Texas outline Section II (6 of the 30 state-specific items). Headings: A. marketing and solicitation (advertising and illustrations; policy summary and buyer's guide); B. individual life and annuity policy provisions (free look through settlement at maturity); D. group life; E. credit life; F. replacement; G. nonforfeiture law.
This chapter is the Texas statute behind the life-insurance material in Chapters 1 to 4. Its weight is small (six items) but the questions are specific, so the chapter is organized as sections with the number to remember in bold.
13.1 Marketing and Solicitation (Outline II.A)
Advertising and illustrations
Advertising rules were covered in Chapter 12 (28 TAC 21.104 to 21.122). Illustrations have their own subchapter, which applies to all group and individual life insurance policies and certificates except variable life, annuities, credit life, and policies with no illustrated death benefit over $10,000 (28 TAC 21.2203). It applies to policies sold on or after July 1, 2000 (28 TAC 21.2214). The rules:
- Purpose. Illustrations must not mislead; the subchapter prescribes formats, standards and required disclosures (28 TAC 21.2201).
- Labeling. An illustration must be clearly labeled "life insurance illustration" and contain the basic information the rule lists (28 TAC 21.2206(1)).
- Prohibited conduct (28 TAC 21.2206(2)). An insurer or agent may not: represent the policy as anything other than life insurance; use or describe non-guaranteed elements in a misleading way; state or imply that non-guaranteed elements are guaranteed; use an illustration that does not comply; use one that depicts performance more favorable than the insurer's illustrated scale; give an incomplete illustration; represent that premium payments will not be required each year to maintain the illustrated benefit unless true; use the term "vanish" or "vanishing premium" or a similar term implying the policy becomes paid up; use a lapse-supported illustration (except for policies that can never develop nonforfeiture values); use an illustration that is not self-supporting; use an illustration or software not approved by the insurer under the advertising-control rule (21.122); or use an illustration on a policy the insurer did not identify as one to be marketed with an illustration.
- Delivery (28 TAC 21.2209). If a basic illustration is used and the policy is applied for as illustrated, a copy signed under the rule goes to the insurer at application and a copy to the applicant. If the policy is issued other than as applied for, a "Revised Illustration" conforming to the policy as issued is sent with the policy and signed and dated by the owner and producer no later than delivery. If no illustration is used (or the policy differs from the illustration), the producer or insurer certifies that in writing on a form, the applicant acknowledges that no conforming illustration was provided and that one will be provided at delivery at the latest, and that form goes to the insurer at application.
- Annual report to the owner on policy status when an illustration was used (28 TAC 21.2210) and an illustration actuary, appointed by the insurer's board, who certifies that the disciplined current scale conforms to actuarial standards (21.2211).
- Penalties. A violation of the illustration subchapter is a misrepresentation of the terms of a policy under Chapter 541, subject to the penalties of that chapter (28 TAC 21.2212).
- In-force illustration. For policies with non-guaranteed elements, the insurer must offer at least annually to provide the owner an in-force illustration; it must be offered free of charge if non-guaranteed charges or the credited rate have changed (TIC 1101.206).
Policy summary and buyer's guide
A policy summary is a written statement that, for a policy other than universal life, contains at a minimum the current death benefit, annual contract premium, current cash surrender value, current dividend, application of the current dividend, and the amount of any outstanding loan; for a universal life policy it contains the reporting period dates, the policy value at the beginning and end of the period, the amounts credited or debited by type (interest, mortality, expense, riders), the death benefit, the net cash surrender value and any loan (TIC 1114.003). The summary is used in the replacement process (Section 13.5).
The buyer's guide is an annuity concept: for an annuity transaction, the appropriate buyer's guide is the latest NAIC buyer's guide for the type of annuity (fixed deferred, equity-indexed, variable) (28 TAC 4.2310). If the buyer's guide and disclosure document are not provided at or before application, the free look is at least 15 calendar days (28 TAC 4.2311, next section).
13.2 Individual Life and Annuity Policy Provisions (Outline II.B)
The Code requires a life policy to contain provisions substantially the same as Subchapter B of Chapter 1101 (TIC 1101.002), and the subchapter applies to a life policy issued or delivered in Texas or by a Texas-organized insurer (1101.001). The outline lists sixteen provisions. The statute and rule for each, in the outline's order:
| # | Provision | What the Texas law says | Section |
|---|---|---|---|
| 1 | Free look | See below: individual life, annuity, replacement, A&H, LTC and Medigap free looks differ | TIC 1116.002; 28 TAC 4.2311 |
| 2 | Grace period | At least one month for each premium after the first; the policy may charge interest on a premium paid in the grace period, or provide that an overdue premium is deducted from a death settlement | TIC 1101.005 (outline cites 1101.105) |
| 3 | Policy loans | Insurer must lend the cash value plus dividend additions if the policy is in force, premiums have been paid for at least three full years, and the policy is properly assigned; loan secured only by the policy; insurer may deduct existing debt and the unpaid premium for the policy year, and collect interest in advance to the end of the policy year; policy not void until the total owed equals or exceeds the cash value; insurer may defer a loan up to six months. Not required for term policies or pure endowments | TIC 1101.009 |
| 4 | Prohibited provisions | A policy may not take effect (be backdated) more than six months before the original application if it rates the insured at a younger age (age at nearest birthday); may not limit the time to sue to less than two years; may not provide a settlement at maturity below face (with three exceptions) | TIC 1101.054, 1101.053, 1101.055; 28 TAC 4.620 |
| 5 | Incontestability | In force two years from the date of issue during the insured's lifetime is incontestable except for nonpayment; the insurer may contest at any time for violation of conditions about naval and military service in time of war | TIC 1101.006 |
| 6 | Entire contract | Policy, or policy plus application, is the entire contract | TIC 1101.003 |
| 7 | Premiums payable in advance | Payable in advance at the home office, or to an agent on delivery of a receipt signed by a company officer the policy designates; policy may permit change of mode; unpaid premium for the policy year may be deducted from death proceeds | TIC 1101.004; 28 TAC 4.601 |
| 8 | Statement of insured | Absent fraud, a statement by an insured is a representation, not a warranty | TIC 1101.007 |
| 9 | Misstatement of age | If age was understated, amount payable is what the premium paid would have bought at the correct age | TIC 1101.008; 28 TAC 4.606 |
| 10 | Time for settlement of a claim | Settlement not later than two months after receipt of proof of death and of the claimant's right to the proceeds (TDI adds that for an individual policy the company pays interest from proof of death to the date it agrees to pay) | TIC 1101.011 (the outline also lists 28 TAC 4.612, which was not found in the code read) |
| 11 | Designation of beneficiary, transfer, or assignment | An insured of legal age may in writing designate any individual, partnership, association, corporation or other entity as beneficiary, and transfer or assign the policy or an interest in it, as the policy permits | TIC 1103.055 |
| 12 | Assignment of benefits | An insured, owner or annuitant may assign benefits and other rights under the policy; a child support lien continues to attach after assignment. A policy may not combine dividends or coupons with assignment to a third party to establish an investment for the policyholder | TIC 1108.101; 28 TAC 4.623 |
| 13 | Accelerated term life benefits | An insurer may pay an accelerated benefit under a term policy or certificate on a written medical opinion that the insured has a terminal illness (death reasonably expected in not more than two years), a long-term care illness, or a listed condition (AIDS, malignant tumor, organ transplant, coronary artery disease with infarction or surgery); the benefit is deducted from the death benefit and from any conversion amount | TIC 1111.051, 1111.052 |
| 14 | Reinstatement | If a policy defaults and its value is applied to purchase other insurance, it may be reinstated within three years of default if that other insurance is in force and the original policy was not surrendered, with satisfactory evidence of insurability and payment of arrears with interest; not for single-premium policies | TIC 1101.156; 28 TAC 4.611 |
| 15 | Limitation of lawsuits | A policy may not limit the time for suit to less than two years after the cause of action accrues | TIC 1101.053; 28 TAC 4.619 |
| 16 | Settlement at maturity | A settlement at maturity (death) may not be less than the face amount plus dividend additions, less debt and any deductible premium, except for death (1) by the insured's own hand, sane or insane, (2) from a stated hazardous occupation, or (3) from aviation under policy conditions approved by TDI; status clauses are prohibited; a policy that allows installment payments must contain a representative table of installments | TIC 1101.055; 28 TAC 4.621 |
Free looks in Texas: a comparison
The free look is a favorite question because the periods differ by product. Read the product, then the period.
| Product | Free-look period | Source |
|---|---|---|
| Fixed annuity contract | At least 20 days after delivery; unconditional refund of premiums and fees | TIC 1116.002(a); TDI annuity guide |
| Variable or modified guaranteed annuity | At least 20 days; refund of cash surrender value plus fees (accredited investors exempt) | TIC 1116.002(b), (c) |
| Annuity, if the buyer's guide and disclosure were not provided at or before application | At least 15 calendar days, notice on the cover page, running concurrently with other free looks | 28 TAC 4.2311 |
| Replacement of life or annuity | 30 days from delivery, unconditional full refund (replacing insurer must give notice) | TIC 1114.053(e); TDI annuity guide (replacement annuities 30 days) |
| Individual accident and health | Not later than the 10th day after delivery | TIC 1201.058 |
| Medicare supplement | 30 days after delivery | TIC 1652.155; 28 TAC 3.3308 |
| Long-term care | 30 days (or more per the policy) in the outline of coverage; TDI: "at least 30 days" | 28 TAC 3.3832; TDI LTC guide |
| Individual life | Not fixed in a statute or rule read for this book. TDI's guide: "Texas policies have a free-look period of at least 10 to 20 days." The policy states its own period | TDI life guide; confirm with TDI |
The outline places 28 TAC 4.2311 under the life "free look" heading. That rule, adopted January 2024, is the annuity free look.
The group and credit chapters
Group and credit life are separate blocks of the outline, covered next.
13.3 Group Life (Outline II.D)
The detail is in the In Texas box of Chapter 4. As an exam list:
- Eligibility and underwriting (TIC 1131.204 for an employer group): the policy must cover at least two employees at issue; a non-contributory plan insures all eligible employees (or all except those not satisfactorily insurable). Other group types: 100 individuals (1131.254), 10 employees or members (1131.304), 50 debtors in a creditor group (1131.454); 75 percent participation when employees contribute (1131.254, 1131.304).
- Conversion to individual policy (TIC 1131.110, 1131.111; 1131.354 for spouse conversion rights): within 31 days; not term; amount not to exceed the amount that ceased; on policy termination, five years of coverage, cap of the lesser of the amount that ceased (less other group coverage) or $2,000.
- Dependent coverage (TIC 1131.151, 1131.802): family members may be covered, including children younger than 25 and disabled children.
- Assignment (TIC 1131.006): any assignee except the employer.
- Required provisions (TIC 1131.101): a group policy must contain the provisions of the subchapter or more favorable ones; the standard individual provisions do not apply to group life. Grace period 31 days (1131.103); incontestable two years except for nonpayment (1131.104).
- Accelerated benefits (TIC 1111.052 for individual and group term policies; the outline also cites TIC 1551.254 and 28 TAC 4.1101). Section 1551.254 concerns accelerated benefits in the state employees group program. 28 TAC 4.1101 is the purpose section of TDI's accelerated-benefit rules: it sets uniform standards for acceleration-of-life-insurance benefits for insureds facing terminal or life-threatening illnesses or conditions, and lets insurers, with proper disclosures, offer benefits that may not qualify for favorable federal tax treatment.