Chapter 16: Pennsylvania Life Laws
Conversion from group to individual life insurance
-an insured is eligible to convert without proof of insurability for an amount of time specified in the policy -no matter how long this time period is, the insured must be given a notice at 15 days prior to the expiration date of conversion
The following must be included in a life insurance policy
-entire contract: policy plus signed application -right to examine (free look): individual policy is 10 days, replacing policy with same insurer is 45 days, replacing policy with different insurer is 20 days -payment of premiums: all premiums are payable in advance -grace period: 30 days or 1 month -reinstatement: 3 years -incontestability: 2 years from issue
Variable annuities state that no sale, exchange, or other transfer of assets may be made between separate accounts except when:
-establishing a separate account -conducting separate account business for a variable annuity or variable accumulation annuity contract -making changes for mortality experience or expense costs -transferring any amount in excess of the reserve liability held in the separate account
Standards for basic illustrations
-guaranteed death benefits and values must be shown and labeled "guaranteed" -any non-guaranteed elements may not be based on a scale more favorable to the policy owner that the insurer's illustrated scale and must be clearly defined "nonguaranteed" -guaranteed benefits must be shown before corresponding nonguaranteed elements -illustration of nonguaranteed elements must indicate the benefits and values are not guaranteed
Prior to or at the time of execution of the viatical settlement contract the provider must make available a witnessed, written document stating the following:
-the viator consents to the viatical settlement contract -the viator has a full and complete understanding of the viatical settlement contract and has a full and complete understanding of the benefits of the life insurance policy -the viator has entered into the viatical settlement contract freely and voluntarily -if applicable, the insured is terminally or chronically ill and said illness/condition was diagnosed after the life insurance policy was issued -the viator is of sound mind, under no constraint or undue influence
Replacement annuities have a free look period of...
-45 days with same insurer -20 days with different insurer
Producer responsibilities for advertising
-every insurer must maintain a file containing every advertisement it uses -must be kept for 4 years -certificate of compliance must be annually filed stating insurers are, to the best of their knowledge, following the advertising laws
Suitability is determined by information provided by the applicant regarding:
-insurance and investment objectives -financial stability and needs
Viaticated policy
a life insurance policy or certificate that has been acquired by a viatical settlement contract
Life insurance surrender comparison index disclosure
a life insurance surrender comparison index is given to a purchaser as a means for making cost comparisons of policies having the same premium payment period and pattern
Viatical settlement provider
a person other than a viator who enters into a viatical settlement contract
Testimonials
if a testimonial of a person with vested interest in the company is used, it must be prominently displayed in the advertisement
Deadline (viatical settlement)
if the proceeds are not given to the viator within the prescribed time limits, the viator may void the contract until such proceeds are paid and accepted
Disclosure of ownership transfer or beneficiary change
if the viatical settlement provider transfers ownership or changes the beneficiary of the policy, it must notify the insured within 20 days
Regulation of variable life insurance
insurers wanting to sell variable life insurance must first submit to the commissioner a written statement explaining their standards of suitability
A provider or broker must provide a viator with these disclosures in a viatical settlement application
-alternatives to viatical settlement contracts include accelerated death benefits or policy loans -some or all of the viatical settlement proceeds may be taxable, obtain a professional tax advisor's assistance -proceeds of the viatical settlement could be subject to creditor claims -proceed receipts may adversely affect the viator's eligibility for medicaid or other government benefits, obtain advice from the appropriate agency -the viator has the right to rescind the viatical settlement contract for 15 days after receipt to the proceeds, if the viator dies in that period the contract is considered rescinded -proceeds will be paid within 3 business days of when the viatical settlement provider has received notice that the policy has been transferred and the beneficiary designated -entering into a viatical settlement contract may cause various rights under the insurance contract to be forfeited, advice should be sought from a financial advisor -all medical, financial, or personal information obtained by a provider or broker may be disclosed as necessary, the viator must consent to the disclosure -all information provided by the viator will be shared with the insurer that issued the policy
Accelerated living benefit provision rider's conditions for payment:
-due to a medically determinable condition, the insured's life expectancy is expected to be 6 months or less (12 months if specified in the policy) -the insured suffers from a medical condition that would result in death in 6 months or less in the absence of treatment (12 months if specified in the policy) -a total and permanent disability prevents the insured from performing any work for pay or profit for a period of time up to 12 months -a disability prevents the insured from engaging in the duties of an occupation for a period of time up to 12 months -the insured is expected to remain confined to an eligible health care facility for their entire lifetime IN ALL CASES THE MAXIMUM TIME FOR AN ACCELERATED DEATH BENEFIT IS 12 MONTHS
Prohibited provisions of life insurance policies
-payment of claims: policy become a claim after death of insured and settlement must be made after proof of death is received -backdating: allowed up to 6 months -time for legal action: insured must be able to take legal action for at least 2 years (if not more)
Insurers or producers must not:
-represent the policy as anything but a life insurance policy -indicate that the payment or amount of non-guaranteed elements is guaranteed -use an illustration that at any point projects policy performance to be better than actual performance -use the term "vanish" or "vanishing premium" to imply that the policy becomes paid up using non-guaranteed elements as a portion of future premiums -use interest rates that are greater than the company's current earned interest rate in determining illustrated non-guaranteed elements
Punishments for unfair discrimination
-suspension or revocation of the license -refusal to issue a new license for up to 1 year -imposition of a penalty of up to $500 per violation
Standards of suitability must specify:
-that no recommendation can be made to an applicant to purchase a variable life insurance policy -that no variable life insurance policy can be issued if there are no reasonable grounds to believe that purchasing the policy is in the applicant's best interest
Viatical settlement providers must conspicuously disclose in the contract or separate document signed by the viator and provider...
-the affiliation between the provider and the issuer of the viaticated policy -the provider's name, address, and telephone number -if a joint policy, coverage on other lives may be lost, consult with the insurance producer or the insurer issuing the policy -the current death benefit dollar amount payable to the provider -the name, business address, and telephone number of the independent third party escrow agent -the viator or owner may inspect relevant documents
Life insurance disclosure statements must make clear:
-the amount of coverage and benefits offered -that the disclosure is for the insured's protection, provides basic information about costs and coverages, and should be read carefully -that the disclosure may not be considered as an offer to contract or to modify any policy or rider that might be issued -information about the basic policy, rider, or supplemental benefit built into the policy -the separate premiums for each basic policy and rider -if dividends are payable -that a surrender comparison index will be provided upon delivery of the policy
Recission (viatical settlement)
-viator has an unconditional right to rescind the contract for 30 days from the date of the contract and at least 15 days from when the proceeds are received -if the viator dies in this time period, the contract is considered rescinded and is carried out as the intended life insurance policy
Transfer of proceeds (viatical settlement)
-viator sends executed documents directly to an independent escrow agent -within 3 business days after the escrow agent receives the documents the settlement must be placed into an escrow or trust account -the escrow agent will send the executed documents to the settlement provider who will then instruct the escrow agent to pay the proceeds to the viator
Delivery receipt requirement
-when a producer hand delivers an individual life policy or annuity a delivery receipt is required, stating the date received -when delivered by a different method than hand delivery a mailing certificate is adequate proof of delivery
Notice to insurer (viatical settlement)
-within 20 days after a viatical agreement has been reached, the viatival settlement provider must give written notice to the insurer that issued the policy that policy has or will become viaticated policy -if the viator is terminally or chronically ill the notice must be accompanied by a written statement from the viator as required
Selection criteria and unfair discrimination
-unfair discrimination is prohibited -issuing an unfairly discriminated policy is a misdemeanor punishable by a fine up to $500
Viatical settlement broker
a person that negotiates viatical settlements between a viator and one or more viatical settlement providers
Illustrations
a producer may only use a life insurance or annuity illustration provided by an insurer
Viatical settlement
a terminally ill insured/owner selling his/her policy to a third party for less than the death benefit but more than the cash values in order to obtain funds when no other sources are readily available
Fiduciary responsibility of viatical settlement broker
a viatical settlement broker is deemed to: -represent the viator -act in the best interest of the viator -owe a fiduciary responsibility only to the viator
No person can act as a viatical settlement provider or broker without...
an appropriate license from the department of insurance which includes: -submission of an audited financial statement no older than 1 year and 120 days old -submission of an audited financial statement as of the end of the most recent quarter -the licensing fee (provider: $300; broker: $100)
Pennsylvania Life and Health Insurance Guaranty Association
cannot be used for advertisement purposes under any cicumstances
If the policy being viaticated has been in force less than 2 years the viator must...
consent in writing to let the policy's contestability period run until after the insurer has completed its good faith investigation regarding the validity of the insurance contract
Effects of divorce on designation of beneficiaries
court may order the continuation of beneficiary designations as stated in the policy when originally purchased
Health status (viatical settlement)
once the agreement is complete, the new policy owner may, only through the producer or broker, periodically check the health status of the viator: -once every 3 months if the life expectancy is more than 1 year -no more than once a month if the life expectancy is 1 year or less
Accelerated living benefit provision rider's effect on death benefit
policy must clearly state that the death benefit will be reduced if an accelerated benefit is paid and if the accelerated benefit is equal to 100% of the death benefit, the policy terminates
Suitability of annuities act
prior to the purchase or exchange of an annuity, the producer or insurer must make a reasonable effort to obtain information concerning all of the following: -the consumer's financial status -the consumer's tax status -the consumer's investment objectives records of information used in making recommendations that were the basis for transaction must be maintained for 5 years after the transaction is completed
Verification of coverage (viatical settlement)
- a provider or broker requests a verification of coverage from the insurer who issued the policy being viaticated -this request must be accompanied by a copy of the requried medical release, a copy of the viator's application for the settlement contract, and a copy of the notice required -insurer must complete and transmit the verification no later than 30 days after it's received -nothing can stop an insurer from contesting the validity of the policy on the grounds of fraud
Multiple viators
-if there are multiple viators on single policy and they reside in different states, the settlement is governed in the state of the viator with larger portion of ownership -if ownership is equal, the viators agree on which state will be used
Illustrations must contain the:
-insurer's name -date the illustration was prepared for the proposed insurance -name and business address of the producer -underwriting or rating classification which the illustration is based upon -generic name of policy and form number -initial death benefit -dividend option election, or application, of any applicable non-guaranteed elements
A basic illustration must include:
-a brief description of the policy being illustrated -a brief description of the premium outlay for the policy -a brief description of any policy features, riders, or options shown and the impact they may have on the benefits and values of the policy -identification and a brief definition of column headings and key terms
A provider or broker of a viatical must provide this to the viator
-a brochure describing the viatical settlement process -the compensation amount -the calculation method
Record retention
-a copy of an illustration used in the sale of life insurance must be signed and submitted to the insurer at the time of application -a copy must also be provided to the applicant -if a policy is issued other than applied for, a revised basic illustration must be sent -all must be retained by the insurer until 3 years after the policy is no longer in force
Separate accounts
-a domestic insurer issuing variable life insurance must establish one or more separate accounts -a person with access to the cash must be bonded for $100,000 -assets of separate accounts will be valued at least monthly
The viator must consent in writing to the release of their medical records to...
-a viatical settlement provider -a viatical settlement broker -the insurance company that issued the life insurance policy covering the life of the insured all records must remain confidential
