Chapter 11 basics Texas statues and rules to LIFE INSURANCE ONLY

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. must submit a statement signed by applicant as to whether replacement is involved in the transaction, and must submit a signed statement as to whether the producer knows replacement is or may be involved

prohibited provisions

-certain limitations period- A life insurance policy may not include a provision that limits the time during which a lawsuit may be filed to a period of less than two years after the cause of action -retroactive issuance, exchange or conversion- A life insurance policy may not contain a provision under which the policy is issued on a date more than six months before the date of application if it causes the insured to rate at an age that is younger than the insured's age on the date of the application. if the policyholder consents, an issuer can exchange or convert a policy into another plan as of a date not earlier than the effective date of the original policy -settlement upon maturity- the life insurance policy may not contain a provision for a settlement at maturity that is less than the face amount of the policy plus the amount of any dividend additions to the policy minus any debt owed to the company and any premium that may be deducted. however, the policy may provide a settlement below the face amount of the policy if the insured dies by suicide, or death is caused by a hazardous occupation or as a result of aviation activities under certain conditions specified in the policy

individual life insurance policies issued or delivered in texas must also include the following provisions:

-free look- 15 days during which the applicant can return it for a full refund if dissatisfied. -grace period- 1 month grace period for payment of each premium during which the policy remains in force. if the insured dies during the grace period, the overdue premium will be deducted from any settlement made under the policy. -policy loans- a life insurance policy must allow the policy owner to take out a policy loan from the policy's cash value as long as the policy is in force, premiums have been paid for atleast 3 full years, and the policy is properly assigned.

specific insurance code regulations for advertisements of life policies include, but are not limited to,.......

-may not make any unfair or incomplete comparisons with other policies, rates, benefits, etc. -must use language that can be understood by general public -must identify the actual insurer before using trade names, insurance designations, etc -no combination of words or symbols similar to those of state or federal government agencies may be used if they could imply that the solicitation is connected with a government agency -may not contain false statements regarding payment, imply that claim settlements will be liberal, or generous or special treatment will be provided beyond policy terms -testimonials must be genuine, accurately reproduced and represent author's current opinion. if the person is compensated, must include paid endorsement

Nonforfeiture requirements do not apply to these following types of insurance products

-reinsurance -group insurance -pure endowment -annuities -most term policies -policies delivered outside of texas through an agent -any policy that does not provide for cash values or nonforfeiture values.

A life insurance policy must ensure the following

-that upon surrender of the policy no later than 60 days after the due date of the premium payment, the company will pay a cash surrender value if the premiums have been paid for at least three full years for ordinary life insurance policies or five years for industrial life insurance -that a specified paid up nonforfeiture benefit is effective as specified by the policy unless the eligible person elects a different option within 60 days after the due date of the premium -that upon surrender of the policy no later than 30 days after the policy anniversary, the company will pay a cash surrender value if the policy is paid up or continued under a paid up nonforfeiture benefit

policy provisions for TEXAS that must be in all life insurance policies issued in texas

-the policy, copy of application, and any attatched riders make up the entire contract -all statements of the insured are deemed representatives and NOT warranties -life insurance policies are incontestable after the policy has been in force for a period of 2 years. -in the case of a misstatement of an insured age, the policy will pay benefits based on what the premiums would have been if purchased at the insured's correct age. -a life insurance policy that has cash value must have a provision for the policyowner to borrow from those values. -any life insurance policy that has cash value must have a nonforfeiture provision. -life insurance policies require that the initial premium be paid in advance to effect coverage - a policy owner may request reinstatement of a lapsed policy within 3 years of such lapse by paying back the premiums, with interest, and proving insurability. -settlement of a death benefit must not be for less than the face amount of the policy. upon receipt of a written proof of death and the right of claimant to the proceeds, insurer must pay death claims within 2 months. -policy owner may assign the policy to another party without consent of the insurer.

Interest-Adjusted Net Cost Method

Considers the time value of money by applying an interest adjustment to yearly premiums and dividends. this means that each year premiums and dividends are figured, interest is taken into consideration. two versions of this are: surrender cost index and net payment cost index

Duties of the replacing insurance company

Require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant; and 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.

The following Provisions apply to termination and conversion of group life insurance policies in Texas

The eligible individuals who have been covered under a group policy for at least five years must apply for an individual policy and pay the first premium to the insurer within 31 days after the date the individuals membership in a group plan terminates The individual policy must be issued without evidence of insurability The insured has the right to select any individual policy offered by the insurer, except for term insurance The amount of the individual policy coverage cannot exceed the lesser amount of the prior group coverage or $2000 (The insured may a sign all rights and benefits under the policy to any individual or corporation if the individual insured dies during the conversion., The insurance beneficiary is entitled to the death benefit which will be paid by the group policy coverage and underwr and ethan Grill appli if insurance policy may be extended to the insured's spouse and eligible children)

illustration

a presentation or depiction that includes non guaranteed elements of a policy of individual or group life insurance over a period of years

the insurer whose policies are advertised are responsible for

all advertisements regardless of who wrote, created, presented, or distributed it.

replacement

any transaction in which new life insurance or a new annuity is purchased, the existing life insurance or annuity has been or will be any of the following: lapsed, forfeited, surrendered, terminated re-issued 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 used in a financed purchase

solicitation of insurance

attempt to persuade a person to buy a policy can be done orally or in writing includes providing information about available products, describing policy benefits, making recommendations about a specific policy, and trying to secure a contract between applicant and insurance company

duty of agents (during advertising)

before using an advertisement, an agent must file its contents with the home office of insurer, and receive written approval.

Nonforfeiture benefits

built into the policy and provide a guarantee that they cannot be forfeited (lost) by the policy owner. These guarantees are required by state law to be included in the policy. all policies must offer at least one of these options; reduced paid up, extended term, shortened benefit.

life insurance illustration regulation

establish standards for formats, content and disclosure of illustrations that will protect consumers and foster consumer education. must distinguish between guaranteed and projected amounts, and include: -values not guaranteed/ those values that are not guaranteed must be identified as such -not part of contract/ an illustration must clearly state that it is not a part of the insurance contract

Group policy provisions

include individual insurance such as two-year incontestability period And a 31 day graceperiod. in group insurance, if the insured participant miss stated his or her age, the insurer will adjust the premium and or the benefit to the correct age Group life insurance policies are prohibited from including any provision that reduces the time period during which an action may be started under the policy to less than two years. Insurance must be allowed to file a lawsuit under the policy within two years of a cause of action

duty of insurers (during advertising)

insurers marketing policies in Texas must maintain a system of control over the content, form, and method of dissemination of all advertisements on their policy. Each insurer is responsible for all advertisements prepared and approved by the insurer. No insurer may avoid responsibility for advertisements by directing anyone else to prepare or approve them

advertisement

must be accurate and not misrepresent the facts rules apply to any insurance advertisement intended for presentation, distribution, dissemination, or other advertising use when used or made.

general rules for illustration

must contain the following info: -name of insurer -name and business address of producer -name, age, sex, -underwriting upon which the illustration is based -generic name of policy, company product name, form number -initial death benefit -dividend option or application of nonguaranteed elements -illustration date -prominent label stating "life insurance illustration"

Group policies issued in the state of Texas

must cover at least two employees on the date of its issue. If the insured employees do not pay any part of the premium, the policy must ensure all eligible employees.

viatical statement

must disclose the following info: -how viatical statements operate -possible alternatives for persons with life threatening illnesses -the fact that this statement could be subject to claims of creditors -the fact that receipt of proceeds may adversely affect the recipient's eligibility for medicaid -tax consequences -consequences of interruption of assistance -the viator's right to rescind a settlement within 15 days of receiving the proceeds -the identity of any person who will receive any fee

replacing vs existing insurer

replacing insurer- company that issues the new policy. -existing insurer- company whose policy is being replaced.

Credit life insurance

special type of coverage written to ensure the life of the debtor and pay off the balance of a loan in the invent of death of the debtor. usually written as decreasing term insurance and it may be written as an individual policy or as a group plan The creditor is the owner and the beneficiary of the policy Credit life insurance cannot pay out more than the balance of the debt so that there is no financial incentive for the death of the insured. The creditors may require the debtor to have life insurance. They cannot require that the debtor buys insurance from a specific insurer

Comparative Interest Rate Method

the rate of return that must be earned on a "side fund" in a buy term invest the difference plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time the higher the CIR, the less expensive the higher premium policy

illustration prohibited practices

when using illustration in the sale of a life insurance policy, an insurer may not: -represent the policy as anything other than a life insurance policy -describe nonguaranteed elements in a manner that could be misleading -use an illustration that depicts policy's performance as being more favorable than it really is -provide an incomplete illustration -claim that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits unless that is the fact -use the term "vanish" or "vanishing premium" -use an illustration that is not self- supporting