Chapter 8: Laws and Rules
Backdating
Policies cannot be backdated more than 6 months from the date of issue. The point of backdating a policy is to make it effective at an earlier date to preserve a slightly lower premium at that reduced age.
Exemption from Creditors
Proceeds from a life insurance policy are protected from any claims by a creditor of the insured as long as there is a named beneficiary.
Misrepresentation
It is an illegal practice to mislead or misrepresent any fact about an insurance policy- such as policy terms, benefits, value, cost, effective date, or existence of a contract of insurance.
Illegal Inducement
It is an illegal practice to offer anything of value (e.g. stocks, bonds, securities, property, dividends, profits, money), other than as explicitly stated in the policy, as an inducement to purchase a contract of insurance.
Rebating
It is illegal to offer a premium rebate or a special advantage of any kind to consumers as an inducement to purchase a contract of insurance.
Producer
An individual appointed by an insurance company that represents the company and presents policies on its behalf is called a producer.
Group Health Certificates
A group health certificate must contain a summary of policy features and benefits.
Policy Forms
It is illegal to use policy forms until they have been submitted to, and formally approved by, the Commissioner. Once submitted, the Commissioner has 30 days to approve or disapprove the policy forms.
Address Change
Licensees must report a change of address to the Insurance Department within 30 days.
Continuing Education
Producers must complete 24 hours of continuing education every two years in order to renew their licenses. In Pennsylvania, the Commissioner is responsible for Continuing Education (CE) course content approval.
Examination of Books and Records
The Commissioner may examine the business affairs, books, records, documents, and computer files of any producer to determine the producer's financial condition and whether the producer is abiding by insurance laws. The Commissioner must conduct a financial examination of each insurer licensed in Pennsylvania at least once every five years.
Commissioner
The primary duty of the Insurance Commissioner is to see that laws are properly executed and enforced. The Commissioner is appointed insurance by the governor to a four-year term.
Twisting
Twisting involves the deceptive act of inducing a policyowner to lapse, forfeit, or surrender a life insurance policy for the purpose of replacing it with another policy with a different company. This action is not in the insured's best interest.
Representations
If the application is made part of the policy, the policy shall contain a provision that the statements in the application, in the absence of fraud, are considered representations.
False Financial Statements
It is illegal to publish any false financial statement regarding a person or entity.
Personal Liability
The producer of an insurer can be personally liable for committing acts which are prohibited in the agency contract.
Cease and Desist Order
When the Commissioner believes a producer or entity has broken an insurance law, the Commissioner has the authority to issue a cease and desist order at a hearing. Any person or entity found to be in violation of an insurance law will be notified by the Insurance Department. The notice will specify the nature of the violation and a hearing date at least 10 days later.
Federal Estate Tax
A tax cost typically associated with death is the Federal estate tax.
Solvency
A life insurance company is financially impaired (insolvent) if does not have the minimum reserves, referred to as "net value," plus 50% company capital on hand. When this happens, the company is prohibited from issuing new policies until funds equal liabilities.
Shared Commissions
A producer may share a commission with another producer when the other producer is licensed in the same line of business.
Assumed Names
A producer must report to the Commissioner if he/she will be conducting business under an assumed name.
Entire Contract
A provision that the policy and the application shall constitute the entire contract between the parties
Incontestability
A provision that the policy terms shall be incontestable after it has been in force for a period of two years from its date of issue (unless the purpose for taking out the coverage was fraud). 1035 Exchange: When an existing life insurance policy is assigned to another insurer for a new contract, the transaction may be treated for tax purposes as 1035 Exchange.
Definition of Small Employer
A small employer is defined as one that employs between 2-50 employees.
Postnatal Care
According to Pennsylvania law, postnatal care must be delivered within 48 hours of discharge.
Controlled Businesses
Controlled business can be defined as policies written on people that the licensed producer has direct influence over: including family, employers, and/or any company to which the producer has stock control.
Rates
Insurance companies are required by law to charge premium rates that are not excessive, inadequate, or unfairly discriminatory. Insurers must file their rates with the Insurance Department. A rate filing is subject to a 30-day waiting period before it becomes effective.
Commissions and Fees
Insurers may pay commissions to producers. Unlicensed persons may not receive commissions, with the following exceptions: renewal or deferred commissions to retired producers, and referrals.
False Advertising
It is an illegal practice to falsely advertise insurance products or services in any way. This includes making false statements about the financial condition of an insurer.
Defamation
It is an illegal practice to make any public statement or advertisement that contains false information or unsubstantiated criticisms about an insurance company.
Fiduciary Responsibility
Producers have a fiduciary responsibility for all funds collected from clients. Producers must not mingle these funds with their own personal funds. However, producers are not required by law to open a separate bank account for such funds.