Chapter 6

each producer who initiates the application must submit the following to the insurance company with or as part of each applicaton

- a statement by the applicant as to whether replacement of existing life insurance or annuity is involved in the transaction - a signed statement as to whether the producer knows replace is or may be involved in the transaction

to ensure suitability producers must make a reasonable effort to obtain information from the consumer and evaluate the following factors

- age - annual income - tax status - financial needs and timeline - investment objectives - liquidity needs and liquid net worth - existing assets - intended use of annuity - risk tolerance Must maintain records of the information collected from the consumer, and other information used in making the recommendations that were the basis for insurance transactions, for 5 years after the insurance transaction has been completed by the insurer

examples of violations

- any deceptive or misleading information - failing to ask the applicant questions regarding replacement - intentionally answering a question incorrectly - advising an applicant to answer incorrectly - advising a policy owner to contact the company in such a way that the identity of the replacing producer is obscured

disclosure standards apply to annuity contracts

- if annuity application is taken in a face-to-face meeting, the applicant must be given the disclosure document and the buyer's guide at or before the time of application - if annuity application is taken any other way, the insurer must send to the applicant the disclosure document and the buyer's guide no later than 5 business days after receiving the completed application - if these two documents are not provided at or before the time of application, the insurer must give the applicant a free-look period of at least 15 days to return the policy without penalty. - this free-look period may run concurrently with any other free-look period provided under state regulations

suitability

- it is a producer's responsibility to make sure that annuity transactions address consumers' needs and financial objectives

replacement

- means any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuity has been or will be any of the following - lapsed, forfeited, surrender, or otherwise terminated - reissued with any reduction in cash value - converted to reduce paid-up insurance, continued as extended term insurance or otherwise reduce in value by the use of nonforfeiture benefits or other policy values - amended so as to affect either a reduction in benefits or in the terms for which coverage would otherwise remain in force or for which benefits would be paid - used in a financed purchased

duties of the replacing producer

- present to the applicant a notice regarding replacement that is signed by both the applicant and the producer. a copy must be left with the applicant - obtain a list of all existing life insurance and/or annuity policies to be replaced including policy numbers and the names of all companies being replaced - leave the applicant with the original or a copy of written or printed communications used for presentation to the applicant - submit to the replacing insurance company a copy of the replacement notice with the application

disclosure for annuities

- purpose of the annuity disclosure regulation is to establish standards for the disclosure of certain minimum information about the annuity contracts in order to protect and educate consumers

life insurance replace regulations do the following:

- regulate the activities of insurers and producers - protect the interests of policyholders by establishing minimum standards - assure purchasers receive adequate information to make an informed decision - reduce the opportunity for misrepresentation - establish penalties for failure to comply with requirements

replacement regulations

- replacement policies must be regulated in order to be legal, and in the best interest of the policyowners and insured

duties of the replacing insurance company

- require from the producer a list of the applicant's life insurance or annuity contracts to be replaced an a copy of the replacement notice provided to the applicant - send each existing insurance company a written communication advising of the proposed replacement within a specified period of time of the date that the application is received in the replacing insurance company's home or regional office. a policy summary or ledger statement containing policy data on the proposed life insurance or annuity must be included - in addition, replacing insurers are required to provide notice to the policyowner of the right to return the policy within 30 days of delivery and receive a full refund (free-look provision)

exist insurer is required to do the following

- retain all replacement notifications received by the replacing insurer for at 5 years or until the next examination, whichever is later - send a letter to the policyowner of the right to receive information regarding the values of the existing policy within 5 business days - if the policyowner requests to borrow, surrender or withdraw any policy values, send a notice advising on the affect of policy values

violations of the replacement rules may be subject to the following penalties

- revocation or suspension of a producer's or insurer's license - monetary fines - forfeiture of any commissions - paying restitution or restoring contract values and pay interest

replacing insurer

- the company that issues the new policy

subsidiary

a company own or controlled by another company

suitability

a requirement to determine if an insurance product is appropriate for a particular customer

violations

any failure to comply with the replacement procedures is considered a violation

ERISA (employee retirement income security act

defines federal standards for private pension plans

surplus

excess of company's net worth (extra capital remaining after all expenses are paid)

compliance

meeting official requirements

nonguaranteed elements

policy components that are not guaranteed in the contract or that may fluctuate (e.g. dividends and interest)

disclosure

revealing information to help someone make an intelligent and educated decision

existing insurer

the company whose policy is being replaced