Life Insurance Law Portion Section II (9 Questions)
General Standards
Accelerated benefits may not be described or marketed as long-term care insurance.
Replacement of Life Insurance Definitions
Replacement of life insurance is any transaction whereby new life insurance is to be purchased and, as part of that transaction, existing life insurance is to be: lapsed or surrendered; converted into paid-up insurance or continued as extended term insurance; amended or reduced in face amount; reissued with any reduction in cash value; or pledged as collateral for a loan or subjected to borrowing more than 25% of the policy's existing cash value.
Grace Period
The insured is entitled 30 days during which a premium may be paid subject to the right of the company to charge interest at the rate of 6% per year
Life Solicitation
The life insurance solicitation regulation specifically requires that insurers deliver information to buyers that will help them select life insurance plans that are most appropriate for their needs and that will assist them in evaluating the relative costs of similar policies.
Buyer's Guide
A document that generally describes life insurance from a buyer's perspective. The Code defines the format these guides must follow. Insurers can use the NAIC Buyer's Guide as a substitute for the Buyer's Guide created by the Division of Insurance.
Agent Responsibilities
An agent must inform the prospective purchaser, before beginning a life insurance sales presentation, that he is acting as a life insurance agent and inform the prospective purchaser of the full name of the insurance company that he is representing to the buyer. In sales situations in which an agent is not involved, the insurer must identify its full name
Replacement Duties of the Producer
For every life insurance application, the producer must obtain a signed statement from the applicant indicating whether or not replacement is involved. In addition, the producer must also sign a similar statement revealing whether or not he knows replacement is involved in the transaction. When replacement is involved, the producer must: present to the applicant a copy of the Important Notice Regarding Replacement of Life Insurance and have it signed by the applicant; provide the applicant with copies of any sales proposals used; and submit to the replacing insurer a signed copy of the Important Notice Regarding Replacement of Life Insurance and copies of all sales proposals used.
Disclosure Requirements (including Buyer's Guide content)
Illinois's life insurance disclosure laws require all insurers to provide specific information to every applicant purchasing life insurance. The purpose of the requirement is to improve applicants' ability to select the most appropriate policies to meet their needs. A) Insurers must deliver two separate documents to the applicant: a Buyer's Guide and a Policy Summary. B) The Buyer's Guide must be presented before accepting the applicant's initial premium or premium deposit (in the case of direct response insurers, they must be delivered with or before the delivery of the policy). Insurers can use the NAIC Buyer's Guide as a substitute for the Buyer's Guide created by the Division of Insurance. C) The Policy Summary must be delivered with or before delivery of the policy (whether by a producer or a direct response insurer). D) On request, any prospective purchaser must be given a Buyer's Guide and Policy Summary. F) Failure to provide a Buyer's Guide or Policy Summary to prospective buyers constitutes an omission that misrepresents the benefits, advantages, and conditions or terms of a life insurance policy. G) This law requires that producers identify themselves and explain that they are soliciting life insurance on behalf of an insurance company (giving the full name of the company they represent). Terms such as financial planner, investment adviser, financial consultant, and so forth may not be used to imply that the producer is generally engaged in an advisory business in which compensation is unrelated to sales, unless that is true.
Duties of the replacing insurance company
In replacement cases, insurers must require their producers to comply with the replacement regulation and furnish applicants with a copy of the Buyer's Guide. A) Within three working days of receiving a replacement application, the replacing insurer must forward to the existing insurer the Notice Regarding Proposed Replacement of Life Insurance or Annuity. B) The replacing insurer must also delay issuing its policy for at least 20 days. C) The replacing insurer must deliver to the insured a statement that he has the right to an unconditional refund of all premiums paid within 20 days from the date of delivery. D) Each replacing insurer must maintain a file of replacement notices for at least three years
Replacement Regulations
The purpose of the replacement regulation is to regulate the activities of insurers and insurance producers with respect to the replacement of existing life insurance or annuities and to protect the interests of life insurance and annuity policyowners by establishing minimum standards of conduct to be observed in the replacement or proposed replacement of existing life insurance by: assuring that the policyowner receives information with which a decision can be made in his own best interest; and reducing the opportunity for misrepresentation and incomplete disclosures.
Settlement
When a policy becomes a claim on the death of the insured, settlement shall be made within 2 months after receipt by the insurer of proof of death. Interest shall accrue at a rate of 10% per year on any amounts retained by the insurer beyond 31 days before payment of the total amount due or the first installment payable if the beneficiary has requested installment payments
Duties When Recommending Purchase or Exchange
When recommending the purchase or exchange of a life insurance policy, a variable life insurance contract, or an annuity, the agent or insurer must have reasonable grounds to believe that the recommendation is suitable for the consumer on the basis of the facts disclosed by the consumer concerning his investments, other insurance products, financial circumstances, and financial objectives. To this end, the agent or insurer must make a reasonable effort to determine the consumer's: financial status; tax status; investment objectives; and such other information that should be considered when making recommendations to the consumer. However, the agent or insurer is excused from this requirement if the consumer: refuses to give the relevant information requested by the agent or insurer; decides to enter into an insurance transaction that is not based on a recommendation of the agent or insurer; or does not give complete or accurate information to the agent or insurer. An insurer is responsible for supervising its agents to ensure that they comply with these requirements. This includes maintaining written procedures for the agents to follow and periodically reviewing its records to detect and prevent violations of these requirements.
Policy Summary
a written statement (the Policy Summary must be printed in a separate document; for example, it may not be combined with the Buyer's Guide) describing the basic elements of the policy under consideration, including the: name and address of the insurance company and the producer; generic name of the policy; annual premium for the policy and each optional rider for the first five policy years plus other years, including a year between the insured's age 60 and 65 and/or (if earlier) the policy's maturity date; projected dividends through at least the 20th year (based on current dividend scale), with an accompanying statement saying that dividends are not guaranteed; and date of the Policy Summary's preparation.
Required Provisions of Life Insurance
Grace Period Settlement Free Look
Producer Annuity Training
1) An insurance producer who engages in the sale of annuity products shall complete a one-time, 4 HOUR credit training course approved by the Department prior to such activities. Completing substantially equivalent training in any other state shall satisfy this requirement. This training may be approved as a portion of the producer's biennial continuing education requirement. 2) Insurers are required to obtain and maintain records verifying producer compliance with this training requirement.
Qualifications for Payment of Accelerated Benefits
To qualify for early payment, the insured must either suffer from a terminal medical condition or have a qualified covered condition that requires skilled nursing care. A) If an accelerated benefit paid is less than the full face amount, the remaining (unpaid) face amount must be paid on the insured's death (i.e., it is non-forfeitable). B) A terminal illness is a medical condition that, in a licensed physician's opinion, would result in the insured's death within 24 months or any condition that requires continuous confinement in an eligible institution if the insured is expected to remain until death. C) A qualified covered condition includes a heart attack, stroke, coronary artery surgery, life threatening cancer, kidney failure, Alzheimer's disease, paraplegia, and major organ transplant that requires the insured to be confined to a skilled nursing facility with no expectation of recovery.
Free Look
During a period of 10 days after the policy has been delivered to the owner, it may be surrendered to the insurer and a refund of all premiums shall be made. In the event of a policy replacement, the owner shall be provided with a Notice regarding Replacement together with a 20-day free look regarding the new policy
Illustrations Statutes & Regulations
Insurance products and insurance companies that market life insurance products must help the consumer understand the proposed life insurance policy by using numerical illustrations. These illustrations are to describe the policy by numerically outlining the projected performance of the policy at the time of the sale or upon the purchase. Life insurance illustrations must include the following: Name of the insurer Name and address of insurance producer Name, age, and gender of proposed insured Rating classification Initial death benefit Life insurance illustrations may not: represent a policy as being anything other than life insurance; describe non-guaranteed elements in a confusing manner; or provide incomplete information to an applicant.
Advertising & Sales Regulations
1) The Insurance Code establishes minimum standards and guidelines to ensure full and truthful disclosure to the public of all material and relevant information in advertising life insurance policies and annuities contracts. An advertisement includes printed and published material, descriptive literature used in direct mail, newspapers, magazines, radio and television scripts, billboards, prepared sales talks and presentations, as well as other material used for recruiting, training, and educating sales personnel. The insurer is responsible for all such advertisements, regardless of who wrote, designed, or presented them. 2) Life insurance or annuity advertisements may not use the terms investment, investment plan, founder's plan, charter plan, profits, profit sharing, savings, savings plan, or other similar terms that might mislead purchasers into believing they would receive something other than a policy or benefit not available to others of the same class and age group. If words or phrases such as non-medical or no medical exam required are used where policy issue is not guaranteed, the advertisement must contain an explanation that issuance of the policy may depend on the answers to health questions.
VIATICAL SETTLEMENTS
A viatical settlement is a written agreement between a viatical settlement provider (a person, partnership, corporation, or other entity) and a person (viator) who owns or is insured by a life insurance policy and who has a catastrophic or life-threatening illness or condition. The agreement sets the terms under which the provider will compensate the policy owner, in an amount less than the expected death benefit, in exchange for the policy owner's assignment, sale, or other transfer of the policy's death benefit or ownership to the provider. No one may act as a settlement provider without a license to do so. An applicant must submit an application and fee to the Director of Insurance. Licenses can be renewed each year by application and payment of a renewal fee. A license will expire unless it is renewed.
ACCELERATED BENEFITS
Many life insurers now offer an accelerated benefits option, usually at no charge, either asa separate policy rider or as a provision in the policy itself. The accelerated benefit option allows for the early payment of a portion (or all, in some cases) of a life insurance policy's face amount. State law regulates accelerated benefit provisions in individual and group life insurance policies, contracts, riders, endorsements, or amendments, and sets standards of disclosure for the benefit of consumers. The law does not regulate long-term care policies, contracts, riders, endorsements, or amendments that are subject to the other provisions of the insurance code.
Required Training for Viatical Settlements
The Viatical Settlement Act provides regulation for viatical contracts issued by providers, brokers, and life insurance agents soliciting these contracts. Under this act, viatical settlement brokers are required to attend a one-time initial training course with ongoing continuing education of at least four hours over a 24-month period
