File No. 34026
This rule was published in the September 15, 2010, issue (Vol. 2010, No. 18) of the Utah State Bulletin.
Replacement of Life Insurance and Annuities
Notice of Proposed Rule
DAR File No.: 34026
Filed: 08/30/2010 04:11:11 PM
Purpose of the rule or reason for the change:
Members of the life insurance industry have requested there be a change in the trigger to complete the replacement notice.
Summary of the rule or change:
The following changes are being proposed. In Section R590-93-3, clarifies that a financed purchase is a replacement. In Sections R590-93-4 andR590-93- 5, require that a replacement question be asked on the application and if the answer is "Yes" then the replacement notice is to be completed. Currently the trigger to completing the replacement notice is if there is existing insurance. In Section R590-93-9, an additional example of a violation has been added.
State statutory or constitutional authorization for this rule:
- Section 31A-23a-402
- Section 31A-2-201
Anticipated cost or savings to:
the state budget:
Most life insurance applications include the new question. Insurers that have not included this question in their application will need to add it and then file the application form with the Insurance Department. This will create a very small increase in the department's workload.
This rule and its changes will have no effect on local governments since they deal solely with the relationship between the department and their life insurance licensees and their insureds and producers.
The changes to this rule will have an impact on the insurance agencies in Utah that sell life insurance. It is likely to reduce time and paperwork involved in completing a replacement form.
persons other than small businesses, businesses, or local governmental entities:
Fewer replacement forms will need to be completed because in the past a replacement form was to be completed every time the insured applied for insurance when they already had existing coverage. Now the insured will only need to complete the replacement form when their existing coverage is being replaced. This would be a savings in time and materials for the applicant, the producer and the insurer.
Compliance costs for affected persons:
Applicants, producers, and insurers will not need to complete the replacement form as often as is necessary now, which will be a small savings in time and materials.
Comments by the department head on the fiscal impact the rule may have on businesses:
The changes to this rule will have minimal impact on those affected by it. What impact is felt will be a small savings in time and paperwork.
Neal T. Gooch, Commissioner
The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:Insurance
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 firstname.lastname@example.org
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:
This rule may become effective on:
Jilene Whitby, Information Specialist
R590. Insurance, Administration.
R590-93. Replacement of Life Insurance and Annuities.
In addition to the definitions of Section 31A-1-301, the following definitions shall apply for the purposes of this rule.
(1) "Direct-response solicitation" means a solicitation through a sponsoring or endorsing entity or individually solely through mails, telephone, the Internet or other mass communication media.
(2) "Existing insurer" means the insurance company whose policy or contract is or will be changed or affected in a manner described within the definition of "replacement."
(3) "Existing policy or contract" means an individual life insurance policy, herein referred to as policy, or annuity contract, herein referred to as contract, in force, including a policy under a binding or conditional receipt or a policy or contract that is within an unconditional refund period.
(4) "Financed purchase" means the purchase of a new policy involving the actual or intended use of funds obtained by the withdrawal or surrender of, or by borrowing from values of an existing policy to pay all or part of any premium due on the new policy. For purposes of a regulatory review of an individual transaction only, if a withdrawal, surrender or borrowing involving the policy values of an existing policy is used to pay premiums on a new policy owned by the same policyholder and issued by the same company within four months before or 13 months after the effective date of the new policy, it will be deemed prima facie evidence of the policyholder's intent to finance the purchase of the new policy with existing policy values. This prima facie standard is not intended to increase or decrease the monitoring obligations contained in Subsection R590-93-5(1)(e).
(5) "Illustration" means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years as defined in R590-177, Life Insurance Illustrations Rule.
(6) "Notice" means Appendix A and Appendix C, Important Notice: Replacement of Life Insurance or Annuities, and Appendix B, Notice Regarding Replacement, from the National Association of Insurance Commissioners, dated 2006 and which are incorporated herein by reference. The notice is to be made available by the replacing insurer and must be imprinted with the name, address, and telephone number of the replacing insurer.
(7)(a) "Policy summary" for policies or contracts other than universal life policies, means a written statement regarding a policy or contract which shall contain to the extent applicable, but need not be limited to, the following information:
(i) current death benefit;
(ii) annual contract premium;
(iii) current cash surrender value;
(iv) current dividend;
(v) application of current dividend; and
(vi) amount of outstanding loan.
(b) "Policy summary" for universal life policies, means a written statement that shall contain at least the following information:
(i) the beginning and end date of the current report period;
(ii) the policy value at the end of the previous report period and at the end of the current report period;
(iii) the total amounts that have been credited or debited to the policy value during the current report period, identifying each by type, e.g., interest, mortality, expense and riders;
(iv) the current death benefit at the end of the current report period on each life covered by the policy;
(v) the net cash surrender value of the policy as of the end of the current report period; and
(vi) the amount of outstanding loans, if any, as of the end of the current report period.
(8) "Replacing insurer" means the insurance company that issues or proposes to issue a new policy or contract that replaces an existing policy or contract or is a financed purchase.
(9) "Registered contract" means a variable annuity contract or variable life insurance policy subject to the prospectus delivery requirements of the Securities Act of 1933.
(10) "Replacement" means a transaction in which a new policy or contract is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer if there is no producer, that by reason of the transaction, an existing policy or contract has been or is to be:
(a) lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated;
(b) converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;
(c) amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid;
(d) reissued with any reduction in cash value; or
(e) used in a financed purchase.
(11) "Sales material" means a sales illustration and any other written, printed or electronically presented information created, or completed or provided by the company or producer and used in the presentation to the policy or contract holder related to the policy or contract purchased.
R590-93-4. Duties of Producers.
A producer who initiates an application shall submit to the
insurer, with or as part of the application, a statement signed by
the applicant as to whether the applicant has existing policies or
contracts. If the answer is "no," the producer's
duties with respect to replacement are complete.]
(2) If the applicant answered
"yes" to the question regarding [
existing coverage] referred to in Subsection (1), the producer shall
present [ and read] to the applicant, not later than at the
time of taking the application, the Notice regarding replacements
in the form as described in Appendix A or other substantially
similar document filed with the commissioner. However, a filing
shall not be required when amendments to the Notice are limited to
the omission of references not applicable to the product being sold
or replaced. The Notice shall be signed by both the applicant and
the producer attesting that the Notice has been read aloud by the
producer or that the applicant did not wish the Notice to be read
aloud, in which case the producer need not have read the Notice
aloud, and left with the applicant. With respect to an
electronically completed application and Notice, the producer is
not required to leave a copy of the electronically completed Notice
with the applicant.
(3) The Notice shall list each existing policy or contract contemplated to be replaced, properly identified by name of insurer, the insured or annuitant, and policy or contract number if available; and shall include a statement as to whether each policy or contract will be replaced or whether a policy will be used as a source of financing for the new policy or contract. If a policy or contract number has not been issued by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.
(4) In connection with a replacement transaction the producer shall leave with the applicant at the time an application for a new policy or contract is completed the original or a copy of all sales material. With respect to electronically presented sales material, it shall be provided to the policy or contract holder in printed form no later than at the time of policy or contract delivery.
(5) Except as provided in Subsection R590-93-6(3), in connection with a replacement transaction the producer shall submit to the insurer to which an application for a policy or contract is presented, a copy of each document required by this section, a statement identifying any preprinted or electronically presented company approved sales materials used, and copies of any individualized sales materials, including any illustrations related to the specific policy or contract purchased.
R590-93-5. Duties of Insurers that Use Producers.
Each insurer shall:
(1) maintain a system of supervision and control to insure compliance with the requirements of this rule that shall include at least the following:
(a) inform its producers of the requirements of this rule and incorporate the requirements of this rule into all relevant producer training manuals prepared by the insurer;
(b) provide to each producer a written statement of the company's position with respect to the acceptability of replacements providing guidance to its producer as to the appropriateness of these transactions;
(c) a system to review the appropriateness of each replacement transaction that the producer does not indicate is in accord with Subsection (b) above;
(d) procedures to confirm that the requirements of this rule have been met;
(e) procedures to detect transactions that are replacements of existing policies or contracts by the existing insurer, but that have not been reported as such by the applicant or producer. Compliance with this rule may include, but shall not be limited to, systematic customer surveys, interviews, confirmation letters, or programs of internal monitoring;
(2) have the capacity to monitor each producer's life insurance policy and annuity contract replacements for that insurer, and shall produce, upon request, and make such records available to the department. The capacity to monitor shall include the ability to produce records for each producer's:
(a) life replacements, including financed purchases, as a percentage of the producer's total annual sales for life insurance;
(b) number of lapses of policies by the producer as a percentage of the producer's total annual sales for life insurance;
(c) annuity contract replacements as a percentage of the producer's total annual annuity contract sales;
(d) number of transactions that are unreported replacements of existing policies or contracts by the existing insurer detected by the company's monitoring system as required by Subsection R590-93-5(1)(e); and
(e) replacements, indexed by replacing producer and existing insurer;
(3) require with or as a part of each application for life insurance or an annuity a signed statement by the applicant as to
whether the applicant has existing policies or contracts;
(4) require with each application for life insurance or annuity that indicates an existing policy or contract, a completed Notice regarding replacements as contained in Appendix A;
(5) when the applicant has existing policies or contracts, each insurer shall be able to produce copies of any sales material required by Subsection R590-93-4(5), the basic illustration and any supplemental illustrations related to the specific policy or contract that is purchased, and the producer's and applicant's signed statements with respect to financing and replacement for at least five years after the termination or expiration of the proposed policy or contract;
(6) ascertain that the sales material and illustrations required by Subsection R590-93-4(5) of this rule meet the requirements of this rule and are complete and accurate for the proposed policy or contract;
(7) if an application does not meet the requirements of this rule, notify the producer and applicant and fulfill the outstanding requirements; and
(8) maintain records in any media or by any process that accurately reproduces the actual document.
R590-93-9. Violations and Penalties.
(1) Any failure to comply with this rule shall be considered a violation of 31A-23a-402. Examples of violations include:
(a) any deceptive or misleading information set forth in sales material;
(b) failing to ask the applicant in completing the application the pertinent question regarding existing policies or contracts ;
(c) the intentional incorrect recording of an answer;
(d) advising an applicant to respond
negatively to any question regarding replacement in order to
prevent notice to the existing insurer;[
(e) advising a policy or contract holder to write directly to the company in such a way as to attempt to obscure the identity of the replacing producer or company
(2) Policy and contract holders have the right to replace existing life insurance policies or annuity contracts after 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 holders of the same producer shall be deemed prima facie evidence of the producer's knowledge that replacement was intended in connection with the identified transactions, and these patterns of action shall be deemed prima facie evidence of the producer's intent to violate this rule.
(3) Where it is determined that the requirements of this rule have not been met, the replacing insurer shall provide to the policy holder an in force illustration if available or a policy summary for the replacement policy or disclosure document for the replacement contract and the appropriate Notice regarding replacements in Appendix A or C.
(4) Violations of this rule shall subject the violators to penalties that may include the revocation or suspension of a producer's or company's license, monetary fines and the forfeiture of any commissions or compensation paid to a producer as a result of the transaction in connection with which the violations occurred. 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 the legal rate as provided in Title 15 of the Utah Code on the amount refunded in cash.
R590-93-12. Enforcement Date.
The commissioner will begin enforcing this rule 45 calendar days after the effective date.
KEY: life insurance, annuity replacement
Date of Enactment or Last Substantive Amendment: [
August 8, 2007]
Notice of Continuation: April 15, 2009
Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-23a-402
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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 email@example.com.