Transcription

NAIC Model Laws, Regulations, Guidelines and Other Resources—2nd Quarter 2015LIFE INSURANCE AND ANNUITIES REPLACEMENT MODEL REGULATIONTable of ContentsSection 1.Section 2.Section 3.Section 4.Section 5.Section 6.Section 7.Section 8.Section 9.Section 10.Appendix A.Appendix B.Appendix C.Purpose and ScopeDefinitionsDuties of ProducersDuties of Insurers that Use ProducersDuties of Replacing Insurers that Use ProducersDuties of the Existing InsurerDuties of Insurers with Respect to Direct Response SolicitationsViolations and PenaltiesSeverabilityEffective DateImportant Notice Regarding ReplacementsNotice Regarding Replacements for Direct Response InsurersImportant Notice Regarding Replacements for Direct Response InsurersSection 1.Purpose and ScopeA.B.The purpose of this regulation is:(1)To regulate the activities of insurers and producers with respect to the replacement of existing lifeinsurance and annuities.(2)To protect the interests of life insurance and annuity purchasers by establishing minimumstandards of conduct to be observed in replacement or financed purchase transactions. It will:(a)Assure that purchasers receive information with which a decision can be made in his orher own best interest;(b)Reduce the opportunity for misrepresentation and incomplete disclosure; and(c)Establish penalties for failure to comply with requirements of this regulation.Unless otherwise specifically included, this regulation shall not apply to transactions involving:(1)Credit life insurance;(2)Group life insurance or group annuities where there is no direct solicitation of individuals by aninsurance producer. Direct solicitation shall not include any group meeting held by an insuranceproducer solely for the purpose of educating or enrolling individuals or, when initiated by anindividual member of the group, assisting with the selection of investment options offered by asingle insurer in connection with enrolling that individual. Group life insurance or group annuitycertificates marketed through direct response solicitation shall be subject to the provisions ofSection 7;(3)Group life insurance and annuities used to fund prearranged funeral contracts;(4)An application to the existing insurer that issued the existing policy or contract when a contractualchange or a conversion privilege is being exercised; or, when the existing policy or contract isbeing replaced by the same insurer pursuant to a program filed with and approved by thecommissioner; or, when a term conversion privilege is exercised among corporate affiliates;(5)Proposed life insurance that is to replace life insurance under a binding or conditional receiptissued by the same company; 2015 National Association of Insurance Commissioners613-1

Life Insurance and Annuities Replacement Model Regulation(6)C.Section 2.613-2(a)Policies or contracts used to fund (i) an employee pension or welfare benefit plan that iscovered by the Employee Retirement and Income Security Act (ERISA); (ii) a plandescribed by Sections 401(a), 401(k) or 403(b) of the Internal Revenue Code, where theplan, for purposes of ERISA, is established or maintained by an employer; (iii) agovernmental or church plan defined in Section 414, a governmental or church welfarebenefit plan, or a deferred compensation plan of a state or local government or taxexempt organization under Section 457 of the Internal Revenue Code; or (iv) anonqualified deferred compensation arrangement established or maintained by anemployer or plan sponsor.(b)Notwithstanding Subparagraph (a), this regulation shall apply to policies or contractsused to fund any plan or arrangement that is funded solely by contributions an employeeelects to make, whether on a pre-tax or after-tax basis, and where the insurer has beennotified that plan participants may choose from among two (2) or more insurers and thereis a direct solicitation of an individual employee by an insurance producer for thepurchase of a contract or policy. As used in this subsection, direct solicitation shall notinclude any group meeting held by an insurance producer solely for the purpose ofeducating individuals about the plan or arrangement or enrolling individuals in the planor arrangement or, when initiated by an individual employee, assisting with the selectionof investment options offered by a single insurer in connection with enrolling thatindividual employee;(7)Where new coverage is provided under a life insurance policy or contract and the cost is bornewholly by the insured’s employer or by an association of which the insured is a member;(8)Existing life insurance that is a non-convertible term life insurance policy that will expire in five(5) years or less and cannot be renewed;(9)Immediate annuities that are purchased with proceeds from an existing contract. Immediateannuities purchased with proceeds from an existing policy are not exempted from the requirementsof this regulation; or(10)Structured settlements.Registered contracts shall be exempt from the requirements of Sections 5A(2) and 6B with respect to theprovision of illustrations or policy summaries; however, premium or contract contribution amounts andidentification of the appropriate prospectus or offering circular shall be required instead.DefinitionsA.“Direct-response solicitation” means a solicitation through a sponsoring or endorsing entity or individuallysolely through mails, telephone, the Internet or other mass communication media.B.“Existing insurer” means the insurance company whose policy or contract is or will be changed or affectedin a manner described within the definition of “replacement.”C.“Existing policy or contract” means an individual life insurance policy (policy) or annuity contract(contract) in force, including a policy under a binding or conditional receipt or a policy or contract that iswithin an unconditional refund period.D.“Financed purchase” means the purchase of a new policy involving the actual or intended use of fundsobtained by the withdrawal or surrender of, or by borrowing from values of an existing policy to pay all orpart of any premium due on the new policy. For purposes of a regulatory review of an individualtransaction only, if a withdrawal, surrender or borrowing involving the policy values of an existing policyis used to pay premiums on a new policy owned by the same policyholder and issued by the same companywithin four (4) months before or thirteen (13) months after the effective date of the new policy, it will bedeemed prima facie evidence of the policyholder’s intent to finance the purchase of the new policy withexisting policy values. This prima facie standard is not intended to increase or decrease the monitoringobligations contained in Section 4A(5) of this regulation. 2015 National Association of Insurance Commissioners

NAIC Model Laws, Regulations, Guidelines and Other Resources—2nd Quarter 2015E.“Illustration” means a presentation or depiction that includes non-guaranteed elements of a policy of lifeinsurance over a period of years as defined in [insert reference to state law equivalent to the NAIC LifeInsurance Illustrations Model Regulation].F.“Policy summary,” for the purposes of this regulation;(1)For policies or contracts other than universal life policies, means a written statement regarding apolicy or contract which shall contain to the extent applicable, but need not be limited to, thefollowing information: current death benefit; annual contract premium; current cash surrendervalue; current dividend; application of current dividend; and amount of outstanding loan.(2)For universal life policies, means a written statement that shall contain at least the followinginformation: the beginning and end date of the current report period; the policy value at the end ofthe previous report period and at the end of the current report period; the total amounts that havebeen credited or debited to the policy value during the current report period, identifying each bytype (e.g., interest, mortality, expense and riders); the current death benefit at the end of thecurrent report period on each life covered by the policy; the net cash surrender value of the policyas of the end of the current report period; and the amount of outstanding loans, if any, as of the endof the current report period.G.“Producer,” for the purpose of this regulation, shall be defined to include agents, brokers and producers.H.“Replacing insurer” means the insurance company that issues or proposes to issue a new policy or contractthat replaces an existing policy or contract or is a financed purchase.I.“Registered contract” means an annuity contract or life insurance policy subject to the prospectus deliveryrequirements of the Securities Act of 1933.Drafting Note: Registered contracts include, but are not limited to, contingent deferred annuities.J.K.Section 3.A.“Replacement” means a transaction in which a new policy or contract is to be purchased, and it is known orshould be known to the proposing producer, or to the proposing insurer if there is no producer, that byreason of the transaction, an existing policy or contract has been or is to be:(1)Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer orotherwise terminated;(2)Converted to reduced paid-up insurance, continued as extended term insurance, or otherwisereduced in value by the use of nonforfeiture benefits or other policy values;(3)Amended so as to effect either a reduction in benefits or in the term for which coverage wouldotherwise remain in force or for which benefits would be paid;(4)Reissued with any reduction in cash value; or(5)Used in a financed purchase.“Sales material” means a sales illustration and any other written, printed or electronically presentedinformation created, or completed or provided by the company or producer and used in the presentation tothe policy or contract owner related to the policy or contract purchased.Duties of ProducersA producer who initiates an application shall submit to the insurer, with or as part of the application, astatement signed by both the applicant and the producer as to whether the applicant has existing policies orcontracts. If the answer is “no,” the producer’s duties with respect to replacement are complete. 2015 National Association of Insurance Commissioners613-3

Life Insurance and Annuities Replacement Model RegulationB.If the applicant answered “yes” to the question regarding existing coverage referred to in Subsection A, theproducer shall present and read to the applicant, not later than at the time of taking the application, a noticeregarding replacements in the form as described in Appendix A or other substantially similar formapproved by the commissioner. However, no approval shall be required when amendments to the notice arelimited to the omission of references not applicable to the product being sold or replaced. The notice shallbe signed by both the applicant and the producer attesting that the notice has been read aloud by theproducer or that the applicant did not wish the notice to be read aloud (in which case the producer need nothave read the notice aloud) and left with the applicant.C.The notice shall list all life insurance policies or annuities proposed to be replaced, properly identified byname of insurer, the insured or annuitant, and policy or contract number if available; and shall include astatement as to whether each policy or contract will be replaced or whether a policy will be used as a sourceof financing for the new policy or contract. If a policy or contract number has not been issued by theexisting insurer, alternative identification, such as an application or receipt number, shall be listed.D.In connection with a replacement transaction the producer shall leave with the applicant at the time anapplication for a new policy or contract is completed the original or a copy of all sales material. Withrespect to electronically presented sales material, it shall be provided to the policy or contract owner inprinted form no later than at the time of policy or contract delivery.E.Except as provided in Section 5C, in connection with a replacement transaction the producer shall submit tothe insurer to which an application for a policy or contract is presented, a copy of each document requiredby this section, a statement identifying any preprinted or electronically presented company approved salesmaterials used, and copies of any individualized sales materials, including any illustrations related to thespecific policy or contract purchased.Section 4.Duties of Insurers that Use ProducersEach insurer shall:A.B.613-4Maintain a system of supervision and control to insure compliance with the requirements of this regulationthat shall include at least the following:(1)Inform its producers of the requirements of this regulation and incorporate the requirements of thisregulation into all relevant producer training manuals prepared by the insurer;(2)Provide to each producer a written statement of the company’s position with respect to theacceptability of replacements providing guidance to its producer as to the appropriateness of thesetransactions;(3)A system to review the appropriateness of each replacement transaction that the producer does notindicate is in accord with Paragraph (2) above;(4)Procedures to confirm that the requirements of this regulation have been met; and(5)Procedures to detect transactions that are replacements of existing policies or contracts by theexisting insurer, but that have not been reported as such by the applicant or producer. Compliancewith this regulation may include, but shall not be limited to, systematic customer surveys,interviews, confirmation letters, or programs of internal monitoring;Have the capacity to monitor each producer’s life insurance policy and annuity contract replacements forthat insurer, and shall produce, upon request, and make such records available to the Insurance Department.The capacity to monitor shall include the ability to produce records for each producer’s:(1)Life replacements, including financed purchases, as a percentage of the producer’s total annualsales for life insurance;(2)Number of lapses of policies by the producer as a percentage of the producer’s total annual salesfor life insurance; 2015 National Association of Insurance Commissioners

NAIC Model Laws, Regulations, Guidelines and Other Resources—2nd Quarter 2015(3)Annuity contract replacements as a percentage of the producer’s total annual annuity contractsales;(4)Number of transactions that are unreported replacements of existing policies or contracts by theexisting insurer detected by the company’s monitoring system as required by Subsection A(5) ofthis section; and(5)Replacements, indexed by replacing producer and existing insurer;C.Require with or as a part of each application for life insurance or an annuity a signed statement by both theapplicant and the producer as to whether the applicant has existing policies or contracts;D.Require with each application for life insurance or an annuity that indicates an existing policy or contract acompleted notice regarding replacements as contained in Appendix A;E.When the applicant has existing policies or contracts, each insurer shall be able to produce copies of anysales material required by Section 3E, the basic illustration and any supplemental illustrations related to thespecific policy or contract that is purchased, and the producer’s and applicant’s signed statements withrespect to financing and replacement for at least five (5) years after the termination or expiration of theproposed policy or contract;F.Ascertain that the sales material and illustrations required by Section 3E of this regulation meet therequirements of this regulation and are complete and accurate for the proposed policy or contract;G.If an application does not meet the requirements of this regulation, notify the producer and applicant andfulfill the outstanding requirements; andH.Maintains records in paper, photograph, microprocess, magnetic, mechanical or electronic media or by anyprocess that accurately reproduces the actual document.Section 5.A.B.Duties of Replacing Insurers that Use ProducersWhere a replacement is involved in the transaction, the replacing insurer shall:(1)Verify that the required forms are received and are in compliance with this regulation;(2)Notify any other existing insurer that may be affected by the proposed replacement within five (5)business days of receipt of a completed application indicating replacement or when thereplacement is identified if not indicated on the application, and mail a copy of the availableillustration or policy summary for the proposed policy or available disclosure document for theproposed contract within five (5) business days of a request from an existing insurer;(3)Be able to produce copies of the notification regarding replacement required in Section 3B,indexed by producer, for at least five (5) years or until the next regular examination by theinsurance department of a company’s state of domicile, whichever is later; and(4)Provide to the policy or contract owner notice of the right to return the policy or contract withinthirty (30) days of the delivery of the contract and receive an unconditional full refund of allpremiums or considerations paid on it, including any policy fees or charges or, in the case of avariable or market value adjustment policy or contract, a payment of the cash surrender valueprovided under the policy or contract plus the fees and other charges deducted from the grosspremiums or considerations or imposed under such policy or contract; such notice may beincluded in Appendix A or C.In transactions where the replacing insurer and the existing insurer are the same or subsidiaries or affiliatesunder common ownership or control, allow credit for the period of time that has elapsed under the replacedpolicy’s or contract’s incontestability and suicide period up to the face amount of the existing policy orcontract. With regard to financed purchases, the credit may be limited to the amount the face amount of theexisting policy is reduced by the use of existing policy values to fund the new policy or contract. 2015 National Association of Insurance Commissioners613-5

Life Insurance and Annuities Replacement Model RegulationC.If an insurer prohibits the use of sales material other than that approved by the company, as an alternativeto the requirements made of an insurer pursuant to Section 3E, the insurer may:(1)(2)(3)Section 6.Require with each application a statement signed by the producer that:(a)Represents that the producer used only company-approved sales material; and(b)States that copies of all sales material were left with the applicant in accordance withSection 3D; andWithin ten (10) days of the issuance of the policy or contract:(a)Notify the applicant by sending a letter or by verbal communication with the applicant bya person whose duties are separate from the marketing area of the insurer, that theproducer has represented that copies of all sales material have been left with the applicantin accordance with Section 3D;(b)Provide the applicant with a toll free number to contact company personnel involved inthe compliance function if such is not the case; and(c)Stress the importance of retaining copies of the sales material for future reference; andBe able to produce a copy of the letter or other verification in the policy file for at least five (5)years after the termination or expiration of the policy or contract.Duties of the Existing InsurerWhere a replacement is involved in the transaction, the existing insurer shall:A.Retain and be able to produce all replacement notifications received, indexed by replacing insurer, for atleast five (5) years or until the conclusion of the next regular examination conducted by the InsuranceDepartment of its state of domicile, whichever is later.B.Send a letter to the policy or contract owner of the right to receive information regarding the existing policyor contract values including, if available, an in force illustration or policy summary if an in forceillustration cannot be produced within five (5) business days of receipt of a notice that an existing policy orcontract is being replaced. The information shall be provided within five (5) business days of receipt of therequest from the policy or contract owner.C.Upon receipt of a request to borrow, surrender or withdraw any policy values, send a notice, advising thepolicy owner that the release of policy values may affect the guaranteed elements, non-guaranteedelements, face amount or surrender value of the policy from which the values are released. The notice shallbe sent separate from the check if the check is sent to anyone other than the policy owner. In the case ofconsecutive automatic premium loans, the insurer is only required to send the notice at the time of the firstloan.Section 7.A.613-6Duties of Insurers with Respect to Direct Response SolicitationsIn the case of an application that is initiated as a result of a direct response solicitation, the insurer shallrequire, with or as part of each completed application for a policy or contract, a statement asking whetherthe applicant, by applying for the proposed policy or contract, intends to replace, discontinue or change anexisting policy or contract. If the applicant indicates a replacement or change is not intended or if theapplicant fails to respond to the statement, the insurer shall send the applicant, with the policy or contract, anotice regarding replacement in Appendix B, or other substantially similar form approved by thecommissioner. 2015 National Association of Insurance Commissioners

NAIC Model Laws, Regulations, Guidelines and Other Resources—2nd Quarter 2015B.Section 8.A.If the insurer has proposed the replacement or if the applicant indicates a replacement is intended and theinsurer continues with the replacement, the insurer shall:(1)Provide to applicants or prospective applicants with the policy or contract a notice, as described inAppendix C, or other substantially similar form approved by the commissioner. In these instancesthe insurer may delete the references to the producer, including the producer’s signature, andreferences not applicable to the product being sold or replaced, without having to obtain approvalof the form from the commissioner. The insurer’s obligation to obtain the applicant’s signatureshall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy ofthe notice referred to in this paragraph. The requirement to make a diligent effort shall be deemedsatisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope withinstructions for the return of the signed notice referred to in this section; and(2)Comply with the requirements of Section 5A(2), if the applicant furnishes the names of theexisting insurers, and the requirements of Sections 5A(3), 5A(4) and 5B.Violations and PenaltiesAny failure to comply with this regulation shall be considered a violation of [cite twisting section of state’sunfair trade practices act]. Examples of violations include:(1)Any deceptive or misleading information set forth in sales material;(2)Failing to ask the applicant in completing the application the pertinent questions regarding thepossibility of financing or replacement;(3)The intentional incorrect recording of an answer;(4)Advising an applicant to respond negatively to any question regarding replacement in order toprevent notice to the existing insurer; or(5)Advising a policy or contract owner to write directly to the company in such a way as to attempt toobscure the identity of the replacing producer or company.B.Policy and contract owners have the right to replace existing life insurance policies or annuity contractsafter indicating in or as a part of applications for new coverage that replacement is not their intention;however, patterns of such action by policy or contract owners of the same producer shall be deemed primafacie evidence of the producer’s knowledge that replacement was intended in connection with the identifiedtransactions, and these patterns of action shall be deemed prima facie evidence of the producer’s intent toviolate this regulation.C.Where it is determined that the requirements of this regulation have not been met the replacing insurer shallprovide to the policy owner an in force illustration if available or policy summary for the replacementpolicy or available disclosure document for the replacement contract and the appropriate notice regardingreplacements in Appendix A or C.D.Violations of this regulation shall subject the violators to penalties that may include the revocation orsuspension of a producer’s or company’s license, monetary fines and the forfeiture of any commissions orcompensation paid to a producer as a result of the transaction in connection with which the violationsoccurred. In addition, where the commissioner has determined that the violations were material to the sale,the insurer may be required to make restitution, restore policy or contract values and pay interest at [insertreference to a rate set by an applicable statute or regulation] on the amount refunded in cash.Drafting Note: States should consider whether they have the authority to adopt the provisions of Subsection D. 2015 National Association of Insurance Commissioners613-7

Life Insurance and Annuities Replacement Model RegulationSection 9.SeverabilityIf any section or portion of a section of this regulation, or its applicability to any person or circumstances, is held invalid by acourt, the remainder of this regulation, or the applicability of its provisions to other persons, shall not be affected.Section 10.Effective DateThis regulation shall be effective [insert date].Chronological Summary of Actions (all references are to the Proceedings of the NAIC).1970 Proc. I 301, 345-350, 379 (adopted).1972 Proc. I 15, 16, 555, 606-607 (amended).1979 Proc. I 44, 47, 373, 554-555, 557-569 (revised and reprinted).1984 Proc. II 9, 19-20, 502, 502-506 (amended, renamed and reprinted).1998 Proc. 2nd Quarter 10-11, 13, 654, 725, 726-735 (replaced with new regulation).2000 Proc. 1st Quarter 9, 27, 59, 138-147 (amended and reprinted).2006 Proc. 2nd Quarter 39, 51-54, 321 (amended).2015 Proc. 1st Quarter, Vol. I 117-118, 131-134, 328, 344-350 (amended).613-8 2015 National Association of Insurance Commissioners

NAIC Model Laws, Regulations, Guidelines and Other Resources—2nd Quarter 2015APPENDIX AIMPORTANT NOTICE:REPLACEMENT OF LIFE INSURANCE OR ANNUITIESThis document must be signed by the applicant and the producer, if there is one,and a copy left with the applicant.You are contemplating the purchase of a life insurance policy or annuity contract. In some cases this purchase may involve discontinuing orchanging an existing policy or contract. If so, a replacement is occurring. Financed purchases are also considered replacements.A replacement occurs when a new policy or contract is purchased and, in connection with the sale, you discontinue making premiumpayments on the existing policy or contract, or an existing policy or contract is surrendered, forfeited, assigned to the replacing insurer, orotherwise terminated or used in a financed purchase.A financed purchase occurs when the purchase of a new life insurance policy involves the use of funds obtained by the withdrawal orsurrender of or by borrowing some or all of the policy values, including accumulated dividends, of an existing policy to pay all or part ofany premium or payment due on the new policy. A financed purchase is a replacement.You should carefully consider whether a replacement is in your best interests. You will pay acquisition costs and there may be surrendercosts deducted from your policy or contract. You may be able to make changes to your existing policy or contract to meet your insuranceneeds at less cost. A financed purchase will reduce the value of your existing policy and may reduce the amount paid upon the death of theinsured.We want you to understand the effects of replacements before you make your purchase decision and ask that you answer the followingquestions and consider the questions on the back of this form.1.Are you considering discontinuing making premium payments, surrendering, forfeiting, assigning to the insurer, or otherwiseterminating your existing policy or contract?YES NO2.Are you considering using funds from your existing policies or contracts to pay premiums due on the new policy or contract?YESNOIf you answered “yes” to either of the above questions, list each existing policy or contract you are contemplating replacing(include the name of the insurer, the insured or annuitant, and the policy or contract number if available) and whether each policyor contract will be replaced or used as a source of financing:INSURERNAMECONTRACT ORPOLICY #INSURED OR ANNUITANTREPLACED (R) ORFINANCING (F)1.2.3.Make sure you know the facts. Contact your existing company or its agent for information about the old policy or contract. If yourequest one, an in force illustration, policy summary or available disclosure documents must be sent to you by the existinginsurer. Ask for and retain all sales material used by the agent in the sales presentation. Be sure that you are making an informeddecision.The existing policy or contract is being replaced because .I certify that the responses herein are, to the best of my knowledge, accurate:Applicant’s Signature and Printed NameProducer’s Signature and Printed NameDateDateI do not want this notice read aloud to me. (Applicants must initial only if they do not want the notice read aloud.)Life Insurance and Annuities Replacement Model RegulationA replacement may not be in your best intere

(8) Existing life insurance that is a nonconvertible term life insurance policy that will expire in five - (5) years or less and cannot be renewed; (9) Immediate annuities that are purchased with proceeds from an existing contract.File Size: 272KBPage Count: 36Explore furtherLife Insurance Replacement: Rules, Laws & Regulationsinvestopedia.comLIFE INSURANCE AND ANNUITIES REPLACEMENT MODEL REGULATI content.naic.orgLIFE INSURANCE ILLUSTRATIONS MODEL REGULATION Table of .naic.orgNAIC Life Insurance and Annuities Replacement Model .cefli.orgLIFE INSURANCE AND ANNUITY REPLACEMENT FORM . - naaleads.c my.naaleads.comRecommended to you b