Florida 214 (book summary definitions ) FLORIDA INSURANCE LAWS (unit 18 & 19)

Free-Look Provision (Life Policies)

- A life policy owner has the right to review a new life insurance policy for a period of 14 days with the option to an unconditional refund if not fully satisfied.

Non-Participating Policy (Non-Par Policy)

- A policy issued by a company that does not share in its divisible surplus with its policyowners. These are commonly stock insurers.

Participating Policy (Par Policy)

- A policy issued through a mutual insurer in which policyowners share in the company's ownership and receive dividends of the divisible surplus of the company's profits.

Foreign Insurer

- Conducting insurance business in all states outside the state in which the insurance company is incorporated. If an insurance company that is incorporated in Texas and is conducting business in Florida, they are considered a foreign insurer in the state of Florida.

Domestic Insurer

- Conducting insurance business in the same state in which the insurance company is incorporated such as an insurance company that is incorporated in Florida and is conducting business within Florida.

Prospectus

- Considered as the primary source of information for a prospect, a prospectus contains information regarding the characteristics and purpose of the annuity plan, such as the separate account and risks involved.

Defamation

- Creating or circulating false, derogatory or malicious information regarding an insurer, whether oral, written or print.

Unauthorized Entities

- Does not hold a Certificate of Authority in the state in which it conducts business. An unauthorized insurer is often considered a fraudulent company whose goal is to take advantage of consumers, and even agents, in exchange for nonexistent insurance policies.

Spendthrift Clause

- This clause, found in most life insurance and annuity contracts, protects against a creditor's claims on any unpaid proceeds to a beneficiary. This clause does not apply to policy proceeds paid to the beneficiary in a lump-sum, but rather when proceeds are held in a trust by the insurer and paid through

Assignment of Policies

- This stipulation allows the policyowner to transfer their policy to another party, whether it is an individual, company, organization, etc. An assignment is filed with the insurance company, and all rights are transferred to the assignee named in the assignment.

Unfair Discrimination

- Unlawfully discriminating between individuals of the same class or insurance risk by charging different rates of premium, offering different benefits, or charging extra fees based on residence, race, religion, or national origin.

Appointments

A licensed agent cannot represent an insurer without being appointed by the insurer A licensed agent who is not acting as an agent of an insurer is not required to become appointed In the event an agent loses his or her appointment in a line of business through any means, the agent's qualifications for that portion of their license will expire if they do not obtain an appointment with either the same insurance carrier or another carrier that offers that same line of authority prior to the end of a 48 month period

Pre-Licensing Education Requirement

Completion of 40 credit hours of pre-licensing education (PLE) per line of authority (life insurance or health insurance) or 60 credit hours of pre-licensing education (PLE) for the combined life and health license, including passing a course final exam and receiving a course certificate of completion, is required to sit for the Florida insurance exam. Individuals who have attained the Chartered Life Underwriter (CLU) designation are exempt from examination. In addition, licensed non-resident producers applying for the same line of authority in Florida are exempt from licensing examination in Florida.

Florida Viatical Settlement Act

Regulates viatical settlement contracts and providers and prohibits any future viatical settlement licenses to be issued after 2005. As a result, only licensed life insurance agents may offer or attempt to negotiate on behalf of another individual in a viatical settlement contract.

Certificate of Insurance

- This certificate, received by each covered employee in a group policy, defines the employee's coverage.

Legal Reserve

- A company's legal reserve appears as a liability on its balance sheet and must hold a specific, minimum amount in its reserve account.

Universal Life Insurance Plans

- A type of permanent insurance that offers more flexibility, including more control over the cost of premiums as well as the ability to invest and earn interest on the policy's cash value. It offers flexible premiums and a flexible death benefit, allowing the holder to shift money between the insurance and savings components of the policy.

Accumulation Units

- Accumulation units consist of premiums paid and credited to the account after a deduction for expenses incurred.

Financial Services Commission

- Administers banking and securities regulation through the appointment of the Director of the Office of Financial Regulation and Securities Regulation. The Financial Services Commission is comprised of the Governor, the CFO, the Attorney General and the Commissioner of Agriculture

Commissioner of the Office of Insurance Regulation

- Administers insurance company regulation which includes licensing, rates, policy forms, market claims, conduct and Certificates of Authority and Solvency

Leeway Provision

- Also known as a Basket Provision, due to the investment limitations that are placed on an insurer to maintain the company's solvency, the Insurance Code allows for flexibility in the investment of the company's funds. This provision allows an insurance company to invest a certain percentage of admitted assets in loans or investments otherwise not authorized by law. These investments can only be made after satisfying the requirements of the Insurance Code, and must be in excess of the insurer's reserves.

Commission

- An agent's compensation for the transaction of an insurance policy is based on a certain percentage of an insured's premium. This percentage will vary depending on what type of insurance he or she offers as well as each carrier with whom the agent holds an appointment.

Free-Look Provision (Fixed and Variable Annuities)

- An annuity contract owner has the right to review a new fixed or variable annuity for a period of 21 days with the option to an unconditional refund if not fully satisfied.

Non-admitted

- An insurance company that is not licensed in a state for which it conducts business. Nonadmitted insurance companies do not fall under the jurisdiction of the Florida Office of Insurance Regulation with regard to financial solvency and marketing practices. Conversely, life and health insurance companies conducting business in the state of Florida must be licensed or Admitted.

Insurance Agencies

- Any business location at which an individual, firm, partnership, corporation, association, or other entity engages in any activity or employs individuals to engage in any activity which by law may be performed only by a licensed insurance agent. Insurance agencies must be licensed in conjunction with any individual that solicits and transacts for the agency.

Alien Insurer

- Any insurance company incorporated outside of the United States is considered an 'alien' insurer while conducting business within the U.S. and must follow federal and state insurance laws and regulations.

Grace Period for Individuals Age 64 and Older

- Any life insurance company that covers a natural person who is 64 years of age or older and whose policy has been in force for over 1 year, must provide a notification of impending lapse in coverage after the specified grace period, which allows at least 21 days beyond this grace period for payment of premiums before a policy can lapse for nonpayment. In addition, an insurer issuing a life insurance policy must notify the applicant of the right to designate a secondary address at the time of application for the policy. Notification of policy lapse and extension of premium payments does not apply to contracts where premiums are payable monthly or more frequently and are regularly collected by a licensed agent, paid by credit card or any pre-authorized check processing or automatic debit service of a financial institution. Essentially, the extended grace period applies to individuals 64 years of age or older who mail a check to the insurer.

Replacement

- Any transaction in which new life insurance is to be purchased, and it is known or should be known to the proposing agent or to the proposing insurer that by reason of such transaction, existing life insurance has been or is to be: Lapsed, forfeited, surrendered, or otherwise terminated; Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values; Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid; Reissued with any reduction in cash value; or Pledged as collateral or subjected to borrowing, whether in a single loan or under a schedule of borrowing over a period of time, for amounts in aggregate exceeding twenty-five percent (25%) of the loan value set forth in the policy.

Policy Loan Interest Rate

- Florida Insurance Code allows an insurer to charge a fixed rate up to 10% annual interest on any loan taken against the policy's cash values.

Annual Renewable Term (ART) or Yearly Renewable Term (YRT)

- Group life insurance is usually written as a one year renewable term plan that does not require medical examinations. In the event a group life insurance policy expires or is cancelled, the insurer is required to notify each certificate holder. The insurer may take such action through the policyholder, upon which time the policyholder must notify each certificate holder covered under the policy as soon as practicable.

Holocaust Victims Insurance Act

- Holocaust victims and their families receive appropriate assistance in the filing and payment of their rightful claims.

Rule for Conversion

- If an insured has multiple industrial life insurance policies issued by the same insurer with a combined face amount that exceeds $3,000, the owner has the option to merge and convert such policies into one ordinary (whole) life insurance policy through the same insurer, with no further evidence of insurability.

Group Participation Requirement

- In the state of Florida, there is no minimum number of members required for a group life insurance policy, as long as the organization is eligible for group life insurance.

Misrepresentation

- Lying to a customer regarding covered benefits or the terms of the policy, or guaranteeing insurance, including false or deceptive advertising as well as defamation of an insurer is grounds for license revocation. Promising dividend returns or company profits as an inducement to a sale is also prohibited.

Rejected Business (Excess Business)

- Occurs when an insurer with whom an agent is appointed rejects an individual application for insurance due to underwriting reasons, or if the amount of insurance is in excess of what the company is willing to write, the agent can then place the business with a company with whom he or she is not appointed.

Uniform Simultaneous Death Act of Florida

- Policy proceeds shall be distributed as if the insured had survived the beneficiary. If a common disaster clause is included in the policy and the primary beneficiary outlives the insured for a period of time specified in the contract, policy proceeds are then paid to any contingent beneficiaries named in the policy. If there are no contingent beneficiaries, proceeds are paid to the primary beneficiary's estate. This period is commonly 10 to 30 days after such event which resulted in the death of the insured.

Annuity Units

- The shares an annuitant owns in the variable annuity subaccounts. Although the number of annuity units will remain constant in the account, the value of an annuity unit will vary depending on the investment results on which the annuity is based. Two factors, the amount of annuity units and the dollar value of each unit, determine the annuitant's dollar income. If a stock or stocks in the portfolio increase, so shall the value of the annuity unit. If the stock or stocks decrease in value, so will the annuity unit.

Employee Retirement Income Security Act of 1974 (ERISA)

- Protects employee retirement plans by establishing rules that qualified plans must follow to ensure that plan fiduciaries do not misuse plan funds. The Act mandates plans to provide participating employees with important plan information regarding features and benefits, as well as funding. Qualified retirement plans that receive favorable tax treatment are subject to ERISA regulations, and such qualifications apply: Employers can deduct annual allowable contributions for each participant as an ordinary business expense Contributions and earnings on contributions are tax-deferred until withdrawn by a participant, often at retirement. This is beneficial since an individual is usually in a lower income tax bracket during retirement, so essentially they will be taxed less for contributions.

Consumer Privacy

- Pursuant to the Florida Insurance Code and in coordination with Gramm-Leach-Bliley Act of 1999 (GLBA), the treatment of non-public personal health information and nonpublic personal financial information about an individual must kept private by any agent, insurance company and financial institution that solicits and transacts insurance.

Chief Financial Officer (CFO)

- Serves as head of the Florida Department of Financial Services (FLDFS)

Advertising Insurance Policies

- The Florida Office of Insurance Regulation states that an insurance company must control the content, form and dissemination of all advertisements pertaining to the sales of insurance, with an emphasis on advertisement regulation for Medicare.

Churning

- The act of depleting the funds of one insurance policy to purchase another policy within the same company for no purpose other than to generate new commission for an agent or agency from an existing customer.

Sliding

- The act of: Representing to the applicant that a specific ancillary coverage or product is required by law in conjunction with the purchase of insurance is not; Representing to the applicant that a specific ancillary coverage or product is included in the policy applied for without an additional charge when such charge is required; or Charging an applicant for a specific ancillary coverage or product, in addition to the cost of the insurance coverage applied for, without the informed consent of the applicant.

Variable Universal Life Insurance

- The combination of universal life and variable life policies, which contains a varying degree of death benefits, cash values and premium payments. Because it is a variable product, it also includes a separate account for investments as just mentioned.

Coercion

- The entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion, or intimidation resulting in, or tending to result in, unreasonable restraint of, or monopoly in, the business of insurance.

Exclusion Ratio

- The formula that determines the ratio of taxable to nontaxable proceeds in an annuity payment. The exclusion ratio formula is simply the investment in the contract divided by the expected return. In short, it is the portion of annuity income that is "excluded" from being taxed since it is considered to be a return of investment.

Variable Life Insurance Plans

- The main purpose of variable life insurance is to help offset, or hedge, the effects of inflation on a policy's death proceeds. Life insurance policies that contain cash values, such as whole life policies, the insurer will guarantee a minimum rate of return, which is often a result of investing conservatively in government securities and investment-grade bonds (higher rated bonds). Separate accounts are used to allow a policyowner to deposit money and invest as he or she sees fit. As a result, the policyowner can direct funds towards investments that are considered more aggressive with the possibility of a greater return. However, with this option, it can leave the policyowner susceptible to risk in the event an investment falls short of expectations.

Twisting

- The misrepresentation made by an insurance agent to induce a policyowner to forfeit or change insurance from one company to another in order to gain commission for an agent or agency.

Protecting Policy Proceeds from Creditors

- The purpose of life insurance is to protect against the financial loss of an individual in the event of the insured's death and to pay policy proceeds to the beneficiary named in the policy. These proceeds are not subject to claims of the insured's creditors when a beneficiary is named. However, if no beneficiary is named and policy proceeds are paid to the insured's estate, these proceeds are then subject to the claims of the insured's creditors.

Controlled Business

- The selling life or health insurance contracts covering the agent him or herself or family members, officers, directors, stockholders, partners, or employees of a business in which he or she or a family member is engaged; or the debtors of a firm, association, or corporation of which he or she is an officer, director, stockholder, partner, or employee. An agent can write controlled business as long as it does not exceed the amount of business written on the general public.

Dollar Cost Averaging

- The systematic purchase of securities at regular intervals and at a fixed amount.

Vesting

- Vesting is defined as an employee's ownership in benefits or contributions accrued on behalf of the employee in a pension plan. Employees are always 100% vested in their own contributions, while vesting in employer-funded benefits are defined in the policy's contract.

Rebating in Florida

- While the practice of rebating is prohibited, Florida law provides for certain exceptions. As stated in Sec. 626.572 of the Florida Code, no insurance agency agent shall rebate any portion of a commission except as follows: -The rebate shall be available to all insureds in the same actuarial class -The rebate shall be in accordance with a rebating schedule filed by the agent with the insurer issuing the policy to which the rebate applies -The rebating schedule shall be uniformly applied in that all insureds who purchase the same policy through the agent for the same amount of insurance receive the same percentage rebate -Rebates shall not be given to an insured with respect to a policy purchased from an insurer that prohibits its agents from rebating commissions -The rebate schedule is prominently displayed in public view in the agent's place of doing business and a copy is available to insureds on request at no charge -The age, sex, place of residence, race, nationality, ethnic origin, marital status, or occupation of the insured or location of the risk is not utilized in determining the percentage of the rebate or whether a rebate is available -The insurance agency agent shall maintain a copy of all rebate schedules for the most recent 5 years and their effective dates. -No rebate shall be withheld or limited in amount based on factors which are unfairly discriminatory. No rebate shall be given which is not reflected on the rebate schedule. No rebate shall be refused or granted based upon the purchase or failure of the insured or applicant to purchase collateral business.

Fraud

- Wrongful or criminal deception intended to result in financial or personal gain. An example would be falsifying a proof of loss to an insurer in order to receive policy benefits.

Additional situations where the Chief Financial Officer can impose penalties:

-Any agent proven guilty of 'twisting' or 'churning' may be charged with a first degree misdemeanor, and is punishable by an administrative fine of $5,000 for each non-willful (unintentional) violation or $75,000 for each willful (intentional) violation. -An agent's failure to answer a subpoena or an order of the CFO can result in a $1,000 fine -Willfully submitting signatures on an application by an agent on behalf of an applicant is considered a third degree felony and is subject to $5,000 for each non-willful violation or $40,000 for each willful violation. -A willful act is a deliberate intent, while a non-willful act is not a deliberate intent

Incontestable Clause

-During a life insurance policy's contestable period, if an insurer finds that fraud or misrepresentation has occurred, they may demand the policy be returned and any premiums paid by the policyowner be refunded. A life insurance policy may only be contested within its first 2 years, starting on its inception date. Once this period has passed, an insurer cannot contest the policy's validity, even if fraud or misrepresentation did actually occur.

Solicitation

-Marketing to prospects -Explaining policy benefits or terms of coverage -Recommending insurance products -Completing order or applications for insurance contracts

Florida Insurance Code requires the following information to be displayed on every life insurance and annuity contract:

-Name of the company providing coverage -Name of agent soliciting the policy -Insurance license number of soliciting agent

Transaction

-Solicitation of an insurance policy -Negotiations towards the sale of an insurance policy -Implementation of an insurance policy

Penalties for Violating the Insurance Code

-The denial, suspension, revocation or refusal to renew an insurance license -Punishable for each violation as a second degree misdemeanor by a fine of not less than $500 nor more than $3,500 or by imprisonment for not more than 6 months or by both -Chief Financial Officer may also impose an administrative penalty of up to $50,000 in the event a cease and desist order is violated

Bonds

A debt investment in which an investor loans money to a company or governmental entity that borrows the funds for a specific period of time, and provides a fixed interest rate in return, usually semi-annually. Upon a bond's maturation date (varies depending on bond), the principal amount paid on the bond is returned to the investor.

Common Stock

A security (equity) that represents ownership in the company from which it was issued. When a company thrives, it stock value increases. When a company is in decline, its stock decreases.

Agent Licensing Requirements

Age 18 years of age or older A resident of the state of Florida Successfully complete the 40-hour (single line) or 60-hour (health and life combination) pre-licensing education requirements Complete a set of electronic fingerprints at one of the department's fingerprinting sites Pay the nonrefundable $111 license application fee Pass the state licensing exam Not committed an act that is a ground for denial, suspension, or revocation of an insurance license

Renewals and Continuing Education

Agents who have held their life or health insurance license for a period of less than 6 years are required to complete 24 credit hours of continuing education (CE) per renewal period in order for a license to be renewed. Agents who have held a license for 6 or more years must complete 20 credit hours of continuing education (CE) per renewal period in order for a license to be renewed. A renewal period, in which continuing education must be completed, is every 2 years ending on the last day of the agent's birth month A minimum of 5 hours of continuing education must be on the subject of ethics Agents may not repeat the same CE course within a two-year period If an individual agent does not complete his or her continuing education hours by the end of their compliance period, they will be assessed a $250 fine and will be required to complete any remaining continuing education hours

Agent (Producer) Responsibilities

An agent is restricted to the sales of insurance for which he or she holds a Florida license. An agent is required to maintain records of all insurance transactions for a period no less than 5 years to be reviewed by the CFO if requested. An agent must notify the Florida Department of Financial Services (FLDFS) within 30 days of any changes in a licensee's name, physical address, phone number or email contact information. Individuals are exempt from the 40-hour and 60-hour pre-licensing educational requirement if, within the four (4) year period prior to filing their application for a resident license, the applicant held a resident license in life and variable annuity and/or health insurance in another state that is willing to grant reciprocal treatment. A producer cannot place any insurance or receive compensation for transacting insurance beyond the scope of the producer's license. Each licensee shall advise the department in writing within 30 days after having been found guilty of or having pleaded guilty or 'no contest' to a felony or a crime punishable by imprisonment of 1 year or more under the laws of the United States, any state of the United States, or any other country, without regard to whether a judgment of conviction has been entered by the court having jurisdiction of such cases.

Agent's Duties Regarding Replacement of Life Insurance

At the time of application, or sooner, the agent must present the applicant with a "Notice to Applicant Regarding Replacement of Life Insurance," and must be signed by both the agent and applicant. The applicant keeps this notice for personal records Agent must leave copies of all sales proposals with the applicant Agent must submit to the replacing insurer a completed copy of the "Notice to Applicant Regarding Replacement of Life Insurance," as well as a copy of all sales proposals given to the applicant

Entities that Administer Florida Insurance Law

Chief Financial Officer (CFO) Financial Services Commission Commissioner of the Office of Insurance Regulation

Unauthorized entities acting as a licensed insurer in the state of Florida are subject to the following possible consequences:

Conviction of a first-degree felony Responsible for any unpaid claims Suspension or revocation of all insurance licenses

-In the event a licensed agent knowingly offers these products to consumers or aids an unauthorized insurer, the following consequences can occur to the agent:

Conviction of a third-degree felony Responsible for any unpaid claims by the unauthorized insurer Suspension or revocation of all insurance licenses held by the agent

Taxation of Capital Gains

During the Accumulation Period - No capital gains are taxed during this period. These gains are tax-deferred until the annuitant begins to receive payments. This benefits the annuitant because by the time he or she enters the annuity period and receives annuity payments, the annuitant is usually in a lower income tax bracket as a result of being retired, which means they are taxed less for any gains. During the Annuity Period - Any capital gains made on the policy are taxed as ordinary income.

Solicitation

Each insurer shall maintain at its home office or principal office a complete file containing one copy of each document authorized by the insurer. Such file shall contain one copy of each authorized form for a period of 3 years following the date of its last authorized use An agent shall inform the prospective purchaser, prior to commencing a life insurance sales presentation that he or she is acting as a life insurance agent and shall inform the prospective purchaser of the full name of the insurance company which the agent is representing Agents that solicit and sell life insurance products are regulated by the Chief Financial Officer through the power of the Florida Insurance Code. It is stated in the Insurance Code that no life insurance agent shall ever refer to themselves as or attempt to represent to a prospect that he or she is a "financial planner", "financial consultant", "financial counseling" or "financial advisor" Any reference to policy dividends must include a statement that dividends are not guaranteed If a replacement policy is proposed by any insurer to a prospective purchaser which would be issued in any rating class other than the most favorable rating class for a person of the same age and gender as the prospective purchaser, the replacing insurer shall provide to the prospective purchaser any disclosure and rate comparison required by law in insurance replacement transactions

General Powers of the Chief Financial Officer and the Office of Insurance Regulation

Enforcement of the Florida Insurance Code The powers and authority of the CFO may be expressed or implied in the Insurance Code At its own expense, the Office of Insurance Regulation may conduct any investigation of insurance matters expressed in the code, determine if a person has violated the code or obtain information to administer the code The authority to collect, propose, publish or disseminate information regarding the duties imposed upon it by the code -The Chief Financial Officer and Office of Insurance Regulation also has the power to examine the business affairs of any individual involved in the solicitation and sales of insurance products. These two entities are responsible for the regulation of any unfair trade practices being performed by unethical individuals. It is important to remember that the CFO is synonymous with the Florida Department of Financial Services (FLDFS).

Certificate of Authority

Florida insurance law requires all individuals transacting insurance business to acquire and maintain a Certificate of Authority, also known as a License. Anyone acting on the behalf of an insurer must hold a Florida insurance license. A licensed health and/or life agent in Florida is also known as an individual insurance Producer.

Suicide Clause

In the event the insured commits suicide after the policy becomes incontestable, policy proceeds are paid to the named beneficiary of the policy. However, if the insured commits suicide before the policy's contestable period ends, the beneficiary will not be paid the face amount of the insurance policy, but rather only premiums paid into the contract itself.

The following activities may result in the suspension or revocation of an insurance agent's license:

Material misstatement, misrepresentation, or fraud in obtaining an insurance license or appointment Willful misrepresentation of any insurance policy or annuity contract done either in person or by any form of dissemination of information or advertising Fraudulent or dishonest practices in the conduct of business under the license or appointment Unlawfully rebating, attempting to unlawfully rebate, or unlawfully dividing or offering to divide his or her commission with another Having obtained a license or appointment as agent for the sole purpose of soliciting or handling controlled business Willful failure to comply with, or willful violation of any rule of the Insurance Code Any fraudulent or dishonest practice Aiding or abetting an unauthorized insurer Twisting Churning Sliding

Churning

`- The practice whereby policy values in an existing life insurance policy or annuity contract, including, but not limited to, cash, loan values, or dividend values, and in any riders to that policy or contract, are directly or indirectly used to purchase another insurance policy or annuity contract with that same insurer for the purpose of earning additional premiums, fees, commissions, or other compensation: without an objectively reasonable basis for believing that the replacement or extraction will result in an actual and demonstrable benefit to the policyholder; in a fashion that is fraudulent, deceptive, or otherwise misleading or that involves a deceptive omission; when the applicant is not informed that the policy values including cash values, dividends, and other assets of the existing policy or contract will be reduced, forfeited, or used in the purchase of the replacing or additional policy or contract, if this is the case; or without informing the applicant that the replacing or additional policy or contract will not be a paid-up policy or that additional premiums will be due, if this is the case.