Marketing and Sales Practices
Advertising Defined
An advertisement consists of -printed and published material, audio-visual material, and descriptive literature of an insurer that is delivered to the public by direct mail, in periodicals, in radio and TV scripts, and on billboards; -descriptive literature and sales aids such as circulars, leaflets, and form letters used by an insurer or its producers and brokers for presentation to the public; -materials used to recruit and train an insurer's sales personnel, designed to induce the public to purchase insurance; and -prepared sales presentations used by agents. Advertisements are to be complete and clear enough to avoid the chance that they might mislead or deceive. An ad is misleading if it fails to include any information necessary to prevent it from misleading the reader or viewer.
Regulation of Life Insurance Sales: Replacement of Life Insurance [Reg. 120-2-24]
Replacement occurs when a new life insurance policy or annuity contract is purchased and the agent or insurer knows or should know that with the purchase, an existing policy or contract is going to be -lapsed, forfeited, surrendered, or otherwise terminated; -converted to reduced paid-up insurance; -continued as extended term insurance; -reduced in value through the use of nonforfeiture benefits or other policy values; -changed to reduce the benefits or the term for which coverage remains in force or benefits are to be paid; or -reissued with a reduced cash value.
Duties of the Replacing Insurance Company
When replacement is involved, the replacing insurer must -confirm receipt of the required forms; -notify any existing insurers that may be affected by the proposed replacement within three business days of receiving the application; and -keep copies of the Notice Regarding Replacement for at least three years. Insurers are required to maintain a system by which their agents will know about and comply with the regulations concerning replacement transactions. Insurers are also required to monitor their producers for compliance. If an insurance company directly solicits a prospective applicant, the company is required to determine whether replacement is involved and if so, to give the applicant the Notice Regarding Replacement.
Testimonials and Endorsements
Testimonials and endorsements used in marketing materials must be genuine and must represent the current opinion of their author. These must be reproduced accurately and completely enough to avoid misleading prospective customers about their nature or scope. Testimonials and endorsements made by persons having a financial interest in the insurer must disclose this fact in the marketing materials. Paid endorsements must also be disclosed with a clear and prominent notice, such as "Paid endorsement." Marketing materials cannot state or imply that an insurer or policy has been approved or endorsed by a group, society, association, or other organization unless it is true, and any relationship between the organization and the insurer is disclosed. If the group making the endorsement is owned or controlled by the insurer, that fact must be disclosed as well.
When New Life Insurance Can Exceed Insurance Being Surrendered [33-24-6.1]
Notwithstanding the provisions concerning the replacement of existing life insurance, the amount of insurance under a new policy can exceed the amount of insurance being surrendered in these situations: -A corporation has an insurable interest in a person who owns at least 10 percent of the corporation, or -the majority of the corporation's shareholders has an insurable interest in the person. In addition, the amount of insurance under a new policy can exceed the amount of the surrendered one if the cash value of the surrendered policy used to pay the premium requires a larger amount of insurance to qualify as life insurance or avoid becoming a modified endowment contract (MEC). The new policy may also exceed the replaced policy if necessary to comply with federal law. Finally, the amount of insurance under the new policy may exceed that of the former one when, upon stopping the premium payments, a former employee chooses to use the cash value to restructure the term, face amount, or investment options under the policy, even though this may result in an increase in the amount of insurance
Duties of an Agent
When submitting an application to an insurer for a life insurance policy or annuity contract, the agent is required to provide a statement signed by the agent and the applicant that indicates whether the applicant already has any existing insurance or annuity contracts. If the applicant does not have any of these, the agent is not required to do anything more. However, if the new policy or contract will replace an existing one, the agent is required to give the applicant no later than at the time of application a "Notice Regarding Replacement" form. The applicant and the agent are to sign this notice, and the agent must leave a copy with the applicant. The notice will list all life insurance policies or annuity contracts that will be replaced by the new policy or contract and will identify the name of the insurer, the insured or annuitant, and the policy number. In addition to the Notice Regarding Replacement, the agent must leave with the applicant the original or a copy of all marketing communications used to solicit and sell the policy or contract. Copies of every document used in the transaction must also be given to the replacing insurer.
Key Points
-If a life insurance policy is being replaced, the agent must give the applicant the Notice Regarding Replacement no later than at the time of application. -The replacing insurer must notify within three business days of receiving the application any existing insurers that may be affected by the proposed replacement. -Every insurer is responsible for the advertisements that promote its products to the public, regardless of who created or presented them to the public. -Testimonials and endorsements used in marketing materials must be genuine and must represent the current opinion of their author. -Testimonials and endorsements must be reproduced accurately and completely enough to avoid misleading prospective customers about their nature or scope. -A person may purchase insurance upon his or her own life or on another person's life, if that person consents to the transaction. -An insured's consent is not required in certain cases, such as when a person purchases insurance on a spouse or minor child.
Miscellaneous Provisions [33-24-6, 6.1]
A person may purchase insurance on: -his or her own life or -another person's life, if that person consents to the transaction However, an insured's consent is not required in the following circumstances: -A spouse may purchase insurance on his or her spouse. -A person with an insurable interest in a minor's life may purchase insurance on the minor. -A parent, stepparent, or a husband or wife may purchase a family policy. -A corporation may purchase insurance upon any officers, directors, or employees in whom it has an insurable interest.
General Regulations
Advertisements must clearly identify the insurer and the policies or services advertised. Any use of statistics in an ad must include the source of the statistics. An ad that is intended to be seen or heard beyond the jurisdiction in which the insurer is licensed cannot imply that the insurer is licensed beyond that jurisdiction.
Quiz
Question 1 When selling a life insurance policy that replaces an existing policy, the agent must leave all of the following items with the applicant EXCEPT: copies of documents used in the transaction originals or copies of marketing communications used in the sale -confirmation that any existing insurers have been notified of the replacement Notice Regarding Replacement signed by the producer and applicant The insurer, not the agent, confirms that any existing insurers are notified of the replacement. However, the insurer is not required to provide this confirmation to the applicant. Question 2 If a person buys a new life insurance policy to replace an existing one, the agent must give the applicant the Notice Regarding Replacement form no later than when? -when the application is taken when the initial premium is paid when the person is first solicited when the policy is delivered If a new life insurance policy will replace an existing one, the agent must give the Notice Regarding Replacement form to the applicant no later than at the time the application is taken. Question 3 Which of the following is not likely to be permitted in a life insurance policy advertisement? a testimonial from a person who is paid for the endorsement statistics identity of the insurer offering the policy -statement that an insurer's policies are endorsed by the federal government and state insurance organizations Advertisements cannot state or imply that an insurer or policy has been approved or endorsed by a group, society, association, or other organization unless it is true, and any relationship between the organization and the insurer is disclosed. Question 4 Abby wishes to buy a $500,000 term life insurance policy on her husband, Al, who is the family breadwinner. Which statement is correct? -Abby may buy the policy without Al's consent. Abby does not have an insurable interest in Al's life. Abby cannot buy a policy on Al's life. Abby may buy the policy only if Al consents. A spouse is not required to obtain the other spouse's consent when purchasing insurance on his or her life. Question 1 The Notice Regarding Replacement provides all of the following information to the life insurance applicant EXCEPT: -protections of the Life and Health Insurance Guaranty Association whether an existing policy will fund the new policy a list of any life insurance policies that will be replaced the insurer's identity As is the case with the sale of any life insurance policy, an insurer or producer is prohibited from using the existence of the state's Life and Health Insurance Guaranty Association for the purpose of selling a policy. Question 2 What must a replacing insurer do when replacement is involved in a life insurance transaction? -notify the existing insurer within three days of the proposed replacement send a copy of the replacement notice and its premium rates to the applicant require the agent to sign a sworn statement that replacement is in the applicant's best interests notify the Commissioner of the proposed replacement When replacement is involved, the replacing insurer must notify an existing insurer that may be affected by the proposed replacement within three business days of receiving the application for the replacement policy. Question 3 Paula wants to buy a permanent life insurance policy for her 12-year-old son. Which of the following statements is correct? She can buy the policy only if the father consents. She does not have an insurable interest in her son's life. -She can buy the policy without having to obtain her son's consent. She cannot buy the policy without first obtaining her son's consent. A parent has an insurable interest in his or her child's life. A parent may therefore buy a policy insuring the child's life without obtaining the child's consent. Question 4 A producer is not required to deliver which of the following documents to a policyowner who buys a life insurance policy that replaces another? -certificate of authority Buyer's Guide Notice of Replacement policy summary A certificate of authority is evidence of the Commissioner's authorization for an insurer to transact insurance business in the state.
Marketing and Sales Practices
Each state has its own laws, rules, and regulations that apply to insurance business transacted in the state or that affect risks located in the state. While many principles and concepts of insurance are common to all states, it is through these insurance laws that states regulate insurance within their state lines for the protection and welfare of their own citizens, businesses, and interests. The following lessons will examine those laws and regulations that apply specifically to life insurance transactions in Georgia.
Life Insurance Advertisements [Reg. 120-2-11]
The state regulates the content and delivery of life insurance advertisements to ensure they are accurate and truthful. Life insurers are to adhere to certain standards when marketing individual life insurance policies in Georgia. Each insurer is to maintain control over the form and content of its advertisements as well as the manner in which these advertisements are placed before the public. All advertisements, regardless of who created or presented them, are the responsibility of the insurer whose policies are the subject of the ads.
