Chapter 14 part 2, marketing and solicitation

The policy or rider containing the accelerated death benefit must include the statement,

"Death benefits, cash values, and loan values will be reduced if an acceleration-of-life-insurance benefit is paid."

With respect to advertising requirements, all of the following are allowable unless the insurer: A Includes the terms investment, savings plan, or profit sharing B Advertises preferred rates to classes of policyholders based on certain qualifications C Solicits nonpaid testimonials representing the personal opinion of the author D Uses the term "invitation to contract"

A

Basic Illustration

A ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and nonguaranteed elements.

Life Insurance Policies

A life insurance policy must provide that if there is a default in the premium payment, the insurer, at the policyowner's request no later than 60 days after the premium due date, a paid-up nonforfeiture benefit as stipulated in the policy for the amount specified in the policy effective as of the premium due date. The policyowner may elect an alternative nonforfeiture benefit by submitting a request to the insurer no later than 60 days the due date of the defaulted premium. The policy must contain a statement of the mortality table, interest rate, and method used to compute the cash surrender values and paid-up nonforfeiture benefits available under the policy, with a table showing the available cash surrender value and paid-up nonforfeiture benefits under the policy on each policy anniversary during the first 20 years or the term of the policy, whichever is shorter. The insurer reserves the right to defer payment of any cash surrender value for a period of 6 months after demand for payment and surrender of the policy.

Settlement at Maturity

A policy cannot contain a provision for any mode of settlement at maturity of less value than the amount insured, plus dividends, less any indebtedness to the company and less any premium that may be deducted. The policy may provide an exception and reduce the amount of insurance if death occurs from suicide in the first 2 years, while sane or insane, stated hazardous occupations, or from aviation activities under conditions specified under the policy. If benefits are not paid as stated, the insurer will refund the premium payments.

A life insurance policy must also provide that:

A policy loan is secured only by the policy The company may deduct from a policy loan the sum of the amount of existing debt on the policy and the balance of unpaid premiums for the current policy year The company may collect in advance interest on the policy loan to the end of the current policy year Failure to repay the policy loan or interest on the loan does not void the policy until the total amount owed under the loan equals or exceeds the policy's cash value

agent must submit to the replacing insurer

A signed statement indicating if replacement is involved A copy of the notice regarding replacement A statement identifying insurer-approved sales materials used Copies of individual sales materials including illustrations relating to a specific policy

All of the following are required to be included in a life insurance illustration, except: A Company specific mortality tables B Proposed insured's name C Initial death benefit D Rating classification upon which the illustration is based

A; A life insurance illustration must include the insurer's name, authorized representative of insurer or agent, proposed insured's name, age and gender, underwriting or rating classification used as the basis for the illustration, policy's generic name, company product name and policy form number, and the initial death benefit. Companies do not have specific mortality tables.

Requirements of Employer Group Insurance

All employees of the employer, or all of any class of employees as determined by conditions of employment, are eligible for insurance under the policy The policyholder (employer) must pay the premium for the policy wholly from the employer's funds, partly from the employer's funds and partly from the contribution by the employees, or wholly from the employee's funds The policy must cover at least 2 employees on the date the policy is issued

Identification of Policy or Insurer

An advertisement must identify the person or entity responsible for the advertisement. An insurer's full true corporate or licensed name must be included on each of its invitation to inquire and invitation to contract advertisements, including any portion of the advertisement to be returned to the insurer or agent.

In force illustration

An illustration furnished at any time after the policy is issued and has been in force for one year or more.

Supplemental Illustration

An illustration furnished in addition to a basic illustration that may be presented in a different format than the basic illustration, but may only depict a scale of nonguaranteed elements that is permitted in a basic illustration.

No advertisement may state, imply, or infer that:

An insurer, its financial condition, the payment of its claims, or its agent is recommended or endorsed by any government agency Any policy form or plan of insurance is approved by the Department without also disclosing the approval is extended to all such policies and plans sold legitimately in Texas

An individual life insurance policy must have a grace period of at least ______ days. A 90 B 31 C 60 D 45

B; Life insurance policies must include a 31-day grace period from the due date for the payment of each premium, except the first one, in which coverage remains in force.

Replacement regulations do not apply to transactions involving:

Credit life insurance Group life insurance or annuities Life insurance or annuities used to fund prepaid funeral contracts Contractual changes or conversion Life insurance being replaced by the same insurer A policy used to fund a qualified retirement plan, employee benefit plan, or deferred compensation plan New life insurance coverage being paid entirely by the insured's employer Existing nonconvertible and nonrenewable term life insurance scheduled to expire in 5 years or less

All of the following statements about life insurance policy provisions are correct, except: A If it is discovered that an insured's age is misstated at the time of a loss, the amount payable is based on the amount of coverage the premiums paid would have purchased at the correct age B Suicide may not be used as a defense to deny payment after the second year C An individual may assign up to 100% of policy ownership D If a policy lapses due to unpaid premiums, it may only be reinstated up to 2 years after lapse

D; All life insurance policies that provide nonforfeiture benefits must include a provision that states if the policy lapses due to unpaid premiums, the policy may be reinstated within 3 years.

Which of the following does not describe an eligible group for group life insurance? A Creditor groups insuring its debtors B An employer group with at least 2 employees covered under the policy C Labor unions that insure members actively engaged in the same occupation D A group consisting exclusively of persons related by marriage or blood

D; Employer groups, labor unions, government entities including dependents, and creditor groups are eligible. A group consistently exclusively of persons related by blood or marriage is not an eligible group by itself.

A group life policy may be delivered in this state only if it covers an eligible group. Eligible groups include:

Employers to insure employees for the benefit of persons other than the employer Labor unions, to insure members actively engaged in the same occupation Governmental entities or associations of public employees, to insure the employees or members for the benefit of persons other than the entity or association Federal government employees and dependents Creditors, to insure their debtors

An invitation to contract must disclose:

Exclusions and limitations affecting benefit payments Any charges or penalties—including administrative fees, surrender charges, and termination fees—contained in an annuity or life insurance policy

With respect to benefits, coverage, and provisions, an advertisement may not:

Imply coverage beyond the terms of the policy advertised by using terms or phrases that imply broader coverage than actually exists Represent that a policy provides for payment of certain benefits in addition to other benefits when that is not the fact Omit information or used words, phrases, statements, references, or illustrations if the omission of such information may mislead or deceive purchasers as to the nature or extent of any loss covered, premium payable, or policy benefit payable Contain untrue statements with respect to the time which claims will be paid or imply that claim settlements will be more generous than the terms of the policy Falsely represent that a policy may be sold only to certain persons because of their occupation, association, age, sex, or other condition

clearly labeled "life insurance illustration"

Insurer's name Name of the authorized representative of the producer or insurer Proposed insured's name, age, and gender Underwriting or rating classification upon which the illustration is based Policy's generic name, the company product's name, and the form number Initial death benefit amount

A supplemental illustration may be provided if:

It is legal and appended to, or accompanied or preceded by, a basic illustration The non-guaranteed elements shown are not more favorable to the policyowner than the corresponding elements, based on the scale used in the basic illustration The contract premium or premium outlay underlying the supplemental illustration is equal to the contract premium or premium outlay, respectively, as shown in the basic illustration

Legal Action

Life insurance policies must include a provision that allows legal action to be brought against the insurer within at least 2 years after the cause of the action.

One of these must be offered as a nonforfeiture option

Reduced paid-up insurance Extended term insurance Shortened benefit period Other offerings approved by the U.S. Secretary of Health and Human Services

Conversion to Individual Policy

Termination of employment: The individual policy must be applied for within 31 days after termination of employment and must be issued without evidence of insurability.

Dependent Coverage for Group Insurance

The spouse of an eligible individual insured under the policy A natural or adopted child or grandchild of the insured if the child is younger than age 25 A physically or mentally disabled child/grandchild age 25 or older and under the insured parent/grandparent's supervision.

illustration

a presentation or depiction used to solicit or sell a life insurance policy; it shows non-guaranteed elements over a period of years and includes, but is not limited to, a basic, supplemental, or in-force illustration.

The amount of any accelerated death benefit payment must be deducted from the amount that would otherwise be

payable as a death benefit.

Conversion to Individual Policy

payment of death benefits: Death benefits for a person who dies before the end of the 31-day conversion period are payable as a claim under the group policy, regardless of whether the deceased had applied for an individual policy.

Assignment

policies cannot allow for the assignment of guaranteed returns and dividends to a third party for the purpose of establishing an investment for the policyholder.

Nonforfeiture Benefits

reduced paid-up, extended term, and cash surrender

for accelerated benefit to apply,

the insured must have a terminal illness, a long-term care illness, or an illness or physical condition that is likely to cause permanent disability or premature death, including but not limited to: Acquired immune deficiency syndrome (AIDS) A malignant tumor A condition that requires an organ transplant Coronary artery disease that results in acute infarction or requires surgery

The Notice Regarding Application must include:

A list of all policies or contracts being replaced The name of the insurer and named insured The policy or contract number, or application/receipt number A statement as to whether the policy or contract will be replaced

An advertisement, other than institutional, may not use:

A trade name Any insurance group designation Name of the insurer's parent company or name of a particular division of the insurer Service mark, slogan, symbol, or other device that, without disclosing the name of the actual insurer, would mislead or deceive a prospective purchaser as to the true identity of the insurer, or its relation with public or private institutions

Under Nonforfeiture Law, a cash surrender payment may be deferred up to: A 2 years B 12 months C 6 months D 3 months

C; Under Nonforfeiture Law, the insurer reserves the right to defer payment of any cash surrender value for a period of 6 months after demand for payment and surrender of the policy.

Replacement - A transaction under which a new policy is purchased, and it is (or should be) known that an existing policy will be:

Lapsed, forfeited, surrendered, or otherwise terminated Converted to reduced paid-up insurance, continued as extended term insurance, or reduced in face value by use of a nonforfeiture option Amended with a reduction in benefits, term of coverage, or reissued with a reduced cash value

Payment of Claims

Life insurance policies must settle a claim within 2 months after the insurer receives proof of death and proof of the claimant's right to the policy's proceeds.

Long-Term Care Nonforfeiture Provision

No insurer may offer a long-term care policy in this state unless the insurer offers the option to purchase a policy that contains a nonforfeiture provision A nonforfeiture provision provides a benefit when the insured defaults in the payment of any premium. The benefit amount may be adjusted after issue only as necessary to reflect changes in claims, persistency, and interest as reflected in changes in rates for premium paying contracts

the purpose of replacement regulations

Regulate the activities of insurers and agents regarding the replacement of existing life insurance and annuities Establish minimums standards of conduct of replacement transactions to protect the interests of purchasers of life insurance and annuities Ensure life insurance and annuity purchasers receive information to make decisions in their best interest Establish penalties for failure to comply with these requirements

Duties of the Replacing Insurer

The insurer must verify that the required forms are received and are in compliance. The replacing insurer must notify the existing insurer of the proposed replacement and mail a copy of the illustration or policy summary for the proposed policy no later than the 5th business day after receipt of the application. The replacing insurer must maintain copies of the notice regarding replacement until the later of 5 years from the date of notification or the date of the next regular examination by the regulatory authority of the insurer's home state. The replacing insurer must notify the policy or contract owner of the right to return the policy within 30 days of delivery to receive a full refund of all premiums.

A life insurance policy must provide that the company that issues the policy will loan to the policy owner at a specified interest rate an amount equal to the sum of the policy's cash value and any dividend additions to the policy, or, at the policy owner's option, an amount less than that sum, if:

The policy is in force The premiums for the policy have been paid for at least 3 full years The policy is properly assigned

duties of replacing agent

agent must present and read a Notice Regarding Replacement no later than at the time of application - also at time of app -agent must leave with the applicant the Notice Regarding Replacement and the original (or a copy) of all sales material.

A person or organization is deemed a "spokesperson"

if the person or organization making a testimonial, recommendation, or endorsement: Has a proprietary or financial interest in the insurer or agent as a stockholder, director, officer, employee, etc. Was formed by the insurer or agent or is owned or controlled by the insurer or agent, its employees, or any party that owns or controls the insurer or agent Has a person in a policy-making position affiliated with the insurer or agent Is in any way, either directly or indirectly, compensated for making a testimonial, recommendation, or endorsement

Credit life insurance

may be issued as an individual -decreasing term life insurance policy- issued to a debtor or a group term life insurance policy issued to a creditor providing insurance on the lives of its creditors If a claim is submitted, the credit life insurance policy premium is not fully earned and the unearned portion will be refunded.

An advertisement may not include the terms

savings, investment, investment plan, profit, profit sharing, interest plan, or other similar terms that imply that the product advertised is something other than life insurance or an annuity.

Conversion to Individual Policy

termination of coverage under group policy: each insured covered under the policy for at least 5 years is entitled, upon termination of coverage, to convert coverage to an individual policy. Conversion may be achieved by applying and paying the first premium during the 31-day conversion period without evidence of insurability.