Life and Health Insurance. Illinois. State Law Supplement

Transcription

1 Life and Health Insurance Illinois State Law Supplement

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3 Life and Health Insurance Illinois Effective January 1, 2015 State Law Supplement Important: Check for Updates States sometimes revise their exam content outlines unexpectedly or on short notice. To see whether there is an update for this product because of an exam change, go to and check the Insurance Licensing Blog. If there is an update, it will be clearly noted in the blog entries for this state.

4 At press time, this edition contains the most complete and accurate information currently available. Owing to the nature of license examinations, however, information may have been added recently to the actual test that does not appear in this edition. Please contact the publisher to verify that you have the most current edition. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. ILLINOIS LIFE AND HEALTH INSURANCE LAW SUPPLEMENT, EFFECTIVE JANUARY 1, Kaplan, Inc. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever without written permission from the publisher. If you find imperfections or incorrect information in this product, please visit and submit an errata report. Published in March 2015 by Kaplan Financial Education. Printed in the United States of America. ISBN: PPN:

5 Contents Introduction v S E C T I O N 1 Cram Sheets 1 S E C T I O N 2 C L A S S N O T E S 5 S E C T I O N 3 D E T A I L E D T E X T 3 3 S E C T I O N 4 P R A C T I C E E X A M 8 9 iii

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7 Introduction What is a State Law Supplement? This book focuses on the state-specific statutes and regulations on the state exam content outline. In order to be fully prepared for the exam, you must understand completely both the national License Exam Manual and this supplement. How is the supplement organized? In order to make this book flexible and easy to use, we ve divided it into four sections, and are each broken into topic areas as seen below. Section Cram Sheets Cram sheets focus on very specific details for your state. The information is presented in an easy to understand table format primarily highlighting days, dates, and dollars. Class Notes The class notes are meant to be a summary of the key topics in the law supplement, and are available to all students classroom and self-study. Detailed Text The text section is the most detailed section of the law supplement. All topics in your state s exam content outline law and regulations section are covered. Practice Exams The practice exams test your retention of the law supplement material. Topic Areas General Insurance Law Life Insurance Law Health Insurance Law General Insurance Law Life Insurance Law Health Insurance Law General Insurance Law Life Insurance Law Health Insurance Law General Insurance Law Life Insurance Law Health Insurance Law Do I have to learn everything in this book? Not necessarily! The table below shows the sections you should study depending on the exam you are preparing for. State Exam Life and Health Insurance Life Insurance Only Health Insurance Only Sections to Study General (All Lines), Life, and Health Insurance General (All Lines), and Life Insurance only General (All Lines), and Health Insurance only v

8 vi Illinois Law Supplement How should I study this information? Below is a best study practice for the law and regulations section of your exam. 1. Law Supplement Cram Sheet: Your exam will probably ask about specific fine amounts or days notice requirements (e.g., changing your address). 2. Law Supplement Class Notes: Reading the class notes exposes students to the majority of topics covered in the law supplement. 3. Law Supplement Detailed Text: Read this text for more in-depth descriptions of the state s insurance laws and regulations. 4. Law Supplement Practice Exams: There are two law supplement practice exams. One is in the back of the law supplement. State specific law questions can also be found in the InsurancePro QBank at 5. In your final preparation for the exam take the time to again review the cram sheet and class notes. Use them as a last-minute refresher of the most important law and regulation testable topics.

9 s e c t i o n 1 Cram Sheets HOW TO USE: In your final preparations for your insurance exam use this cram sheet to memorize key days, dates, and dollars. A suggested technique is to cover the left hand column; read the right hand column; then uncover the left hand column to reveal the correct answer. 1

10 2 Illinois Law Supplement ILLINOIS LAWS, RULES, AND REGULATIONS PERTINENT TO ALL LINES Director of Insurance (DOI) 20 to 30 days DOI time frame for hearing after cease and desist order $100/day up to $5,000 Examinations Producer fine for cease and desist violation $1,000 Producer fine per violation for refusal to obey unfair trade practice cease and desist order $250,000 Insurer pays up to $ and/or revocation of certificate of authority for violation of an unfair claims practice cease and desist order 10 days The DOI must give at least days notice before a hearing 10 days Insurer lead time to request hearing regarding examination report 90 days DOI must issue a written examination report within this period 14 days Producer lead time to request hearing regarding examination report $5,000 Producer fine for failure to obey a written DOI order Licensing and Registration 90 days Applicant must pass both parts of license exam within this period of time 30 days Producer time to notify DOI of change of address or felony conviction 30 days Producer time to notify DOI of change of license status (non-resident to resident, new state, etc.) 90 days Length of temporary producer license. DOI denies insurer requests if 50+% of applicants fail exam within six months 180 days 12 months Annually Length of temporary non-producer license. DOI may renew for one more period without examination. Producer who lapses license may renew in this period without new exam by paying double renewal fee Limited lines producer license renews on the 1st of January 30 days Producer time to request hearing regarding suspension, revocation, non-renewal 18 years old $180 $50 $150 $50 $50 $1,000 $200 $50 1 year 20 hours 12.5 hours Producer License Requirements Be at least years old Pass the state exam for each line of authority Not committed any act that is grounds for denial, suspension, or revocation Completed pre-licensing study, unless exempted, for each line of authority Pay license fees License Fees $ for biennial resident producers license ($250 for non-resident); same fees for rental auto limited licenses $ for a temporary insurance producers license $ for biennial business entity registration $ annually for a limited lines producer license $ application fee for the written license examination $ annual registration for an educational provider $ for biennial limited lines license $ for biennial self-storage facility limited license Pre-Licensing Education Requirements Pre-licensing requirements must be completed within year(s) of license exam hours (7.5 hours mandatory classroom) per line of authority (life, accident, and health, property, casualty, etc.) hours (5 hours mandatory classroom) for a motor vehicle insurance license

11 Illinois Law Supplement 3 $2,500 or 5% Bond amount is greater of $ or % of brokered premium for previous year up to $50,000 maximum 2 years Producer license renews on the last day of birth month every years 24 hours 3 hours Continuing Education Producer must take hours continuing education to renew license hours must be in ethics 20 to 30 days DOI time frame for a hearing if a producer requests it regarding license suspension or revocation $10,000 and $100,000 In addition to or instead of a license denial or suspension, a person may be subject a civil penalty up to $ per cause and $ for all causes Exceed Fiduciary Responsibilities Controlled Business A license is deemed to be used for controlled business if, during the immediately preceding 12-month period, the total premiums on controlled business the total premiums on all other business 90 days Producer must forward funds to insurer within this period 15 days Producer time to hold customer funds before must be placed in premium trust account Criminal Penalties Misdemeanor Felony Felony Felony Class A : Misappropriation (converting to own use) fiduciary funds up to $150 or less Class 4 : Repeated occurrences of above Class 3 : Misappropriation (converting to own use) fiduciary funds up to $150 or more Class 4 : Selling, soliciting, or negotiating insurance without a license (in addition to any fine) 3 years Period after license revocation before producer may re-apply Commission and Compensation 30 days If a policy is canceled within 90 days of effective date, insurer or producer must refund prorated compensation within days 7 years Producer must keep record of service fees charged/received Marketing Practices 15 days Insurer working days to provide claim forms to insured 30 days Insurer time to affirm or deny liability on claims and offer payment 45 days Insurer is required to explain delay if claim unresolved beyond this period $200 $10,000 Producer pays to county treasurer $ for unfair practice of twisting Illinois Life and Health Insurance Guaranty Fund $300,000 $100,000 $250,000 $500,000 $300,000 $300,000 The Association s liability, regardless of the number of policies, is as follows: Life insurance death benefits Life insurance cash value Present value of annuity benefits Basic medical expense coverages or major medical coverage Disability benefits Long-term care insurance

12 4 Illinois Law Supplement ILLINOIS LAWS, RULES, AND REGULATIONS PERTINENT TO LIFE AND HEALTH ONLY 10 days 20 days 30 days Free look for life and health insurance Free look for life insurance replacements Free look for long-term care insurance and Medicare supplements ILLINOIS LAWS, RULES, AND REGULATIONS PERTINENT TO LIFE ONLY Life Policy Provisions 30 days Grace period for individual life insurance 6% Maximum allowable charge on overdue premiums 2 months Length of time that if a life insurer has not paid the death benefit it must pay interest 24 months or less Terminally ill life expectancy to qualify for accelerated benefits Replacements 3 days Period of time within receiving an application that the replacing insurer must notify any other existing insurer At least 3 years Producer Training Length of time replacing insurer must keep copies of the above replacement notice records 4 hours Producer annuity training course. 4 hours Viatical settlements producer required initial training course ILLINOIS LAWS, RULES, AND REGULATIONS PERTINENT TO HEALTH ONLY Medicare Supplements 6 months Maximum preexisting condition exclusion period $500 to $5,000 Insurer or producer fine per offense of Medicare supplement laws Up to $10,000, and Class 3 felony Insurer or producer penalties for selling unapproved Medicare supplement policies 24 months Maximum suspension of Medicare supplement benefits due to Medicaid eligibility Long-Term Care (LTC) Insurance 12 months Minimum benefit period for LTC policies 6 months Maximum preexisting condition exclusion period 31 days Right to convert group LTC contract to individual contract without proof of insurability Health Advertising 5% Minimum inflation protection percentage that an insurer must offer $200 $10,000 Producer or insurer fine for knowingly violating advertising regulations Individual Accident and Health (A&H) Policies Group Health 24 months Maximum preexisting condition exclusion before effective date for A&H policy 2 to 50 employees Number of eligible full-time employees for small group health plan 5 years Period an insurer who withdraws from group market must wait before applying to reenter Health Maintenance Organization (HMO) $3,000 Maximum individual HMO deductibles and copays per calendar year ($6,000 per family)

13 s e c t i o n 2 Class Notes HOW TO USE: The class notes are an excellent place to start when studying the state specific laws and regulations. The class notes are a summary of the key law supplement topics. For some students the class notes may be their primary section to study the law and regulation exam material. 5

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41 s e c t i o n 3 Detailed Text HOW TO USE: All state specific topics in your state s exam content outline law and regulation section are covered in this detailed text. Students are encouraged to read the text for in-depth descriptions of the state s insurance laws and regulations. In addition, some topics are not covered in the Cram Sheets and Class Notes, and are only covered in the Detailed Text. 33

42 34 Illinois Law Supplement I. ILLINOIS STATUTES AND REGULATIONS COMMON TO LIFE, ACCIDENT, AND HEALTH AND PROPERTY, CASUALTY, AND PERSONAL LINES INSURANCE A. INSURANCE DIRECTOR In Illinois, the Director of Insurance is appointed by the governor. The Director must be well versed in insurance and have no financial interest in any insurer or agency. The Director is charged with the rights, powers, and duties necessary to enforce and execute the insurance laws of Illinois effectively. 1. General powers [Secs. 5/401, 5/401.1, 5/403, 5/431] Upon the request of the Illinois attorney general, the Director may initiate court actions in Illinois to enforce an order or administrative proceeding. The Director has the power to examine the affairs of every person doing insurance business in Illinois to determine whether the person has engaged in any unfair method of competition or any unfair or deceptive act. a. The Director of Insurance has the power to: make reasonable rules and regulations as necessary to implement the insurance laws; conduct investigations as needed to determine whether any person has violated any insurance law or regulation; conduct examinations, investigations, and hearings as necessary for administering the insurance laws efficiently; institute such actions or other lawful proceedings as deemed necessary for enforcing the state s insurance laws and regulations; and when the Director is required to consider criminal history, he can request records from the department of state police and that police department is authorized to furnish the information being requested. b. Cease and desist orders If it appears to the Director that a person or company is conducting insurance business in a manner that violates Illinois insurance laws or in any way endangers policyholders, companies, or the general public, he may issue, without notice, a cease and desist order. 1.) At the same time that the cease and desist order is issued, the Director will serve notice of a hearing to review the violation. 2.) The hearing will be between 20 and 30 days from the date of the hearing notice. 3.) The notice must state the nature of the violation. 4.) After proper hearings, if the alleged violations are found to be true, the Director may take whatever action is necessary to bring an end to the violation(s). This may involve the imposition of fines and penalties.

43 Illinois Law Supplement 35 5.) Offenders who violate a cease and desist order will be subject to a fine of up to $100 per day for every day the violation continues, up to a maximum of $5,000. The Director also has the power to revoke or suspend any license or certificate of authority. 6.) After the process has been followed, the person or company is entitled to a judicial review of the order. 7.) Unfair marketing practices [Sec. 5/431] The Director may issue cease and desist orders against offenders who engage in unfair trade practices. Refusal to obey these orders subjects offenders to a fine of $1,000 for each violation. 8.) Unfair claims practices [Sec. 5/154.8] Failure of a company to obey an order may result in revocation of their certificate of authority for six months, a civil penalty of up to $250,000, or both. 2. Examinations [Secs. 5/132; 5/402; 5/403; 5/ ] Conducting examinations of insurers and producers are critical functions of the Director. a. Examination of insurers To determine an insurer s financial condition or business practices, the Director may examine any: company authorized to do business in Illinois; person who is involved in the formation of a company; licensed producer or firm or any person or company seeking a license; or person engaged in the business of adjusting losses or financing premiums. 1.) Examinations, investigations, and hearings may be conducted personally by the Director or by one or more of the Insurance Department s actuaries, technical advisers, deputies, or examiners. For this purpose, the Director also may retain independent actuaries or certified public accountants who are deemed qualified. 2.) The cost of the examination is charged to the company or person being examined. 3.) Those who are to participate in a hearing must be notified in writing of the time and place, with at least 10 days advance notice. The notice must state the subject of the hearing and specific charges or allegations, if any. Witnesses may be subpoenaed and examined. 4.) Refusal or failure of a person to submit to an examination constitutes grounds for suspension, refusal or nonrenewal of the individual s licensure or authority.

44 36 Illinois Law Supplement 5.) Companies or persons who are examined for violations may request a hearing within 10 days of receiving an examination report. a.) The request must be in writing, together with a statement of objections to the examination report. b.) After the hearing is conducted, the Director must issue a written order based on the examination report and hearing within 90 days of filing the report or within 90 days of the hearing. b. Examination of producers The Director may examine any insurance producer applicant, licensed insurance producer, limited line producer, temporary insurance producer, or any business entity. All persons being examined, as well as their officers, directors, and producers must provide the Director with access to all books and documents. 1.) The Director may designate a subordinate to conduct the examination. The Director or his designee may question any individual under oath who may have information about the person being examined. 2.) The examiners must submit a report of their findings to the Director. A report alleging violations of the Insurance Code or any administrative rules must be in writing and be based upon: facts gained from the records, documents, and other evidence obtained by the examiners; sworn testimony; or written affidavits from the person s officers, directors, insurance producers, limited lines producer, temporary insurance producers or employees, or other individuals. 3.) If a report is made, the Director must deliver a copy of it to the person who was examined. The examinee has the opportunity to demand a hearing about the facts and evidence contained in the report. 4.) Producers who are examined for violations may request a hearing within 14 days of receiving the examination report (compared to companies that must request a hearing within 10 days). a.) The request must be in writing, together with a statement of objections to the examination report. b.) After the hearing is conducted, the Director must issue a written order based on the examination report and hearing within 90 days of filing the report or within 90 days of the hearing. 5.) After the hearing or the expiration of the time during which a person may request a hearing, if the examination reveals that the person violated any law, rule, or prior order, the Director in the written order may require the

45 Illinois Law Supplement 37 person to take any action he considers necessary. The order is subject to review under the Administrative Review Law. 6.) A person who violates a written order issued by the Director is guilty of a business offense and may be fined not more than $5,000. B. LICENSING AND REGISTRATION 1. Persons required to be licensed A person may not sell, solicit, or negotiate insurance in Illinois for any class of insurance unless the person is licensed for that line of authority. The person may not charge a fee or engage in business of offering advice or opinion without a license. In addition to the fines, that person would be guilty of a Class 4 felony. a. Insurance producers [Secs. 5/500 15; 5/500 20; 5/500 25; 5/500 30] 1.) Application for license An individual applying for a resident insurance producer license must declare under penalty of refusal, suspension, or revocation of the license that the statements made in the application are true, correct, and complete to the best of the individual s knowledge. The Director may require additional documents to verify the information contained in an application. There is an application fee that must be submitted as well. 2.) Licensing examination A resident individual applying for an insurance producer license must pass a written examination, unless exempt. Prelicensing study is required prior to taking the examination. The applicant must show proof of prelicensing prior to sitting for the exam. a.) In Illinois, the insurance producer exam consists of two parts. Both parts of the examination must be passed within 90 days of each other. b.) The examination will test the knowledge of the individual concerning the lines of authority for which application is made, the duties and responsibilities of an insurance producer, and the insurance laws and rules of Illinois. c.) An individual applying for an examination must pay a nonrefundable fee to the state, plus a separate fee payable to the designated testing service for all of the services requested by the applicant. d.) An individual who fails to appear for the scheduled examination or fails to pass the examination must reapply and resubmit all required fees and forms before being rescheduled for another examination. 3.) License Unless denied a license, persons who have met the licensing requirements will be issued a two-year insurance producer license.

46 38 Illinois Law Supplement a.) An insurance producer may receive a license in one or more of the following lines of authority. Life This is insurance coverage on human lives, including benefits of endowment and annuities and may include benefits in the event of death or dismemberment by accident and benefits for disability income. Variable life and variable annuity products This is insurance coverage provided under variable life insurance contracts and variable annuities. Accident and health This is insurance coverage for sickness, bodily injury, or accidental death, and may include benefits for disability income and long-term care insurance. Property This is insurance coverage for the direct or consequential loss or damage to property. Casualty This is insurance coverage against legal liability, including that for death, injury, or disability or damage to real or personal property. Personal lines This is property and casualty insurance coverage sold to individuals and families for primarily noncommercial purposes. b.) The license must contain the licensee s name, address, and personal identification number, the date of issuance, the lines of authority, the expiration date, and any other information the Director deems necessary. Licensees must inform the Director of any change of address within 30 days. c.) An insurance producer license will remain in effect unless revoked or suspended, as long as the fee is paid and continuing education requirements for resident individual producers are met by the due date. b. Limited lines producer license [Sec. 5/ ] In Illinois, an individual who is at least 18 years of age and whom the Director considers to be competent, trustworthy, and of good business reputation, can apply for a limited lines license. 1.) An individual may obtain a limited lines producer license for one or more of the following classes of insurance: Baggage or limited travel health, accident, or trip cancellation insurance sold in connection with transportation provided by a common carrier Industrial life insurance Industrial accident and health insurance Insurance issued by a company organized under the Farm Mutual Insurance Company Act of 1986 Legal expense insurance

47 Illinois Law Supplement 39 Enrollment of recipients of public aid or Medicare in a health maintenance organization A limited health care plan issued by an organization having a certificate of authority under the Limited Health Service Organization Act Credit life and credit accident and health insurance and other credit insurance policies which are approved or permitted by the Director (a credit insurance must conduct a training program in which an applicant shall receive basic instruction about the credit insurance products that they will be selling) 2.) A limited lines producer may represent more than one insurance company, health maintenance organization, or limited health service organization. 3.) An applicant who has met the requirements of this section will be issued a perpetual limited lines producer license. 4.) A limited lines producer license will remain in effect as long as the appointing insurance company pays the required fee January 1 of each year, unless the license is revoked or suspended. Failure of the insurance company to pay the license fee or to submit the required documents will cause immediate termination of the limited lines insurance producer license. 5.) A limited lines producer license may be terminated by the insurance company or the licensee. 6.) A limited lines producer license must contain the name, address and personal identification number of the licensee, the date the license was issued, general conditions relative to the license s expiration or termination, and any other information the Director considers proper. A limited line producer license, if applicable, must also contain the name and address of the appointing insurance company. c. Nonresidents [Sec. 5/500 40] A nonresident person will receive a nonresident producer license if, in his home state, he is currently licensed as a resident and in good standing; has submitted the proper request for a license and paid the required fees; and has submitted to the Director the license application that was submitted to his home state or, instead of that application, a completed Uniform Application. 1.) The person s home state must award nonresident producer licenses to residents of Illinois on the same basis. 2.) The Director may verify the producer s licensing status through the producer database maintained by the National Association of Insurance Commissioners or its affiliates.

48 40 Illinois Law Supplement 3.) A nonresident producer who moves from one state to another or a resident producer who moves from Illinois to another state must file a change of address and provide certification from the new resident state within 30 days of the change of legal residence. No fee or license application is required. 4.) A person licensed as a surplus lines producer in his home state will receive a nonresident surplus lines producer license in Illinois, and a person licensed as a limited lines producer in his home state will receive a nonresident limited lines producer license in this state. d. Business entities [Secs. 5/500 30; 5/500 35] A business entity acting as an insurance producer must obtain an insurance producer license. Application must be made using the Uniform Business Entity Application. Before approving the application, the Director must find that the business entity: has submitted an application on the Uniform Business Entity Application; has paid the required fees; and has designated a licensed producer responsible for the business entity s compliance with the insurance laws and rules of Illinois. e. Temporary insurance producers [Secs. 5/500 60; 5/500 65] 1.) Temporary licenses for nonproducers The Director may issue a temporary insurance producer license for up to 180 days and, at his discretion, may renew the temporary producer license for an additional 180 days without requiring an examination. a.) A temporary license may be issued to the following individuals: the surviving spouse or court-appointed representative of a licensed producer who dies or becomes mentally or physically disabled to allow adequate time for the: sale of the producer s business, recovery of the producer, or training and licensing of new personnel to operate the producer s business; a member or employee of a business entity licensed as an insurance producer, upon the death or disability of an individual designated in the business entity application or the license; or the designee of a licensed insurance producer entering active service in the armed forces of the United States of America. b.) The Director may require the temporary licensee to have a suitable sponsor who is a licensed producer or insurer and who assumes responsibility for all acts of the temporary licensee and may impose other similar requirements designed to protect insureds and the

49 Illinois Law Supplement 41 public. The Director may revoke a temporary license if the interest of insureds or the public are endangered. A temporary licensee may not continue after the owner or the personal representative disposes of the business. c.) A person who wishes to become a temporary producer must file an application and pay the appropriate fees to the Director. 2.) Temporary licenses for insurance producer applicants The Director may grant a temporary insurance producer license to an applicant for an insurance producer license, without requiring an examination, for a period of 90 days. a.) The following requirements must be met. i.) The applicant must be enrolled in a training course or training program conducted by or on behalf of the appointing insurance company. ii.) The applicant must be in the process of fulfilling the prelicensing requirements. iii.) The appointing insurer has submitted the proper application form and fee to the Director. b.) An individual applicant may not hold more than one temporary insurance producer license during his lifetime. c.) The Director may refuse to grant temporary insurance producer licenses to applicants from an insurance company when, during a six-month period, more than 50% of the company s temporary license holders have failed to obtain insurance producer licenses. f. Exemptions [Secs. 5/500 15; 5/500 20] 1.) Not all who deal with insurance are required to be licensed. Those who are exempt from the producer licensing requirements include: an officer, director, or employee of an insurer or an insurance producer who does not receive any commission on policies sold in Illinois; an officer, director, or employee whose activities are executive, administrative, managerial, or clerical, and are only indirectly related to the sale of insurance; an officer, director, or employee whose activities relate to underwriting, loss control, inspection or the processing, adjusting, investigating, or settling of claims; the officer, director, or employee who acts as an agency supervisor, assists insurance producers, and provides technical advice that does not include selling insurance, soliciting, or negotiation of insurance;

50 42 Illinois Law Supplement a person who takes enrollments or performs administrative services for group life, accident, and health and annuity plans and receives no commission for the services; an employer or association or its officers, directors, or employees who administer its employee benefit program and who are not compensated by the company issuing the insurance contracts; employees of insurers who rate or classify risks or train insurance producers and who do not sell insurance; a person whose activities are limited to advertising, and not selling, insurance; a nonresident who sells commercial property and casualty insurance to an insured with risks located in more than one state, provided that the person is licensed in the state where the insured maintains its principal place of business; or a salaried, full-time employee who advises his employer about insurance, provided that the employee does not sell insurance or receive a commission. 2.) Along these lines, certain individuals are allowed to charge a fee for offering advice or service about the benefits, advantages, or disadvantages of any insurance policy. These individuals include: a licensed attorney who advises on insurance matters incidental to his position; a licensed insurance producer, limited insurance representative, or temporary insurance producer offering advice concerning insurance for which he is licensed to sell; a trust officer of a bank performing duties incidental to his position; an actuary or a certified public accountant engaged or employed in a consulting capacity, performing duties incidental to that position; and a licensed public adjuster acting within the scope of his license. g. Reinstatement [Sec. 5/500-35] A producer who allows his license to lapse may, within 12 months after the due date of the renewal fee, be issued a license without passing a written examination. However, the penalty is double the unpaid renewal fee. 2. Obtaining a license a. Qualifications [Secs. 5/500 30; 5/500 70] Before approving the application, the Director must find that the individual: is at least 18 years of age; has not committed any act that is a ground for denial, suspension, or revocation; has completed, unless exempted, a prelicensing course of study for the lines of authority for which he has applied; has paid the fees; and has successfully passed the examinations for the lines of authority for which the person has applied.

51 Illinois Law Supplement 43 b. License fees [Sec. 5/ ] In Illinois, license fees are directed into a special state fund, known as the Insurance Producer Administration Fund, and are used to pay the expenses of the Department of Insurance. Insurance licensing and registration fees are as follows: $180 every two years for an insurance producer s license and $250 for a nonresident license $50 for a temporary insurance producer s license $150 every two years for a business entity s registration fee $50 annually for a limited line producer license $50 application fee for the written license examination $1,000 for the annual registration fee of an education provider A certification fee of $50 for each certified prelicensing or continuing education course and an annual fee of $20 for renewing each course s certification $180 for a resident and $250 for a nonresident once every two years for a car rental limited line license $200 every two years for a limited lines license $50 every two years for a self service storage facility limited lines license c. Prelicensing study requirement [Sec. 5/500 30; Reg. 3119] Applicants for a producer license may be required to complete a prelicensing course of study within one year before taking the license examination, consisting of the following minimum hours: 20 hours for a life insurance license with a minimum of 7.5 hours mandatory classroom 20 hours for an accident and health insurance license with a minimum of 7.5 hours mandatory classroom 20 hours for a fire insurance license with a minimum of 7.5 hours mandatory classroom 20 hours for a casualty insurance license with a minimum of 7.5 hours mandatory classroom 20 hours for property casualty personal lines with a minimum of 7.5 hours mandatory classroom 12.5 hours for a motor vehicle insurance license with a minimum of 5 hours mandatory classroom d. Course details [Reg. 3119, Exhibit E] License applicants can prepare for the state prelicensing examination in a seminar or classroom or a combination of classroom and self study as long as the minimum classroom hours are attended. Any person whose license has been lapsed or suspended for one year or more must reapply for licensure and is subject to the prelicensing education requirements. To be approved for prelicensing education, a course must cover specific topics as mandated by the state. These topics on life and health insurance can be found at the exam publisher s Website, e. Bond requirement [Sec. 5/ ] All applicants for a producer s license must certify that they are bonded or that an insurance company will take responsibility for funds received on its behalf by the producer. Insurance compa-

52 44 Illinois Law Supplement nies that appoint agents to act on their behalf assume responsibility for the acts of their agents, for the contracts they accept from their agents, and for monies their agents collect from applicants and policyholders. In effect, such insurance companies bond their appointed agent representatives. In cases where a producer licensee is not appointed by an insurer and places business among insurers, a bond is required and must be filed with the application for license. 1.) The amount of the bond must be the greater of $2,500 or 5% of premiums brokered in the previous year (but not to exceed $50,000 total aggregate liability). a.) The bond must remain in force until the surety is released from liability by the Director or until the bond is cancelled by the surety. The surety may cancel the bond and be released from further liability on 30 days written notice in advance to the principal. b.) The cancellation does not affect any liability incurred before the end of the 30-day period. The producer s license may be revoked if the producer acts without a bond that is required under this section. 2.) Applicants who certify that they are acting solely for an insurance company (which has assumed the same responsibility for funds received on its behalf by a producer that a surety would assume under a bond) are exempt from the bond requirement. This certification is required with the initial license application and must be submitted at each license renewal. 3.) Proof of the agent s appointment and the insurance company s assumption of liability must be maintained by the licensee at his place of business, and is subject to examination by the Director. 4.) If a party injured under the terms of the bond requests the producer to provide the name of the surety and the bond number, the producer must provide the information within three working days of receiving the request. 5.) It should be noted that an insurance producer s license will terminate automatically if there is no bond in force or if no insurer has assumed such responsibility, as explained previously. 3. Maintaining a license [Sec. 5/500 35] Unless revoked or suspended, an insurance producer s license remains in effect as long as he meets the bond requirement, pays the necessary annual fee, and complies with the continuing education requirement. Also, recall that an individual insurance producer who allows his license to lapse may, within 12 months after the due date of the renewal fee, be issued a license without having to again pass a written examination. This is known as reinstatement. a. Continuing education [Sec. 5/500 35] Before each license renewal, an insurance producer must complete at least 24 hours of education in a classroom, seminar, webinar, or via a self-study form of instruction. Three of the 24 required

53 Illinois Law Supplement 45 hours must consist of an approved ethics course delivered in a classroom. Continuing education courses must be approved by the Director before they can be taken by producers for credit. The producer must complete all the courses before the renewal date to allow the education provider time to report the credit to the Department. Producers are required to keep a record of each continuing education course taken for three years after it is completed, noting the provider s name, course title, and the date on which it was completed. Producers can accumulate up to 36 credit hours of continuing education. 1.) Credit for self-study continuing education courses requires the successful completion of an examination. a.) The licensee may not grade the examination. However, if the selfstudy material is completed through an approved computerized interactive format where the computer validates the successful completion of the self-study material, no additional examination is required. b.) The self-study credit hours contained in a certified course will be considered classroom hours when at least two-thirds of the hours are given as classroom or seminar instruction. 2.) An insurance producer license automatically terminates if the producer does not complete the continuing education requirement. However, a licensed insurance producer who is unable to comply with license renewal procedures due to military service may request a waiver of the procedures. b. Controlled business [Sec. 5/ ] Producer licenses are granted with the expectation that producers will serve the insurance needs of the general public. The Director will not issue a license to a person he believes will use it to write controlled business. 1.) Controlled business means insurance procured by or through the person upon: his own life, person, property, or risks or those of his spouse; or the life, person, property, or risks of his employer or own business. 2.) The Director will not grant or extend an insurance producer license if he believes that: during either of the two years immediately preceding the extension date of the license, the total amount of premiums on insurance from controlled business exceeded the total amount of premiums from all other insurance; or during the 12 months immediately following the issuance of the license, the total amount of premiums from controlled business would exceed the total amount of premiums on all other insurance business of the applicant or licensee.

54 46 Illinois Law Supplement c. Change of address [Sec. 5/500 35(g)] A licensed insurance producer must advise the Director of a change in his residential address within 30 days of the change. d. Required fees [Sec. 5/ ] All fees paid to and collected by the Director shall be paid promptly after receipt, together with a detailed statement of the fees, into a special fund in the State Treasury to be known as the Insurance Producer Administration Fund. The monies deposited may be used only for payment of the expenses of the Department in the execution, administration, and enforcement of the insurance laws. 4. License suspension, revocation, or denial [Sec. 5/500 70] The Director may place on probation, suspend, revoke, or refuse to issue or renew an insurance producer s license, levy a civil penalty, or take any combination of actions. a. The Director may take action against an individual for any of the following causes: Providing incorrect, misleading, incomplete, or materially untrue information in the license application Violating any insurance laws or any rule, subpoena, or order of the Director or another state s Insurance Commissioner Obtaining or attempting to obtain a license through misrepresentation or fraud Improperly withholding, misappropriating, or converting any monies or properties received in the course of doing insurance business Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance Conviction of a felony Having admitted committing or been found guilty of committing any unfair trade practice or fraud Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in Illinois or elsewhere Having an insurance producer license denied, suspended, or revoked in any other state, district, or territory Forging a name to an application for insurance or to a document related to an insurance transaction Improperly using notes or any other reference material to complete an examination for an insurance license Knowingly accepting insurance business from an individual who is not licensed Failing to comply with an administrative or court order imposing a child support obligation Failing to pay state income tax or penalty or interest or comply with any administrative or court order directing payment of state income tax to the Department of Revenue

55 Illinois Law Supplement 47 Failing to repay a student loan to the Illinois Student Assistance Commission Failing to comply with any provision of the Viatical Settlements Act of 2009 b. If the Director takes action to nonrenew, suspend, or revoke a license or to deny an application for a license, he must notify the person, in writing, of the reason for the action. 1.) Within 30 days of receiving the notification, the applicant or licensee may write to the Director and request a hearing to determine the reasonableness of the Director s action. 2.) The hearing must be held between 20 and 30 days of the mailing of the notice of hearing. c. The license of a business entity may be suspended, revoked, or refused if the Director finds, after a hearing, that an individual licensee s violation was known or should have been known by one or more of the partners or managers and the violation was neither reported to the Director nor corrective action taken. d. In addition to or instead of any license denial or suspension, a person may, after a hearing, be subject to a civil penalty of up to $10,000 for each cause and $100,000 for all causes. e. The Director has the authority to impose any penalty against any person who is under investigation or charged with any violation of this Code, even if the person s license has been surrendered or has lapsed. f. On suspension, denial, or revocation of a license, the licensee must hand over the license to the Director. The Director will notify all interested insurance companies and persons when a licensee s suspension, denial, or revocation becomes final. g. A person whose license is revoked or whose application is denied is ineligible to apply for any license for three years. h. A person whose license has been revoked, suspended, or denied may not be employed or engaged in any insurance business during the time the revocation, suspension, or denial is in effect. C. FIDUCIARY RESPONSIBILITIES [SEC. 5/ ; REG. 3113] Any money that an insurance producer, limited insurance representative, temporary insurance producer, or registered firm receives for soliciting, negotiating, renewing, or binding insurance policies must be held in a fiduciary capacity and not misappropriated or converted to the individual or firm s own use. 1. In issuing a policy based on an application or at the request of an insurance producer, a company authorizes the producer to collect any premium due for the policy at the

56 48 Illinois Law Supplement time of issuance or delivery and any premium that becomes due on the policy within 90 days. Consequently, any premium paid by the policyowner to the producer will be deemed to have been received by the insurance company. a. If an insurance producer knowingly misappropriates or converts to his own use or illegally withholds fiduciary monies amounting to $150 or less, he is guilty of a Class A misdemeanor. Repeated occurrences of such actions are subsequently rated a Class 4 felony. b. If the amount of misappropriated funds is more than $150, the offending licensee is guilty of a Class 3 felony. c. An insurance company that authorizes a producer to collect premiums on its behalf may hold them no more than 90 days. 2. With any balance payable to an insurance producer within a specified period of 90 days or less, where the balance is not fully paid within that period, a late charge not exceeding 1.5% per month may be added by the insurance producer to induce payment of the premium. 3. Premium Fund Trust Account [Reg. 3113] The Department of Insurance has issued specific guidelines for handling and keeping records of premium funds by licensed producers and firms and for depositing such funds in separate premium fund trust accounts. Essentially, any funds from applicants or policyowners that will be held for longer than 15 days by the producer (before they are remitted to the insurer) must be placed in a Premium Fund Trust Account (PFTA). The PFTA must be established and maintained with an Illinois-based financial institution. a. All monies deposited into the PFTA are considered to be fiduciary funds until lawfully withdrawn. Lawful withdrawals include: net or gross premiums due to other licensees or insurance companies; premiums refunded to applicants on policy surrender; commissions, when specifically matched to money (previously deposited in the PFTA) representing premiums on which the commissions are based; and interest that the licensee is authorized to retain. b. Withdrawals must be made payable to the licensee or another licensee. Monies in the PFTA must not be used as a general operating account or claim payment account. D. COMMISSIONS AND COMPENSATION [SECS. 5/151; 5/500 80] An insurer or insurance producer may not pay a commission or any other valuable consideration to a person for selling or negotiating insurance in Illinois if that person is required to be licensed but is not when conducting insurance business. 1. A person may not accept a commission or other consideration for selling, soliciting, or negotiating insurance if that person is required to be licensed and is not at the time of the transaction.