The purpose of this chapter is to acquaint the student with state specific insurance laws and regulations.

Transcription

1 Chapter Fifteen Alabama State Insurance Law (Code) OVERVIEW The purpose of this chapter is to acquaint the student with state specific insurance laws and regulations. NOTE: Information in this chapter modifies or amends information from previous chapters. ****************************************************************************************************** Insurance Regulation Insurance Commissioner 1. Appointment and Qualifications a. The Commissioner of Insurance is selected based on training, experience, and capacity. He is appointed by the Governor for the duration of the Governor s term of office. b. If the Commissioner becomes a candidate for public office or becomes a member of a political committee, he/she must immediately vacate the office of Commissioner. 2. Powers and Duties a. The Commissioner s powers and duties include: 1) Organizing and supervising the Department of Insurance. 2) Enforcing insurance law. 3) Executing agreements with federal and state governmental entities and private persons. 4) Examining and investigating insurance matters, such as: a) Market conduct, which falls under the States DOI Non-Financial Regulatory activities. b) Companies, agents and records for compliance. 5) Invoking remedy for enforcing orders or insurance law. b. The Commissioner may: 1) Delegate powers to his/her representatives. 2) Examine the insurance affairs of any: a) General agent, producer, surplus line broker, solicitor, or adjuster. b) Person having a contractual right, or a right through power of attorney, to manage or control an insurer. c) Person promoting or forming a domestic insurer, insurance holding corporation, or corporation to finance a domestic insurer. d) Attorney of a reciprocal insurer. e) Corporation that a domestic insurer controls. 3. Hearings a. The Commissioner may hold a hearing for any purpose he/she deems necessary. He/she may suspend or postpone an action s effective date, pending a hearing. b. The Commissioner must hold a hearing if required by law, or upon written demand by a person aggrieved by any act of the Commissioner. The hearing must be held within 30 days after the Commissioner receives a demand. 4. Penalties for Violations Each violation of insurance law is punishable as a misdemeanor, upon conviction, by a fine of not more than $1,000, imprisonment in the county jail, or by sentence to Hard Labor for the county, for a period not to exceed 1 year, or by both a fine and imprisonment or hard labor in the discretion of the court. NOTE: Alabama s Insurance Commissioner is Jim Ridling. Life & Health Insurance 210

2 Regulation Alabama State Insurance Law Chapter Fifteen Legislative, judicial, and self-regulation are all important sources of regulation in the insurance industry. Insurer s Authorization 1. Certificate of Authority a. A person or insurer must have a Certificate of Authority to act as an insurer in, or from, Alabama. b. An insurer is not required to have a Certificate of Authority to: 1) Issue policies or liquidate assets and liabilities, if doing so does not involve collecting new premiums. 2) Issue a policy covering only nonresident persons, locations, or services, if the policy is not solicited, written, or delivered in this state. 3) Transact surplus lines business or reinsurance. c. A foreign insurer is not required to have a Certificate of Authority in order to invest in Alabama real estate or in securities. 2. Qualifications for Authority to Transact Insurance a. To qualify for and keep a Certificate of Authority, an insurer must: 1) Be an incorporated stock or mutual insurer, a reciprocal insurer, or a Lloyd s organization. 2) Be competent, trustworthy, and experienced. 3) Be affiliated only with persons whose operations have not injured insurers, stockholders, policyholders, creditors, or the public. b. To start operation a mutual company must have the following authorized: 1) A minimum number of applications for insurance. 2) Advanced premium for each application. 3) A minimum surplus as specified by the State DOI. 4) Domestic insurers must deposit securities specified by insurance regulations as relatively stable and safe, like government bonds. c. To qualify for and keep a Certificate of Authority, a foreign insurer must maintain required reserves and must have been an insurer for at least 5 years. d. An insurer may not qualify for a Certificate of Authority if its voting control is held by any government agency. 3. Minimum Capital and Surplus A domestic stock life insurer must keep at least $1,000,000 in capital and surplus. 4. Certificate of Authority Application and Issuance a. An insurer applying for a Certificate of Authority must file its application with the Commissioner. b. The application must: 1) State the kinds of insurance to be transacted and the insurer s name and home office s address. 2) Include a copy of: a) The insurer s charter or articles of incorporation, bylaws, financial statement, last examination, and evidence of any required deposit. b) An appointment of the Commissioner as the recipient of service of legal process. 3) Include, if other than a life insurer, an affidavit that it has complied with the law for the past 12 months. 4) Include, if a foreign reciprocal insurer, copies of its power of attorney or of its subscribers agreement. 211 Life & Health Insurance

3 Life & Health Insurance 5) Include, if a foreign or alien insurer, its Certificate of Authority from its home state/country. 6) Include, if an alien insurer, a copy of its appointment and of the authority of its manager in the United States. c. The Commissioner must issue a Certificate of Authority to any insurer meeting the application requirements. d. A Certificate of Authority is the property of Alabama. An insurer must promptly return an expired, suspended, or terminated Certificate of Authority to the Commissioner. 5. Continuance and Expiration of Certificate A Certificate of Authority: a. Continues in force as long as the insurer is entitled and until suspended, revoked or terminated at the insurer s request. b. Expires on May 31 st unless continued by paying the continuation fee before March 1 st and filing an annual financial statement. c. May be reinstated by paying a reinstatement and a continuation fee. d. May be amended by the Commissioner to reflect changes in the insurer s charter or powers. 6. Suspension or Revocation of Certificate a. The Commissioner may suspend or revoke an insurer s Certificate of Authority: 1) As required by insurance law. 2) If the insurer no longer meets the application requirements. 3) If a foreign insurer s home state suspends or revokes its authority to transact insurance. b. Except for insolvency, impairment, or a. 3) above, the Commissioner must notify the insurer at least 10 days before suspending or revoking its Certificate of Authority, stating the reason(s) for the suspension or revocation. 7. Producer Required An insurer must transact insurance business through licensed insurance producers. Exceptions: Producers are not required for life or disability insurance delivered and solicited outside Alabama, or for title, marine, or aircraft insurance. 8. Retaliatory Law When another state s laws impose material obligations on Alabama insurers or producers that exceed similar material obligations imposed by Alabama, the Commissioner must impose similar obligations on the other state s insurers or producers doing business in Alabama. Licensing Requirements 1. License Application and Exam a. To receive a resident insurance producer license, unless exempted, a resident individual must: 1) Be at least 18 years of age. 2) Have not committed any act that is a ground for license denial, suspension, or revocation. 3) Complete 20 hours of prelicensing education per line of authority, unless exempted. 4) Pass a written exam and pay an exam fee, unless exempted. 5) Submit a Uniform Application for licensure to the Commissioner. TEST TIP: Know the 1 thing that is needed upon completing and passing the state exam: You MUST submit an application for license to the Commissioner. NOTE: An individual failing the exam must reapply for licensure. An individual failing the 2nd attempt must wait 3 months before retaking the exam. An individual failing the 4th attempt must wait 6 months before retaking the exam. Life & Health Insurance 212

4 Alabama State Insurance Law Chapter Fifteen b. Persons exempt from this licensure requirement include: 1) Industrial or debit fire insurance producer applicants. 2) Limited lines insurance producer applicants. 3) All producers and service representatives licensed before 2002, unless the license was terminated and out of effect for 12 consecutive months. c. Persons exempt from the prelicensing education and exam requirements include: 1) Life insurance applicants holding the Chartered Life Underwriter (CLU, CEBS, ChFC, CFP, FLMI, LUTCF, or other designations approved by the Commissioner. 2) Health insurance applicants holding the RHU, REBC and HIA designations. 3) Property insurance applicants holding the Chartered Property and Casualty Underwriter (CPCU), Certified Insurance Counselor (CIC), or other designation approved by the Commissioner. d. To act as an insurance producer, a business entity must designate a licensed individual producer as the person responsible for its compliance with state law, pay any required fees, and be issued an insurance producer license by the Commissioner. TEST TIP: A producer has 12 months to reinstate a license once it has lapsed without completing a prelicensing course. 2. Licensure a. A producer may be licensed for one or more of the following lines of insurance: 1) Life (and annuities) 2) Disability 3) (Commercial lines of) Property 4) Surety and (commercial lines of) casualty 5) Variable life and variable annuity products 6) Personal lines (of property and casualty) 7) Limited line credit 8) Bail bond 9) Auto 10) Industrial (a.k.a. debit) fire 11) Rental vehicle 12) Any other line that state law permits b. A person meeting licensing requirements for a service representative must be issued a service representative license in property and casualty insurance. c. A producer or service representative license remains in effect unless revoked or suspended as long as the license renewal fee is paid and education requirements for resident individual producers and service representatives are met when due. d. A lapsed producer or service representative license may be reinstated within 12 months by paying twice the renewal fee. e. A producer or service representative may request a waiver of renewal requirements if unable to comply with them due to extenuating circumstance (e.g. military duty). 3. Temporary License a. A temporary producer license may be issued without an exam or prelicensing course if the Commissioner deems it necessary for servicing insurance business in any of the following cases: 1) To the spouse or representative of a producer who dies or becomes disabled. 2) To a licensed business entity s member or employee if its designated producer dies or becomes disabled. 3) To a designee of a producer entering active service in the U.S. armed forces. 4) In any other situation, if in the public interest. 213 Life & Health Insurance

5 Life & Health Insurance b. The Commissioner may issue a temporary producer license to an otherwise qualified applicant who has not passed the exam if the applicant is active in study, instruction, or field training approved by the Commissioner and is under an insurer s supervision. NOTE: The application must include a Notice of Appointment from the insurer and the insurer s request for the license. c. The applicant must pay the appropriate license fee. d. A temporary license is valid for up to 6 months and may be renewed once for a producer s disabling or confining illness or injury. e. The temporary license s holder may receive a producers license by passing the exam and surrendering the temporary license. f. The Commissioner may revoke or limit a temporary license as necessary to protect insureds and the public. 4. Nonresident License a. To receive a nonresident producer license, a nonresident must: 1) Submit either a Uniform Application or a copy of the license application he/she submitted to his/her home state. 2) Pay the required fees. 3) Be a resident of a state issuing nonresident producer licenses to Alabama residents on the same basis. 4) Hold a current resident producer license in good standing in his/her home state. b. A producer, regardless of residency, who moves to a different state must submit a change of address and provide certification from the new resident state within 30 days. NOTE: Make sure that your mailing address is current with the department of insurance. If the notice is returned to the insurance department as undeliverable or the address is not current, it will be handled the same way as an address change violation. You will be fined $50 for not keeping your address current with the department. You have 30 days to update any mailing address, mailing address, or name change with the insurance department to avoid the $50 fine. c. A surplus line broker or limited lines producer in another state may receive a nonresident surplus line broker or limited lines producer license, respectively. d. A nonresident producer who complies with his/her home state s continuing education requirements is deemed to comply with Alabama s continuing education requirements if the person s home state acknowledges fulfillment of its requirements on the same basis. 5. Exceptions a. A person previously licensed for the same lines of insurance in another state is exempt from prelicensing education and exam requirements if: 1) Currently licensed in that state. 2) The license application in Alabama is received within 90 days after the previous license is cancelled. 3) The prior state certifies that the applicant was in good standing. b. A producer licensed in another state who moves to this state must apply for a resident license within 90 days after establishing legal residency. Life & Health Insurance 214

6 License Maintenance Alabama State Insurance Law Chapter Fifteen 1. Licensure a. A producer or service representative license states the licensee s name and address, PIN, dates of issue and expiration, lines of insurance, and any other information the Commissioner deems necessary. b. A licensee who fails to notify the Commissioner of a change in name, address or address within 30 days shall be fined $ License Revocation, Suspension, or Nonrenewal The following bolded items are common on exams: a. The Commissioner may suspend, revoke, or refuse to issue or to renew a license for 1 or more of the following grounds: 1) Any reason for which the Commissioner would have refused to issue the license had he/she known of the reason. 2) Providing incorrect, misleading, incomplete, or materially untrue information in any communication to the Commissioner. 3) Obtaining a license through misrepresentation or fraud. 4) Intentionally misrepresenting an application or contract. 5) Committing any unfair trade practice or fraud. 6) Using fraudulent, coercive, or dishonest practices. 7) Demonstrating incompetence, untrustworthiness, or financial irresponsibility. 8) Improperly withholding or misappropriating any property belonging to an insurer or insured. 9) Violating insurance law or any order, subpoena, rule, or regulation of any state s insurance regulatory authority. 10) Having been convicted of a felony. 11) Having a license denied, suspended, or revoked in any other jurisdiction. 12) Forging another s name to any insurance document. 13) Using reference material when taking a licensure exam. 14) Accepting insurance business from an individual who is not licensed. 15) Failing to comply with a child support obligation or to pay state income tax. b. The Commissioner may also fine the person up to $10,000 per violation, however; each violation is a separate violation. Any violation of insurance law is considered to be a misdemeanor. TEST TIP: Remember that the Commissioner may revoke or suspend your license for 1 or more of the above listed violations and each violation is a separate violation subject to a separate fine. 3. Assumed Name, Records Maintenance, and Reporting of Administrative or Criminal Actions A producer must: a. Notify the Commissioner before using a name other than the producer s legal name. b. Keep complete records of his/her transactions for 3 years, 2 years for limited lines credit insurance, and provide a verified copy to the Commissioner upon request. c. Give an insured its records about the insured s policies upon request. d. Report being the subject of: 1) Any administrative action in another jurisdiction or by another agency in Alabama to the Commissioner within 30 days after the final disposition of the matter. 2) Any criminal prosecution in any jurisdiction to the Commissioner within 30 days after the date of the initial pretrial hearing. 215 Life & Health Insurance

7 Continuing Education Life & Health Insurance Continuing Education Requirement 1. A producer or service representative must complete at least 24 classroom hours, at least 3 of which are in ethics or business practices, per biennial reporting period of courses, instructional programs, or seminars approved by the Commissioner. 2. This requirement does not apply to: a. Any person newly licensed for 12 months after the license s effective date. b. Any officer or employee of an insurer, if they are NOT involved in sales. EXAMPLE: An office worker, accountant, secretary, etc. c. Any person who only works in an office and is not licensed as a nonresident in any other state this person is only required to complete 12 classroom hours per biennial reporting period, at least 1½ of which must be in ethics or business practices. d. Alabama Legislature members who are active during any part of the biennial reporting period. 3. If a licensee fails to meet the above requirements, or submits a false Certificate of Compliance, his/ her license may be suspended after a hearing. 4. The Commissioner may grant an extension: a. Of 3 months to comply with these requirements, upon the licensee s request. If the request is denied, the licensee must meet the requirements within 30 days after notice of the denial. b. Of more than 3 months if the licensee shows that special circumstances apply. 5. By signing an application for license renewal, a producer certifies that he/she has met these requirements. The insurer may sign the application on the producer s behalf but may not be held liable for a producer s failure to meet these requirements or to maintain records. TEST TIP 1: Know that the Commissioner can grant or deny an agent request for an extension to comply with the continuing education requirements. The following time limits to comply would apply: - 90 days if granted, 30 days if denied. TEST TIP 2: Know the following CE Common Test Point: - 24 hrs. CE required every 2 years, 3 must be in ethics. Appointment 1. A producer must: a. Be licensed for a line of insurance to solicit or negotiate that line of insurance. b. Be appointed by an insurer in order to act on its behalf. NOTE: A producer is not required to be appointed by an insurer if they are not acting on an insurer s behalf. 2. An insurer accepting business from a person it has not appointed and who is not licensed for that line of insurance may be fined up to 3 times the premium received. 3. A producer or service representative that accepts commissions without having a license may be fined up to 3 times the commissions paid. TEST TIP: Know the difference between insurer and producer penalties. - Insurer is fined up to 3 times the premiums paid for accepting business from a non-licensed producer. - Producer is fined up to 3 times the commissions paid for violating this regulation. 4. A licensee regularly placing insurance with an insurer without being appointed by the insurer may have his/her license suspended or revoked. If this happens, the license may not be reinstated for at least 1 year. Life & Health Insurance 216

8 Alabama State Insurance Law Chapter Fifteen 5. An insurer appointing a producer must file a Notice of Appointment with the Commissioner and pay the appropriate fee within 15 days after executing the agency contract or accepting the producer s first insurance application, whichever happens first. 6. The Commissioner must verify that the producer is eligible for appointment within 30 days after receiving the notice. If the Commissioner determines that the producer is not eligible, he/she must notify the insurer within 5 days after making that determination. 7. An insurer renewing a producer s appointment must pay the required renewal fee. 8. An insurer s termination of a producer s appointment is subject to the agency contract. Termination of Appointment 1. An insurer must notify the Commissioner within 30 days after terminating a producer s appointment. The insurer must also send the producer a copy of the termination notice within 15 days after sending the notice to the Commissioner. 2. A producer may file written comments about the termination with the Commissioner and the insurer within 30 days after receiving the notice. 3. The Commissioner, an insurer, and a producer, in the absence of actual malice, may not be held liable for making information available to regulatory or law enforcement agencies. TEST TIP: Know the 15 and 30 day rules and how they apply to the appointment and termination procedures. Unfair Trade Practices, Prohibited Activities (Very Test Relevant) 1. Definitions For the purpose of unfair trade practices and prohibited activities, the following terms have the following meanings: a. Negotiate To confer with or offer advice to a policy buyer about a policy s benefits, terms, or conditions. NOTE: This definition applies only if the person doing the negotiating sells insurance. b. Service Representative An insurer s or managing general agent s salaried employee, other than an insurer s officer, manager, or managing general agent, who works with producers in selling or negotiating only property insurance. 2. Unfair Trade Practices The following are unfair trade practices: a. Twisting A person may not misleadingly compare policies in order to induce a policy s lapse, forfeit, surrender, exchange, or conversion. b. Falsification of Financial Information 1) A person may not make any false: a) Statement about an insurer s financial condition with intent to deceive. b) Entry in an insurer s book, report, or statement with intent to deceive an examiner. 2) Any person falsifying financial information may be fined $500 to $5,000. c. Boycott, Coercion, or Intimidation A person may not infringe on a purchasers freedom and commit any act of boycott, coercion, or intimidation resulting in unreasonable restraint of, or monopoly in, the insurance business. d. Defamation or Malicious Statements about Financial Condition A person may not make any oral or written statement that is false concerning, maliciously critical of, or derogatory to an insurer s financial condition with intent to injure any person transacting insurance business. e. Unfair Discrimination A person may not unfairly discriminate between individuals of the same class and life expectancy in a life or disability policy s or an annuity s rates or benefits, or in a disability policy s terms or conditions. 217 Life & Health Insurance

9 Life & Health Insurance 3. Prohibited Activities The information presented in a. and b. below applies to producers and service representatives, but not to surplus line brokers or title insurance. a. Fiduciary Duties All funds a producer receives are held in a fiduciary capacity (i.e. in trust); the licensee may not fail to account for and pay the funds to the person entitled to them. TEST TIP: 2 fines commonly confused on the state exam: - A fine of 3 times the Premiums paid applies to an insurer accepting business from a person that is not properly appointed and/or not licensed in the state. - A fine of 3 times the Commissions paid applies to producers that are paid commissions while not properly licensed. b. Commissions 1) An insurer or producer may not pay any valuable consideration to any person for services as a producer or service representative unless the person is licensed as a producer or service representative, respectively. Doing so is punishable by a fine of 3 times the commission paid. NOTE: The Commissioner may revoke a producer s or insurer s license for failing to pay the fine. 2) Commissions may be paid to a temporary producer, a deceased producer s representative, or, if deferred commissions, to a person who was licensed when the commissions were earned. 3) A producer sharing commissions with a person other than a producer licensed for the same lines of insurance may have his/her license suspended or revoked for 1 year. c. Financial Inducements 1) A person may not, as an inducement to buy insurance, deliver capital, stock, shares, securities, or any contract promising returns. Doing so is punishable by license refusal or revocation. 2) A person may not issue or deliver any life policy or annuity including language that may mislead a purchaser to believe he/she will receive something other than a policy or annuity. 3) An insurer or producer may not deliver a life policy containing benefits in the form of coupons or guaranteed annual endowment benefits, unless separately specifying the premiums for the benefits. d. Rebating and Offering Inducements 1) A person may not, other than as expressed in a contract, offer any valuable consideration (e.g. premium rebate, dividend favor) as an inducement to buy the contract. 2) A named insured under a property, casualty, or surety contract may not knowingly receive any valuable consideration, other than as expressed in a contract, as an inducement to buy the contract. 3) These prohibitions do not apply to: a) Property insurance covering the interests of the seller or vendor. b) Blanket disability insurance. c) Credit life or credit disability insurance. d) Any individual, isolated, nonrecurring, unadvertised transaction not in the regular course of business. 4) A person may not use the word free to describe life or disability insurance connected with the sale of any goods, merchandise, or services. 5) The Commissioner may, after a hearing, revoke the Certificate of Authority of any insurer and the licenses of any producer violating these requirements. NOTE: A person is not allowed to advertise or give free insurance to induce the purchase of property. Free insurance includes insurance for which the charge is less than the cost. Life & Health Insurance 218

10 Alabama State Insurance Law Chapter Fifteen e. Charges, False Representations in Insurance Application 1) A person may not collect a premium or charge for insurance without providing insurance. The premium collected may not exceed the premium specified in the policy. 2) A person may not knowingly make a false or fraudulent statement or representation in an insurance application. 3) A person failing to abide by these rules may have his/her license denied, suspended or revoked; may be convicted of a misdemeanor; may be fined up to $1,000, imprisoned for up to 1 year; or be subject to any combination of these actions. Each violation is punishable as a separate offense. 4. Cease and Desist Order If someone is believed to have engaged, or to be engaging, in an unfair trade practice or prohibited activity, the Commissioner must: a. Notify the person that a hearing shall be held within 10 days. b. Let the person explain, at the hearing, why a Cease and Desist Order should not be issued. c. Issue a Cease and Desist Order if doing so is appropriate. Domestic Abuse Insurance Protection Act 1. It is unfair discrimination for an insurer to: a. Deny, nonrenew, cancel, restrict, or exclude coverage because of an applicant s or insured s status as, relationship with, or assistance to a victim of abuse. b. Exclude or limit coverage or deny a claim, except under a liability policy, because of insured s status as, relationship with, or assistance to a victim of abuse. c. Charge a higher premium because of an applicant s or insured s status as, relationship with, or assistance to a victim of abuse. d. Terminate health coverage for a victim of abuse, if the victim does not qualify for continuation or conversion of coverage under COBRA, because: 1) The victim has divorced or separated from the abuser/primary insured. 2) The victim has lost custody of another victim of abuse. 3) The abuser s coverage has been terminated. 2. An insurer may disclose information that an applicant, insured, or claimant is a victim of abuse, only: a. To the victim or his/her designee (in writing). b. To a health care provider. c. As required by law or ordered by the Commissioner. d. When necessary for a valid business purpose, only to: 1) A reinsurer seeking to indemnify a policy covering the victim, if necessary to underwrite or satisfy its obligations under the reinsurance agreements. 2) A party to a sale, transfer, merger, or consolidation of the insurer s business. 3) Medical or claims personnel contracting with the insurer, if necessary to process an application, perform the insurer s duties, or protect the victim. 4) To an attorney representing the insurer. 5) To the policyowner or assignee, at policy delivery, if the policy contains information about the status of the victim of abuse. 6) To any other entity deemed appropriate by the Commissioner. 3. An insurer may not require an applicant to disclose information about acts of abuse or status as a victim of abuse. 4. To be considered a victim of abuse, a person must provide evidence of abuse to an insurer or demonstrate that a condition is related to abuse. 219 Life & Health Insurance

11 Life & Health Insurance 5. An insurer refusing an application or denying a claim from a person having an abuse-related medical condition, or status, or an association or relationship with a victim of abuse must advise the applicant or the insured, in writing, of the specific reasons for the action. Life and Disability Insurance Regulation Gramm-Leach-Bliley Act (GLBA) 1. This Act requires federal banking agencies to publish customer protection regulations for insurance and to establish a consumer grievance process. A customer is a consumer with whom an agency has an established business relationship. TEST TIP 1: A consumer is a prospect that a producer has not yet entered into a business relationship with. TEST TIP 2: A customer has already conducted business with a producer. NOTE: Different rules apply as to each regarding privacy and do not call restrictions. 2. Customer Protection Regulations a. Prohibit federal banking agencies from leading a customer to believe that he/she, in order to receive credit, must: 1) Buy an insurance product from such agency. 2) Agree not to get an insurance product from an unaffiliated entity. b. Require that the sales producer get the consumer s acknowledgement that the producer disclosed orally and in writing: 1) The acts prohibited by customer protection regulations. 2) If the product has an investment risk or is not insured by the FDIC, the federal government, or the depository institution. 3) Opt-Out or Opt-In Standard Health information, such as that acquired during a medical exam, is subject to an opt-out or opt-in standard, meaning a customer can opt in or out from allowing companies to share information it has about them to others. a) Health information is subject to a stricter Opt-In rule, they must get specific permission first. b) The ability to prohibit any information sharing would seriously limit a company s ability to manage the underwriting of a policy and detect fraud before it happens. For this reason, there are several exceptions to an individual s right to Opt-Out of information sharing; for example, companies are always permitted to share information with their affiliates, like the MIB, etc. to help prevent fraud. c) If a company wishes to share information about a customer s health with a third party, the customer must actively opt-in to allowing the disclosure. TEST TIP 1: Be familiar with the Opt-Out and Opt-In standards. TEST TIP 2: If a company wishes to share information about a customer s health with a third party, the customer must actively Opt-In to allowing the disclosure. c. Require that advertising and practices not mislead anyone about the acts prohibited by customer protection regulations, the uninsured nature of any insurance product, or such product s investment risk (if any). 3. Status as a victim of domestic violence or as a provider of services to victims of domestic violence may not be considered for underwriting, pricing, renewing, or paying a claim under an applicant s or insured s life or health policy, except as permitted by state law. Life & Health Insurance 220

12 Alabama State Insurance Law Chapter Fifteen 4. Domestic Violence Any of the following acts by a current or former family or household member, intimate partner, or caretaker: a. Attempting to threaten physical harm, emotional distress, psychological trauma, rape, or sexual assault. b. Repeatedly committing acts, including following a person without proper authority, placing the person in reasonable fear of bodily injury or physical harm. c. Subjecting another person to false imprisonment. d. Attempting to cause property damage, to intimidate, or to control another person s behavior. The Federal Americans with Disabilities Act The Americans with Disability Act makes it illegal for employers with 15 or more employees to discriminate on the basis of disability. TEFRA - Tax Equity and Fiscal Responsibility Act of 1982 TEFRA is intended to prevent group plans from discriminating in favor of Key Employees, including officers, the top 10 interest-holders in the employer, or owning more than 1% who are compensated annually at $150,000 or more. Maximum benefits are required in plans when benefits for key employees might be greater than for other employees. Life and Disability Insurance Guaranty Association 1. This Association protects insureds, beneficiaries, annuitants, and their assignees from insurer insolvency. To provide this protection: a. The Association guarantees payment of benefits and continuation of coverages. b. The Association s member insurers are assessed for the Association s expenses, obligations, and other costs. c. The Association helps the Commissioner detect and prevent insurer impairment and insolvency. 2. If a domestic insurer becomes impaired, the Association may: a. Guarantee or reinsure the insurer s covered policies. b. Pay the insurer s contractual obligations. c. Loan money to the insurer. 3. If an insurer becomes insolvent, the Association must: a. Guarantee, assume, or reinsure the insurer s covered policies. b. Pay the insurer s contractual obligations. c. Provide the necessary means to discharge such duties. 4. Any person receiving Association benefits is deemed to have assigned his/her rights under the policy to the Association to the extent of the benefits received. 5. The Association s aggregate liability may not exceed $100,000 in cash values or $300,000 for all benefits, including cash values, with respect to any one life. 6. The Association may exercise the powers of a domestic insurer in order to perform its duties. TEST TIP: The following are common on Exams: - Limits $100,000 cash values or $300,000 for all benefits on one life. - Guarantees payment of benefits. - Reinsures the insurer s covered policies. - Pays the insurer s contractual obligations. - Will loan money to the insurer. 221 Life & Health Insurance

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14 Life Laws 223 Life & Health Insurance

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16 Life Laws Required Policy Provisions In addition to the provisions in Chapter 2, life policies (except industrial, group, and pure endowments) must contain the following provisions: 1. Grace Period A grace period of 30 days. 2. Incontestability The policy is incontestable after being in force, during the insured s lifetime, for 2 years from the issue date. 3. Reinstatement A policy must be permitted to be reinstated up to 3 years after a lapse due to premium default. All of the following are required to be considered for reinstatement: a. A written application. b. Provide evidence of insurability. c. Payment (or reinstatement) of overdue premiums. d. Once a policy has lapsed, an insurer is not obligated or required to reinstate the policy merely because the insured applies. The insurer has the right to fully underwrite the reinstatement application and choose to re-issue the policy preferred, standard, rated up substandard, or reject the reinstatement application altogether. 4. Settlement of Death Benefit a. When an insured dies, the insurer must settle upon receiving proof of death and, at the insurer s option, surrender of the policy and proof of the claimant s insurable interest. b. A policy may not delay a settlement payment beyond 2 months from the date the insurer receives proof of death. TEST TIP: 60 days or 2 months is how long the insurer has to provide a death settlement payment upon receiving proof of death. Variable Products The following rules apply to variable products, in addition to the rules in Chapters 3 and 6: 1. Separate Accounts for Variable Annuities a. An insurer may not use 75% or more of the market value of a separate account s assets to acquire any issuer s securities, other than those issued or guaranteed by the United States, if the securities exceed 10% of the market value of the separate account s assets. b. For separate accounts, insurers may not acquire: 1) Any securities of the insurer s subsidiary. 2) Over 10% of the total voting securities of any other issuer. c. A separate account s assets must be valued at market value on the date of valuation or, if there is no readily available market, as provided under the contract s terms. d. The insurer owns the assets of its separate account. e. An insurer may transfer assets between an investment account and 1 or more separate accounts only to establish the account or to support variable contracts and only by transferring cash or, if the Commissioner approves, securities with determinable market value. f. Variable Contracts 1) Variable contracts providing variable benefits state the procedures the insurer must follow to determine the amount of variable benefits. 2) Variable contracts must state that the amount of values and benefits vary to reflect investment experience. 3) Variable annuity contracts may include an incidental death benefit during the deferred period of up to the greater of the premiums paid or the contract s value. 225 Life & Health Insurance

17 Life & Health Insurance g. License Requirement To deliver variable contracts, an insurer must be a licensed life insurer in Alabama, and the Commissioner must be satisfied that the insurer s condition is not hazardous to the public or to policyholders. 2. Annuities and Pure Endowments An annuity or pure endowment contract must contain the following provisions: a. Grace Period This period must be 1 month of at least 30 days. The contract may charge interest, pro rata, of up to 6% per year. Any claim during this period may be reduced by the premium and interest payable. b. Incontestability The contract is incontestable after being in force, during the insured s lifetime, for 2 years from the date of issuance, except for nonpayment. c. Dividends For participating contracts, the insurer must determine and apportion dividends annually. d. Reinstatement The contract may be reinstated within 1 year after default, if the cash surrender value has not been paid, by paying all indebtedness and providing evidence of insurability. 3. Required Provisions for Reversionary Annuities A reversionary annuity must, in addition to the provisions required for all annuities, including those stated above, contain the standard nonforfeiture provision required of individual deferred annuities, as stated below. 4. Standard Nonforfeiture Law for Individual Deferred Annuities a. An individual deferred annuity must contain the following provisions: If premium payments cease, the insurer must pay: 1) The minimum nonforfeiture amount on the date benefit payments begin. 2) Cash surrender benefits of at least the present value of the part of the paid-up annuity benefit that would have been earned at the annuity s surrender. NOTE: If there is no cash surrender benefit, the insurer must pay the present value of the paid-up annuity benefit. b. A contract must state: 1) If it does not provide a cash surrender benefit or a death benefit of at least the minimum nonforfeiture amount. 2) The mortality table and interest rates used in calculating any minimum guaranteed paid-up, cash surrender, or death benefits. 3) That any paid-up, cash surrender, or death benefits must be at least the minimum benefits required by any statute of the state in which the contract is delivered. c. An insurer must pay a cash surrender benefit in the amount of any lump sum settlement provided in the contract if the contract is surrendered at or before maturity. The insurer may defer the payment for 6 months. d. A contract may provide that if premium payments are not made for 2 years and the paid-up annuity benefit at maturity will be less than $20.00 monthly, the insurer may terminate the contract by paying the present value of the paid-up annuity benefit. Life & Health Insurance 226

18 Industrial Life Alabama State Insurance Law Chapter Fifteen In addition to the information in Chapter 5, the following definitions and items apply to industrial life insurance: 1. Industrial Life Insurance Life policies with face amounts of $2,500 or less, the words industrial policy on the first page, and premiums payable monthly or more often. 2. Grace Period a. This period must be 4 weeks for any premium other than the first premium, except that, under policies with premiums payable monthly, it must be 1 month of at least 30 days. b. During this period, the policy must stay in force, and any overdue and unpaid premiums may be deducted from a settlement. 3. Reinstatement a. A policy must be reinstated within 3 years after premium default. b. An insurer receiving an insufficient reinstatement payment must, within 60 days, either refuse to reinstate the policy and refund the payment, or reinstate the policy and either collect or waive the difference. 4. Conversion Privileges A policy may provide that the insured, upon submitting a written request and presenting evidence of insurability, may convert the policy to any life policy the insurer issues that requires less frequent premium payments. 5. Prohibited Provisions An industrial life policy may not contain a provision: a. Allowing the insurer to deny liability on the ground that the insured previously obtained other insurance from the same insurer. b. Giving the insurer the right to void the policy because the insured: 1) Has had any disease or ailment, or because the insured has received institutional, hospital, medical, or surgical treatment or attention that was not of a serious nature or was not material to the risk. 2) Has been denied insurance, unless the insurer proves that it would have denied initial coverage had it known of the previous denial. General Provisions 1. Capacity of Minors to Contract a. A person of competent legal capacity may contract for insurance. b. A minor age 15 or older is deemed to be of competent legal capacity with respect to his/her own life, health, property, casualty, and other interests and with respect to a person in whom the minor has an insurable interest. c. A minor age 15 and older may not rescind a contract because of his/her age. d. Any annuity or life or disability policy purchased by or for a minor must be made payable to the minor, the minor s estate, or a person having an insurable interest in the minor s life. TEST TIP: Know for the exam a minor aged 15 may contract for life insurance. 2. Application for Insurance; Alteration of Application a. An insured must be of competent legal capacity to contract for life or disability insurance, unless the insured is: 1) A spouse effecting insurance on his/her spouse. 2) Any person effecting insurance on a minor s life, if the person has an insurable interest in the minor or any person upon whom the minor is dependent. 3) A parent, stepparent, or spouse affecting a family policy insuring 2 or more family members. b. An insurer is entitled to rely on the applicant s implication that he/she has an insurable interest in the insured. 227 Life & Health Insurance

19 Life & Health Insurance c. Except for life or disability insurance, for an application to be admissible as evidence in any action between insured and insurer, the insurer must have given the insured a copy of the application within 30 days upon request. d. An application may not be altered without the applicant s written consent; the insurer may insert information for administrative purposes only. 3. Representations in Application a. All statements in any policy or annuity application are deemed to be representations and not warranties. b. Misrepresentations, omissions, concealment, and incorrect statements shall not prevent recovery under a policy unless they are fraudulent, material to the risk s acceptance or hazard assumed, or would have resulted in the application s denial. 4. Filing and Approval of Forms a. A policy or annuity form must be filed with and approved by the Commissioner before issuance. Exceptions: This does not apply to surety bonds, specially rated inland marine risks, unique policies, riders, or endorsements. b. A form must be filed for approval at least 30 days before policy delivery. After 30 days, the form is deemed approved unless it has been previously disapproved. c. The Commissioner may exempt certain forms from filing and approval requirements. 5. Payments to Guardian A resident minor, 18 years of age, is deemed competent to receive and fully discharge a payment of up to $3,000 per year under a life policy or annuity if the insurer does not receive written notice, before payment, that a legal guardian has been appointed for the minor s property. 6. Standard Nonforfeiture Law a. An insurer must pay a paid-up nonforfeiture benefit within 60 days after premium default. The specified benefit becomes effective unless the insured elects another option within this time. b. If the policy is surrendered within that time, and premiums have been paid for at least 3 full years, the insurer must pay the policy s cash surrender value. c. A policy must disclose the mortality table, interest rate, and calculation method for cash surrender value values and paid-up nonforfeiture benefits. d. A policy must state that the insurer reserves the right to defer paying any cash surrender value for 6 months. e. This law does not apply to: 1) Reinsurance. 2) Group insurance. 3) Pure endowment. 4) Annuity or reversionary annuity contracts. 5) Variable life insurance. 6) Term policies that do not provide guaranteed nonforfeiture or endowment benefits. Solicitation Requirements In addition to the information in Chapters 1-7, the following rules apply to solicitations: 1. Purpose and Scope a. An insurer must give life insurance buyers any information that will improve his/her ability to evaluate the relative costs of similar plans and select the most appropriate plan or his/her understanding of a policy s basic features. Life & Health Insurance 228

20 Alabama State Insurance Law Chapter Fifteen b. This applies to any solicitation, negotiation, or procurement but does not apply to: 1) Annuities. 2) Credit, group, or variable life insurance. 3) Life policies issued with pension and welfare plans subject to ERISA. 4) Life policies with an equivalent level death benefit of $5,000 or less and an annual premium of $200 or less. 2. Disclosure Requirements a. An insurer s or producer s failure to provide a Buyer s Guide or a Policy Summary constitutes a misrepresentation of the policy s benefits, advantages, conditions, or terms. b. A producer must leave all written advertisements for a policy with the applicant. 3. General Rules for Presentations a. Before beginning a sales presentation, a producer must inform a prospective purchaser that he/ she is acting as a life producer and inform the prospective purchaser of the insurer s name. b. A producer may not use terms (e.g. financial planner, investment advisor, financial counselor) to falsely imply that his/her business is giving advice and that his/her compensation is unrelated to sales. c. Any reference to policy dividends must state that dividends are not guaranteed. d. A presentation of benefits displaying guaranteed and nonguaranteed benefits as a single sum must also show the benefits separately in close proximity to each other. e. A statement regarding the use of the Life Insurance Cost Indices must explain that they are useful only for comparing the relative costs of 2 or more similar policies. f. When comparing the costs of 2 or more policies, a presentation must recognize the time value of money by using appropriate adjustments for interest. g. An insurer must keep a copy of each document complying with these rules for 3 years after its last date of use. Marketing Practices 1. Purpose The regulation of marketing practices: a. Implements Alabama s insurance laws regarding the advertisement, solicitation, replacement, conservation, and sale of life policies and annuities. b. Protects public interests. c. Establishes minimum standards of conduct and guidelines to ensure that all material used for advertising, soliciting, replacing, conserving, or selling life policies or annuities in Alabama are truthfully, completely, and accurately disclosed. d. Prevents the use of unfair trade practices. e. Encourages fair competition among insurers. f. Provides for correct and truthful information and comparisons of life policies and annuities. 2. Definition of Advertisement a. Advertisement Material used, or intended for use, by a producer or insurer that is designed to create insurer, producer, or public interest in life policies or annuities. The term includes: 1) Printed or published material. 2) Audiovisual material. 3) Descriptive literature of and sales aids of all kinds. 4) Billboards or similar displays. 5) Materials, statements, or communications of any type used for recruiting, training, and educating an insurer s sales personnel. 6) Prepared sales talks, presentations, and material designed for use by producers. 229 Life & Health Insurance