Life (CO specific) Master Study Guide

a company that has not been authorized to operate in CO is known as a

a nonadmitted insurer

to be valid, a group life insurance policy

May not be issued to a group formed solely for the purpose of obtaining insurance.

what is the maximum amount the commissioner can fine an insurer for each violation of a cease & desist order?

$10,000

sales & marketing of life & annuities (CO statues, rules, & regulations)

-unfair trade practices -suitability requirements -disclosures -advertising

if a producer offers to refund part of a prospect's premium in exchange for the purchase of a life ins. policy, the producer is committing the illegal act of

rebating

a fraternal benefit society representative need not be licensed as a producer if he sells life ins/ with a face amount equal to or less than

$50,000

What is the aggregate penalty the commissioner may charge an insurer that has knowingly engaged in an unfair trade practice?

$750,000

record keeping of replacements

--replacing insurer will keep copies of the notice, statement, any sales material, and the application in the producer's file for that applicant for at least 5 years after the termination or expiration of the proposed policy or contract

Suicide (CO statues, rules, & regulations)

-after ins. policy has been in effect for one year, the insurer may not use an insured's suicide as a reason to refuse payment of policy benefits -still pays claim after one year whether involuntary or not

fiduciary/commingling (licensing & producers' legal responsibility)

-one of special trust & confidence in which a person is entrusted with the funds of another person -all premiums belonging to insurers & all unearned premiums belonging to insureds received by a licensee are held in a fiduciary capacity -all premiums a producer receives (minus commissions) must be remitted to the insurer y the contractual due date (within 45 days after receipt) -all returned premiums received from insurers or credited by insurers to a producer's account must be credited to insured's account within 30 days -separate accounts--must treat each ins. policy & the premiums received on it as a separate account of the insured

How must insurance producers account for each insurance policy and the premiums they receive on it?

as a separate account of the insured

the commissioner may

conduct investigations & subpoena witnesses whenever he deems it necessary

in general, people who represent fraternal benefit societies to solicit insurance are

considered insurance producers and must meet all licensing requirements

a producer who was to write a majority of his insurance business on the employees and officers of a restaurant owned by his wife is transacting

controlled business

circulation of a maliciously critical statement about an insurer's financial condition to damage the insurer's reputation or business is called

defamation

when an insurer terminated a producer's appointment, the insurer must notify...

the commissioner & producer

when appropriate, the commissioner reports a violation of insurance law to?

the district attorney

unfair discrimination (unfair competition & deceptive practices)

*illegal to: -make or permit unfair discrimination between ind. of same class & equal life expectancy in the rates, dividends, benefits, terms of contracts -b/w neighborhoods with same hazard -marital status or sex unless classification for purpose of insuring family units or is justified by actuarial stats -basis of blindness or physical disability -gender, medical history, occupation, living arrangements, beneficiaries, zip codes, to determine sexual orientation -adverse UW decisions based on AIDS, info from MIB -refuse to insure b/c has refused other policies -HIV test only if get consent/gives disclosure (failure results in $500-$5,000 fine or imprisonment 6-24 months

misrepresentation (unfair competition & deceptive practices)

-incorrect info on the app -expected to represent honestly their policies & policies against which they compete -illegal: --misrepresents the benefits, advantages, conditions, terms of policy --misrepresents dividends --false statements --misrepresent for purpose of inducing lapse, forfeiture, exchange, conversion, or surrender of any ins. policy -not misrepresentation to make a written comparison of policies that factually disclose relevant features & benefits to help a consumer make an informed decision

lapse notice requirement

-insurer must give a policyowner written notice before an individual life insurance policy will lapse due to nonpayment of premium -notice mailed or sent electronically at least 25 days before effective date of lapse -must state the reason why the policy will lapse -required notice doesn't apply to individual policies where premiums are paid monthly or more frequently

to be licensed to sell life, accident, and health ins. in CO, an applicant must complete

100 hours of prelicensing education

the usual free-look period for a life insurance policy that is not delivered as a replacement policy is how many days?

15

how many hours of continuing education must be in courses associated with the lines of insurance for which the producer is licensed?

18

a group life policy is incontestable (except for nonpayment of premium) once it has been in effect for

2 years

which is NOT a problem when existing life insurance is replaced with new coverage? A. the risk that a financial loss will occur when values in the existing policy end & new values are built in new coverage B. comprehensive coverage may increase under the new policy C. the new policy may be based on the insured's attained age, with higher premiums than existing coverage D. the policyowner may pay additional costs for the new policy to issue

B

which of the following potential insurance sales would be subject to replacement regulations? A. a new policy issued by the same insurer as part of a conversion privilege B. a new policy that causes an existing life ins. policy to be surrendered C. a credit life ins. policy that causes an existing credit life ins policy to be forfeited D. a new group life policy that is replacing an existing group life policy

B

in CO, all of the following are considered unfair trade practices except: A. misrepresentation B. rebating C. replacement D. coercion

C

suppose a producer helps a client set up an estate plan, which is not part of the producer's usual service. the producer can charge a fee for this service if all of the following circumstances are in place except: A. when it is clear from the beginning that no sale of an ins. product is related to the service B. when the client signs a disclosure statement which stipulates that he is not obligated to buy insurance from the producer in exchange for the service C. when the producer always planned to sell insurance to the client D. when the financial service is beyond the producer's normal duties

C

rebates (unfair competition & deceptive practices)

-practice of giving something of value to a prospective insurance applicant in exchange for the purchase of, or as an inducement to purchase a policy =unfair competition (bribe) *illegal: -offering a rebate of premiums -offering special favor/advantage in dividends or other benefits of policy not specified in policy -offering something of value not in policy -giving, selling, or purchasing any stocks, bonds, or securities as an inducement to purchase insurance -making/offering to make any contract of ins. other than as plainly expressed in the contract

a producer has how many days to file a written appeal to the commissioner after he has been terminated by his appointing insurer?

30 days

an insurer that terminates a producer's appointment must inform the commissioner within how many days?

30 days

a group life insurance policyholder must be given a grace period for premium payment of how many days?

31

controlled business (unfair competition & deceptive practices)

=insurance written in the licensee's own interests or the interests of his spouse or employer -deemed this if total premiums in 12-month period exceed total on all other business -commissioner will not grant or renew any license if he discovers it is being used to write controlled business

free look period/disclosure (CO statues, rules, & regulations)

-free look for life ins.= 15 days -free look for policy replacements= 30 days -right to return the policy within a certain amount of days to receive a full refund -disclosure statement= generic name of the annuity contract, company's product name if different from generic name, form number, face that contract is for an annuity, name, address, #, description of benefits, rates, explanation, summary, charges/fees, riders, value, etc. (buyers guide)

all of the following insurance practices are illegal in CO except: A. soliciting or procuring insurance without a license B. paying a fee for services as an ins. producer to anyone who is not properly licensed C. inquiring about an applicant's sexual orientation in connection with an app D. replacing one life policy with another

D

unfair trade practices (sales & marketing of life & annuities)

-a model act originally created by the National Association of Insurance Commissioners (NAIC) in 1940s to deal with the inappropriate use of advertising -expanded to include all major deceptive or unfair trade practices -$3,000/violation -$30,000 aggregate for violation -$30,000 insurer max/violation committed knowingly -$750,000 insurer max aggregate for knowingly -misrepresentation -rebating -coercion

insurable interest

-an individual may not secure a policy on the life of another unless the benefits are payable to the insured, the insured's estate, or an individual with insurable interest n the insured at the time of policy issuance

insurance commissioner

-appointed by & serves at the will of the governor -must be well versed in insurance & have no financial interest in any insurer or agency

coercion (unfair competition & deceptive practices)

-illegal to enter into any agreement to commit an act of boycott, coercion, or intimidation that results in unreasonable restraint or monopoly in the insurance business -no persuading someone -no requirement to obtain ins. policy with lending money -leasing, real estate loan, etc.

defamation (unfair competition & deceptive practices)

-making oral or written statements that are false, maliciously critical, or derogatory to the financial condition of an insurer or are intended to injure anyone in the ins. business -illegal -if engaging in, may be convicted of misdemeanor punishable by a fine up to $500, imprisonment for up to 12 months, or both

all of the following are duties of the commissioner except: A. keeping records of the insurers that he has examined B. adopting rules & regulations C. writing insurance laws D. submitting an annual report to the general assemply

C

group life (CO statues, rules, & regulations)

-often provided by employers for their employees -when employees are required to contribute to the cost of their insurance, deductibles may be made from their salaries -group has to exist for a reason other than to obtain insurance -policy provides that each person eligible for coverage is subject o uniformly applied standards of insurability *provisions -31 day grace period for premium payment -incontestability after 2 years -all statements deemed representations, not warranties, and a copy of the application must be attached to the policy when issued -adjustment of premiums made on misstatement of an insured's age -evidence of individual insurability must be specified if needed -any sum due upon insured's death is payable to the ben & if no bed, insurer may pay up to $5,000 to anyone who incurs verifiable funeral expenses *conversion rights: -each person insured under a group life policy receives an individual certificate specifying the protection provided by the policy & to whom benefits are payable -certificate must describe conversion benefits --covg. under group ends, insurer must issue without evidence of insurability, an individual life policy with first premium of ind. policy paid within 31 days of termination --group policy terminates ins. of any class & ind. has been insured for at least 5 years, entitled to an individual life policy --if insured dies under group policy during period would've had ind. policy, amount of ins. would've been entitles to is payable under the group policy

a fiduciary responsibility is defined as

a relationship of special trust and confidence when a person is entrusted with another's funds

the commissioner gives approval to an insurer to do business in CO in a certificate of

authority

prelicensing & continuing education (licensing & producers' legal responsibility)

*prelicensing education -50 hours life insurance -50 hours of certification course for accident & health -100 hours= life/health -at least 3 hours of course= ethics -50 hours of general ins. laws/regulations -minimum of 4 hours of course must be on CO insurance laws -certificate of completion from education provider (valid one year after course) -good standing with other state if completed in other state= exempt *CE: -all producers must complete 24 hours of approved CE instruction every two years -at least 18 hours in approved courses in the lines of ins. for which the producer is licensed -3 hours on ethics -can accumulate no more than 12 credit hours to apply to the next continuing education period if the courses are taken within final 120 days of the 24-month continuation period supporting documentation must be maintained by the producer for 5 years following license continuation & available for audit by the Division of Insurance

unfair claims practices (unfair competition & deceptive practices)

-CO law protects insurance consumers by clearly identifying certain illegal claim settlement practices *illegal: -misrepresenting provisions of coverage -failing to acknowledge or handle claims properly -failing to adopt fair standards for investigating claims -refusing to pay claims without conducting investigations -failing to affirm or deny coverage within a reasonable time after submission of proof of loss -failing to achieve a prompt & fair settlement after liability has become reasonable clear -compelling insureds to start litigation to recover on claims by offering substantially less than the amount ultimately recovered by legal action -failing to pay claims promptly under one portion to influence settlement under other portions -settling a claim for less than a reasonable person would believe off of ads -paying or denying a claim without a statement explaining the coverage or laws on which the payment or denial is based -publicizing a policy of appealing arbitration awards that are in favor of insureds -requiring preliminary claim reports to delay claim payment -raising comparative negligence as a defense in third-party claim w/out evidence -excluding medical benefits under health care coverage based solely on an individual's nonprofessional participation in skiing, snowboarding, etc. -failing to adopt standards to resolve medical payment claims promptly

colorado fraud statute (unfair competition & deceptive practices)

-a person commits a fraudulent insurance act if he knowingly & with intent to defraud prepares or presents a written statement for the issuance of the rating or for claim of payment which contains false info -state will fight insurance fraud b/c expensive, raises premiums, & places business at risk -when ins. co. obtains a judgment or settlement against an insurance producer in an insurance fraud lawsuit, it must notify the Colorado Division of Insurance within 60 days -person obtains settlement in insurance fraud lawsuit against a producer or insurer licensed by CO, may notify the state licensing board -every licensed ins. co. doing business in CO must prepare & follow an insurance anti-fraud plan & pay an annual tiered fee used to fund & prosecute investigations --have specific procedures --all apps have to have a warning about insurance fraud -attorney general & district attorney can investigate

suitability requirements (sales & marketing of life & annuities)

-annuity: suitability records must be kept on file with the insurer for 5 years --insurance producer must complete 4 credit hours of training --FINRA licensed *suitability info: -consumer's financial status -tax status -investment objectives -other relevant info *if recommending purchase of products, must believe it is suitable for the consumer on the basis of info obtained form them *procedures to assure the sales of these products are suitable for applicants *variable must state dollar amount of benefits will vary based on investment experience--first page of contract must contain a clear statement that benefits of the contract are on a variable basis *companies must mail annual statement to the contract holder at least once each contract year *illustrations must be prepared by insurer & must not include projections of past investment experience/attempt predictions of future investment

disclosures (sales & marketing of life & annuities)

-buyers guide & disclosure statement -app in person= delivered right there -app not in person= delivered no later than 5 business days after insurer receives the app -if not given to applicant by the time application is taken, applicant is entitled to a free-look period of at least 15 days (can return for full premium refund) -disclosure for illustrations (applicants should see or know they can request it) --must satisfy applicable requirements, labeled, & contain basic info (name of insurer, details of insured, UW classification, generic policy, initial DB, etc.

interest on proceeds (CO statues, rules, & regulations)

-insurers must pay interest on DB (at a rate that is not less than the rate of interest on proceeds left on deposit with the insurer and subject to withdrawal on demand for 30 days after the insurer receives a request for payout and proof of death) -from that date until the claim is settles, the annual interest rate will be 2% above the federal discount rate, rounded to the nearest full percentage -if the claim is denied & judgment is rendered against the insurer, the annual rate of interest from the date legal action is begun until the claim is paid will be 4% above the federal discount rate, unless the proceeds were left with a court in an interpleader action (to determine rightful ownership of funds) --other life policies accrue interest at rate of at least 2% above the federal discount rate when the benefits remain unpaid more than 30 days after the insurer receives the insured's request for payment --rule does not require insurer to pay interest on the proceeds when the ben chooses, in writing, to receive them by any means other than a lump-sum

hearings & penalties (insurance commissioner)

-commissioner may suspend an insurance agency's license if he finds, after a hearing, that any of the agency's partners, officers, or managers knew or should have known of an individual's licensee's violation & failed to report it to the Division of Insurance or take corrective action *hearings on unfair trade practices--hearing if believes any person has engaged in an unfair method of competition or act *cease & desist orders--may order after a hearing if determines person charged has engaged in unfair practice -$3,000/violation w/ max aggregate penalty of $30,000 -if insurer knew or should've known= $30,000/violation w/ max of $750,000/year -suspend/revoke license -insurer pay the claim if failure to do so *violation of cease & desist orders--any person who violates fined $10,000/violation (if an insurer) or up to $500/violation (if an individual), license revoked *emergency cease & desist orders--may issue this without holding a hearing if they believe... -an unauthorized person is engaged in insurance business w/out being licensed or is in violation of a rule passed by the commissioner -appears that the alleged conduct is fraudulent, creates an immediate danger to public safety, or is causing significant, imminent, & irreparable public injury -any person who is subject of emergency order can contest by requesting an immediate hearing w/ commissioner--if after commissioner determines an emergency cease & desist order has been violated, he may --impose a civil penalty of $25,000/violation --violator makes complete restitution to all that were damaged by actions --impose both a civil penalty & restitution -person fails to pay a penalty, commissioner may refer matter to attorney general for enforcement or revoke license

license suspension & revocation (insurance commissioner)

-commissioner may suspend, revoke, or refuse to continue, renew, or issue any license if, after notice to the licensee and a hearing, the commissioner determines that the licensee committed an illegal act -may impose a fine or order violator to pay restitution -made a false statement in license app -violated insurance law -obtained license through misrepresentation or fraud -improperly withheld, misused, or converted to own use money received that didn't belong to them -misrepresented terms of contract -convicted of a felony -committed an unfair trade practice -used fraudulent, coercive, or dishonest practice -acted incompetently, untrustworthy, or financially irresponsible -license suspended in another state -forged another person's name on app -failed to meet licensing requirements -cheated on licensing exam -knowingly accept insurance business from a person not licensed -failed to comply with court order -failed to pay state income tax *in addition to license denial, suspension, or revocation, a violator may be subject to a civil penalty of up to $3,000/violation *commissioner must notify applicant or National Association of Insurance Commissioners *reporting--producer or insurer must report to commissioner any administrative action taken against the producer within 30 days of the action *transaction of insurance defined= making, proposing, taking, receiving, delivering, issuing app for insurance contract

unauthorized entities (licensing & producers' legal responsibility)

-failure of a company transacting ins. business in CO to obtain a certificate of authority will not impair the validity of any act or contract of the company & will not prevent the company from defending itself in a court -unauthorized insurer fails to pay a claim/loss-any who assists or aids in the procurement of the insurance contract is also liable to the insured for the full amount of the claim or loss -anyone investigating or adjusting a loss or claim must immediately report to the commissioner any policy that has been issued by an insurer not authorized in CO -every insurance advisor must report to commissioner every insurance policy covering a risk in CO that has been issued by an insurer not authorized -doesn't apply to: --surplus lines, reinsurance, master group/blanket policy issued in another state, charitable gift annuities, limited sale of ins., preowned home warranty

persons required to be licensed (licensing & producers' legal responsibility)

-illegal for anyone to transact insurance (other than reinsurance or surplus lines insurance) for an insurer that is not authorized to do business in CO *insurance producer -person who solicits, negotiates, effects, procures, delivers, renews, continues, or binds: insurance policies for risks located in CO; membership in certain health care prepayment plans; or membership enrollment in certain health care plans -represent the insurer, not the insured *lines of authority--insurance producer must be qualified & licensed for whatever selling: -life, accident & health, variable life & annuities, property, casualty, etc. etc *variable contracts= must furnish evidence that registered with broker-dealer FINRA *general licensing qualifications: -must file app with commissioner, 18 years old, competent, trustworthy, good moral, resident of CO or a resident of a state that has a reciprocal agreement, not committed any act, fulfilled pre-licensing education requirement, passed the exam, paid license fee *assumed name= must register assumed name that conducts business under with commissioner *insurance agency--must obtain insurance producer's license to transact business in CO *nonresident licensing--may obtain nonresident producer licenses--good standing in home state, submit app/fee, file current status, verify thru NAIC database, change of address within 30 days *exception to license requirements: -any regular salaried employee of a licensed producer who performs only clerical/administrative services in the employer's office (Ex. IFP) -not paid commission -UW *fraternal benefit societies: -same requirements for licensing -no license if: not selling or receiving compensation from insurance sales -sold FA of $50,000 or less in the year, sold on behalf of 25 or fewer individuals, & received no compensation

payment & acceptance of commissions/fees (licensing & producers' legal responsibility)

-insurers & producers may not pay fees or commissions for services as an insurance producer to any person who was not properly licensed at the time -illegal for anyone to accept fees/commissions for services unless properly licensed -producers may not charge fees in addition to those included in their commissions for soliciting & procuring ins. or for servicing existing policyholders -may charge fees for specific services (such as financial/estate planning) that are beyond their normal duties if: client signs disclosure -must retain a copy of disclosure statements for at least 3 yrs after completion of services -copies of statements available to commissioner -may not condition the placement of insurance on the provision of other services for which fees may be charged

advertising (sales & marketing of life & annuities)

-must clearly & prominently describe the type of policy advertised "life insurance or annuity" & may not use terms: investment, deposit, profit sharing, savings plan, risk-free, private pension, etc. -insurer must keep copies of ads for 5 years after it was last used (license suspension if failure to do so) -truthful & can't mislead

replacement forms

-occurs when a new policy is written to take the place of a policy already in force -requires producers & insurers to follow strict replacement procedures & each insurer must inform its producers of the need to comply with these procedures -when policyowner interrupts one plan of life ins. & begins to build up values in another, might suffer financial loss --new policy often has a higher premium rate based on insured's attained age --the policyowner must again pay the initial costs of issuing a policy --replacement may be advisable, but every precaution must be taken to protect the consumer -CO replacement regulation governs the replacement of life ins. & annuities but not: --credit life ins --group life or annuities --under same insurer w/ a conditional or binding receipt --employee benefit or welfare plans --same insurer under guaranteed insurability --structured settlements --immediate annuities purchased with proceeds from existing contract --existing nonconvertible term *producer responsibilities: -determine if new policy is replacing an existing policy -submit to the insurer a statement signed by the applicant as to whether a transaction involves replacement of existing life or annuity --submit to insurer a signed statement as to whether the producer knows replacement is involved in the transaction -Notice Regarding Replacement--producer gives applicant --both producer & applicant must sign notice --producer must list on notice all existing policies to be replaced w/ name of insurer, insured, & contract number --leave copy with applicant & submit copy with app

records & requests for information (insurance commissioner)

-purpose of these regulations is to clarify the rules regarding retention, maintenance, and access of records as required by CO ins statues & regulations 1) every entity & person subject to CO ins. regulations must maintain books, records, documents, & other business records, including internal/external communications, in accordance w/ CO statues & regulations -operations/management -policyholder services -claims handling -rating & UW -advertising, marketing, sales -compliant/grievance handling -producer license -health entities keep records *records & data must be maintained for the current calendar year + 2 prior calendar years unless a longer time period is specified by any other applicable law *records maintained in form of paper, photograph, electronic--signed documents *requests for info: -except for division inquiries during a market conduct or financial examination, a complete & accurate response to any division inquiry must be within 20 calendar days from the date of the inquiry -during a market conduct or financial examination must be responded to w/in 10 days from date on form -failure to provide in a timely complete & accurate response to a division inquiry may result in $500 civil penalty for initial violation & max of $5,000 -complaint record= log of written communication primarily expressing a grievance--noncompliance with these= civil penalties and/or cease/desist orders & suspension of license

power & duties (Insurance commissioner)

1) maintaining records that insurers are required by law to file in the commissioner's office--statement of the condition of each insurer & annual report insurers are required to file each year by March 1st 2) require domestic insurers to keep adequate records so commissioner can verify annual statements & confirm company is solvent & complies w/ law 3) examining apps for licenses/certificates of authority & issuing or refusing them -certificate of authority= insurer's license to transact ins. business in CO (expires June 30th each year & renews annually) -company w/ certificate authority= authorized insurer -company w/out certificate= nonadmitted insurer 4) investigating violations of insurance laws & presenting to district attorney or attorney general 5) overseeing ins. business in CO to ensure with state law & best interest of the public 6) transmitting funds collected by the Division of Insurance to the state of Department of the Treasury 7) evaluating long-term care insurance policies to determine compliance with insurance law & providing written statement of results to insurers 8) overseeing operation of electronic data--uniform billing & health benefit coverages 9) adopting rules & regulations to carry out duties 10) determining whether rates are excessive, inadequate, or unfairly discriminatory 11) encouraging the fair treatment of health care providers 12) viewing health care system as a comprehensive entity & encouraging/directing health insurers to develop policies that advance welfare of public through overall efficiency, affordability, improved health care quality, and appropriate access *can't do it alone, so hires employees to help *examinations--formal financial examination of every insurer license in this state at least every 5 years *investigating possible violations-- insurers in unfair method of competition or deceptive act--has access to insurer's books -intentionally testifies falsely during an exam is guilty of a misdemeanor & fined $5,000, imprisoned for up to 3 months, or both -falsifies an insurer's books or documents with intent to deceive commissioner faces fine up to $5,000 and/or imprisonment 2-12 months *investigation by commissioner-- can investigate any insurer to determine if violating insurance laws/rules of state -insurer may need to appear at hearing -can get license revoked/suspended -civil fine of no more than $3,000 per violation

all of the following are examples of unfair claim settlement practices except: A. paying a claim without conducting an investigation B. denying a claim promptly but without explaining the covg. laws on which the denial is based C. paying a claim promptly without explaining the coverage or laws on which the payment is based D. denying a claim without making an investigation

A

all of the following are violations of CO insurance law except: A. charging ind. of the same class different premium rates B. offering tickets to a football game as an incentive to purchase a policy C. informing a new policyholder that his new policy, if lapsed for nonpayment of premium, could be reinstate upon reapplication D. having an arrangement to sell stock to a person contingent upon the purchase of an annuity

C

which of the following statements regarding the Notice Regarding Replacement of Life Insurance is correct? A. it is presented to the applicant only on request B. it must be presented to the applicant after the policy is issued C. a copy of the notice must be signed by the applicant & submitted with the app D. a copy of the notice must be reviewed & signed by both the policy applicant & benificiary

C

an insurance producer who solicits insurance on behalf of an insurer represents the

insurer