Section 2 - Producer responsibilities

Buyer's guide

- Guide for consumers to make an informed life insurance purchase. -goes into details about types of policies and information about replacement of policies

policy cost comparison methods

Different formulas that insurance companies use to show prospects the cost of various insurance policies

Guaranty association disclosure

Produce can't use a state's Life and Health Guaranty Association for the sale or solicitation of insurance

In-force illustration

furnished at any time after the policy is issued and has been in force for one year or more

Supplemental Illustration

furnished in addition to a basic illustration that meets the applicable requirements and may be presented in a format differing from basic illustration

Illustrations

presentation that includes non-guaranteed elements of a policy of a life insurance over a period of years and is one of three types: basic, supplemental, in force

Guaranteed or Fixed cost method

- Policies provide benefits on a more favorable basis than the minimum guaranteed basis in the policy by paying dividends or by charging less than the maximum premium specified. - Or they can provide higher cash value or death benefits than the minimums guaranteed in the policy. - for these types of policies, the policy performance may be shown by using both guaranteed and current performance, called "currently illustrated basis cost comparison indexes"

Company retention method

- method in which the present value of premium, cash values, and dividends is calculated by weighting each item each year by the probability that it will be paid

Illustration requirements

- must be clearly labeled "life insurance illustration" and contain: 1. name of insurer 2. name and business address of producer or insurer's authorized representative 3. name, age and sex of proposed insured, except where composite illustration is permitted 4. underwriting or rating classification which the illustration is based 5. generic name of policy, company product name, if different, and form number 6. initial death benefit 7. dividend option election or application of non-guaranteed elements.

Life and health Guaranty association

- protects insureds against insurer's inability to meet contractual obligations because of impairment or insolvency - Provides coverage for people with direct, non-group life, health , or annuity policies by: 1. Providing pmt of covered claims under certain insurance policies 2. avoid excessive delays in payment 3. Minimize financial loss to claimants 4. assist in detection and prevention of insurer insolvency 5. provide an association to assess the cost of this protection among insurers

Currently illustrated method

- shows company's current scale of dividends, premiums or benefits. - Scale can be changed after the policy is issued, so that the actual dividends, premiums or benefits over the years can be higher or lower than those assumed in the indexes on the currently illustrated basis.

Interest-adjust net cost/surrender cost index method

- weights dividends and cash values according to how far into the future the various amounts are payable. - Three amounts are calculated: interest adjusted cost, interest adjusted pmt, and equivalent level annual dividend

Advertising regulations

1. Advertising can't be misleading or deceptive. Must be truthful, clear and complete 2. Words that require insurance terminology familiarity must not be used. 3. With pre existing conditions: - advertisement must disclose the extent the loss is not covered if the cause of loss is traceable back to a condition existing prior to policy's effective date -if it doesn't, no advertisement may state or imply that the issuance of the policy or payment of a claim would not be affected by applicant's physical condition or medical history; this limits the use of such phrases "no medical examination required" 4. may not directly or indirectly make unfair comparisons of policies or benefits. Advertisement of insurer can't disparage competitors 5. Illegal to publish advertisement containing any untrue, deceptive statements with respect to insurance business or any person in insurance business. 6. Can't state that a particular insurer or policy has been approved or endorsed by governmental agency. Can't use symbols, trademarks, or names similar to governmental agency 7. Any premium or benefit increase, decrease, or limitations must be described 8. Source of statistic must be stated and statistics must be current and correct for the policy involved 9. testimonials must be true 10. Must contain insurer's name and policy's form number 11. can't imply that prospective insureds become members of a group and are entitled to special rates and privileges 12. Can't claim that a policy is special offer unless it's a fact 13. insurer must maintain its advertisements on file for a period of four years. Files will be subject to periodic inspections by insurance department

Policy summary

1. Title (Statement of policy cost and benefit information) 2. name and address of insurance producer and name and home office address of the insurer 3. Generic name of the basic policy and rider 4. Following amounts: - annual premium for basic policy - annual premium for each optional rider - guaranteed amount payable upon death - policy loan interest rate (if applicable) - equivalent level annual dividend (if applicable) 5. Date on which policy summary is prepared

Replacement exemptions

1. group life policies, profit sharing, group annuities, and other plans with tax-deductible premiums 2. variable life policies 3. proposed policy changes with the same insurer; i.e. exercising a conversion option. 4. Life binders or conditional receipts with the same insurer 5. registered contracts, provided that the premium or contract contribution amounts and the prospectus or offering circular are furnished in place of a policy summary

Advertising

1. printed material and descriptive literature produced by insurer to be used in newspaper, magazines, radio, billboards and other displays 2. sales aids produced by an insurer for presentations to the public including circulars, leaflets, booklets, form letters and others. 3. prepared sales presentations for use by agents, brokers and other representatives of insurers.

Solicitation and sales presentations

1. producer must state they are a life insurance provider and provide name of company they represent prior to a life insurance sales presentation 2. terms such as financial planner or estate planner must not be used in a way to imply that the insurance producer is engaged in an advisory business in which compensation is unrelated to sale unless true 3. Reference to policy dividends must include a statement that dividends are not guaranteed 4. Benefits must not display guaranteed and non-guaranteed benefits as a single sum, unless they are also shown separately in close proximity 5. Financial condition of insurance company may not be misrepresented 6. Presentations that do not recognize time value of money through use of interest adjustments must not be used for comparing cost of two or more life insurance policies 7. No analysis of a policy by a third party may be included without disclosing the payment made to the third party for its analysis 8. Life insurance cost index that reflects dividends or an equivalent level annual dividend must be accompanied by a statement that is based on company's current dividend scale and is not guaranteed. 9. All sales proposals of individual life insurance products which fail to fully and fairly inform an applicant of future premium changes, benefits, and related options constitute a misrepresentation as to material facts

Insurer or producer must not do (illustration)

1. represent policy as anything other than life insurance 2. imply that payment or amount of non-guaranteed elements is guaranteed 3. use illustration that shows policy performance more favorable to the policyowner than that produced by illustrated scale of insurer 4. provide incomplete illustration 5. imply premium pmts aren't required for each year to maintain the illustrated death benefits unless true 6. Use the term "vanish" or "vanishing premium" or a similar term that implies the policy becomes paid up, to describe a plan for using a non-guaranteed elements to pay a portion of future premiums 7. illustration that is "lapse-supported" except for policies that can never develop non-forfeiture values 8. Use an illustration that is not "self-supporting"

Replacement

New policy or contract takes the place of an existing contract that is or will be: 1. lapsed, forfeited, surrendered, terminateed 2. converted to a reduced paid-up insurance, continued as extended term, reduced in value (benefits or term of coverage) 3. reissued with any reduction in cash value 4. used in a financed purchase Purpose of replacement regulation is to protect the interests of life insurance and annuity purchasers by establishing a minimum standards of conduct to: 1. Assure that a purchaser receives information to make a decision in their own best interest 2. Reduce opportunity for misrepresentation and incomplete disclosure 3. Establish penalities for failure to comply with the requirements

Unfair Financial Planning practices

Producer, agent, broker can not: 1. present them self as a financial planner, investment adviser, or other type of specialist engaged in the business of financial planning or giving financial advice if he or she is only certified to sell policies 2. do any kind of financial planning without disclosing to the client that he or she is also an insurance salesperson and that commissions for insurance sales will be received in addition to financial planning fees. 3. charge fees, other than commissions, for financial planning unless the fees are set down in a written agreement that is signed by the client and details the services rendered, the fee structure, and that the client is not obligated to purchase any products.

Basic illustration

proposal used in sale of life insurance policy that shows both guaranteed and non-guaranteed elements