7. Producer Responsibilities

Guaranty Association Disclosure

In most cases, it is prohibited for a producer to use the existence of a state's Life and Health Guaranty Association and the protections it offers for the sale or solicitation of insurance.

Guaranteed or Fixed Cost Method

Many guaranteed or fixed cost policies provide benefits on a more favorable basis than the minimum guaranteed basis in the policy by paying dividends, or by charging less than the maximum premium specified. Or, they may do this in other ways, such as providing higher cash values or death benefits than the minimums guaranteed in the policy. For these types of policies, the policy performance may be shown by using both guaranteed and current performance. These are called currently illustrated basis cost comparison indexes.

Buyer's Guide

A buyer's guide is a guide for consumers to help them make an informed Life insurance purchase. The buyer's guide describes types of policies and information about replacement of policies and has been recommended for use by the National Association of Insurance Commissioners (NAIC). Previous

Warranties

A warranty is the guarantee given to the insured that specified conditions will be fulfilled in the contract. They can also be specific, guaranteed statements made by an insurance applicant in answer to specific questions (in regard to medical history, nicotine use, dangerous recreational or occupational questions) asked in the Life insurance application. Making false statements (false warranties) in an effort to gain from an insurance company constitutes fraud.

Illustrations

An illustration is a presentation or depiction that includes non-guaranteed elements of a policy of Life insurance over a period of years and is one of the three (3) types defined below: 1. Basic Illustration A proposal used in the sale of a Life insurance policy that shows both guaranteed and non-guaranteed elements 2. Supplemental Illustration An illustration furnished in addition to a basic illustration that meets the applicable requirements and may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration 3. In-Force Illustration An illustration furnished at any time after the policy is issued and has been in force for one (1) year or more

Unfair Financial Planning Practices

An insurance producer, agent, broker, or consultant may not: - Present himself or herself as a financial planner, investment adviser, or any other type of specialist engaged in the business of financial planning or giving financial advice if he or she is only certified to sell policies - Do any kind of financial planning without disclosing to the client that he or she is also an insurance salesperson and that commissions for insurance sales will be received in addition to financial planning fees - Charge fees, other than commissions, for financial planning unless the fees are set down in a written agreement that is signed by the client and details the services rendered, the fee structure, and that the client is not obligated to purchase any products

Company Retention Method

The company retention method is a method in which the present value of premiums, cash values, and dividends is calculated by weighting each item each year by the probability that it will be paid.

Solicitation and Sales Presentations

- A producer must state that he or she is a Life insurance producer and provide the name of the company he or she represents prior to commencing a Life insurance sales presentation. - Terms such as estate planner, financial planner, investment advisor, financial consultant, or financial counselor must not be used in such a way as to imply that the insurance producer is generally engaged in an advisory business in which compensation is unrelated to sales unless true. - Any reference to policy dividends must include a statement that dividends are not guaranteed. - Benefits must not display guaranteed and non-guaranteed benefits as a single sum, unless they are also shown separately in close proximity. - The financial condition of the insurance company may not be misrepresented. - Presentations which do not recognize the time value of money through the use of appropriate interest adjustments must not be used for comparing the cost of two (2) or more Life insurance policies. - No analysis of a policy or the insurance company by a third party may be included without disclosing the payment made to the third party for its analysis. - A Life insurance cost index that reflects dividends or an equivalent level annual dividend must be accompanied by a statement that it is based on the company's current dividend scale and is not guaranteed. - All sales proposals and sales presentations of individual Life insurance products which fail to fully and fairly inform an applicant of future premium changes, benefits, and related options constitute a misrepresentation as to material facts.

Conservation

Conservation is any attempt by the existing insurer or its agent to dissuade a policy owner from replacing the existing Life insurance or annuity. The agent must: Keep a notice regarding the replacement, the policy statement, and any ledger statements used for three (3) years, or until the next regular examination by the Department. Offer the applicant the right to return the policy or contract within 20 days of delivery and receive an unconditional full refund of all premiums or considerations paid.

Fraud

Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain (e.g., making false or misleading statements or concealing circumstances in relation to a claim or on an application).

Life and Health Guaranty Association

Most states have a Life and Health Insurance Guaranty Association (the "Association"), which protects insureds against an insurer's inability to meet contractual obligations due to impairment or insolvency. The Association provides coverage for people with direct, non-group Life, Health, or Annuity policies by: - Providing payment of covered claims under certain insurance policies. - Avoiding excessive delays in payment. - Minimizing financial loss to claimants. - Assisting in the detection and prevention of insurer insolvencies. - Providing an association to assess the cost of this protection among insurers. All insurers, as a condition of their ability to write insurance in a state, are required to be members of the Association in that state.

Replacement

Replacement refers to when a new policy or contract takes the place of an existing contract that is, or will be: - Lapsed, forfeited, surrendered, or otherwise terminated. - Converted to reduced paid-up insurance, continued as Extended Term, or otherwise reduced in value (benefits or term of coverage). - Reissued with any reduction in cash value. - Used in a financed purchase. The purpose of replacement regulation is to protect the interests of Life insurance and annuity purchasers by establishing minimum standards of conduct to: - Assure that a purchaser receives information to make a decision in their own best interest. - Reduce the opportunity for misrepresentation and incomplete disclosures. - Establish penalties for failure to comply with the requirements.

Representations

Representations are statements of what an individual believes to be true. Representations will often be made by the insured during the application process.The insured's false representation will not affect the insurance contract or policy unless it affects the conditions under which the policy would be issued or not. In other words, it must be material to the risk. An individual could represent that no one in their family has had a heart attack before age 50, for instance, but may be unaware that his father and grandfather both had one in their late 40s. The insured's misrepresentation will not affect the insurance contract or policy: a) Unless it is fraudulent OR b) If the truth had been known, the policy would not have been issued (material misrepresentation) False statements made by the insurance agent, whether intended or not, are more likely to void a policy. For example, an agent may falsely represent that certain coverage is contained in the policy, when, in fact, it is not. All statements on a Life insurance application are representations, but not all are necessarily warranties.

Currently Illustrated Method

The currently illustrated basis shows the company's current scale of dividends, premiums, or benefits. This scale can be changed after the policy is issued so that the actual dividends, premiums, or benefits over the years can be higher or lower than those assumed in the indexes on the currently illustrated basis.

Existing Insurer

The existing insurer is the insurance company whose policy will be changed or affected by the replacement.

Existing Policy or Contract

The existing policy or contract is an individual Life insurance policy or annuity contract in force, including binders or policies/contracts within unconditional refund periods.

Interest-Adjusted Net Cost/Surrender Cost Index Method

The interest-adjusted net cost (IANC) or surrender cost index method weights dividends and cash values according to how far into the future the various amounts are payable. Under this method, three amounts are calculated: the interest-adjusted cost, the interest-adjusted payment, and the equivalent level annual dividend. Previous

Policy Summary

The policy summary includes the: 1. Title ("STATEMENT OF POLICY COST AND BENEFIT INFORMATION"). 2. Name and address of the insurance producer, as well as the name and home office address of the insurer. 3. Generic name of the basic policy and each rider. 4. Following amounts (where applicable): 1. Annual premium for the basic policy. 2. Annual premium for each optional rider. 3. Guaranteed amount payable upon death. 4. Policy loan interest rate (if applicable). 5. Equivalent level annual dividend (if applicable). 5. Date on which the policy summary is prepared.

Replacing Insurer

The replacing insurer is the insurance company that issues or proposes to issue a new policy or contract that replaces an existing policy or contract. Previous

Signatures

The signature of all insureds is required on the application, unless the insured is a minor child, in which case the child's parent or guardian's signature is required. State laws usually require that all adults that are to be insured must sign the application, and many companies require any child 15 years of age or older to sign an application if they are to be insured. It must be the insured's own signature. An agent or another individual who signs another person's name on the application is guilty of forgery and, possibly, fraud.

Direct-Response Sales

These are solicitations that take place: - Through the mail. - By telephone. - Via the internet. - Through other mass communication media.

Underwriting

Underwriting is the process by which insurers analyze risks to decide if they want to insure them and at what rates they will insure them. Four (4) questions must be answered regarding every applicant: 1. Is there insurable interest? 2. Is the amount of insurance applied for reasonable? 3. Is the applicant insurable? 4. If the applicant is insurable, what should the premium be?