age and for the amount applied for -The individual policy is in an amount not in any event in excess of the amount of life insurance which ceases because of such termination nor less than one thousand dollars unless a smaller amount of coverage was provided for such individual under the group policy: PROVIDED, That any amount of insurance which matures on the date of such termination or has matured prior thereto under the group policy as an endowment payable to the individual insured, whether in one sum or in installments or in the form of an annuity, must not, for the purposes of this provision, be included in the amount which is considered to cease because of such termination; and -The premium on the individual policy must be at the insurer's then customary rate applicable to the form and amount of the individual policy, to the class of risk to which such individual then belongs, and to his/her age attained on the effective date of the individual policy

Required Disclosures for policies paying a fixed indemnity benefit triggered by an illness or confinement in a hospital must include a special disclosure statement that replaces the outline of coverage that is otherwise required. This disclosure form must be provided to all applicants at the time of application. The disclosure form must be in at least 10 point type and must be easily read. This standard disclosure form must at minimum include the following information:

Insurer's name and address. Statement that coverage is not comprehensive health care insurance and will not cover the cost of most hospital and other medical services The fact that the disclosure statement is a brief summary, not the contract itself, which contains all applicable benefits, limitations, rights and obligations This coverage is designed to pay you a fixed dollar amount regardless of the amount that the provider charges. Payments are not based on a percentage of the provider's charge and are paid in addition to any other health plan coverage you may have. The following statement: CAUTION: If you are also covered under a High Deductible Health Plan (HDHP) and are contributing to a Health Savings Account (HSA), check with your tax advisor before you purchase this policy to be sure that you will continue to be eligible to contribute to the HSA if you purchase this coverage. Type of coverage Benefit amount Benefit trigger (identify any periods of no coverage such as eligibility or waiting periods) Duration of coverage Renewability of coverage Policy exclusions, restrictions, reductions benefit delays or other limitations, including those related to preexisting conditions

Payment of Proceeds

Proceeds of any benefits under a policy of group life insurance insuring the life of any person who was a resident of this state must be paid at the time of death. The proceeds must be paid within at least 30 days after the insurer has received satisfactory proof of death of the insured. If the proceeds are not paid within the 30 day period, the insurer shall also pay interest on the proceeds from the date of death of the insured to the date when the proceeds are paid. The interest required accrues commencing on the date of death at the rate then paid by the insurer on policy proceeds left with the company or 8%, whichever is greater. Benefits payable that have not been paid within 90 days of the receipt of proof of death accrue interest, commencing on the 91st day, a rate 3% higher than the rate paid under the previous paragraph.

Minimum Nonforfeiture Amounts

The interest rate used in determining minimum nonforfeiture amounts is the lesser of 3% or a floating rate based on U.S. treasury rates, but not less than 1%.

Labor Union Groups

The lives of a group of individuals may be insured under a policy issued to a labor union, which is the policyholder, to insure members of the union for the benefit of persons other than the union or any of its officials, representatives or agents, subject to the following requirements: The members eligible for insurance under the policy must be all of the members of the union, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the union, or both The premium for the policy must be paid by the policyholder, either wholly from the union's funds, or partly from such funds and partly from funds contributed by the insured members specifically for their insurance. No policy may be issued of which the entire premium is to be derived from funds contributed by the insured members specifically for their insurance. A policy on which the premium is to be derived in part from funds contributed by the insured members specifically for their insurance may be placed in force only if at least 75% of the then eligible members, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer, elect to make the required contributions. A policy on which no part of the premium is to be derived from funds contributed by the insured members specifically for their insurance must insure all eligible members, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer. The policy must cover at least 25 members at date of issue The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the members or by the union

Associations as Groups

The lives of a group of individuals may be insured under a policy issued to an association that has been in active existence for at least 1 year, has a constitution and bylaws, and has been organized and is maintained in good faith for purposes other than that of obtaining insurance. Under this policy, the association is the policyholder. The policy may insure association employees, members, or their employees. Beneficiaries under the policy must be persons other than the association or its officers or trustees. The term "employees" as used in this section may include retired employees.

Public Employee Associations

The lives of a group of public employees (employees of the U.S. government, or of any state, or of any political subdivision or instrumentality of any of them) may be insured under a policy issued to the departmental head or to a trustee, or issued to an association of public employees formed for purposes other than obtaining insurance and having, when the policy is placed in force, a membership in the classes eligible for insurance of not less than 75% of the number of employees eligible for membership in such classes, which department head or trustee or association is the policyholder, to insure such employees for the benefit of persons other than the policyholder or any of its officials, subject to the following requirements: The persons eligible for insurance under the policy must be all of the employees of the department or members of the association, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the association, or both The premium for the policy must be paid by the policyholder, in whole or in part either from salary deductions authorized by, or charges collected from, the insured employees or members specifically for the insurance, or from the association's own funds, or from both. Any such deductions from salary may be paid by the employer to the association or directly to the insurer. No policy may be placed in force unless and until at least 75% of the then eligible employees or association members, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer, have elected to be covered and have authorized their employer to make any required deductions from salary. The rate of charges to the insured employees or members specifically for the insurance, and the dues of the association if they include the cost of insurance, will be determined according to each attained age or in no fewer than 4 reasonably spaced attained age groups. In no event will the rate of such dues or charges be level for all members regardless of attained age The policy must cover at least 25 persons at date of issue The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the employees or members or by the association

Inclusion of Spouse and Dependent Children

These plans may allow insurance on the lives of the employee's/member's spouse and dependent children, with premiums paid by the policyholder, by the employee/member, or both.

Reporting of Actions

An insurance producer, title insurance agent, or adjuster must report to the Commissioner any administrative action taken against the insurance producer, title insurance agent, or adjuster in another jurisdiction or by another governmental agency in this state within 30 days of the final resolution of the matter. This report must include a copy of the order, consent to order, or other relevant legal documents. Within 30 days of the initial pretrial hearing date, an insurance producer, title insurance agent, or adjuster shall report to the Commissioner any criminal prosecution of the insurance producer, title insurance agent, or adjuster taken in any jurisdiction. The report must include a copy of the initial complaint filed, the order resulting from the hearing, and any other relevant legal documents.

Termination

An insurer may terminate an appointment of an insurance producer via: -The Commissioner's web site; or -Third-party online licensing provider

Defamation of Insurer

Disseminating any information or statement that is false or maliciously critical and that is designed to injure any insurer, domestic corporation, or reciprocal company.

Guarantee of Dividends

Guaranteeing, by an insurer, producer, or broker, of the payment of future dividends or future refunds of unused premiums or savings of any insurance contract.

Insurance

Insurance is a contract whereby one undertakes to indemnify another or to pay a specified amount upon an occurrence.

Prohibited Advertising

No person may make any statement using the Association's existence to sell, solicit, or induce the purchase of any form of insurance. A policyowner must be given, upon request, a summary document describing the Association's general purposes and current limitations.

Protection of Public Interest

Since the business of insurance is one affected by the public interest, all persons acting in good faith must abstain from deception and must practice honesty and equity in all insurance matters.

Coverage and Limitations

The Association covers persons who are the policyholder's beneficiaries, assignees, or payees, unless the contract-owner or certificate-holder is resident and the beneficiary, assignee, or payee is covered by another state's association. The Association covers persons who own policies or certificates thereunder (other than unallocated annuity contracts and structured settlement annuities) and are either residents or nonresidents, in cases where the issuing insurer is domestic, the resident states have guaranty associations, and the persons are ineligible for association coverage in any other state.

Prevention of Insolvencies

The Commissioner must help detect and prevent insurer insolvencies and must notify all other states' Commissioners within 30 days after suspending or revoking a member insurer's license.

Replacing Insurer

The insurance company that issues or proposes to issue a new policy or contract in order to replace a life insurance policy or annuity contract that is currently in force.

Existing Insurer -

The insurance company whose policy is being changed or replaced.

The Life-Disability Insurance Guaranty Association and the Washington Insurance Guaranty Association

The purpose of the guaranty associations is to pay covered claims under certain policies when an insurer cannot pay due to the insurer's insolvency to avoid claimants' financial losses.

Penalties The Commissioner may place on probation, suspend, revoke, or refuse to issue or to renew any license for any of the following reasons:

-Providing false information in a license application -Violating any insurance law or regulation -Attempting to obtain a license through misrepresentation or fraud -Misappropriating or illegally withholding monies required to be held in a fiduciary capacity -Intentionally misrepresenting an insurance application or an insurance contract's terms -Having been convicted of a felony -Admitting to having committed, or being found to have committed, an unfair trade practice or fraud -Using fraud, coercion, or dishonest practices or being untrustworthy, incompetent, or financially irresponsible -Having a license denied, suspended, or revoked in any other jurisdiction -Forging another's name on a document related to an insurance transaction -Cheating on a licensing exam -Knowingly accepting business from a person who is not duly licensed, if licensure is required by law -Obtaining a loan from a client who is not a financial institution or a relative

Solicitation Prohibited

An insurer must be authorized by the Commissioner to solicit or transact insurance business in Washington. A person may represent an unauthorized insurer only as an adjuster or attorney at law. Any person, other than a licensed surplus line broker, making an insurance contract in Washington on an unauthorized insurer's behalf is personally liable under the contract. Each violation is a separate offense punishable by a fine of up to $25,000 and may also be punishable by license suspension or revocation.

Replacement

Any transaction in which new life insurance or a new annuity is to be purchased, and the producer or broker knows that an existing life policy or annuity has been or shall be: -Terminated (e.g. lapsed, forfeited, or surrendered) -Converted to reduced paid-up insurance, continued as extended term insurance, or reduced in value by the use of nonforfeiture benefits -Amended with either a reduction in benefits or term -Reissued with a reduced cash value -Pledged as collateral or borrowed against for over 25% of the loan value

Coverage and Limitations

Coverage and Limitations

Broker's Fees Disclosure

Failing to advise an insured or prospective insured, in writing and before procuring insurance, of the basis on which a broker's charge will be determined if the charge exceeds the commission a producer would have received for procuring such insurance.

Persons Required to be Licensed

No one may sell, solicit, or negotiate insurance in Washington, for any line or lines of insurance, unless they are licensed for that line of authority. Individual applicants must meet the following conditions: They must be at least 18 years of age They must not have committed any act that is a ground for denial, suspension, or revocation They must complete an appropriate prelicensing course They must pay the required fees They must pass the appropriate prelicensing exam Individuals applying for a license must also submit the Uniform Application, and be fingerprinted so that a state and national criminal history background check may be conducted.

Duties of Replacing Insurers- When replacement is involved, the replacing insurer must:

Require the producer to provide a list of all of the applicant's existing life insurance or annuities to be replaced and a copy of the replacement notice Send the following information about the replacement (including information about the new contract) to each existing insurer within 3 working days of either receiving an application for a replacement life insurance policy or annuity at the insurer's home or regional office, or after issuing the policy, whichever is earlier Maintain evidence of the Notice Regarding Replacement and the policy or contract summary Notify the applicant that he/she has a free look period of 20 days, subject to a full premium refund

Excess Charges

The Commissioner may permit an insurance producer to enter into reasonable arrangements with insureds and prospective insureds to charge a reduced fee in situations where services that are charged for are provided beyond the scope of services customarily provided in connection with the solicitation and procurement of insurance, so that an overall charge to an insured or prospective insured is reasonable taking into account receipt of commissions and fees and their relation, proportionally, to the value of the total work performed.

Disclosure- Definitions . - Cost Comparison Indexes

Tools for comparing the cost and value of different policies over time using time value of money concepts and an assumed 5% rate of interest.

Exemptions- The requirements of the Replacement Regulation do not apply to:

-Credit life insurance -Group life insurance or group annuities, unless solicited on an individual basis and paid by the individual -Contractual changes or conversion privileges exercised with the existing insurer -Life insurance replacing a binding or conditional receipt issued by the same insurer -Replacement by an insurer of its own policy (subsidiaries or affiliates under common ownership or control are considered the same insurer for this purpose) -Registered contracts (except premium or contract contribution amounts and the prospectus or offering circular)

What the commissioner can do to implement and enforce the Insurance Code

-Make rules and regulations governing activities under the insurance code -Conduct investigations to determine whether any person has violated any of its provisions -Conduct examinations and hearings -Prosecute actions in court to enforce any of his/her orders Issue Cease and Desist Orders, bring actions enjoining continuing violations, or both, if he/she believes that any person is violating or shall violate any insurance law -Fine insurance companies, fraternal benefit societies, HMOs, health care service contractors, or viatical settlement providers, or revoke or suspend their Certificates of Authority -Fine insurance producers, brokers, adjusters, or viatical settlement brokers, or revoke or suspend their licenses -Issue emergency orders commensurate with a state of emergency as declared by the governor. Such orders are effective for no more than 60 days, but may be extended an additional 30 days if necessary.

Policy Summary- A written description of the policy's elements, including the:

-Name and address of the insurance agent -Full name and home office of the insurer -Generic name of the basic policy and each rider -Following guaranteed amounts, where applicable, for the first 5 policy years and representative policy years thereafter: Annual premium for the basic policy Annual premium for each optional rider Amount payable upon death Total cash surrender valuesEndowment amounts -Effective policy loan annual percentage interest rate -Cost comparison indexes for 10 and 20 years -Date on which the policy summary is prepared There must be no reference to a dividend or non-guaranteed element in the policy summary. The policy summary must consist of a separate document. All information required to be disclosed must be set out in such a manner as to not minimize or render any portion obscure.

If a producer solicits insurance on behalf of an insurer, but it is later determined that the producer was not eligible for appointment by the insurer:

-The insurance contract will be effective -The producer must not receive compensation for any insurance product sold by the insurance producer; and -The insurance producer and the insurer may be subject to disciplinary action\

Separate Account Requirements

A licensee must account for premiums and return premiums received in a fiduciary capacity and maintain them in an account separate from his/her personal and other business accounts. Commingling or combining premiums with other funds is prohibited.

Life Policy Clauses and Provisions- Return of Policy and Refund of Premium (Free Look Period)

A policy owner may return the policy within 10 days after receipt for a premium refund if unsatisfied for any reason. However, if a new policy replaced an existing one, the insured has 20 days in which to return the replacing policy for a full refund.

Designated Responsible Licensed Person (DRLP)

A resident business entity acting as an insurance producer is required to obtain an insurance producer license. Application must be made using the uniform business entity application, and the individual signing the application must declare under penalty of refusal, suspension, or revocation of the license that the statements made in the application are true, correct, and complete to the best of the individual's knowledge and belief. Before approving the application, the Commissioner must find that the business entity has designated a licensed insurance producer responsible for the business entity's compliance with Washington's rules and laws.

Life Insurance Policy Illustration- General Rules and Prohibitions

An illustration used to sell a life policy must be clearly labeled "life insurance illustration" and state: -Insurer's name -Producer's name and business address -Proposed insured's name, age, and sex -Underwriting or rating classification upon which the illustration is based -Policy's generic name, the company product name (if different), and the form number -Any initial death benefit -Dividend option election or application of non-guaranteed element

Maintenance and Duration of License- Renewal

An initial or reinstated producer license is valid from the date of issuance until their next birthday, plus 1 year. Renewal periods are 2 years. Additional licenses have the same renewal cycle as the original license. A business' license is valid for 2 years from the date of application. The initial application fee for a producer's license is $55. The biennial renewal fee for a producer's license is also $55. The initial and renewal fee for an adjuster's license is $50, every 2 years. A producer's license also becomes invalid if the licensee ceases to hold a valid appointment by an insurer or if the license is not renewed.

Certificate of Authority Required -

An insurer must transact insurance in Washington as authorized by a Certificate of Authority issued by the Commissioner. The following do not require a Certificate of Authority, as they do not meet the definition of "insurance": -Travel or automobile related products or assistance -Community traffic safety service -Travel, touring and map service -Theft or reward service -Towing, emergency road service, lockout or lost key service -Reimbursement of emergency expenses due to a vehicle disabling accident

Licensure Exemptions

An officer, director, or employee of an insurer or of an insurance producer, provided that the officer, director, or employee does not receive any commission on policies written or sold and whose duties do not include the sale, solicitation, or negotiation of insurance A person who secures and furnishes information for enrolling individuals into group policies Directors, employees, or the trustees of an employee trust plan which involves the use of insurance issued by an insurer, as long they are not in any manner compensated, directly or indirectly, by the company issuing the contracts Employees of insurers or organizations who are engaged in the inspection, rating, or classification of risks, or in the supervision of the training of insurance producers, and who are not individually engaged in the sale, solicitation, or negotiation of insurance A person whose activities are limited to advertising without the intent to solicit insurance A nonresident, licensed in another state who sells, solicits, or negotiates a contract of insurance for commercial property and casualty risks to an insured with risks located in more than one state Any person securing and forwarding information required for group credit life and credit disability insurance or credit casualty insurance where no commission/other compensation is payable on account of the securing and forwarding of such information (the reimbursement of a creditor's actual expenses for securing and forwarding information required will not be considered a commission/other compensation if the reimbursement doesn't exceed $3 per certificate issued or $3 per loan transaction per year)

Service of Process on Unauthorized Foreign or Alien Insurers

Any unauthorized foreign or alien insurer transacting insurance business in Washington is subject to the jurisdiction of Washington's courts in any action, suit or proceeding. Service of legal process against such unauthorized insurer may be made by serving duplicates to the Commissioner.

Coverage and Limitations (continued)

Benefits paid by the Life-Disability Insurance Guaranty Association are limited to the least of the following: -The impaired or insolvent insurer's contractual obligations -Up to $100,000 of the present value of annuity benefits for each participant of a governmental retirement benefit plan -Up to $500,000 With respect to 1 life, regardless of the number of policies In life insurance death benefits and net cash surrender and withdrawal values In disability income benefits In basic hospital, medical, and surgical insurance or major medical insurance In the present value of annuity benefits, including net cash surrender and net cash withdrawal values In the present value of annuity benefits for each payee or beneficiary of a structured settlement annuity Up to $5 million for owners of contracts covering multiple lives The Washington Insurance Guarantee Association pays up to $300,000 per direct claim.

Late Renewal and Reinstatement

If a request for renewal of a license is received after its due date, the licensee must not transact insurance until the renewal or reinstatement is completed. The following late fees apply to renewals submitted after the due date: -First 30 days: 50% of the license renewal fee -31-60 days: 100% of the license renewal fee -61 days to 12 months: 200% of the license renewal fee

Conditions for Procurement of Surplus Line Coverage

If a specific type of insurance coverage cannot be procured from authorized insurers, surplus lines coverage may be procured from unauthorized insurers subject to the following conditions: -The insurance must be procured through a licensed surplus line broker and must be unavailable from most authorized insurers -Coverage may not be procured solely to secure a lower premium or other competitive advantage -The surplus line broker must execute an affidavit and file it with the Commissioner within 30 days after procuring such insurance

Late Renewal and Reinstatement (continued)

If no request for late renewal is received within 60 days after expiration, the license and all associated appointments and affiliations will be terminated. All authority conferred by the license ends on its expiration date. If a license is expired for more than 60 days but less than 12 months, a licensee may request its reinstatement. After 12 months, the licensee must retake all applicable pre-licensing insurance education courses and the applicable license examinations, and submit a new license application, including fingerprint card, and all required fees.

Receiving Compensation

If the compensation received by an insurance producer who is dealing directly with the insured includes a fee, the insurance producer must disclose in writing to the insured the full amount of the fee paid by the insured and the full amount of any commission paid to the insurance producer by the insurer, if one is received. This disclosure must be provided to the insured prior to the policy sale. Such disclosures must be retained by the producer for at least 5 years.

Maintenance and Duration of License- Maintenance and Duration of License

Individual resident life, disability, property, and casualty producers, and brokers must complete 24 hours of CE approved by the Commissioner, including 3 hours of ethics, per license renewal period. A course provider issues the licensee a Certificate of Completion within 10 days after completing a course. Any continuing insurance education course with the same course number may be completed for credit only once every 3 years. Credit hours earned during any license continuation period in excess of the continuing insurance education requirement are not given credit toward license renewal (as that requirement is already met) and they may not be carried over the next license renewal period. Resident adjusters and individuals holding limited lines licenses for credit insurance, travel insurance, and surety are exempt from these CE requirements.

Life Insurance Policy Illustration- Applicability

Life insurance policy illustration rules apply to all life policies, except: -Variable life insurance -Individual and group annuity contracts -Credit life insurance -Life policies where illustrated death benefits would not exceed $10,000 on any individual

Misrepresentation

Misrepresenting any policy's terms, benefits, or dividends, or using any name or title of any policy or class of policies misrepresenting the policies' nature.

The Commissioner shall do the following regarding the dissemination of information and working with the public:

Obtain and publish tables showing the average life expectancy, and the values of annuities and of life and term estates Disseminate information concerning Washington's insurance laws Help the public obtain information about insurance products Help resolve complaints involving insurers and other licensees Grievances may be filed with the Commissioner against any insurance company, fraternal benefit society, viatical settlement provider, health care service contractor, health maintenance organization, producer, broker, adjuster, or viatical settlement broker. The Commissioner's office also offers assistance statewide to consumers regarding health care insurance and health care access through its Statewide Health Insurance Benefits Advisors (SHIBA) program.

Marketing Methods and Practices for Life Policies- Replacement

Purpose - Replacement rules regulate insurer and producer activities with respect to replacing existing life insurance and annuities. They protect the interests of life insurance and annuity purchasers by: Requiring that the purchaser receive enough information to decide in his/her own best interest Reducing the opportunity for misrepresentation and incomplete disclosures Providing penalties for noncompliance

Discrimination

Refusing, by any person or entity, to issue, cancel, or non-renew a contract or deny, restrict or modify policy, or restricting benefits because of an insured's sex, marital status, sexual orientation or sensory, mental, or physical handicap. This does not prohibit fair discrimination on the basis of sex, marital status, or the presence of any sensory, mental, or physical handicap if substantiated by actuarial experience. Unfair discrimination also includes having different premiums, terms, conditions and benefits between persons having substantially like risks, exposure factors, and expense elements. This shall not prohibit fair discrimination by a life insurer as between individuals having unequal expectation of life.

Trade Practices

The following, if committed so frequently as to be a general business practice, constitute unfair claims settlement practices: Misrepresenting pertinent facts or provisions Failing to promptly acknowledge and act on communications about claims Failing to adopt and use reasonable standards to promptly investigate claims Refusing to pay claims without investigation Failing to affirm or deny claims within a reasonable period after receiving proof of loss Failing to attempt in good faith to promptly, fairly, and equitably settle claims in which the insurer's liability has become reasonably clear Compelling an insured to sue to recover claims by offering less than the amounts recovered in such lawsuits Attempting to settle a claim for less than the amount a reasonable person would believe he/she is entitled by referring to advertisement(s) with or in the application Paying claims without stating the coverage under which the payment is made Telling claimants of a practice of appealing arbitration awards in order to compel them to accept settlements or compromises for less than such award Delaying an investigation or payment by requiring subsequent submissions that repeat information already submitted in a preliminary claim report Failing to promptly settle claims where liability is reasonably clear under one portion of the policy in order to influence settlements under other portions Failing to promptly and reasonably explain the legal or contractual basis for denying a claim Unfairly discriminating against claimants because they are represented by a public adjuster Failing to honor a check (Insurers have 3 working days to address any banking problem) Failing to adopt and use reasonable standards for paying claims Delaying appraisals or using appraisers from outside the loss area Failing to attempt in good faith to settle a claim before using an appraisal Negotiating or settling a claim directly with a claimant represented by an attorney without the attorney's knowledge and consent Failing to cover medication prescribed for off-label use if that medication is recognized as effective for that use -Pertinent communications about claims, and requests for claims forms, must be addressed within 10 working days or, if under a group contract, 15 working days. The Commissioner's inquiries must be answered within 15 working days. Investigation of a claim should be completed within 30 days after receiving notice of a claim. An insurer should accept or deny a claim within 15 working days after receiving proofs of loss. An insurer negotiating a claim settlement with a claimant who is not represented by an attorney must first notify the claimant in writing of his/her rights.

Display of License

The license or licenses of each producer must be displayed in a conspicuous place in that part of the place of business which is customarily open to the public.

Fines

The licensee must be given at least 15, but not more than 30, days from the date of the order to pay the fine. If he/she fails to pay the fine, the Commissioner shall revoke the licensee's licenses, if they have not already been revoked.

Fraternals

The term "fraternals" refers to any incorporated society, order, or supreme lodge, without capital stock, conducted solely for the benefit of its members and their beneficiaries and not for profit. Such an organization operated on a lodge system with ritualistic form of work, having a representative form of government, and which provides benefits in accordance with applicable laws is known as a fraternal benefit society. A fraternal benefit society may issue life or disability insurance provided it complies with the insurance laws of the state. Producers must be licensed.

Insurance Transaction

The term "insurance transaction" includes any soliciting, negotiating, or executing of an insurance contract, transacting matters arising out of such contract, and insuring.

Assessment of Member Insurers

To accomplish its purpose, the Association assesses each member insurer an amount equal to the proportion of its net direct written premiums in the previous year to total net direct written premiums in the previous year for all member insurers.

Twisting

Using any misleading policy comparisons to induce any insured to lapse, terminate, forfeit, surrender, retain, or convert any insurance.

Misleading Names

Using any name deceptively inferring or suggesting that a person is an insurer when such is not the case.

Life Insurance Policy Illustration- Follow-up Actions

When an illustration is used to sell a policy, an annual report must be provided to the policy owner. This report will contain information regarding the policy's current status, such cash value, policy loan balances, net surrender value, etc. If a policy does not build nonforfeiture values, an annual report will be required only for those years when a change has been made to non-guaranteed policy elements. Insurers must provide in-force policy illustrations upon the insured's request. In such cases, a signature or other acknowledgment of receipt shall not be required. If non-guaranteed elements have been changed since the last annual report, so as to adversely affect the policy, the annual next report shall contain a prominent notice of those changes and their nature.

Required Name and Domicile

Failing to include an insurer's full name and home or principal office location in every advertisement of, by, or on behalf of the insurer.

Nonresident

A nonresident of Washington may get a nonresident producer license in Washington in the equivalent lines to the line held by the nonresident in his/her home state. To qualify, the individual must: -Hold the resident license in good standing in the home state -Pay the required fee -Submit a completed application -Hold the resident license in a state that grants nonresident licenses to Washington licensees on the same basis (reciprocity) Every nonresident applicant must provide written certification from his/her home state's insurance department stating all active licenses he/she holds, the insurance lines the producer or broker is qualified to sell, and all disciplinary actions taken against the applicant. He/she must also provide any background information requested by the Commissioner. A nonresident producer who moves to another state or a resident producer who moves to another state shall notify the Commissioner of the change of address within 30 days. If an applicant's state of residence does not issue an adjuster's license, the applicant must pass Washington's written adjuster's examination.

Annuity Suitability Education

A person may not sell, solicit, or negotiate the sale of an annuity product unless he/she has successfully completed a one-time, 4-hour training course in annuity suitability. The course must be approved by the Commissioner and provided by an approved insurance education provider. The annuity suitability training includes information on the following topics: -The types of annuities and various classifications of annuities -Parties to an annuity -How fixed, variable, and indexed annuity contract provisions affect consumers -The taxation of qualified and non-qualified annuities -The primary uses of annuities -Appropriate sales practices, replacement, and disclosure requirements The training may be completed by either classroom instruction or self-study but must not include training that is company product specific or includes any sales or marketing information and materials. The training may be counted toward continuing education requirements.

Examination Exemptions

A resident applying for an insurance producer license normally is required to pass an examination testing the knowledge concerning the applicable line of authority as well as the duties and responsibilities of the producer or adjuster and the insurance laws of the state. The following persons are exempt, however, from the examination requirement: Applicants for a limited or specialty lines license, at the Commissioner's discretion Applicants for an adjuster's license who, for a period of one year, a portion of which was in the year next preceding the date of application have been a full-time salaried employee of an insurer or of a managing general agent to adjust, investigate, or report claims arising under insurance contracts Applicants for a license as a nonresident adjuster who are duly licensed in another state and who are deemed by the Commissioner to be fully qualified and competent for a similar license in Washington

Registered Contract

A variable annuity, investment annuity, variable life insurance policy under which the death benefit and cash value vary in accordance with unit values of investments held in a separate account. The term also refers to any other contract issued by a life insurer, which is registered with the Federal Securities and Exchange Commission.

Disclosure Requirements

An insurer must provide a Buyer's Guide and a Policy Summary to any prospective purchaser upon request. The Buyer's Guide must also be provided before accepting the application, premium, or premium deposit. A Policy Summary must be delivered with the policy, unless an illustration is used during the sale, or the guaranteed level death benefit is $5,000 or less. If the death benefit does not exceed $5,000, a written statement containing the summary information may be provided in lieu of a policy summary. If there is no 10-day free look period, the policy summary must be provided prior to policy delivery. producer must inform the prospective purchaser before any sales presentation that he/she is acting as a life insurance producer. One cannot call oneself a financial planner, investment advisor, financial consultant or financial counselor one is engaged in an advisory business and receives a substantial part of one's compensation from planning /advisory activities, which are unrelated to the sale of insurance. An insurer must provide a Contract Summary before accepting the applicant's initial consideration for an annuity contract, or upon request. Each insurer must maintain a complete file containing one copy of each document authorized by the insurer for use under this regulation for at least 3 years following the date of its last authorized use.

Conservation

Any attempt by an insurer or insurance producer to dissuade a policy-owner from replacing a life insurance policy or annuity sold by that insurer or producer. Conservation does not include such routine administrative procedures as late payment reminders, late payment offers or reinstatement offers.

Existing Life Insurance/Existing Annuity

Any in force life insurance policy or annuity. It is often used in the context of a potential replacement sale.

Producers

Any person wanting to transact insurance business in Washington must be licensed by the Commissioner. The license must be held in the lines to be transacted, and the license must be displayed at one's place of business. Each major line of insurance requires at least 20 credit hours of instruction and the license examination must be taken within 12 months of completing pre-licensure instruction. Every applicant for a producer's license, whether original or a renewal, who transacts insurance without appointment must file and maintain a surety bond for the people of the State of Washington in the amount of the greater of $2,500 or 10% of the premiums on business transacted in the previous year, for up to $100,000 of total surety. Resident insurance producers who desire to sell, solicit, or negotiate variable life and variable annuity products in Washington must obtain and maintain an appropriate securities license from the Financial Industry Regulatory Authority (FINRA), in addition to the life insurance line of authority. All residents licensed to sell life, disability, property, or casualty lines of insurance must meet continuing education requirements. A producer may act as an adjuster (except when acting as a crop adjuster) and investigate and report upon claims without being licensed as an adjuster if he/she is doing so on behalf of, and as authorized by, an insurer for which he/she is licensed as a producer.

Illegal Dealing in Premiums

Collecting any premium not required by a policy or exceeding the amount actually due; collecting a premium and then not providing coverage; failing to return, within a reasonable period, excess premium to the person entitled to it. Each violation that is not a felony is a misdemeanor.

Policies to be Illustrated

Each insurer marketing policies must notify the Commissioner whether a policy form is to be marketed with an illustration. A form an insurer identifies as to be marketed without an illustration may not be marketed with an illustration before the first policy anniversary. A basic illustration for a form identified as one to be market with an illustration must be prepared and delivered, except to individual group members or to individuals insured under multiple lives coverage unless the coverage is marketed to these individuals. An insurer must make a basic illustration available to a non-term group life enrollee upon request.

Duties of Producers

Each producer taking an application for a life insurance policy or an annuity must submit the following to the insurer: -The application -A statement signed by the applicant as to whether replacement is involved -A signed statement as to whether the producer or broker knows replacement is or may be involved

Rates and Forms

Every insurer or rating organization is required to file every classifications manual, manual of rules and rates, rating plan, rating schedule, minimum rate, class rate, and rating rule, and every modification of any of these with the Commissioner before use. -Forms must be submitted for approval at least 30 days before the desired date of use -The Commissioner may, during those 30 days, extend the approval time frame up to 15 additional days. If no action is taken within the 30 advance days, the form will be deemed approved.

Criminal Penalties

Except as otherwise provided in this code, any person violating any provision of this code is guilty of a gross misdemeanor. Upon conviction, the court may impose a fine of up to $1,000, imprisonment for up to 364 days, or both. Criminal penalties (imposed by the criminal justice system, not the Commissioner) apply in addition to any other penalty or provided by law, or applicable administrative or civil penalty imposed by the Commissioner.

Delivery of Illustration; Records Retention

If a basic illustration is used to sell a life policy, a copy of the illustration, signed and dated by applicant and producer, must be submitted to the insurer, and a copy must be given to the applicant. If the policy is issued with changes, a revised basic illustration, so labeled, must be sent with the policy. The illustration must be signed and dated by applicant and producer by the time the policy is delivered. The insurer and policy-owner must each get a copy. If an illustration is not used to sell a life policy, the producer must certify such in writing, and the applicant must acknowledge in writing that an illustration has not been provided. The statement must be submitted to the insurer at application. If an illustration is not used and the policy is issued, a basic illustration must be sent and signed at policy delivery. The insurer and policy-owner must each get a copy. If a computer screen illustration is used and cannot be printed, the producer must certify such in writing.

Rebating and Inducements

Offering or paying the insured, on the part of an insurer, producer, or broker, any valuable consideration that is not provided in the policy as an inducement to purchase insurance. This does not apply to any marine insurer, producer, or broker's allowance to any insured in connection with marine insurance or to advertising or promotions whereby prizes or merchandise of $100 or less in value are given per person in any 12-month period. -No insured person can receive or accept any rebate of premium or any valuable consideration or inducement not specified or provided for in the policy. -The amount of insurance whereon the insured has so received or accepted any such rebate or any such commission, other than as to life or disability insurances, will be reduced in the proportion that the amount of the rebate or commission bears to the premium for such insurance. In addition to such reduction of insurance, any such insured shall be liable to a maximum fine of $200. This does not apply to an offset or reimbursement of all or part of a fee paid to an insurance producer -Offering, by an insurer, producer, or broker, of any shares of stock or other securities as an inducement to purchase insurance, special contracts promising any profits, special returns, or special dividends, or prizes, goods, wares or merchandise with an aggregate value of more than $100.

Examination of Records

The Commissioner examines the affairs, transactions, accounts, records, documents, and assets of each authorized insurer at least once every 5 years but may examine each insurer as often as he/she deems advisable. In determining the nature, scope, and frequency of an examination, the Commissioner shall consider such matters as: -The results of financial statements -Changes in management or ownership -Actuarial opinions, reports of independent certified public accountants -Other criteria as specified in the examiner's handbook adopted by the NAIC

Insurer

The term "insurer" includes every person engaged in the business of making insurance contracts. The term includes reciprocal or inter-insurance exchanges but does not include fraternal benefit societies. Each policyholder under a domestic mutual insurer's contract is a member of the insurer. A domestic mutual insurer is owned by and operated in the interest of its members. Each member is entitled to 1 vote in the election of directors and on matters coming before corporate meetings. A member shall have the same rights as a stockholder has with a domestic stock insurer with regard to the insurer's affairs. Members may be paid dividends only out of surplus funds exceeding minimum reserve requirements and representing the insurer's net realized savings and earnings. Policy renewal may not be a requirement for dividend payment. Dividend payments may not discriminate between classifications or between policies within the same classification.

Exceptions

A licensee may add to the separate account any additional funds for paying bank charges, advancing premiums, establishing reserves to pay return premiums, and other contingencies. Washington premiums and Washington return premiums may be commingled with premiums produced in other states. It is a misdemeanor to willfully violate the separate account requirement. A licensee involved in the procuring or issuance of an insurance contract must report to the insurer the exact amount of consideration charged as premium for such contract, and such amount must be shown in the contract and in the licencee's records. Each willful violation of this provision is a misdemeanor. All funds representing premiums or return premiums received by a licensee must be so received in their fiduciary capacity and be promptly accounted for and paid to the entitled party. Any licensee who receives funds that belong to or should be paid to another person as a result of an insurance transaction is deemed to have received the funds in a fiduciary capacity. The licensee must promptly account for and pay the funds to the person entitled to the funds. Any insurance licensee who diverts or appropriates funds received in a fiduciary capacity is guilty of theft. Separate accounts may bear interest. Separate accounts may be checking accounts, demand accounts, savings accounts, government bonds, or treasury certificates. Such accounts must be with a depository institution in Washington and must be insured by the federal government.

Producer Responsibilities- Policy Delivery

A policy must be delivered in a reasonable period after issuance. If an insurer requires its producers to deliver policies, both the insurer and the producer are responsible for timely delivery, and the producer must physically deliver the policy. A producer who gets a policy from an insured and holds it for analysis or servicing must give the insured a receipt. It is an unfair trade practice for an insurer or producer to withhold delivery of a policy. If the original policy is delivered or required to be delivered by any vendor, mortgagee, or pledgee of any motor vehicle/aircraft, and the policy insures any interest on such vehicle/aircraft, a duplicate of the policy must be delivered by the vendor, mortgagee, or pledgee to each such vendee, mortgagor, or pledgor named in the policy or coming within the group of persons designated in the policy to be so included. Any notice to a party or any other document required under applicable law in an insurance transaction or that is to serve as evidence of insurance coverage may be delivered, stored, and presented by electronic means so long as it meets the requirements of the Washington electronic authentication act. An electronic signature is the equivalent of a digital signature.

Appointments/Termination of Appointments

A producer must be appointed by an insurer in order to represent the insurer. In order to be appointed, the producer must hold a valid license in each line of insurance for which the producer submits applications for insurance. If an individual insurance producer is affiliated with a business entity, the insurance producer is not required to be directly appointed by the insurer. Each insurer must notify the Commissioner in writing, and pay an appointment fee within 15 days of the date the agency contract is executed, or the date the producer submits his/her first application, whichever is earlier. An insurer and the producer may be subject to disciplinary action if the producer transacts insurance and is later determined by the Commissioner to be ineligible for appointment or if the insurer fails to notify the Commissioner of the appointment. The Commissioner must verify, or deny, the producer's eligibility for appointment by sending an electronic message to the insurer within 30 days after the Commissioner has received the notice of appointment from the insurer. The Commissioner will confirm the licensee's appointment or affiliation by sending an electronic message to the insurer or business entity after the Commissioner receives the notice from an insurer or business entity. Producers upon initial appointment by an insurer or upon initial affiliation by a business entity must be authorized to transact at least one line of authority within the authority of the insurer or the business entity.

Producer Responsibilities- Premium accountability

A producer must record the exact premium for each contract in his/her records and report such premium to the insurer. The premium must also be noted in the contract. Willful violation is a misdemeanor. Premiums or return premiums received by a producer or broker are received in a fiduciary capacity and must be promptly accounted for and paid to the entitled insured, insurer, or producer. A licensee receiving funds payable to another receives the funds in a fiduciary capacity and must promptly account for them and pay them to the entitled person. Diverting or appropriating such funds is an act of theft.

Failure to Issue Proper Receipts

Failing to issue a receipt, upon receiving a premium for a homeowners, dwelling fire, personal auto, motorcycle, individual life, or individual disability policy or an annuity. Receipts should be issued no later than the next business day. A receipt does not need to be a separate document but may be incorporated into an application or binder. The receipt must state the date, the representative's name and address, the insured's or payer's name, the amount received, the insurer's name, and the contract for which the payment is received.

Producer's Compensation Disclosure

If compensation received by an insurance producer for dealing directly with an insured includes a fee, for each policy, the insurance producer must disclose in writing to the insured the full amount of the fee paid by the insured, the full amount of any commission paid to the insurance producer by the insurer, if one is received, and an explanation of any offset or reimbursement of fees or commissions. The required disclosure must give the full name of the insurer that may pay any commission to the insurance producer. The written disclosure of compensation shall be provided by the insurance producer to the insured prior to the sale of the policy. The compensation disclosure must be signed by the insurance producer and the insured, and the writing must be retained by the insurance producer for 5 years. When the insurance producer may receive additional commission, a notice is required that states the insurance producer: -May receive additional commission in the form of future incentive compensation from the insurer, including contingent commissions and other awards and bonuses based on factors that typically include the total sales volume, growth, profitability, and retention of business placed by the insurance producer with the insurer, and incentive compensation is only paid if the performance criteria established in the agency-insurer agreement is met by the insurance producer or the business entity with which the insurance producer is affiliated. -Will furnish to the insured or prospective insured specific information relating to additional commission upon request.

Life Insurance Policy Illustration- Purpose

Policy illustration are powerful tools for showing potential customers how life insurance could work for them, but illustrations can be confusing and their power can be abused. Life insurance policy illustration laws provide standards aimed at: Protecting consumers Providing illustration formats, standards, and disclosures to educate consumers Ensuring that illustrations are understandable and do not mislead life insurance purchasers Eliminating the use of footnotes and caveats as much as possible Defining jargon so that it is understandable by a typical person

Charges for Extra Services

Regardless of laws prohibiting rebating inducements, the Commissioner may allow a producer or broker to arrange with insureds and prospective insureds, to charge a reduced fee if the services being charged for exceed services provided during the insurance solicitation so that the resulting combination of commission and fees is proportional to the total work performed.

Payment of Claims

The Association investigates, adjusts, and pays covered claims to the extent of the association's obligation. It may handle claims either through its employees or the insurer's. The Association pays claims that are open at the time it becomes liable to pay on behalf of an impaired or insolvent insurer and those that are filed within 30 days of the insurer's determined impairment or insolvency. -A claimant may not get duplicate payment. A claimant must exhaust the right to payment of a covered claim under his/her policy before seeking payment through the Association. Any person whose claim may be recovered under more than 1 guaranty association must first seek recovery from the association of the insured's place of residence. The Association shall reduce any payment by such recovery.

Temporary Licenses

The Commissioner may issue a temporary producer license for up to 180 days without an exam as necessary for servicing an insurer in the following cases: To the spouse or court-appointed representative of a producer who dies or becomes disabled, until the producer returns to duty, the business is sold, or new personnel are trained to run the business To an insurer-producer's member or employee, upon the death or disability of the insurer's designated producer To the designee of a producer entering active service in the U.S. armed forces In any other circumstance in which issuing a temporary license is in the public interest The Commissioner may require the temporary licensee to have a licensed producer as a suitable sponsor, who will assume responsibility for all acts of the temporary licensee. The Commissioner may, by order, revoke a temporary license if the interests of insureds or the public are endangered. A temporary license may not continue after the owner or the personal representatives dispose of the business.

Probation

The Commissioner may place a licensee on probation under reasonable terms determined by the Commissioner. In addition, the Commissioner may require a licensee who is placed on probation to: -Report regularly to the Commissioner on matters that are the basis of the probation -Limit practice to an area prescribed by the Commissioner; or -Continue or renew continuing education in the area that is the basis of the probation, until the licensee attains a degree of skill to the Commissioner's satisfaction Every order of license suspension must state the effective dates of the suspension. No suspension will be effective longer than 12 months. Fines: After a hearing, and in addition to or in lieu of license suspension, revocation, or non-renewal, the Commissioner may fine a person up to $1,000 per offense. The fine must be fully paid not less than 15 nor more than 30 days from the order's date. Failure to pay the fine when due shall result in license revocation.

Penalties for Noncompliance- Refusal to Renew/Suspension/Revocation/Probation

The Commissioner may place on probation, suspend, revoke, or refuse to issue or renew a license for any one or more of the following causes: Providing incorrect, misleading, incomplete, or materially untrue information in the license application Violating any insurance law, rule, subpoena, or order of the Commissioner or of another state's insurance Commissioner Obtaining or attempting to obtain a license through misrepresentation or fraud Improperly withholding, misappropriating, or converting any monies or properties received in the course of doing insurance business Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance Felony conviction- In such cases, no hearing is required before adverse action is taken against a licensee. Having admitted or found to have committed any insurance, unfair trade practice, or fraud Using fraudulent, coercive, dishonest practices, demonstrating incompetence, untrustworthiness, or financial irresponsibility in this state or elsewhere Having an insurance producer license, or its equivalent, denied, suspended, or revoked in any other state, province, district, or territory Forging another's name to an application for insurance or to any document related to an insurance transaction Improperly using notes or any other reference material to complete an examination for an insurance license Knowingly accepting insurance business from a person who is required to be licensed but is not Obtaining a loan from an insurance client that is not a financial institution and who is not related to the insurance producer by birth, marriage, or adoption, unless the Commissioner has permitted such arrangements Failure to comply with a court order

Termination (continued)

The holder of any license that has been revoked or suspended shall surrender the license certificate to the Commissioner at the Commissioner's request. The Commissioner must notify a licensee at least 15 days in advance of the effective date of a license suspension, revocation, or refusal to renew. If such action is only temporary, the licensee must receive notice at least 3 days before the effective date. Subject to the licensee's right to a hearing. - After a hearing, the Commissioner may issue a service order to revoke, suspend, or refuse to renew a license with an effective date not less than 10 days after the order service date.- Subject to the licensee's right to appeal to the superior court.

Disclosure exemptions

These disclosure rules do not apply to: -Annuities -Credit life insurance -Group life insurance paid, entirely or partly, by the insured's employer or by an association of which the insured is a member -Life policies issued in connection with pension and welfare plans and subject to ERISA -Variable life insurance where death benefits and cash values vary in a separate account