Section Two: Producer Responsibilities

Fraud

A deception deliberately practiced in order to secure unfair or unlawful gain.

Guaranty Association Disclosure

In most cases, it is prohibited for a producer to use a state's Association for the sale or solicitation of insurance.

Guaranteed/Fixed Cost Method

Many 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 may do this in other ways such as providing higher cash values 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. These are called currently illustrated basis cost comparison indexes.

Solicitations and Sales Presentations

1. A producer must state that he or she is a life insurance producer and provide the name of the company they represent, prior to commencing a life insurance sales presentation. 2. Terms such as estate planner, financial planner, investment advisory, financial consultant, or financial counselor must not be used in such a way as to imply that the insurance producer is generally engaged in an advisory business in which compensation is unrelated to sale unless true. 3. Any 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. The financial condition of the insurance company may not be misrepresented. 6. Presentations which do not recognize the time value of money through the use of appropriate interest adjustments must not be used for comparing the cost of two or more life insurance policies. 7. No analysis of a policy or the insurance company by a third party may be included without disclosing the payment made to the third party for its analysis. 8. A life insurance cost index that reflects dividends or an equivalent level annual dividend must be accompanied by a statement that it is based on the company's current dividend scale and is not guaranteed. 9. All sales proposals and sales presentations 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.

Advertising Regulations

1. Advertising, including the use of statistics and testimonials, cannot be misleading or deceptive. It must be truthful, clear, and complete. 2. Words or phrases which require familiarity with insurance terminology must not be used. 3. Regarding pre-existing conditions: a. An advertisement must disclose the extent to which a loss is not covered if the cause of loss is traceable back to a condition existing prior to the policy's effective date. b. If a policy does not cover losses traceable back to pre-existing conditions, no advertisement may state or imply that the issuance of the policy or the payment of a claim would not be affected by the applicant's physical condition or medical history; this limits the use of such phrases as "no medical examination required." 4. An advertisement may not directly or indirectly make unfair or incomplete comparisons of policies or benefits. Also, no advertisement of an insurer may falsely disparage competitors or their policies, services, or business methods. 5. It is illegal to make , publish, or circulate any advertisement or announcement containing any untrue, deceptive, or misleading representation or statement, with respect to the insurance business or any person in the insurance business. 6. An advertisement may not state or imply that a particular insurer or policy has been approved or endorsed by any governmental agency. Advertisements are also prohibited from using symbols, trademarks, or names similar to a government agency. 7. Any premium or benefit increases, decreases, or limitations must be prominently described. 8. The source of statistics must be clearly stated and the statistics must be current, correct, and appropriate for the policy involved. 9. Testimonials must be true and not taken out of context. 10. All advertisements must contain the insurer's name and the policy's form number. 11. Advertisements must not state or imply that prospective insureds become members of a group and are therefore entitled to special rates and privileges. 12. Advertisements are prohibited from claiming that a policy represents an initial, introductory, or special offer, unless such is the fact. 13. An insurer must maintain its advertisements on file for a period of four years. These files will be subject to periodic inspections by the Insurance Department.

Application Changes

1. Any changes made must be signed by both the applicant and the agent to signify that each is aware of the change. 2. The insurance cannot make any changes to the application once it's received UNLESS those changes are signed by the applicant. 3. Changes that are made to a policy before it is issued that are materially different must be explained to the applicant at the time of policy delivery and the policy owner's signature is required.

Parts of a Life Insurance Application

1. General Information 2. Medical Information 3. The agent's report.

Replacement Exemptions

1. Group life policies, including credit life and pension, profit sharing, group annuities, and other plans with tax-deductible premiums. 2. Variable life policies 3. Proposed policy changes with the same insurer; for example, 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.

Insurers Duties for Direct Response Replacement Sales

1. If a replacement is involved with a direct response sale, and a replacement is NOT PROPOSED by the insurer, the applicant must be sent a replacement notice by the insurer. 2. If the insurer PROPOSED the replacement, it must: a. Provide a replacement notice to applicants b. Request a list of all policies to be replaced c. Send written notice to each existing insurer advising them of the replacement, and a copy of the policy summary

Sales Disclosures

1. Medical Information Bureau information 2. Consumer reports 3. Medical record information 4. Insurance information practice disclosures 5. HIPAA (Health Insurance Portability & Accountability Act) information and authorization 6. HIV consent forms and information 7. Buyer's guides 8. Policy summaries

Things Insurers/Producers Must NOT Do

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

Signatures

1. This is required of all insureds on the application unless the insured is a minor child, in which case their parent/guardian's is required. 2. State laws usually require that all adults that are to be insured must put this on the application, and many companies require any child 15 or older to also put this on the application. 3. This must be the insured's own. An agent or another individual who does this with the other person's name on the application is guilty of forgery and possibly fraud.

Replacement Vioations

1. This occurs if an agent, broker, or insurer recommends the replacement or conservation of an existing policy through the use of a substantially inaccurate or incomplete presentation or comparison of an EXISTING CONTRACT'S: a. Premiums b. Benefits c. dividends d. values 2. Any comparison of a participating policy that does not include projected dividends based on the most recent dividend scale will be presumed to be INCOMPLETE. 3. If a policy owner purchases replacement policies from the same agent/broker, after indicating on applications that replacement is not involved, the pattern of action will be considered PRIMA FACIE evidence of the agent's or broker's knowledge that replacement was intended as well as of the agent's or broker's intent to violate replacement regulations. 4. The replacement of a life insurance policy or annuity that is transacted improperly will be considered: a. An unfair method of competition b. A deceptive practice

Illustrations

A presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years. Three Types. 1. Basic 2. Supplemental 3. In-Force

Basic Illustration

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

Illustration Requirements

An illustration must be clearly labeled "Life Insurance Illustration" and contain the following basic information: a. Name of insurer b. Name and business address of the producer or insurer's authorized representative, if any c. Name, age, and sex of proposed of insured, except when a composite illustration is permitted d. Underwriting or rating classification upon which the illustration is based. e. Generic name of the policy, the company product name, if different, and form number f. Initial death benefit g. dividend option election or application of non-guaranteed elements, if applicable.

Unfair Financial Planning Practices

An insurance producer, agent, broker, or consultant may NOT: 1. Present himself as a financial planner, investment adviser, or any 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 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.

Notice of Information Practices

An insurer or agent must provide a written notice of information practices to all applicants or policy holders which includes: 1. Whether personal information may be collected from persons other than the individual(s) proposed for coverage. 2. The types of personal information that may be collected and the types of investigative techniques that may be used 3. Disclosures allowed by law 4. A statement that information obtained from a report prepared by an insurance support organization may be retained by the preparer and disclosed to other persons 5. For insurance application, a notice must be provided no later than: a. At the time of policy delivery when personal information is collected only from the applicant or from public records b. At the time the collection of personal information is initiated when the information is from a source other than the applicant or public records. 6. For new policy renewals, notice must be provided no later than the policy renewal date. Exceptions are if: a. Personal information is collected only from the policy holder or from public records b. A legal and proper notice has been given within the previous 24 months. 7. For policy reinstatement or changes in insurance benefits, notice must be provided no later than the time a request for them is received by the insurance institution UNLESS personal information is collected only from the policy holder or public records.

Agent Duties

Each Insurer must: 1. Require from the agent or broker: a. A list of all the applicant's existing life insurance or annuities to be replaced, containing the name of the insurer, the insured, and the contract numbers b. A copy of the replacement notice provided to the applicant 2. Send written communication to each existing insurer advising of the proposed replacement within SEVEN working days of: a. The date the application is received in the replacing insurer's home office b. or the date the contract is issued, whichever is earlier 3. Require that the policy owner be furnished with a policy summary for the existing insurance by each: a. Existing insurer OR b. Insurer's agent or broker that undertakes a conservation

Incomplete Applications

If this happens, the policy may be held up and possibly declined if not returned within the prescribed time frame, as the insurer will return it to the applicant who will have to furnish further information, or initial areas that are correct.

Life and Health Guaranty Association (The Association)

Most states have this, which protects insureds against an insurer's inability to meet contractual obligations due to impairment or insolvency. They provide coverage for people with direct, non-group life, health, or annuity policies by: 1. Providing payment of covered claims under certain insurance policies 2. Avoiding excessive delays in payment 3. Minimizing financial loss to claimants 4. Assisting in the detection and prevention of insurer insolvencies 5. Providing an association to assess the cost of this protection among insurers All insurers, as a condition of their ability to write insurance, are required to be members of the Fund.

Representations

Statements of what an individual believes to be true. These are often made by the insured during the application process. The insured's false representation will not affect the insurance contract or policy UNLESS it affects the conditions under which the policy would be issued or not. It must be material to the risk. ALL STATEMENTS ON A LIFE INSURANCE APPLICATION ARE REPRESENTATIONS BUT NOT ALL ARE NECESSARILY WARRANTIES.

Cost Comparison Methods

The different formulas that insurance companies use to show prospects the cost of various insurance policies. Generally, a policy with smaller index numbers generally is a better buy than a similar policy with larger index numbers.

Disclosure of Insurance Information

The insurer must provide a buyer's guide AND a policy summary to all prospective buyers at least SEVEN DAYS BEFORE accepting the application's initial premium, unless the policy or policy summary contains an unconditional refund provision of at least ten days, in which case, they must be delivered with or prior to delivery of the policy. They must also be provided to any prospective purchaser upon request. If the policy's equivalent level death benefit is less than $5,000, then the requirement for providing a policy summary is satisfied by delivery of a written statement containing the appropriate information.

Replacement Regulation

The purpose of this is to protect the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to: 1. Assure that a purchaser receives information to make a decision in their own best interest 2. Reduce the opportunity for misrepresentation and incomplete disclosures 3. Establish penalties for failure to comply with the requirements

Direct-Response Sales

These are solicitations that take place: 1. Through the mail 2. By telephone 3. Via the the Internet 4. Through other mass communication media

Advertisement

This can be: 1. Printed material and descriptive literature produced by an insurer to be used in newspapers, magazines, radio and television scripts, billboards, and other publications and displays. 2. Sales aids of all types produced by an insurer for presentations to the public, including circulars, leaflets, booklets, illustrations, form letters, and others. 3. Prepared sales presentations and presentation material for use by agents, brokers, and other representatives of insurers.

Policy Summary

This includes: 1. Title: STATEMENT OF POLICY COST AND BENEFIT INFORMATION 2. Name and address of the insurance producer and name and home office address of the insurer 3. Generic name of the basic policy and each rider 4. Following amounts, where applicable: a. Annual premium for the basic policy b. Annual premium for each optional rider c. Guaranteed amount payable upon death d. Policy loan interest rate, if applicable e. Equivalent level annual dividend, if applicable 5. Date on which the policy summary is prepared

Buyer's Guide

This is a guide for consumers to help them make an informed life insurance purchase. The guide describes types of policies and information about replacement of policies, and has been recommended for use by the NAIC.

Existing Policy/Contract

This is an individual life policy or annuity contract in force, including policies/contracts within unconditional refund periods.

Conservation

This is any attempt by the existing insurer or its agent to dissuade a policy owner from replacing the existing life insurance or annuity. The agent must: 1. Keep a notice regarding the -replacement -the policy statement and any ledger statements used must be kept for THREE YEARS OR until the next regular examination by the Department 2. Offer the applicant the right to return the policy or contract within TWENTY DAYS of delivery and receive an unconditional full refund of all premiums or considerations paid.

In-Force Illustration

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

Supplemental Illustration

This is furnished in addition to a basic illustration that meets the applicable requirements and that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration.

Conditional Receipt

This is given to the applicant acknowledging that the insurance is in force from the date of the receipt (or medical exam if required), assuming the applicant is insurable at standard rates. This is replaced later with a permanent policy

Warranty

This is the guarantee given to the insured that specified conditions will be fulfilled in the contract. They can also be specific, guaranteed statements made by an insurance APPLICANT in answer to specific questions asked in the application. If untrue, these can constitute fraud.

Replacing Insurer

This is the insurance company that issues or proposes to issue a new policy or contract that replaces an existing policy or contract.

Existing Insurer

This is the insurance company whose policy will be changed or affected by the replacement

Company Retention Method

This method is a method in which the present value of premiums, cash values, and dividends is calculated by weighing each item each year by the probability that it will be paid.

Currently Illustrated Method

This method shows the company's current scale of dividends, premiums, or benefits. This 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-Adjusted Net Cost/Surrender Cost Index Method

This method weigh dividends and cash values according to how far into the future the various amounts are payable. Under this method, three amounts are calculated: the interest-adjusted cost, the interest-adjusted payment, and the equivalent level annual dividend.

Replacement

This refers to when a new policy or contract takes the place of an existing contract that is or will be: 1. Lapsed, forfeited, surrendered, or otherwise terminated. 2. Converted to reduced paid-up insurance, continued as an extended term, or otherwise reduced in value (benefits or term in coverage) 3. Reissued with an reduction in cash value. 4. Used in a financed purchase.