File No. 32697

This rule was published in the October 15, 2009, issue (Vol. 2009, No. 20) of the Utah State Bulletin.


Insurance, Administration

Rule R590-79

Life Insurance Disclosure Rule

Change in Proposed Rule

DAR File No.: 32697
Filed: 10/01/2009 05:05:27 PM

RULE ANALYSIS

Purpose of the rule or reason for the change:

Due to comments received from the insurance industry during the initial comment period, additional changes are being made to this rule.

Summary of the rule or change:

The substantive changes to this rule are in Subsection R590-79-5(B) which eliminates the requirement that a life insurer provide a policy summary with an illustrated policy. Subsection R590-79-5(C) eliminates wording describing a universal policy, which is already understood by those in the life insurance industry. (DAR NOTE: This change in proposed rule has been filed to make additional changes to a proposed amendment that was published in the June 15, 2009, issue of the Utah State Bulletin, on page 44. Underlining in the rule below indicates text that has been added since the publication of the proposed new rule mentioned above; strike out indicates text that has been deleted. You must view the change in proposed rule and the proposed amendment together to understand all of the changes that will be enforceable should the agency make this rule effective.)

State statutory or constitutional authorization for this rule:

  • Section 31A-2-201
  • Section 31A-22-425

This rule or change incorporates by reference the following material:

  • Updates: Life Insurance Buyer's Guide, 2000

Anticipated cost or savings to:

the state budget:

The changes to this rule will not require additional filings being made to the department and thus no additional work for the staff. Nor will the changes require licensees to pay additional fines or fees.

local governments:

The changes to this rule will not affect local governments since the rule deals solely with the relationship between the department and their licensees, in this case, life insurance companies.

small businesses:

This rule impacts life insurance companies, which are organizations of more than 50 employees. There should be no impact on small employers.

persons other than small businesses, businesses, or local governmental entities:

The main change is to eliminate the requirement for life insurers to provide a one-page policy summary with an illustrated policy. The elimination of this requirement will make this rule uniform with the national standard and eliminate redundancy since an illustrated policy already provides a great deal more information than is provided on a one-page summary. This should have very little if any effect upon most insurers since they were not providing the summary and we were not enforcing this portion of the rule.

Compliance costs for affected persons:

The main change is to eliminate the requirement for life insurers to provide a one-page policy summary with an illustrated policy. The elimination of this requirement will make this rule uniform with the national standard and eliminate redundancy since an illustrated policy already provides a great deal more information than is provided on a one-page summary. This should have very little if any effect upon most insurers since they were not providing the summary and we were not enforcing this portion of the rule.

Comments by the department head on the fiscal impact the rule may have on businesses:

The changes to this rule will have no fiscal impact on businesses in Utah.

D. Kent Michie, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
450 N MAIN ST
SALT LAKE CITY, UT 84114-1201

Direct questions regarding this rule to:

  • Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

11/16/2009

This rule may become effective on:

11/23/2009

Authorized by:

Jilene Whitby, Information Specialist

RULE TEXT

R590. Insurance, Administration.

R590-79. Life Insurance Disclosure Rule.

 

. . . . . . .

 

R590-79-3. Scope.

Except as hereinafter exempted, this rule shall apply to any solicitation, negotiation or procurement of life insurance occurring within this state. This rule shall apply to any issuer of life insurance contracts including fraternal benefit societies.

Unless otherwise specifically included, this rule shall not apply to:

A. [A]annuities[.];

B. [C]credit life insurance[.];

C. [G]group life insurance (except for disclosures relating to preneed funeral contracts or prearrangements[;]. T[t]hese disclosure requirements shall extend to the issuance or delivery of certificates as well as to the master policy)[.];

D. [L]life insurance policies issued in connection with pension and welfare plans as defined by and which are subject to the federal Employee Retirement Income Security Act of 1974 (ERISA), as amended[.]; or

E. [V]variable life insurance under which the amount and duration of the death benefits and cash values vary according to the investment experience of a separate account.

 

R590-79-4. Definitions.

In addition to the definitions in Section 31A-1-301, the following definitions shall apply for the purposes of this rule:

A. [Buyer's Guide. ]A Buyer's Guide [is]means a document which contains, and is limited to, the language contained in the "Life Insurance Buyer's Guide," as adopted and amended by, and available from the National Association of Insurance Commissioners, 2000 edition, which is incorporated in this rule by reference.

B. Current Scale of Nonguaranteed Elements[. A] means a formula or other mechanism that produces values for an illustration as if there is no change in the basis of those values after the time of illustration.

C. [Generic Name. ]Generic name means a short title which is descriptive of the premium and benefit patterns of a policy or a rider.

D. Nonguaranteed Elements[. The] means the premiums, credited interest rates including any bonus, benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these[,] that are subject to company discretion and are not guaranteed at issue. An element is considered non-guaranteed if any of the underlying non-guaranteed elements are used in its calculation.

E. Policy Data[. A] means a display or schedule of numerical values, both guaranteed and nonguaranteed for each policy year or a series of designated policy years of the following information: illustrated annual, other periodic, and terminal dividends; premiums; death benefits; cash surrender values; and endowment benefits.

F.[Policy Summary.

](1) Policy summary means a written statement describing only the guaranteed elements of the policy.[.] A policy summary must include the following information:

(a) A prominently placed title as follows: STATEMENT OF POLICY COST AND BENEFIT INFORMATION.

(b) The name and address of the insurance producer, or, if no producer is involved, a statement of the procedure to be followed in order to receive responses to inquiries regarding the policy summary.

(c) The full name and home office or administrative office address of the company in which the life insurance policy is to be or has been written.

(d) The generic name of the basic policy and each rider.

(e) The following amounts, where applicable, for the first five policy years and representative policy years thereafter sufficient to clearly illustrate the premium and benefit patterns, including, but not necessarily limited to, the tenth and twentieth policy years, and at least one age from 60 through 65 or maturity, which[ ]ever is earlier.

(i) The annual premium for the basic policy.

(ii) The annual premium for each optional rider.

(iii) Guaranteed amount payable upon death, at the beginning of the policy year regardless of the cause of death other than suicide, or other specifically enumerated exclusions, which is provided by the basic policy and each optional rider, with benefits provided under the basic policy and each rider shown separately.

(iv) Total guaranteed cash surrender values at the end of the year with values shown separately for the basic policy and each rider.

(v) Guaranteed endowment amounts payable under the policy which are not included under guaranteed cash surrender values above.

(f) The effective policy loan annual percentage interest rate, if the policy contains this provision, specifying whether this rate is applied in advance or in arrears. If the policy loan interest rate is adjustable, the policy summary shall indicate the maximum annual percentage rate, and shall also indicate that the annual percentage rate will be determined by the company in accordance with the provisions of the policy and the applicable law.

(g) The date on which the policy summary is prepared.

(2) The policy summary must consist of a separate document. All information required to be disclosed must be set out in such a manner as not to minimize or render any portion thereof obscure. Any amounts which remain level for two or more years of the policy may be represented by a single number if it is clearly indicated what amounts are applicable for each policy year. Amounts in item F.(1)(e) of this section shall be listed in total, not on a per thousand nor per unit basis. If more than one insured is covered under one policy or rider, death benefits shall be displayed separately for each insured or for each class of insureds if death benefits do not differ within the class. Zero amounts shall be displayed as zero and may not be displayed as a blank space.

(3) If an illustration subject to the requirements of R590-177, Life Insurance Illustrations Rule, is used in the sale of a policy, a policy summary is not required.

G. Preneed Funeral Contract or Prearrangement[. An] means an agreement by or for an individual before that individual's death relating to the purchase or provisions of specific funeral or cemetery merchandise or services.

 

R590-79-5. Disclosure Requirements.

A. The insurer shall provide[, to all prospective purchasers,] a Buyer's Guide and either a policy summary or a life illustration that is in compliance with Rule R590-177, Life Insurance Illustrations Rule, when the policy is delivered or prior to delivery of the policy if so requested.

B. The insurer shall provide a Buyer's Guide [and a policy summary ]to any prospective purchaser upon request.

C. Flexible Premium and Benefit Policies. For policies commonly called "universal life insurance[policies,]" and similarly structured policies[which:

(1) Permit the policy owner to vary, independently of each other, the amount or timing of premium payments, or the amount payable on death; and

(2) Provide for a cash value that is based on separately identified interest credits and mortality and expense charges made to the policy.

All indexes and other data shall be displayed assuming specific schedules of anticipated premiums and death benefits at issue.

In addition to all other information required by this rule], the policy summary shall indicate when the policy will expire based on the interest rates and mortality rates and other charges guaranteed in the policy and the anticipated or assumed annual premiums shown in the policy summary.

D. Requirements applicable to existing policies.

Upon request by the policyholder, the insurer shall furnish either policy data or an in force illustration as follows:

(1) For policies issued prior to January 1, 1997, the effective date of R590-177, Life Insurance Illustrations Rule, the insurer shall furnish policy data, or at its option, an in force illustration meeting the requirements of R590-177, Life Insurance Illustrations Rule.

(2) For policies issued on or after January 1, 1997 that were declared not to be used with an illustration, the insurer shall furnish policy data, limited to guaranteed values, if it has chosen not to furnish an in force illustration meeting the requirements of R590-177, Life Insurance Illustrations Rule.

(3) If the policy was issued on or after January 1, 1997, and declared to be used with an illustration, an in force illustration shall be provided.

(4) Unless otherwise requested, the policy data shall be provided for 20 consecutive years beginning with the previous policy anniversary. The statement of policy data shall include nonguaranteed elements according to the current scale, the amount of outstanding policy loans, and the current policy loan interest rate. Policy values shown shall be based on the current application of nonguaranteed elements in effect at the time of the request. The insurer may charge a reasonable fee for the preparation of the statement after providing one annually without charge.

E. Preneed Funeral Contracts or Prearrangements. The following information shall be adequately disclosed at the time an application is made prior to accepting the applicant's initial premium or deposit, for a preneed funeral contract or prearrangement which is funded or to be funded by a life insurance policy:

(1) The fact that a life insurance policy is involved or being used to fund a prearrangement;

(2) The nature of the relationship among the soliciting producer or producers, the provider of the funeral or cemetery merchandise or services, the administrator and any other person;

(3) The relationship of the life insurance policy to the funding of the prearrangement and the nature and existence of any guarantees relating to the prearrangement;

(4) The impact on the prearrangement:

(a) of any changes in the life insurance policy including but not limited to changes in the assignment, beneficiary designation or use of the proceeds;

(b) of any penalties to be incurred by the policyholder as a result of failure to make premium payments; and

(c) of any penalties to be incurred or monies to be received as a result of cancellation or surrender of the life insurance policy;

(5) A list of the merchandise and services which are applied or contracted for in the prearrangement and all relevant information concerning the price of the funeral services, including an indication that the purchase price is either guaranteed at the time of purchase or to be determined at the time of need;

(6) All relevant information concerning what occurs and whether any entitlements or obligations arise if there is a difference between the proceeds of the life insurance policy and the amount actually needed to fund the prearrangement;

(7) Any penalties or restrictions, including but not limited to geographic restrictions or the inability of the provider to perform, on the delivery of merchandise, services or the prearrangement guarantee;

(8) The fact that a sales commission or other form of compensation is being paid and if so, the identity of such individuals or entities to whom it is paid.

 

. . . . . . .

 

KEY: insurance law

Date of Enactment or Last Substantive Amendment: 2009

Notice of Continuation: September 27, 2004

Authorizing, and Implemented or Interpreted Law: 31A-2-201

 


Additional Information

The Portable Document Format (PDF) version of the Bulletin is the official version. The PDF version of this issue is available at https://rules.utah.gov/publicat/bull-pdf/2009/b20091015.pdf. The HTML edition of the Bulletin is a convenience copy. Any discrepancy between the PDF version and HTML version is resolved in favor of the PDF version.

Text to be deleted is struck through and surrounded by brackets (e.g., [example]). Text to be added is underlined (e.g., example).  Older browsers may not depict some or any of these attributes on the screen or when the document is printed.

For questions regarding the content or application of this rule, please contact Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov.