NAIC Replacement Requirements Fr Certain Life Insurance Plicies And Annuity Cntracts Duties f Prducers If a transactin invlves a replacement, the prducer must leave with the applicant, at the time an applicatin fr a new plicy r cntract is cmpleted, the riginal r a cpy f all sales material. Electrnically presented sales material must be prvided t the plicy r cntract wner in printed frm nt later than the date that the plicy r cntract is delivered. If a transactin invlves a replacement, the prducer must submit the fllwing dcuments t the insurer t which an applicatin fr a plicy r cntract is presented: a cpy f each required dcument; a statement identifying any preprinted r electrnically presented insurer-apprved sales materials used; and cpies f any individualized sales materials, including any illustratins related t the specific plicy r cntract purchased. Illustratin means a presentatin r depictin that includes nnguaranteed elements f a life insurance plicy ver a perid f years. Let s Summarize A prducer must: submit, with the applicatin t the insurer, a statement signed by the prducer and the applicant that indicates the applicant has existing plicies r cntracts; read alud t the applicant, when the applicatin is taken, a ntice regarding replacements, which must be signed by the prducer and the applicant, and the prducer must leave the signed ntice with the applicant; leave, at the time the applicatin r cntract is cmpleted, the riginal r a cpy f all sales material used with the applicant; and submit t the insurer a cpy f the signed ntice regarding replacements and the statement regarding existing plicies r cntracts, a statement that identifies any insurer-apprved sales material used, and cpies f any individualized sales materials, including illustratins. Duties f Insurers that Use Prducers Each insurer must maintain a system f supervisin and cntrl t ensure cmpliance with applicable requirements. Under the system, the insurer must, at a minimum: infrm its prducers f the requirements and incrprate these requirements int all relevant prducer training manuals; give each prducer a written statement f the insurer s psitin with respect t the acceptability f replacements and prvide each prducer with guidance n the apprpriateness f these transactins; review the apprpriateness f each replacement transactin and implement prcedures t cnfirm that the requirements have been met;
implement prcedures t cnfirm that requirements f this regulatin have been met; and implement prcedures t detect transactins that are replacements f existing plicies r cntracts by the existing insurer, but that have nt been reprted as such by the applicant r prducer; such prcedures may include, but are nt limited t, systematic custmer surveys, interviews, cnfirmatin letters, r prgrams f internal mnitring. Each insurer must have the capacity t mnitr each prducer s life insurance plicy and annuity cntract replacements. The insurer must maintain recrds regarding the mnitring and must prduce and make the recrds available t the state s department f insurance n request. The capacity t mnitr must include the ability t prduce recrds fr: each prducer s life insurance replacements, including financed purchases, as a percentage f the prducer s ttal annual life insurance sales (financed purchase means the purchase f a new plicy that invlves the actual r intended use f funds t pay all r part f any premium due n the new plicy btained by the withdrawal r surrender f an existing plicy r brrwing frm values f an existing plicy); the number f lapses f plicies by the prducer as a percentage f the prducer s ttal annual life insurance sales; each prducer s annuity cntract replacements as a percentage f the prducer s ttal annual annuity cntract sales; the number f transactins that are unreprted replacements f existing plicies r cntracts by the existing insurer detected by the insurer s mnitring system; and replacements indexed by replacing prducer and existing insurer. Each insurer must require, with r as a part f each applicatin fr life insurance r an annuity, a signed statement by bth the applicant and the prducer as t whether the applicant has existing plicies r cntracts. Each insurer must require, with each applicatin fr life insurance r an annuity that indicates an existing plicy r cntract, a cmpleted ntice regarding replacements. If the applicant has existing plicies r cntracts, each insurer must be able t prduce, fr at least five years after the date f terminatin r expiratin f the prpsed plicy r cntract, cpies f any required sales material, the basic illustratin and any supplemental illustratins related t the specific plicy r cntract that is purchased, and the prducer s and applicant s signed statements with respect t financing and replacement. The insurer must ascertain that the required sales material and illustratins meet the applicable requirements and are cmplete and accurate fr the prpsed plicy r cntract. If an applicatin des nt meet all applicable requirements, the insurer must ntify the prducer and applicant and fulfill the utstanding requirements. The insurer must maintain required recrds in paper, phtgraphic, micrprcess, magnetic, mechanical, r electrnic media r by any prcess that accurately reprduces the actual dcument.
Let s Summarize Insurers that use prducers must: maintain a system f supervisin and cntrl t ensure cmpliance with requirements, including infrming prducers f all requirements and incrprating these requirements int all relevant prducer training manuals, giving each prducer a written statement f the insurer's psitin with respect t the acceptability f replacements and prviding each prducer with guidance n the apprpriateness f these transactins, reviewing the apprpriateness f each replacement transactin and implementing prcedures t cnfirm that the requirements have been met, and implementing prcedures t detect transactins that are replacements f existing plicies r cntracts by the existing insurer but that have nt been reprted as such by the applicant r prducer; mnitr and maintain recrds f all prducer replacements; require prducers t submit with any applicatin fr life insurance r annuity a statement, signed by the prducer and the applicant, that indicates whether r nt the applicant has existing plicies r cntracts; require a cmpleted ntice regarding replacements with each applicatin fr life insurance r an annuity that indicates an existing plicy r cntract; be able t prduce, fr each applicant that has existing plicies r cntracts, fr at least five years after the date f terminatin r expiratin f the prpsed plicy r cntract, cpies f any required sales material, the basic illustratin and any supplemental illustratins related t the specific plicy r cntract that is purchased, and the prducer s and applicant s signed statements with respect t financing and replacement; ascertain that the required sales material and illustratins meet the applicable requirements and are cmplete and accurate fr the prpsed plicy r cntract; and ntify the prducer and the applicant t fulfill utstanding requirements when an applicatin des nt meet requirements. Duties f Replacing Insurers that Use Prducers Definitin f Replacing Insurer Replacing insurer means the insurer that issues r prpses t issue a new plicy r cntract that: replaces an existing plicy r cntract; r is a financed purchase. The replacing insurer must verify that the required frms are received and are in cmpliance with applicable requirements. The replacing insurer must: ntify any existing insurer that may be affected by the prpsed replacement nt later than the fifth business day after the date f receipt f a cmpleted applicatin indicating replacement, r the date that replacement is identified, if it is nt indicated n the applicatin; and
mail a cpy f the available illustratin r plicy summary fr the prpsed plicy r available disclsure dcument fr the prpsed cntract t the existing insurer nt later than the fifth business day after the date f a request frm the existing insurer. The replacing insurer must be able t prduce cpies f the ntificatin regarding replacement, indexed by prducer, until the later f: the fifth anniversary f the date f the ntificatin; r the date f the replacing insurer's next regular examinatin by the insurance regulatry authrity f the insurer's state f dmicile. The replacing insurer must prvide, t the plicy r cntract wner, ntice f the wner's right t return the plicy r cntract within 30 days f the delivery f the plicy r cntract and t receive an uncnditinal full refund f all premiums r cnsideratins paid n the plicy r cntract, including any plicy fees r charges r, in the case f a variable r market value adjustment plicy r cntract, a payment f the cash surrender value prvided under the plicy r cntract plus the fees and ther charges deducted frm the grss premiums r cnsideratins r impsed under the plicy r cntract. In transactins in which the replacing insurer and the existing insurer are the same subsidiaries r affiliates under cmmn wnership r cntrl, the replacing insurer must allw credit fr the perid that has elapsed under the replaced plicy s r cntract s incntestability and suicide perid up t the face amunt f the existing plicy r cntract. With regard t financed purchases, the credit may be limited t the amunt that the face amunt f the existing plicy is reduced by the use f existing plicy values t fund the new plicy r cntract. Financed purchase means the purchase f a new plicy that invlves the actual r intended use f funds t pay all r part f any premium due n the new plicy btained by: the withdrawal r surrender f an existing plicy; r brrwing frm values f an existing plicy. If an insurer prhibits the use f sales material ther than that apprved by the insurer, then the insurer must: require with each applicatin a statement signed by the prducer stating that the prducer used nly insurer-apprved sales material, and cpies f all sales material were left with the applicant; cntact the applicant nt later than the 10th day after the date f issuance f the plicy r cntract and, within this timeframe: ntify the applicant by sending a letter r by verbal cmmunicatin with the applicant by a persn whse duties are separate frm the marketing area f the insurer that the prducer has represented that cpies f all sales material have been left with the applicant, prvide the applicant with a tll-free telephne number t cntact the insurer s persnnel invlved in the cmpliance functin if cpies f all sales material have nt been left with the applicant, and stress the imprtance f retaining cpies f the sales material fr future reference; and be able t prduce a cpy f the letter r ther verificatin in the plicy file until the fifth anniversary f the date f terminatin r expiratin f the plicy r cntract.
Let s Summarize A replacing insurer that uses prducers must: verify that required frms are received and are in cmpliance with applicable requirements; ntify any existing insurer that may be affected by the prpsed replacement when required; mail a cpy f the available illustratin, plicy summary, r available disclsure dcument t the existing insurer nt later than the fifth business day after the date f a request frm the existing insurer; prduce cpies f the ntificatin regarding replacement, indexed by prducer, until the later f the fifth anniversary f the date f the ntificatin r the date f the replacing insurer s next regular examinatin by the insurance regulatry authrity f the insurer s state f dmicile; prvide t the plicy r cntract wner ntice f the wner s right t return the plicy r cntract within 30 days f the delivery f the plicy r cntract and t receive an uncnditinal full refund f all premiums r cnsideratins paid n the plicy r cntract; allw, in transactins in which the replacing insurer and the existing insurer are the same subsidiaries r affiliates under cmmn wnership r cntrl, credit fr the perid that has elapsed under the replaced plicy s r cntract s incntestability and suicide perid up t the face amunt f the existing plicy r cntract; require, if an insurer prhibits the use f sales material ther than that apprved by the insurer, with each applicatin, a statement signed by the prducer that states that the prducer used nly insurer-apprved sales material and als states that cpies f all sales material were left with the applicant; nt later than the 10th day after the date f issuance f the plicy r cntract; discuss the fllwing with the applicant nt later than the 10th day after the date f issuance f the plicy r cntract if the insurer prhibits the use f sales material ther than that apprved by the insurer: ntify the applicant that the prducer has represented that cpies f all sales material have been left with the applicant, prvide the applicant with a tll-free telephne number t cntact the insurer s persnnel invlved in the cmpliance functin if cpies f all sales material have nt been left with the applicant, and stress the imprtance f retaining cpies f the sales material fr future reference; and be able t prduce a cpy f the letter r ther verificatin in the plicy file until the fifth anniversary f the date f terminatin r expiratin f the plicy r cntract. Duties f Existing Insurer The existing insurer must retain and be able t prduce all replacement ntificatins received, indexed by the replacing insurer, until the later f: the fifth anniversary f the date f receipt f the ntificatin; r the date f cnclusin f the next regular examinatin cnducted by the insurance regulatry authrity f the existing insurer's state f dmicile.
The existing insurer must send a letter t the plicy r cntract wner regarding the wner's right t receive infrmatin regarding the existing plicy r cntract values. The letter must include, if available, an in-frce illustratin r, if an in-frce illustratin cannt be prduced n later than the fifth business day after the date f receipt f a ntice that an existing plicy r cntract is being replaced, a plicy summary. The infrmatin must be prvided n later than the fifth business day after the date f receipt f the request frm the plicy r cntract wner. Upn receipt f a request t brrw, surrender, r withdraw any plicy values, the existing insurer must send a ntice advising the plicywner that the release f plicy values may affect the guaranteed elements, nnguaranteed elements, face amunt, r surrender value f the plicy frm which the values are released. The ntice must be sent separately frm the payment if the payment is sent t any persn ther than the plicywner. In the case f cnsecutive autmatic premium lans, the insurer is nly required t send the ntice at the time f the first lan. Let s Summarize The existing insurer must: retain and be able t prduce all replacement ntificatins received, indexed by the replacing insurer, until the later f the fifth anniversary f the date f receipt f the ntificatin r the date f cnclusin f the next regular examinatin cnducted by the insurance regulatry authrity f the existing insurer s state f dmicile; send a letter t the plicy r cntract wner regarding the wner s right t receive infrmatin regarding the existing plicy r cntract values; the required infrmatin must be prvided n later than the fifth business day after the date f receipt f the request frm the plicy r cntract wner; and send, upn receipt f a request t brrw, surrender, r withdraw any plicy values, a ntice advising the plicywner that the release f plicy values may affect the guaranteed elements, nnguaranteed elements, face amunt, r surrender value f the plicy frm which the values are released. Duties f Insurers Regarding Direct Respnse Slicitatins When an applicatin is initiated as a result f a direct respnse slicitatin, the insurer must require submissin f a statement asking whether the applicant, by applying fr the prpsed plicy r cntract, intends t replace, discntinue, r change an existing plicy r cntract. The statement may be included with r submitted as part f each cmpleted applicatin fr a plicy r cntract. If the applicant indicates a replacement r change is nt intended r if the applicant fails t respnd t the statement, the insurer must send the applicant, with the plicy r cntract, a ntice, in a frm adpted r apprved by the state s Cmmissiner, regarding replacement. If the insurer has prpsed the replacement r if the applicant indicates a replacement is intended and the insurer cntinues with the replacement, the insurer must: prvide t the applicant r prspective applicant, with the plicy r cntract, a ntice apprved by the Cmmissiner; and cmply with all applicable requirements.
When the insurer has prpsed the replacement r when the applicant indicates a replacement is intended and the insurer cntinues with the replacement, the insurer must prvide t the applicant r prspective applicant, with the plicy r cntract, a ntice adpted r apprved by the Cmmissiner. In this situatin, the insurer may use a ntice that deletes references t the prducer, including the prducer's signature, and references nt applicable t the prduct being sld r replaced withut having t btain prir apprval f the ntice frm the Cmmissiner. The insurer's bligatin t btain the applicant's signature is satisfied if the insurer can demnstrate that the insurer has made a diligent effrt t secure a signed cpy f the ntice. The requirement t make a diligent effrt is deemed satisfied if the insurer includes in the mailing a self-addressed, prepaid pstage envelpe with instructins fr the return f the signed ntice. Let s Summarize The insurer must: require, when an applicatin is initiated as a result f a direct respnse slicitatin, submissin f a statement asking whether the applicant, by applying fr the prpsed plicy r cntract, intends t replace, discntinue, r change an existing plicy r cntract. If the applicant indicates a replacement r change is nt intended r if the applicant fails t respnd t the statement, the insurer must send the applicant, with the plicy r cntract, a ntice, in a frm adpted r apprved by the Cmmissiner, regarding replacement; prvide, if the insurer has prpsed the replacement r if the applicant indicates a replacement is intended and the insurer cntinues with the replacement, t the applicant r prspective applicant, with the plicy r cntract, a ntice adpted r apprved by the Cmmissiner and cmply with all applicable requirements; and prvide, when the insurer has prpsed the replacement r when the applicant indicates a replacement is intended and the insurer cntinues with the replacement, t the applicant r prspective applicant, with the plicy r cntract, a ntice adpted r apprved by the Cmmissiner. The insurer s bligatin t btain the applicant's signature is satisfied if the insurer can demnstrate that the insurer has made a diligent effrt t secure a signed cpy f the ntice. Unfair Methd f Cmpetitin Sanctins and Penalties A failure by an insurer r prducer t cmply with these requirements cnstitutes a vilatin and is subject t sanctins and penalties. Fr purpses f this sectin, examples f vilatins include: deceptive r misleading infrmatin set frth in any sales material; failing t ask the applicant in cmpleting the applicatin the pertinent questins regarding the pssibility f financing r replacement; intentinally recrding an answer incrrectly; advising an applicant t respnd negatively t any questin regarding replacement in rder t prevent ntice t the existing insurer; r advising a plicy r cntract wner t cntact the insurer directly in such a way as t attempt t bscure the identity f the replacing prducer r insurer. A plicy r cntract wner has the right t replace an existing life insurance plicy r annuity cntract after indicating in, r as a part f, applicatins fr new cverage that replacement is nt the intentin. Hwever, patterns f that actin by plicy r cntract wners f the same prducer are deemed prima facie evidence f the prducer s knwledge that replacement was intended in cnnectin with the
identified transactins, and thse patterns f actin are cnsidered prima facie evidence f the prducer s intent t vilate these requirements. If it is determined that these requirements have nt been met, the replacing insurer must prvide t the plicywner: an in-frce illustratin, r if an in-frce illustratin is nt available, a plicy summary fr the replacement plicy r an available disclsure dcument fr the replacement cntract; and the apprpriate ntice regarding replacements. Additinal Sanctins In additin t previus sanctins and penalties, an insurer r prducer that vilates these requirements is subject t additinal sanctins, which may include: the revcatin r suspensin f the prducer s license r the insurer's certificate f authrity; mnetary fines; and frfeiture f any cmmissins r ther cmpensatin paid t a prducer as a result f the transactin in cnnectin with which the vilatins ccurred. In additin, if the Cmmissiner has determined that the vilatins f these requirements were material t the sale, the insurer may be required t: make restitutin in the required manner; restre plicy r cntract values; and pay interest n the amunt refunded in cash.