Washington Insurance Basics (Life)

Group life insurance: Grace Period

- A group policyholder is entitled to a grace period of 31 days to pay any premium after the first premium. - During the grace period, coverage remains in effect unless the policyholder has given written notice to the insurer that the policyholder wants to discontinue coverage.

Policy Settlements

- A life insurer may hold policy proceeds from the claims of creditors of beneficiaries. It will also pay interest on an unpaid death benefit, accruing from the date of the insured's death, of at least 8 percent - If the insurer has not tendered the death benefit to the beneficiary within 90 days of receiving proof of the insured's death, the insurer will pay additional interest of 3 percent (for a total rate of 11 percent).

Purchase or Exchange of Annuities: Entire Contract

- If a life or disability policy is reinstated or renewed, and the insured or the beneficiary asks the insurer in writing for a copy of the application, the insurer must deliver or mail a copy of the application within 15 days. Otherwise, the insurer cannot use the application as evidence in any action or proceeding involving the policy or its reinstatement or renewal.

In general, if the policyowner of a group life insurance plan pays the entire premium, how many eligible members must be covered under the plan?

100%

An insurance company has not paid the death benefit to the beneficiary despite having received proof of the insured's death four months ago. What is the total amount of interest that the company must pay on the overdue proceeds?

11%

After a life insurance policy is terminated, how long must an insurer keep a copy of an illustration that was used to sell the policy in Washington?

3 years

What is the maximum annual rate of interest that life insurers in Washington can charge on a policy loan?

8%

An insurer must provide a free-look period in which of the following individual life insurance policies?

A term life policy

Justine returns the life insurance policy she bought and received from Acme Life Insurance seven days before and requests a refund of the premium she paid. Acme receives the policy on June 1, but by August 1 it has still not honored Justine's request for the refund. Which of the following statements is correct?

Acme must pay interest in the amount of 10 percent of the refund.

Purchase or Exchange of Annuities: Incontestability

An insurer cannot contest the validity of a life insurance policy after it has been in force for two years since the date of its issue unless the policyowner has not paid the premium.

Group life insurance: Limitation of Liability

An insurer is not obligated to pay a benefit on a group life insurance policy if the insured dies as a result of: (1) war or act of war, declared or undeclared, service in the military or auxiliary services (2) suicide of the insured, whether sane or insane, within two years of the policy's issue date (3) aviation, as specified by the terms of the policy

Purchase or Exchange of Annuities: Limitation of Liability

An insurer is not obligated to pay a benefit under a life insurance policy if the insured dies as a result of: (1) war or act of war, declared or undeclared, (2)service in the military or auxiliary services suicide of the insured, whether sane or insane, within two years of the policy's issue date (3)aviation, as specified by the terms of the policy

group life insurance: Insurability

An insurer may require a person eligible for insurance to provide evidence of insurability before the insurer extends coverage. If so, the insurer must specify the conditions under which it can require such evidence.

Scott receives his new life insurance policy on April 1. On April 7, he decides to return the policy. Which of the following statements is true?

He can return the policy for any reason and get a full refund of the premium.

Life Insurance Policy Illustrations

If a producer uses a basic illustration to sell a life insurance policy, he or she must send a copy of the illustration to the insurer with the policy application. The applicant is also entitled to a copy. If the producer did not use an illustration to sell the policy, he or she must attest to that in writing to the insurer. -The insurer will keep a copy of a basic illustration used to sell a policy for three years after the policy is no longer in force.

Purchase or Exchange of Annuities: Misstatement of Age

If the age of the insured has been misstated to the insurer, any amount that is paid under the policy will be adjusted to reflect what the premium would have purchased at the insured's correct age.

Group life insurance; Representations in the Contract

If the policyholder submitted an application for the insurance, a copy of the application must be attached to the policy and treated as part of the contract.

Disclosure: Exemptions

The disclosure requirements pertaining to the advertisement of life insurance policies do not apply to the following types of policies: -annuities -credit life insurance -group life insurance provided entirely by the insured's employer or an association of which -the insured is a member -policies that fund employee pensions or welfare benefit plans subject to ERISA -variable life insurance

Group life insurance: Certificates of Coverage

The insurer will issue the policy to the group policyholder. It will also provide the policyholder with certificates of insurance that the policyholder must deliver to each member of the insured group.

Group life insurance - eligible groups: other groups

The policy can insure association employees, members or their employees. Beneficiaries under the policy must be persons other than the association or its officers or trustees.

Purchase or Exchange of Annuities

The producer forms this basis by collecting information about the client's: - financial status -tax status -investment objectives -other information relevant to the producer's recommendation -- the producer has to be in the client's best interest

A producer is not required to deliver which of the following documents to a policyowner who buys a life insurance policy that replaces another?

certificate of authority

Which of the following is not a potential result of a life insurance policy replacement?

coverage of a different type of risk

Alpha Insurance Co. replaces a life insurance policy that was issued by Beta Insurance Co. seven years ago. How long must each insurance company maintain records of the transaction?

three years or until the next department examination

When must an insurer provide a policy summary to a buyer of a life insurance policy?

when or before the policy is delivered

Group life insurance: Incontestability

- Except for nonpayment of the premium, an insurer cannot contest the validity of a policy after the policy has been in force for two years after the date it was issued.

Policy Loans

- After an individual life insurance policy has been in force for three years, the insured may take a loan from the policy in an amount up to the cash surrender value - An insurer can defer a policy loan for up to six months, unless the insured is using the loan to pay premiums on the policy. - Interest on policy loans generally cannot exceed 8 percent per year, though an insurer can adjust the rate of interest as the law permits.

Purchase or Exchange of Annuities: Minimum Nonforfeiture Amounts

- When determining the minimum values of a paid-up annuity, cash surrender, or death benefit available under an annuity, the insurer is required to base the values on minimum nonforfeiture amounts specified by statute. - As specified in the contract no more than 15 months before the contract issue date, the interest rate to determine the minimum nonforfeiture amount must be an annual rate of interest that is between 1 and 3 percent per year, based on the five-year constant maturity treasury rate reported by the Federal Reserve.

Disclosure: Definitions

Policy summary includes: -the policy's cost and benefits -the name and address of the producer or the insurer's contact information -the full name and home office information of the insurer -the generic name of the policy and every rider -the guaranteed annual premium for the policy and every rider -the total death benefit -the cash surrender value -the annual interest rate on policy loans -cost comparison indexes for 10 and 20 years, but not beyond the premium paying period

Marketing Methods and Practices: Replacement

Replacement of life insurance or annuities is a transaction in which a new life insurance or annuity contract is being purchased while another life insurance policy or annuity already in existence, by reason of the purchase, has been or will be: - lapsed, forfeited, surrendered, or otherwise terminated - converted to reduced paid-up insurance - continued as extended term insurance - reduced in value by the use of nonforfeiture benefits or other policy values - changed to reduce benefits or the term of coverage - reissued with a reduced cash value - used as collateral or subjected to borrowing for an amount that exceeds 25 percent of the policy's loan value

Marketing Methods and Practices: Replacement - Exemptions

The replacement regulations do not apply to the following insurance or annuity products: - credit life insurance - group life insurance or group annuities -applications made to existing insurers -conversion privileges when exercised - replacement of a policy through the same -insurer that issued it - policies that fund employee pensions or welfare benefit plans subject to ERISA - employer-sponsored retirement plans -deferred compensation plans -life insurance or annuities provided entirely by --the insured's employer or an association of which the insured is a member -immediate annuity contracts

Disclosure: Purpose

The state compels insurers to disclose certain information to buyers of life insurance policies, with the intent of improving a buyer's ability to: (1) choose the most appropriate life insurance policy for the buyer's needs; (2) improve the buyer's understanding of the policy's basic features; and (3) improve the buyer's ability to evaluate the relative costs of similar life insurance policies.

For how long must an insurer keep a copy of a disclosure document it uses when selling life insurance policies in Washington?

at least three years after the document is last used

Which of the following actions by a life insurance company involves conservation?

dissuading an insured from replacing an annuity contract

Which of the following groups of persons would be eligible for coverage under a group life insurance policy

employees of a large company

What is the maximum amount of time that an insurer can defer a policyowner's request to take a loan from his or her life insurance policy?

six months

Washington's disclosure requirements pertaining to the advertisement of life insurance policies apply to which of the following?

term life insurance

Group life insurance - eligible groups: Employee Groups

- All employees of the employer are eligible for coverage, as well as employees of subsidiaries and business partners if they are under the same ownership. Retired employees may also be included. An employee group policy must pay at least two employees when it is issued. - The employer pays the entire premium, contributes to the premium payment with employees, or the employees pay the entire premium. - If the employer pays the entire premium, all eligible employees must be insured except for those who cannot provide satisfactory evidence of insurability.

Group life insurance - eligible groups: Spouses and Dependent Children

- An employer's group life insurance policy can extend coverage to an insured employee's spouse and dependent children. - A spouse insured in this manner shares the conversion rights of the insured employee.

Purchase or Exchange of Annuities: Grace Period

- An insurance contract cannot be used as evidence in any action concerning the contract, unless a verified copy of the application was included with the policy when it was first issued and delivered.

Disclosure: Requirements

- An insurer is required to provide a Buyer's Guide and a policy summary to every prospective applicant upon request. - If the life insurance policy does not include a free-look period of at least ten days during which time the insured can return the policy for a full and unconditional refund of any premiums paid, the insurer must deliver the policy summary before the policy.

Group life insurance: Payment of Proceeds

- An insurer of a group life insurance policy becomes obligated to pay the death benefit when an insured group member dies. The benefit must be paid no more than 30 days after the insurer has received proof of the insured's death. - if no pay in time, the insurer must also pay interest on the proceeds until the payment is made. The interest charged will be at the rate that the insurer pays on other withdrawable policy proceeds left with the insurer, or 8 percent, whichever is greater. - If the insurer has not paid the benefit within 90 days of receiving proof of the insured's death, the insurer will be charged additional interest at the rate of 3 percent.

Marketing Methods and Practices: Replacement - Duties of Producers and Insurers

- If replacement is involved, the producer is required to give the applicant no later than at the time of application a Notice Regarding Replacement form - producer is also required to list all life insurance policies or annuity contracts that would be replaced by the new policy or contract and will identify the name of the insurer, the insured or annuitant, and the new policy or contract. - Within 20 days of receiving notice of a pending replacement, an existing insurer that wants to conserve a policy or annuity must give the policyowner a policy summary for the existing life insurance policy or a ledger statement of policy data for the existing policy or annuity

Group life insurance - eligible groups: Public Employees

- The association must have no less than 75% of the employees eligible for insurance when the policy is placed in force - policy must cover at least 25 individuals

Group life insurance - eligible groups: Labor Unions

- The premium for the policy must be paid by the labor union, either wholly from the union's funds or partly from union funds and partly from funds contributed by the insured members specifically for their insurance. - The policy must cover at least 25 members on the date the policy is issued.

Group life insurance: Conversion

- There must be a provision that if the insurance on an individual covered under the policy (other than a child insured), ends because of termination of employment or of membership in the class eligible for coverage under the policy, that the individual is entitled to have an individual policy of life insurance without disability or other supplementary benefits issued to him or her, provided that the application for the policy is made and the first premium paid to the insurer within 31 days after the termination date. - The individual policy, which excludes term insurance, must not exceed the amount of life insurance that ceased due to termination nor be less than $1,000, unless a smaller amount of coverage was provided for that individual.

Marketing Methods and Practices: Replacement - Purpose of Regulations

- rules regarding the replacement of life insurance policies and annuities is intended to protect consumers by setting minimum standards of conduct that insurers and producers must follow in any transaction involving replacement. - ensuring that buyers of life insurance and annuities receive enough information to allow them to make informed decisions about their purchases; - reducing the opportunity for misrepresentation and incomplete disclosures; and - setting penalties for those who fail to comply with the regulations.

Return of Policy and Refund of Premium

-A policyowner is entitled to a ten-day free-look period after the insurer delivers the policy. - If after examining the policy the policyowner is unsatisfied with it for any reason, he or she can return it to the insurer or producer for a full and unconditional refund of any premiums paid. - if insurer no refund in 30 days, they have to add a 10% on top of it - The free-look period does not apply to individual life insurance policies issued: (1)in connection with a credit transaction (2)under a contractual policy change (3) due to the exercise of a conversion privilege.

When must an insurer provide a Buyer's Guide to a prospective applicant for a life insurance policy?

upon request but before accepting the application or premium