Outline: Illinois statutes and regulations pertinent to Life insurance only (9 items on the Life state exam). A. Advertising and sales (1 to 3 items; Reg. 909). B. Replacement (1 to 2; Reg. 917: purpose, definitions, exemptions, duties of agent, duties of replacing company). C. Life solicitation (2 to 3; Reg. 930: purpose, definitions, exemptions, disclosure requirements including Buyer's Guide content, agents' responsibilities, suitability in the sale of life insurance and annuities (Reg. 3120, 909, 3117), policy provisions (5/224)).
The nine life-only items are the most predictable questions on the Illinois Life exam, because each regulation has a short list of definite requirements. This chapter covers the three regulations in the order the outline gives them. Chapter 18 covers the rest of the life-only list.
Advertising and Sales Promotion of Life Insurance and Annuities (50 Ill. Adm. Code 909)
Applicability and control (909.30). The Part applies to any life insurance or annuity advertisement intended for dissemination in Illinois. An advertisement is material designed to create public interest in life insurance or annuities or in an insurer, or to induce the public to purchase, increase, modify, reinstate, or retain a policy. It includes printed and published material, audio-visual material, descriptive literature and sales aids issued by an insurer or agent (circulars, leaflets, booklets, illustrations, form letters), recruitment and training material designed to induce the public to buy, and prepared sales talks and presentations. Each insurer must maintain a system of control over the content, form, and method of dissemination of its advertisements; every advertisement, regardless of who writes it, is the insurer's responsibility.
Form and content (909.40). Advertisements must be truthful and not misleading in fact or by implication. Whether one has the capacity or tendency to mislead is judged by the overall impression it would create for a person of average education or intelligence in the segment of the public to which it is directed. The terms "investment," "investment plan," "founder's plan," "charter plan," "expansion plan," "profit," "profits," "profit sharing," "interest plan," "savings," "savings plan" and similar terms may not be used in a context that would lead a buyer to think he or she would receive something other than a policy or a benefit not available to others of the same class.
Disclosure rules (909.50). Required disclosures may not be minimized, obscured, ambiguous, or intermingled with the text so as to confuse. An advertisement may not omit material information or use words or illustrations with the capacity to mislead about the nature of the insurance, benefits, loss covered, premium, or tax consequences; offering the policy for inspection or a premium refund does not cure a misleading statement. Specific rules:
- "Non-medical," "no medical examination required," or similar terms, where issue is not guaranteed, must be accompanied by a disclosure of equal prominence that issuance may depend on the answers to the health questions.
- Dividends: an advertisement may not state or imply that dividends are guaranteed; illustrated dividends must be based on the insurer's illustrated scale with a statement that they are not guarantees or estimates of future dividends. It may not imply that dividends will assure a paid-up policy without further premiums unless it explains the benefits and conditions.
- Testimonials must be genuine, current, applicable, and accurately reproduced; financial interests of the person giving one must be disclosed; an advertisement may not imply approval or endorsement by an organization unless true and any proprietary relationship is disclosed.
- An advertisement may not state or imply that an offer is "introductory," "special," or limited unless that is true, and may not say only a specific number of policies will be sold; enrollment periods may not be repeated within six months, and the application deadline must be not less than 10 and not more than 40 days after the period is first advertised.
- An advertisement for a preneed funeral contract funded by life insurance must disclose that a life insurance policy or annuity is involved, the relationships among the soliciting producer, the funeral provider, and the administrator, the family's right to change the provider after the insured's death, and that excess proceeds go to a secondary beneficiary.
Annuities and variable life (909.85). For annuities and variable life, any advertisement or lead-generating device directed at persons age 65 or older must prominently disclose that an insurer or producer may contact the applicant, if that is the fact; a producer who contacts a person from a lead-generating device must disclose that fact in the initial contact. No one may solicit persons 65 and older through a deceptive or misleading name; advertisements may not use words or symbols so similar to those of a government agency, a nonprofit, a senior organization, or another insurer as to mislead; may not imply the reader will lose a right or benefit if he or she does not respond; may not use an address that misleads as to identity, location, or licensing; and an advertisement for an event where insurance products will be sold may not use the words "seminar," "class," "informational meeting," or equivalents unless it adds "and insurance sales presentation" in the same type size and font immediately following.
Records (909.90). Each insurer keeps a complete file of every advertisement disseminated in Illinois, with a notation of the manner and extent of distribution and the form number of any policy advertised, for four years or until the filing of the next regular report of examination, whichever is longer, and prepares an annual certificate of compliance executed by an authorized officer.
Replacement of Life Insurance and Annuities (50 Ill. Adm. Code 917)
Purpose (917.20). The Part regulates the activities of insurers and producers in the replacement or proposed replacement of existing life insurance or annuities and protects policyowners by establishing minimum standards of conduct: assuring the policyowner receives information with which a decision can be made in his or her best interest, and reducing the opportunity for misrepresentation and incomplete disclosure.
Definition of replacement (917.30). A replacement is any transaction, except those exempted, in which new life insurance or an annuity will be purchased and it is known or should be known to the proposing producer (or the proposing insurer if no producer) that, by reason of the transaction, existing life insurance or annuity has been or is to be:
- lapsed, forfeited, surrendered, or otherwise terminated;
- converted to reduced paid-up or extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;
- amended to reduce benefits or the term of coverage;
- reissued with any reduction in cash value; or
- pledged as collateral or subjected to borrowing, whether in a single loan or a schedule of borrowing, for amounts in the aggregate exceeding 25 percent of the loan value set forth in the policy.
Other definitions (917.40). The Buyer's Guide is the document in Exhibit A of Part 930. Direct-response sales are sales where the insurer does not use a producer. The existing insurer is the company whose policy is to be changed or terminated; the replacing insurer is the one that issues the new policy. Existing life insurance includes insurance under a binding or conditional receipt, or one within an unconditional refund period, but excludes insurance obtained through a dividend option. A registered contract is one registered with the SEC.
Exemptions (917.50). Unless specifically included, the Part does not apply to:
- credit life insurance;
- group life insurance and group annuities;
- life insurance issued in connection with a pension, profit-sharing, or other benefit plan qualifying for tax deductibility of premiums;
- registered contracts (except that the prospectus must be given);
- existing nonconvertible term insurance that will expire in 5 years or less and cannot be renewed;
- transactions where the replacing and existing insurers are the same or are subsidiaries under common control (producers must still comply with 917.60(a)); and
- cases where the total cash surrender value of all existing policies affected is less than $500 and the sum of their face amounts is less than $5,000.
Duties of the producer (917.60). With or as part of each application for life insurance or an annuity, the producer must submit to the replacing insurer (1) a statement signed by the applicant as to whether the insurance will replace existing coverage, and (2) a signed statement by the producer on whether the producer knows replacement is or may be involved. Where a replacement is involved, the producer must present to the applicant, not later than at the time of taking the application, the Notice Regarding Replacement of Life Insurance or Annuity (Exhibit A) listing the contract numbers to be replaced, with the producer's signature, and must submit a copy of that notice and the Notice Regarding Proposed Replacement (Exhibit B), signed by the producer, to the replacing insurer with the application.
Duties of the replacing insurer (917.70). Each insurer must require the signed statements; where a replacement is involved require from the producer a copy of the notices; and comply with Section 224(2) (below), furnish a copy of the Buyer's Guide, and forward Exhibit B to the existing insurer within 3 working days after receipt of the application. The insurer must keep the notices at its home office for at least 3 years after the date of the producer's signature or mailing. For direct-response sales (917.80), the insurer must obtain the applicant's signed statement; where a replacement is involved, it sends the applicant a Notice (or includes it with the mailed policy if the applicant did not name the existing insurers), and forwards Exhibit B to the existing insurer within 3 working days.
The statutory 20-day rule (Section 224(2)). For the replacement of life insurance, the replacing insurer must either (1) delay issuing its policy for not less than 20 days from the date it transmitted a policy summary to the existing insurer, or (2) provide, in a form titled "Notice Regarding Replacement of Life Insurance" and in the policy or a separate notice delivered with it, that the insured has the right to an unconditional refund of all premiums paid, exercisable within 20 days commencing from the date of delivery of the policy. If it chooses the refund option, the insurer must send the policy summary to the existing insurer within 3 working days after the replacement policy is issued.
Annuities. Part 917 treats annuity replacement the same way as life replacement, and Part 3120 adds the best-interest consideration of the whole transaction (below). Section 1035 exchanges are tax-free but are still replacements for these purposes.
Life Insurance Solicitation (50 Ill. Adm. Code 930)
Purpose and scope (930.20, 930.30). The Part requires insurers to deliver information that improves the buyer's ability to choose the appropriate plan, understand the basic features of the policy, and compare the relative costs of similar plans. It applies to any solicitation, negotiation, or procurement of life insurance in Illinois by any issuer, including fraternal benefit societies. It does not apply to: annuities, credit life, group life (except preneed funeral disclosures), franchise life, life insurance in connection with ERISA plans, and variable life.
Definitions (930.40). The terms to know: the Buyer's Guide (the Illinois guide in Exhibit A, or the NAIC guide in Exhibit B); Policy Summary, a written statement titled "STATEMENT OF POLICY COST AND BENEFIT INFORMATION" that includes the agent's name and address, the company's name and address, the generic name of the basic policy and each rider, for the first five policy years and representative later years (including at least one age from 60 through 65 or maturity) the annual premium, the guaranteed death benefit, guaranteed cash surrender values, cash dividends, endowment amounts, the effective policy loan interest rate, the Life Insurance Cost Indexes for 10 and 20 years, the Equivalent Level Annual Dividend for participating policies, and the date prepared; guaranteed elements (determined at issue) and non-guaranteed elements; and a preneed funeral contract (a prearrangement for funeral or cemetery merchandise or services). The indexes use 5 percent interest and the factors 13.207 (10 years) and 34.719 (20 years). The Surrender Cost Index accounts for cash values; the Net Payment Cost Index sets the cash surrender value to zero. The Policy Summary must be a separate document, amounts level for two or more years may be shown as one number, and zero amounts are displayed as zero.
Disclosure requirements (930.50). Except for direct-response products, the insurer must give every applicant a Buyer's Guide before accepting the initial premium or deposit. A Policy Summary must be delivered with or before delivery of the policy. On request, both go to a prospect before application. For policies whose Equivalent Level Death Benefit does not exceed $5,000, a shorter written statement satisfies the summary requirement. If a compliant illustration (under 50 Ill. Adm. Code 1406.50(b)) is used in the sale, the Policy Summary is not required. Only guaranteed elements may be shown in the summary. Failure to deliver a Buyer's Guide or a Policy Summary is deemed an omission that misrepresents the benefits, advantages, conditions, or terms of the policy (930.90).
Buyer's Guide content (930.80 and Exhibits). The guide the insurer delivers must reproduce Exhibit A or the NAIC guide in Exhibit B. Exhibit A's face page says it can show how to save money by helping the buyer decide how much to buy, what kind to buy, and how to compare costs, and states that it was prepared by the Illinois Department of Insurance using NAIC materials and does not endorse any company or policy. It explains the amount of coverage (the needs approach), the three basic kinds (term, whole life, endowment), and how to use the cost indexes.
Agent responsibilities (930.70).
- Before beginning a sales presentation, the agent must inform the prospective purchaser that he or she is acting as a life insurance agent and give the full name of the insurance company represented.
- Terms such as financial planner, investment advisor, financial consultant, or financial counseling may not be used to imply that the agent is generally in an advisory business with compensation unrelated to sales, unless that is true.
- Any reference to policy dividends must state that dividends are not guaranteed.
- Comparing the cost of two or more policies must recognize the time value of money; a non-interest-adjusted cash-flow presentation may be used only with a statement that it does not recognize that a dollar in the future has less value than a dollar today.
- A presentation may not display guaranteed and non-guaranteed benefits as a single sum unless they are shown separately in close proximity.
- A statement about cost indexes must explain that they are useful only to compare the relative costs of two or more similar policies.
- The insurer keeps a file of every authorized document for three years after its last use.