CH 27 Florida Rules and Laws for LIFE Insurance

TF: If sold by direct mail, ads cannot say ____ or _____.

"no agent or salesman will call" "by eliminating the agent and/or commission we can offer this low cost plan"

Shirley has a $10,000 life policy. She borrows $500 from the cash value at a rate of 5%. Five months later Shirley suffers a small calamity which put her in the grave. Her beneficiary will receive:

$9475 Any loans will be subtracted in addition to the interest. 5% of $500 is $25. Add this to the $500 and subtract away.

TF: All references to dividends must include a statement that the dividends are not guaranteed, except when dividends are reflected in cost indexes.

** Including when dividends are reflected in cost indexes

How many people are required to start a GROUP LIFE policy in Florida?

1 There is no legal required minimum by the state, but many companies have a minimum. Be aware: Some states have required minimums.

Which of the following statements about the assignment of a life insurance policy is (are) true? I. Most insurance companies require that notice of any assignment of a policy be filed at the home office II. An insurance policy cannot be assigned to any lending institution for securing a loan without the insurers permission.

1 only

How to best address dividends on ads?

1. Do not imply directly or indirectly that they are guaranteed. 2. Do not mislead the definition of "dividend"

Explain the Non-Forfeiture options

1. reduced paid-up 2. cash surrender 3. extended term "The policy is REC'd"

Which of the following are traits of an Association group in Florida? 1. Must have been in existence for three years 2. Must hold monthly meetings 3. If the plan is contributory, a minimum of 100 members must participate 4. If the plan is non-contributory, all members must participate

3 and 4 An association of professionals licensed by the state must have been in existence for at least two years. The meetings must be held at least annually.

Any ads that offer enrollment in an association, etc, must solicit insurance on_________

A separate application

When does a buyer's guide have to be provided to the client?

BEFORE accepting a premium, This is not required if policy provides for unconditional refund for AT LEAST 14 days, but must be given when the policy is delivered.

How long must suitability information gathered from consumers must be retained for review by the department?

By both agents & insurers for 5 years

If an advertisement shows interest rates or rates of return it must have____

Disclaimers of all limitations and conditions affecting the rate, including... 1. expense charge 2. administrative fees 3. yearly surrender charges 4. withdrawal and bail-out provisions 5. guaranteed minimum interest rate

What situation REQUIRES you to have the applicant sign a Notice to Applicant Regarding Replacement of Life Insurance (must be signed by the agent and left with the applicant)

During a replacement

TF: The incontestable clause applies to suicide and impersonation

FALSE. Impersonation is not part of the incontestable clause. This is an except question. We are looking for the one it does not apply to. In other words, which one can be contested forever. Remember the three I's (Impersonation, Intent to murder, no Insurable interst). These are all exceptions to the rule.

Explain the Free Look provision

Life insurance policies have a minimum of 14 days. Annuities have a minimum of 21 days in which the policyholder may return the policy and receive a full refund. This is from the time of delivery.

Explain Suitability in annuities

Suitability is the appropriateness of a product recommendation to consumers. Insurance companies have to establish standards and procedures for recommendations to make sure the needs of consumers are properly addressed.

TF: For an individual life insurance contract on an insured 64 years of age or older, the insurer must advise the applicant of their right to designate a secondary addressee to receive a copy of any policy lapse notice

TRUE

TF: GLI is generally written as a one-year renewable term plan

TRUE

TF: The date when the Policy Summary was prepared would be on the policy summary

TRUE

During replacement, who needs a copy of Notice to Applicant Regarding Replacement of Life Insurance and all sales proposals used in the presentation

The insurer

TF: It is the duty of the agent to provide the buyer with a Buyer's Guide and Policy Summary before accepting the premium (unless they provide for at least a 14 free look)

The insurer, but the agent must also facilitate this

Explain the Policy loans provision

The maximum the insurance company can charge for fixed loan rates is 10%. If they use an adjustable rate, it will be tied to Moody's Bond Index.

"To regulate the activities of insurers and agents with regards to replacement of insurance policies" is part of what?

The purpose of the Replacement Rule

"to protect the interest of policy-owners by establishing minimum standards of conduct" is part of what?

The purpose of the Replacement Rule

Who must notify the existing insurer by sending a copy of the Notice to Applicant Regarding Replacement of Life Insurance?

The replacing insurer

How do you properly include the premiums AND any fees for an association?

They must appear separately and not be confused with each other

When must a signed statement by the agent as to whether or not the agent knows a replacement is or may be involved be submitted?

With a new application

What is the policy summary?

a written statement that has more detail than the buyer's guide about the policy being recommended

Suitability information needed to determine an annuity

age annual income financial situation and needs financial experience financial objectives intended use of the annuity financial time horizon existing assets, including life insurance liquidity needs liquid net worth risk tolerance tax status "I knew it, E!...

Yearly surrender charges must be included on what kind of advertisement?

an ad that shows interest rates

Mammy had a $100,000 policy which which had $25,000 of cash value. Mammy used the cash value to purchase a Variable Universal policy with the same insurer that allowed her to choose the investments. Which word best describes this?

churning When a policyholder uses the cash value of one policy to buy another it could be considered churning.

A statement that dividends are not guaranteed would be found on the ____

policy summary

Explain the Conversion of industrial Life provision

prohibited provisions When an insured has $3,000 or more in industrial insurance with a company, the insured has the option to convert all of those into one ordinary life policy without any health questions.

within ten days, who, upon request, must send to the applicant a Comparative Information Form

the company being replaced

Who's duty is it to maintain copies of the Notice to Applicant Regarding Replacement of Life Insurance, Comparative Information Form and all sales proposals used for at least three years.

the replacing insurer

Explain the GROUP LIFE Types of eligible groups "A group of trusted asses want LI. They go to the credit union, but the union workers are on strike. The asses went back to their employer - who agrees to insure them if they go into debt for the premiums. Now, the asses are covered"

(Conversion rights) 1. Employer-Employee group. Employees of an employer, usually full-time. 2. Labor Union group. The policy is owned by the union to cover its members since the members may work for several employers during the year. 3. Trustee group. The trustee owns the policy for the members of two or more employers (METs and MEWAs). 4. Debtor group. A single creditor is the policyowner, and it covers the lives of the respective debtors for the amounts owed. 5. Association group. The association has to have formed for a purpose other than obtaining insurance and must have existed for two years before buying the insurance and have at least annual meetings. If it's noncontributory then all members have to be covered but if contributory then at least 100. 6. Credit Union members. Credit unions and their members are permitted to have a group life insurance policy which provides coverage equal to the amount of share balance held by the member.

Explain the GROUP LIFE right to Dependent Coverage

(Conversion rights) Dependent spouse and children of a member of a group may be covered up to the amount on the employee or member.

Within ____ days from the date of receiving the application and upon request [the replacing insurer must] send to the applicant a completed Comparative Information Form

5

What is the DFS-H1-1981 form?

A form required of an agent replacing an annuity that compares the difference between the annuity being replaced and the annuity being recommended.

Explain "Protection of beneficiaries from creditors"

A standard contract provision that prohibits creditors of the beneficiary from taking the DB of a LI

Advertisements involving variable products must have what kind of disclosures?

In addition to the other required disclosures, ads for variable products must disclose that 1. There may be gains as well as losses, including the loss of principal, 2. And the product can not be called a "CD annuity."

Explain the Life agent as beneficiary provision

Prohibited Provision A life insurance agent can not be the beneficiary of a life insurance policy covering the life of a person who is not a family member unless the agent has an insurable interest in the life of the person. Family members are cousins, step-brothers/sisters, half brothers/sisters, first cousin, niece/nephew, grandparents, parents, in-laws, uncles/aunts.

When it is known that a policy is amended as to effect either a reduction in benefits, or a reduction in the term for which coverage otherwise would have been extended is best part of a definition for what term?

Replacement

When it is known that a policy is lapsed, forfeited, surrendered, or otherwise terminated, converted to, reduced paid up, extended term or, reduced in value by the use of nonforfeiture benefits or other policy loan Is best described by what term?

Replacement

"When a policy is reissued with any reduction in cash values, or pledged as collateral or subject to borrowing more than 25% of the loan value" is considered doing what?

Replacing a policy

TF: Ads containing interest rates, rates of return, or yield are prohibited unless conditions affecting these returns are disclosed prominently with equal emphasis.

TRUE

TF: Agents have to say that they are acting as agents on behalf of an insurance company and can not use other terms, like "financial planner," "investment advisor," "financial consultant," or "financial counseling" unless the agent actually carries such designations.

TRUE

Explain the Grace Period provision

prohibited provision Not less than 30 days. The payment, at the option of the insurance company, may be subject to an interest charge of not more than 8%. If the insured dies during the grace period the face amount is paid but the premium due will be subtracted from the death benefit plus interest.

Explain the GROUP LIFE "Assignment of proceeds"

(Conversion rights) Any person insured under a group life insurance policy is allowed to assign their rights of ownership under that policy, including having an individual policy issued and the right to name a beneficiary.

TF: Cost indexes must state that they are only useful when comparing similar policies.

TRUE

Explain the GROUP LIFE Grace Period provision

(Standard provisions/required provisions) The grace period is 31 days for group policies.

Explain "Proceeds exempt from attachment"

A standard contract provision Cash surrender values and proceeds paid out from an annuity are not subject to attachment, garnishment, or legal process unless the insurance policy or annuity was taken out for this specific purpose.

Annuities issued to seniors age __A__ or older must have surrender charges on a reduced schedule so that there are no charges after the end of the __B__ year of the policy, and surrender charges can not exceed __C__ of __D__.

A. 65 B. 10th C. 10% D. The amount withdrawn

Explain the GROUP LIFE right to "Death pending conversion"

(Conversion rights) If an insured dies during the conversion process the death benefit is paid.

Explain the GROUP LIFE Misstatement of age provision

(Standard provisions/required provisions) The insurer will either adjust the benefits or adjust the premium if they discover the age of the insured individual was misstated.

if an annuity is being replaced, the replacement must be deemed suitable after considering the following 5 things..

1. if the consumer will have a surrender charge 2. if there will be a new surrender period 3. if the consumer will lose existing benefits or be subject to increased fees 4. if the consumer will benefit from enhancements and improvements 5. if the consumer has had another replacement or exchange within the last 36 months "Number 5 was alive before being replaced! He took a charge from a lightning bolt, and chose to never surrender to the corporation. Period. He lost the benefits of being a heartless robot, but gained many enhancements that were replaced in 36 months"

Who decides if the the consumer would benefit from certain features; tax deferred growth, annuitization, etc.?

The agent and insurer

Who must ensure the consumer has been made aware of the features of an annuity, such as surrender charges, tax penalties, and fees?

The agent and insurer

Explain the GROUP LIFE Incontestability provision

(Standard provisions/required provisions) This gives the insurer two years to cancel the policy if there was a material misrepresentation, just like individual policies.

TF: Dividends may NOT be used to buy extended term insurance

TRUE Extended Term is a non-forfeiture option that applies to the cash value. Do not confuse this with the 5th dividend option of using the dividend to buy a one year term policy equal to the cash value.

______ is called the fifth dividend option

Term The dividend options are CRAPT...Cash, Reduce the premium, Accumulate with the company, Paid-up insurance, Term (annual renewable term)

Explain the GROUP LIFE "Designated beneficiary; reimbursement for expenses" provision

(Standard provisions/required provisions) At death, the proceeds are to paid to a named beneficiary. However, if the beneficiary is not alive then the insurer, at it's option, may pay a portion of the benefit, up to $2000 to anyone who can show equitable entitlement as a reimbursement (for example, someone who paid for the funeral).

Explain the GROUP LIFE "Evidence of individual insurability" provision

(Standard provisions/required provisions) If an individual insured at first declined the coverage and then later wanted to enroll, the insurer has the right to require evidence of insurability for that person, but must have a provision saying as much in the policy.

Which of the following would be on the policy summary? 1. annual premium for the policy 2. annual premium for riders 3. death benefits 4. cash surrender values 5. dividends payable at the end of the year for 20 years 6. loan annual percentage rates, including maximum rate 7. life insurance cost indexes for 10 and 20 years

All of it

Explain the Additional lapse notice and secondary addressee provision

Anyone age 64 and over receives an extra 21 days of grace period. No policy, if in force for at least one year, may lapse unless, after expiration of the grace period, and at least 21 days before the effective date of such lapse, the insurer has mailed a notification of the impending lapse to the policyowner and to a specified secondary addressee if such addressee has been designated in writing by name and address by the policy-owner. An insurer must notify the applicant of the right to designate a secondary addressee at the time of application for the policy. This section does not apply to any life insurance contract under which premiums are paid monthly or more frequently and are regularly collected by a licensed agent, paid by credit card, or any pre-authorized check.

TF: The Viatical Settlement Act includes that viatical providers are regulated by Dept. of Viatical Settlements

FALSE There is no Department of Viatical settlements. The Department of Insurance now regulates the amount and terms of these agreements. These are policies that are being sold by a terminally ill person for less than the face amount of the policy. The new owner changes the beneficiary and pays all future premiums.

During replacement, who provides a copy of Notice to Applicant Regarding Replacement of Life Insurance and all sales proposals used in the presentation

The agent replacing the policy (gives this to the insurer with the new application)

Explain the GROUP LIFE right to "Conversion on termination of group eligibility"

(Conversion rights) An individual has 31 days to convert from group life to an individual plan, regardless of their insurability (health). The insurer has the right not to allow a conversion from group term to individual term. It usually is from group term to some type of permanent coverage. The premium will be based on the insured's attained age and "class" of risk, i.e. smoker, lion tamer.

Explain the GROUP LIFE rules of employees signing the business as beneficiaries

(Conversion rights) Group life insurance is for the benefit of the employees. Therefore the BENEFICIARY CANT BE THE BUSINESS. The term employee includes employees of one or more subsidiary corporations. The premium is paid by the employer, either from the employer's funds (non-contributory) or from employee funds (contributory) or both. Remember, if it is non-contributory, the plan must cover 100% of all eligible employees.

Explain the GROUP LIFE "Attachment of application to policy; representations in application Incontestability" provision

(Standard provisions/required provisions) A copy of the application must be attached to the policy and if a claim is made and then contested by the insurance company at death then a copy of the document to which the statement was made must be furnished to the beneficiary. All statements are considered to be representations, not warranties.

Explain the GROUP LIFE Individual certificates provision

(Standard provisions/required provisions) A group life insurer must issue to the policyholder (the employer) a certificate for each person covered containing the group number and describing: 1. the person insured 2. the amount of insurance 3. beneficiary 4. any dependent coverage, if any 5. the rights and conditions

Explain the GROUP LIFE Notification of termination provision

(Standard provisions/required provisions) Certificate holders have to be notified when the master policy has expired or been canceled, but the insurance company may take this action through the policyholder (employer) by notifying it and request it notify the certificate holders.

Definition of replacement of an annuity

(same as LI) When it is known or should be known to a proposing agent or insurer that a policy is: 1. lapsed, forfeited, surrendered, or otherwise terminated 2. converted to 2a. reduced paid up 2b. extended term or 2c. reduced in value by the use of nonforfeiture benefits or other policy loans 3. amended as to effect either 3a. a reduction in benefits, or 3b. a reduction in the term for which coverage otherwise would have been extended 4. reissued with any reduction in cash values, or 5. used in a financed purchase

Purpose of the Replacement Rule

1. To regulate the activities of insurers and agents with regards to replacement of insurance policies 2. to protect the interest of policy-owners by establishing minimum standards of conduct by 2a. reducing the opportunity for misrepresentation and incomplete disclosures 2b. ensuring the policy-owner receives information with which a competent decision can be made

If the agent attempted to get annuity suitability information, but was unable to do so, then they don't have the obligation of determining financial suitability under these circumstances...

1. a recommendation has not been made 2. a recommendation was made but was based on inaccurate material supplied by the consumer 3. a consumer refused to provide relevant suitability information 4. the consumer decides to enter into an annuity against the advice of the agent " I said to the idiot. 'I didn't recommend anything' He replied, 'I LIED ABOUT IT ALL' I responded, 'So you refused to give me the information' He said, 'GIMME AN ANNUITY' And I had enough of the idiot. I was free of fiduciary responsibility" "Truth, refusal, or my recommendation. Without these I am not liable"

Purpose of the buyer's guide

1. to improve the buyer's ability to select the most appropriate plan of life insurance, 2. improve his understanding of the basic features of the policy that has been purchased or that is under consideration, and 3. improve the ability of the buyer to evaluate the relative costs of similar plans of life insurance.

Florida rules on disclosure require 1. A 14 day free look and buyers guide provided at delivery 2. A buyers guide and summary prior to acceptance of a premium

2 only Florida law does require a buyers guide be given to the applicant prior to acceptance of the premium if there is no 14 day free look. In Florida THERE IS A 14 DAY FREE LOOK!!!! So, the law reads that if there is a 14 day free look, which there is, then the buyer's guide may be given when the policy is delivered. The buyers guide is a guide that is "language the consumer can understand" HeeHeeHeeHee!!!! Lawmakers. And these guys get paid.

Munch withdraws $2,000 of accumulated dividends from his life insurance policy. What will be the TAX RESULT? I. Accumulated dividends & any interest credited will be tax exempt. II. Accumulated dividends will be taxable income to Munch. III. The dividends are exempt from income tax, but any interest credited will be taxable.

3 only

Replacement is defined as any life insurance transaction in which new insurance is to be purchased and existing insurance is to be modified in certain specific ways. A way in which the existing insurance may be modified that brings the transaction within the definition of replacement is:

Conversion to reduced paid-up ins, continued as extended term Insurance, or otherwise reduced in value by use of nonforfeiture benefits or other policy values. Be aware of what constitutes replacement. Any reduction in values, face amount or cash value will be deemed replacement and all the rules regarding replacement apply. I.E. notification to the issuing company as well as to the replacing company and full and fair disclosure.

What situation REQUIRES you to leave original or copies of all sales proposals

During a replacement

What situation REQUIRES you to submit to the replacing insurer, with the application, a copy of Notice to Applicant Regarding Replacement of Life Insurance and all sales proposals used in the presentation

During a replacement

Who regulates qualified retirement plans?

ERISA

TF: Ads can call premiums "deposits"

FALSE

TF: Ads do NOT have to reflect the payment period

FALSE

TF: GLI certificate holders need not be notified if the policy expires

FALSE

TF: social clubs are eligible for group life insurance

FALSE

TF: Suitability information gathered from consumers must be retained for review by the department for 3 years by the agent only

FALSE Correct answer: By both agents & insurers for 5 years

TF: Those holding a viatical settlement broker license may negotiate a viatical

False Only licensed life insurance agents may negotiate these contracts. A viatical settlement broker is deemed to represent only the viator (the owner of the policy) and owes a fiduciary duty to the viator to act according to the viator?s instructions and in the best interest of the viator.

a signed statement by the applicant as to whether the new insurance is replacing an existing policy must be submitted when?

Must be with a new application

1. Name and address of the agent 2. Full name and home office address of the life insurance company 3. The generic name of the policy and of each rider The above would be found on the ____

Policy summary

Explain the Effect of divorce on death proceeds provision

Prohibited provision Unless a specific exception applies, a beneficiary designation naming a former spouse is void at the time the policyholder's marriage is judicially dissolved, so long the beneficiary designation was made prior to the court order.

TF Ads must clearly reflect any changes in face amounts and/or premiums

TRUE

TF: Ads must reflect the policy form number

TRUE

TF: Florida regulates financial planners, but not retirement plans

TRUE

TF: trustee groups are eligible for group life insurance

TRUE

Time value of money must be accounted for in the sales presentation when comparing two or more policies.

TRUE

TF: Presenting to the applicant, at time of policy delivery, a "Notice to Applicant Regarding Replacement of Life Insurance" is NOT a duty of an agent when replacing a life insurance policy?

TRUE The agent must present to the applicant a "Notice to Applicant Regarding Replacement of Life Insurance" when taking the application and NOT at policy delivery.

TF: In a replacement transaction, The replacing insurance company must send a notice regarding replacement of life insurance to the new insurance company

TRUE The replacing agent must send this notice..

The law in Florida says that an agent who assists an applicant in the replacement of insurance coverage must provide all disclosure forms and sales materials used to whom, if it is requested?

The applicant The agent must provide full & fair disclosure to the applicant. He must also notify his company of the intending replacement.