Chapter 6:Tennessee Laws and Department Rules Pertinent to Life Only

Record maintenance for life insurance solicitation

-3 years after the date of last authorized use

Exclusions for life insurance solicitation

-annuities -credit life insurance -group insurance -variable products -life policies issued with pension and welfare plans

General rules for life insurance solicitation

-buyers guide-generic information about life insurance policies; must be provided prior to accepting the applicant's initial premium, and to prospective purchasers upon request -policy summary-specific information about policy issued; usually provided with or prior to policy delivery; must be a separate document

Standard provisions

-grace period: 1 month -incontestability: 2 years -misstatement of age: benefit is adjusted to the correct age -participation in surplus: payment of dividends must begin no later than the 3rd policy year -payment of premiums: premiums must be paid in advance to insurer or its agent -policy loans: after 3 full policy years -reinstatement: 3 years -settlement upon proof of death: no later than 2 months

Producer training for annuities

-producers must complete a one-time 4-credit hour annuities training course -annuities training qualified for 4 hours of CE

Suitability for annuities

-recommendations must be suitable to a consumer -obtaining relevant information such as financial status, tax status, and investment objectives

General rules for replacement

-transaction in which a new policy replaces an existing policy that is: •lapsed, forfeited, surrendered, or terminated •reissued with a reduction in case value •converted to reduced paid-up insurance -notice regarding replacement (provided by the agent) -exemptions: credit life, group life and annuities, transactions under the same insurer

Subsidiary

A company owned or controlled by another company

Buyer's Guide

A document that contains generic information about life insurance policies. The buyers guide provided by soliciting life insurers to the insureds in this state must be in compliance with the buyers guide adopted by the national association of insurance commissioners.

Dividend

A payment made by a policy (distribution of profits or return of unused funds)

Nonguaranteed benefits

A presentation of benefits cannot display guaranteed and nonguaranteed benefits as a single sum unless they are shown separately in close proximity.

Life insurance cost indexes

A statement regarding the use of the life insurance cost indexes must include an explanation to the effect that the indexes are useful only for the comparison of the relative costs of 2 or more similar policies. A life insurance cost index that reflects dividends or an equivalent level annual dividend must be accompanied by a statement that is based on the company's current dividend scale and is not guaranteed.

Comparing policies

A system or presentation that does not recognize the time value of money through the use of appropriate interest adjustments must not be used for comparing the cost of 2 or more life insurance policies. Such a system may be used for the purpose of demonstrating the cash-flow pattern of a policy if the presentation is accompanied by a statement disclosing that the presentation does not recognize that, because of inflation, a dollar in the future has less value than a dollar today.

Policy summary

A written that describes the elements of policy, and includes the key features, conditions and restrictions of the policy being applied for.

Dividends

Any reference to policy dividends must include a statement that dividends are not guaranteed.

Record Maintenance

Each insurer must maintain at its home office or principal office, a complete file containing one copy of each document authorized by the insurer. These records must be kept for 3 years following the date of their last authorized use.

Surplus

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

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, surrendered, or otherwise terminated -reissued with any reduction in cash value -converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced 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 term for which coverage would otherwise remain in force for which benefits would be paid -used in a financial purchase

Identifying producer/insurer

Producer's must inform prospective purchasers, prior to beginning a life insurance sales presentation, that they are acting as life insurance producers, and provide the full name of the insurance company that they are representing. In sales situations in which producers are not involved, insurers must identify their full names.

discloser

Revealed information to help someone make an intelligent and educated decision

Misleading terms

Terms such as financial planner, investment advisor, financial consultant, or financial counseling are not allowed to be used in a way that implies that the insurance producer is generally engaged in an advisory business in which compensation is unrelated to sales, unless this is actually the case.

Annual premium

The annual premium for a basic policy or rider, for which the company reserves the right to change the premium, must be the maximum annual premium.

Replacing insurer

The company that issues the new policy

Disclosure Requirements

The insurer must provide to all prospective purchasers a buyers guide and a policy summary prior to accepting the applicant's initial premium or premium deposit. This is not required if the policy contains an unconditional refund provision of at least 10 days, or if the policy summary contains an unconditional refund offer. Under these circumstances, the buyers guide and policy summary can be delivered with the policy or prior to delivery of the policy. The insurer must provide a buyers guide and a policy summary to any prospective purchaser upon request.

nonguaranteed elements

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

Lapse

policy termination due to nonpayment of premium

Participating policies

policyowners are entitled to return of dividends (e.g. mutual company policies)

Existing insurer

the company whose policy is being replaced