Life Insurance: Specific Life Law (9 questions)
Cash dividend
current illustrated dividend which can be applied toward payment of the gross premium
Policy Summary
written statements describing the elements of the policy including but not limited to: -statement of policy cost and benefit information must be prominently placed in the policy statement -name and address of the insurance agent -if no agent involved then a way to get an inquiry answered -full name of insurer and home office or administrative office in which the life insurance policy is to be or has been written -generic name of the basic policy and each rider -the following amounts for the first five policy years and representative years thereafter: annual premium for the basic policy annual premium for each rider guaranteed amount payable upon death total guaranteed cash surrender value or cash dividends payable at the end of the year guaranteed endowment amounts payable which are not included under guaranteed cash surrender values -effective policy loan annual percentage interest rate. if the rate is variable, the summary must include the maximum annual rate -life insurance code indexed for ten and twenty years -equivalent level annual dividend -statement that dividends are based on the company's current dividend and are not guaranteed -date prepared -policy summary must be a separate document -pre-need funeral contract or prearrangement
The following are covered by Life and Health insurance Guarantee Association:
-beneficiaries, assignees or payees of persons covered -persons who are owners of or certificate holders under covered policies or contracts and are residents of illinois non residents if insurers issuing these covered policies are domiciled in Illinois
Advertising Defined
-creates a public interest in life insurance; or -creates a public interest in the life insurance company -induces the public to purchase, increase, or change a policy.
Accelerated Benefits disclosure requirements; THE FOLLOWING ARE THE AGENT AND THE INSURER DISCLOSURE REQUIREMENTS:
deliver illustration demonstrating the effect of the accelerated benefit on the policy's cash value, accumulation amount, death benefit, premium, policy loans and policy liens agent must deliver illustration prior to or concurrently with the application if direct mail solicitations, insurer shall provide illustration at the time the policy is delivered if group insurance the disclosure form shall be contained as part of the certificate of insurance agent sold policy requires the producer to provide the disclosure form prior to or at the same time with the application. an acknowledgement shall be signed by the applicant and the agent direct sales insurers must deliver the form at the time of policy delivery with a notice that a full premium refund shall be made if the policy is returned within 30 days. an accelerated benefit tax consequences statement is required at the time of application for the policy, rider or certificate. when a policy owner requests an acceleration the insurer shall send a written statement to the policy owner and any irrevocable beneficiary which shows what effect the payments will have on the policy's cash value, face value, accumulation account, death benefit, premium, policy loans and policy liens administrative charges and expenses must be disclosed
Disclosure requirements and the buyer's guide
except in the case of direct response insurance product, the insurer shall provide to all prospective purchasers a BUYERS GUIDE prior to accepting the applicant's initial premium or premium deposit. For a direct insurance product, the buyer's guide must be delivered prior to delivery of a direct response policy A policy summary must be delivered with or prior to delivery of either an agent solicited policy or direct response policy a buyer's guide contains information to help a buyer decide how much life insurance should be purchased, what kind of life insurance policy is needed and compared the relative costs of similar life insurance policies.
The following is a summary of the buyer's guide with important things to remember for the buyer
first decision is choosing a policy whose benefits and premiums most clearly meet the buyer's needs and ability to pay. next, find a policy which is also a good buy comparing cost indexes listed in guide shopping for other plans by comparing indexed in the buyers guide helps buyer find a better buy than if they don't shop look for policies with lower cost index numbers a good life insurance agent can help the buyer choose the amount of life insurance dont buy insurance unless you intend to stick with it if a policy is surrendered during the early years the buyer may get little or nothing back and much of the premium may have been used for company expenses.
Delivery of illustrations
if illustrations used and policy is applied for, a copy of that illustration signed by the applicant or policy owner must be sent to the insurer revised illustrations will be sent with the policy and must be signed by the applicant or policy owner and insurance producer. if no illustration the producer shall certify that fact in writing on a form provided by the insurer if used at the time of application, basic illustration conforming to the policy as issued shall be sent with the policy and signed by the insurance producer and the policy owner no later than at the time the policy is delivered. a copy shall be provided to the insurer and the policy owner. if the basic illustration is sent by mail to the applicant it shall include instructions to sign and the duplicate copy of the numeric summary page and return the signed copy to the insurer which must be kept for a period of three years.
What is NOT considered life insurance ads?
internal communications not meant to induce the public to buy (ie, memo sent to insurance producers regarding a prospect mailer) Any communication with the public not meant to induce them to buy or to increase an interest.
Viatical Settlement
lets an insured who is terminally ill sell his insurance policy to a viatical settlement provider. the insured gets a cash payment from the settlement. however, the insured gives up ownership of the policy in return for the cash (which is less than the full amount of the death benefit) the viatical settlement provider becomes the owner of the policy, must pay any premiums that are due, and eventually collects the full amount of the death benefit from the insurance company.
Advertising dividends and other non-guaranteed elements
no implication that dividends are guaranteed, as they are not shall not state or imply that illustrated dividends can be sufficient without any further payments of premiums for a paid-up policy unless the advertisement clearly and precisely explains no statement that a purchaser of a policy will share earnings on the general assets of the company
Agent
same as an insurance producer
Other advertising rules
shall not state or imply that prospective insureds will be become members of special group that will enjoy special rates, dividends or underwriting unless such is the fact no unfair or incomplete comparisons of policies, benefits, dividends or rates of other insurers no false or unfair descriptions of other insurers
prior to execution of purchase or exchange the producer must obtain the following info:
the consumer's financial status the consumer's tax status the consumer's investment objectives such other info used or considered to be reasonable by the insurance producer in making recommendations to the consumer
Policy Replacement Rules: when replacement rules apply
when a new life insurance policy or annuity will be purchased and the agent knows that there is an existing policy that will be: lapsed, forfeited, surrendered or terminated converted to a reduced paid-up insurance policy, continued as extended term or reduced in value by the use of nonforfeiture benefits amended so as to effect a reduction in benefits or a reduction in the term of coverage reissued with any reduction in cash value pledged as collateral or subject to borrowing
Limits of guarantees under Life and Health insurance Guarantee Association protection
-300,000 in life insurance death benefits -100,000 max in net cash surrender and net cash withdrawal values for life insurance -300,000 in health insurance benefits, including any net cash surrender and net cash withdrawal -100,000 in the present value of annuity benefits
Exemptions to the life solicitation rules
-annuities -credit life insurance -group life insurance except for pre-need funeral services -franchise life insurance -pension and welfare plan insurance -variable life insurance
If any of the following specific qualified covered conditions exist an accelerated payment of up to
75% of the face amount of the policy may be made: -heart attack -stroke -coronary artery surgery -life threatening cancer -renal failure -alzheimer's disease -paraplegia -major organ transplantation -total and permanent disability
Pre-need funeral contract or prearrangement
An agreement by or for an individual before that individual's death relating to the purchase or provision of specific funeral or cemetery merchandise or services
Advertisement Disclosures
Cannot omit material info or use words which may mislead or deceive if using terms such as non-medical or no medical exam required, needs to be accompanied with disclosure wording stating that the policy issuance may depend upon the answers to the health questions Must use life insurance in the name or title of an ad direct marketers cannot state that there is a cost savings because an agent won't call you unless there truly is a cost savings. policies containing graded or modified benefits shall prominently display any limitation of benefits an advertisement for a policy with non-level premiums shall prominently describe the premium charges
Funeral or Prearrangement Contracts
Disclose that a life insurance policy is involved or used to fund a prearrangement disclose relationship of the soliciting producer to the provider of funeral services advertisement must state that the family or rep of the deceased has the right of change the choice of the prearranged provider of funeral services upon the demise of the insured. any excess of policy proceeds above prearranged cost of funeral services will be payable to a secondary beneficiary
Buyers Guide
Document which contains and explains insurance terms in plain english
Advertising and Testimonials
Must be genuine must represent the current opinion of the author and be applicable to the policy advertised all statements made become that of the insurer for responsibility purposes any person making a testimonial that has a financial interest or position with the insurer must make disclosure about it can't say a policy has been approved or endorsed by a group, society or association unless such is a fact any stated statistical information must be current and accurate
Annual Notice to Policy Owners
Policies in which illustrations are used require an annual report on the status of the policy -if an adverse change in non-guaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change will be prominently displayed.
Advertisements and Suitability
an advertisement shall not contain statements, pictures, or illustrations which are false or misleading
Replacement Rules Do NOT apply to:
credit life insurance group life insurance and group annuities life insurance policies issued in connection with a pension or pension plan registered contracts, however the appropriate prospectus or offering circular must be given to the applicant existing non-convertible term life expiring in five years or less or that can't be renewed transactions where the replacing insurer and the existing insurer are the same or a subsidiary. but note, agents proposing replacement shall comply with replacement rules total cash surrender value is less than 500 and the sum of the face amounts is less than 5000
In Force Illustration
furnished at any time after the policy has been in force for one year or more
replacing insurer
insurance companies that issue a new policy which is a replacement of existing life insurance or annuity
supplemental illustrations
must be accompanied by or preceded by a basic illustration and a statement referring to the basic illustration for guaranteed elements and other important information
The following advertising rules apply to life insurance:
must be truthful not misleading no deception cannot use any of the following terms in advertisement: -investment or investment plan -profit sharing -interest plan -savings or savings plan -no terms that would mislead a purchaser into believing that he is receiving something other than a policy.
Non-guaranteed elements
this would include all ove the above which are not guaranteed or not determined at issue
Guaranteed elements
this would include the following terms used in a life insurance policy that are guaranteed and determined at issue: -premiums -benefits -values -credits -charges
Powers of the Life and Health insurance Guarantee Association:
-guarantee or reinsure any covered policies of covered persons of the impaired insurer -loan money to the impaired insurer -guarantee, assume or reinsure the covered policies of covered person -assure payment of the contractual obligations of the insolvent insurer to covered persons ...for the purpose of providing the funds necessary to carry out the powers and duties of the Association, member insurers shall be assessed
Unfair Practices (Discrimination Prohibited)
No life company shall make or permit any distinction or discrimination in favor of individuals in the issuance of its policies, in the amount of payment of premiums or rates charged. No distinction or discrimination against individuals with handicaps or disabilities in the amount of payment of premiums or rates charged for policies of life insurance unless the rate differential is based on sound actuarial principles and a reasonable system of classification and related to actual reasonably anticipated experience directly associated with the handicap or disability no life company shall refuse to insure, or refuse to continue to insure or limit the amount or extent of coverage available to an individual or charge a different rate for the same coverage solely because of blindness or partial blindness no life company shall refuse to insure or to continue to insure an individual solely because of the individual's status as a member of the United States armed forces no discrimination based on an applicant's or insured's past lawful travel experiences
Introductory, initial or special offers and enrollment periods
all statements must be factual and true shall not state or imply that only a specific number of policies will be sold or a time period is fixed for availability if the initial premiums are advertised as a special deal or lower than renewal premiums full explanation must be made in the ad
Life and Health Insurance Guarantee Association
The purpose is to protect persons against failure in the performance of contractual obligations, under life or health insurance policies, annuity contracts and health or medical care service contracts due to the impairment or insolvency of the insurer
registered contract
any contract issued by a life insurance company which is registered with the Federal Securities and Exchange Commission
enrollment periods and advertising
for individual policies an enrollment shall not be offered unless there has been a lapse of not less than six months between the close of the immediately preceding enrollment period for the same policy must state the date the application must be mailed which cannot be less than ten days and not more than forty days following the date of the ad the term insurer includes all subsidiaries of the insurance company
Numeric Summary must follow the narrative summary showing:
numeric summary of the death benefits and values and premium outlay and contract premium policy guarantees insurer's illustrated scale used summary shall be shown for at least policy years 5, 10, and 20 and at age 70 for multiple life policies the summary shall show policy years 5, 10, 20, and 30
An insurance producer will not have an obligation to a consumer if a consumer:
refuses to provide relevant info decides to enter into an insurance transaction that is not based on recommendations from the insurance producer fails to provide complete or accurate info
Purpose for replacement rules
regulate activities of insurers and agents in respect to replacement policies protect the interests of life insurance and annuity policy owners by establishing minimum standards assures policy owners receive info in order to make a decision in his best interest reduces the opportunity for misrepresentation and incomplete disclosures.
Duties of replacing insurers (when rules apply)
require with each completed application a statement signed by the agent and the applicant whether or not such insurance will replace existing life insurance or an annuity replacing insurer shall require a copy of notice of replacement must furnish applicant a copy of the buyers guide forward within three business days after receipt of the application, the Notice to the existing insurer replacing insurer to keep at its home office for at least three years a copy of the notice whenever an agent is involved
Suitability in the Sale of Insurance/Annuities
suggesting the purchase of a product must be rooted in facts disclosed by consumer as to his investments and other insurance products and to his financial situation and needs insurers are responsible to supervise recommendations made by producers the director of insurance may order a producer to take reasonably appropriate corrective action for any consumer harmed by the insurance producer's violation of suitability rules any violation of the above shall be unfair trade practice and evidence of incompetence or untrustworthiness in the conduct of business (must have grounds to believe that the products is not unsuitable to recommend it) no recommendation shall be made by an insurance producer to an applicant to purchase a variable life insurance policy in the absence of reasonable grounds to believe that the purchase of the policy is not unsuitable for the applicant on the basis of information furnished
Narrative Summary should include a brief description of:
the policy being illustrated the premium outlay or contract premium policy features, riders or options, guaranteed or non-guaranteed and the impact they have on the benefits and values of the policy column headings and key terms
policy summary
written statement describing the elements of the policy
existing life insurance
life insurance or annuity in force
Accelerated Policy Benefits
these are amounts payable in advance of the time life insurance benefits would otherwise be payable because of a terminal illness or qualified coverage condition a terminal illness means a medical condition which, in the opinion of a licensed physician, would generally result in the insured's death within 24 months or any condition which requires continuous confinement in an eligible institution as defined by the contract if the insured is expected to remain there until death.
policy illustrations used or not used
those identified to the director of insurance by the insurer of policies that will contain illustrations (use illustrations) if identified as a policy that will NOT have an illustration, any use of an illustration for the policy if prohibited
An insured giving up his life insurance policy must be made aware of the following:
-at death the policy may not pay the insureds beneficiaries any death benefit -perhaps borrowing against the policy instead of a viatical settlement may be better -contact a personal tax advisor to determine if there may be tax implications on the sale of the life insurance policy -decide how payments from the life insurance policy will affect eligibility for programs such as Medicaid and supplemental social security income finally , be sure that the viatical settlement provider selected is licensed in Illinois.
Agent's Responsibilities (Dos and Don'ts)
Inform the prospective purchaser, prior to making the sales presentation, that the agent is acting as a life insurance agent Inform the buyer of the full name of the insurance company which the agent is representing shall not use terms such as financial planner, investment advisor or financial consultant, in such a way as to imply that the agent is generally engaged in an advisory business in which compensation is unrelated to sales unless such is actually the case. any reference to policy dividends must include a statement that dividends are not guaranteed cannot use a presentation which does not recognize the time value of money through the use of appropriate interest adjustments when comparing the cost of two or more life insurance policies a presentation of benefits shall not display guaranteed and non-guaranteed benefits as a single sum unless they are shown separately in close proximity to each other.
Illustration Standards
Must show date prepared number each page with total number of pages name of insurer name and address of producer underwriting or rating classification name, age, and sex of proposed insured initial death benefit assumed dated of payment receipt and benefit payout within a policy year shall be clearly identified if the age of the insured is shown as a component of the tabular detail it shall be issue age plus the number of years the policy is assumed to have been in force guaranteed death benefits and values available upon surrender shall be shown and clearly labeled "guaranteed" any non-guaranteed elements cannot be based on a scale more favorable to the policy owner assumed payments must be identified guaranteed elements shall be shown before corresponding non-guaranteed elements the value available upon surrender shall be identified by the name this value is given in the policy being illustrated policy benefits and values can be shown in graphic or char form in addition to the tabular form any illustration of non-guaranteed elements shall be accompanied by a statement indicating that: -the benefits and values are not guaranteed -assumptions on which they are based are subject to change by the insurer -actual results may be more or less favorable the use of dividends or policy values to pay all or a portion of any premium must be reflected in the illustration as well as the impact on future policy benefits and values
In order to provide protection under the Life and Health insurance Guarantee Association:
an association of insurers is created to enable the guaranty of payment of benefits and of continuation of coverage members of the association are subject to assessments to provide funds association is authorized to assist the director of insurance in the detection and prevention of insurer impairments or insolvencies
existing insurer
insurer whose policy is or will be changed or terminated
Agents must submit the following to the replacing insurer
statement signed by the applicant as to whether or not such insurance will replace existing life insurance or annuity and; a signed statement as to whether or not the agent knows replacement may be involved present to the applicant a notice regarding replacement of life insurance -agents signature must be affixed to this notice -a copy must be given to the applicant -notice must be sent to the replacing insurer with the application
Policy illustrations
the purpose of this requirement is to provide standards for both individual and group life insurance policy illustrations that will protect consumers and foster consumer education. illustrations provide guaranteed and non-guaranteed financial projections for a policy purchased or to be purchased.
Life Solicitation Rules (when soliciting insurance purchase) PURPOSE OF RULES
to give information to people buying life insurance that: -helps them select the plan that meets their needs -improves the buyer's understanding of the basic features of the policy which has been purchased -improves understanding of a policy considered -improves the ability of the buyer to evaluate the relative costs of similar plans of life insurance
Exceptions to the illustration rule (doesn't apply to the following)
variable life individual and group annuities credit life insurance life insurance policies with death benefits of 10,000 or less or illustrated death benefits less than 15,000
