Foresters Market Conduct Manual

Transcription

1 Foresters Market Conduct Manual US (09/08) This manual is the property of Foresters. It is intended for internal use only.

2 Contents Purpose of Market Conduct Manual...1 Introduction...1 Maintenance of Reserves...2 Foresters Producer s Code of Conduct...2 Licensing and Appointment...2 Background Checks...3 Needs Analysis and Suitability...3 Providing Producer, Company and Product Disclosures...4 Comparisons Between Products and Companies...6 Replacements...6 Applications and Underwriting...11 Certificate Delivery...12 Advertising, Sales Materials and Illustrations...13 Maintaining Books and Records, File Documentation...14 Rebates and Tie-In Sales...14 Regulatory Audits and Company Examinations...14 Maintaining Up-To-Date Policies And Procedures...15 Training and Education...15 Communication With Members and the Public...15 Complaint Handling...15 Information Security Privacy and Confidentiality...16 Handling Member Funds and Anti Money Laundering Procedures...17 Anti-Money Laundering Procedures...17 Fraud Prevention...18 Complying with Foresters Policies and Procedures...18 Complying with Regulatory Requirements US (09/08) Internal Use Only i

3 Purpose of Market Conduct Manual The purpose of the Market Conduct Manual (MCM) is to provide producers appointed with The Independent Order of Foresters (Foresters ) a guide to selling Foresters products and services and information to help meet regulatory and Foresters standards. By signing a producer s contract with Foresters, producers are agreeing to abide by Foresters policies and procedures, including the MCM. Compliance with state, federal and regulatory bodies rules and regulations is a critical element of a producer s professionalism. Your professionalism dictates that you demonstrate proper market conduct in the sale of Foresters products and services. Foresters producers have a duty to members and to the public in general to provide a level of service that, if they were members, they would expect to receive themselves. Foresters has high standards for market conduct that producers are required to follow. Foresters producers must ensure that Foresters member interests are the most important priority. Producers must put the interests of members ahead of their own. If you have questions about the policies and procedures in this manual or any question about compliance and market conduct in general, please Ask Compliance, or call Foresters Compliance Officer at , extension In the Foresters MCM the term life insurance will mean life insurance, annuities and other financial services unless otherwise noted. The term member will mean member, client, prospect, certificate / policyholder etc. unless otherwise noted. Introduction The Independent Order of Foresters (Foresters) is a fraternal benefit society that has been in existence since To buy Foresters products customers must first become members and complete the membership application, found in the first part of Foresters life insurance application. Life insurance policies and annuities issued by fraternals are called certificates because they are open contracts. A fraternal benefit society ( fraternal ) is a membership organization, which provides its members with life insurance, annuities, and other financial products and services on a not for profit basis. A fraternal exists to fulfill a mission or purpose. This is known as a Common Bond. A Common Bond is the reason a fraternal benefit society exists. It is its purpose or mission. Foresters Common Bond is found in Chapter 1 of its Constitution. The constitution forms part of the insurance contract with the member, making it an "open" contract. A fraternal benefit society is a form of body corporate, generally defined in most statutes as: Without share capital Operating for the benefit of its members and not for profit With a representative form of government including a branch/lodge system Incorporated for fraternal, benevolent, or religious purposes Including the provision of insurance or annuity benefits to its members, their spouses, children or beneficiaries. As a fraternal, Foresters operates on a not for profit basis, which means that any profits from its insurance business go to fulfill its mission, and for its members, in the form of US (09/08) Internal Use Only 1

4 dividends and special non-insurance benefits such as member benefits. A producer is required to provide disclosure to potential consumers regarding fraternal membership and its benefits and privileges. For additional information on the special characteristics of fraternals and the history of Foresters, go to the Foresters ezbiz website and read the Foresters Story. Maintenance of Reserves A producer must disclose the Maintenance of Reserves Clause in the insurance certificate. Fraternal benefit societies are responsible for their own solvency and reserves. This means that insurance coverage sold by fraternals is not protected by guaranty funds. However, in the event that fraternals themselves become insolvent (e.g., the reserves for a class of certificate / policy become impaired), the Board of Directors may decide to assess the membership to restore the deficiency. The assessment is done either by reducing benefits, or by requiring payment of an equitable proportion of the deficiency. By contrast commercial life insurers in impaired circumstances will generally be put in the hands of a regulatory receiver, which may result in the face amount being reduced to a level, which can be supported by the insurer s impaired reserves. Foresters Producer s Code of Conduct A producer shall place the interests of members and prospective purchasers before his or her own. The duty of a producer is to comply with the insurance laws of every jurisdiction in which he or she is licensed. It is not sufficient for a producer to observe merely the letter of the law; a producer has important responsibilities to members and prospective purchasers and to the insurer whose insurance he or she sells. Producers must abide by and follow all generally recognized standards of professional conduct and practice. This requires the highest level of integrity and performance on the part of the producer. Priority of Certificateowner / Policyowner Interests In practical terms, this stipulates that a producer must recommend the amount and type of life insurance that is best for the purchaser s circumstances. The commission to be obtained from making the sale should have absolutely no bearing upon the producer s advice to the member or prospective purchaser. Confidential Information A producer shall respect the privacy and confidentiality of the members and prospective purchasers personal and business affairs. In the course of a producer s work, extensive information concerning the personal and financial affairs of members and prospective purchasers must be obtained. This places a producer in a position of trust and responsibility. It is completely unethical to betray this trust in any respect. Consequently, if it appears to be in the interests of the member or prospective purchaser for a producer to discuss a member s or prospective purchaser s affairs with any other person, for a legitimate business purpose, a producer must first secure the member s or prospective purchaser s written permission to do so. Licensing and Appointment All 50 states and the District of Columbia 1 have regulations regarding the licensing and appointment of persons engaged in the solicitation and sale of life insurance, annuities and other financial services. All 1 Foresters is licensed in all states except the State of Vermont US (09/08) Internal Use Only 2

5 states require that persons engaged in the solicitation and sale of life insurance be properly licensed by the state. Most states also require that once licensed to sell life insurance, a producer must also be appointed to the company with which he/she has a contractual relationship. States can impose civil and criminal penalties on individuals who solicit life insurance and annuity sales without the proper license. Licensing and appointment procedures vary between states. Producers are responsible for obtaining and maintaining their license in every state in which the producer does business. Producers are required to submit to Foresters copies of up-to-date state licenses upon signing their contract and when their licenses are renewed. Foresters will not process an application submitted by a producer who is not properly licensed and appointed before the date of the application. A producer must not engage in the solicitation or sale of Foresters products until all state licensing and appointment requirements, if any, are met. Foresters will not process an application submitted by a producer who is not properly licensed and appointed before the date of the application. Foresters will not pay commissions to a producer unless all licensing and appointment requirements are met. The producer must be properly licensed and appointed in the state of principal residence of the member to whom a sale is made. The producer should contact Foresters Director, Sales Operations at , extension 4936 before he/she plans to make a sale in a state in which he/she has not been previously appointed by Foresters to ensure that all state license and appointment requirements are met prior to the solicitation and sale being made. Background Checks The Federal Violent Crime Control and Law Enforcement Act of 1994 holds financial services organizations responsible for investigating the background of their producers, and it imposes criminal penalties on any company that allows a person who was convicted of a felony or an act, which was a breach of trust (e.g., default or bankruptcy), to participate in the insurance business. This includes any felony conviction or action, even those that do not involve financial services. Accordingly, Foresters will not appoint producers that have been convicted of a felony or an act that is a breach of trust. Furthermore, in keeping with the requirements of this legislation, Foresters requires appointed producers to inform Foresters if they have been convicted of a felony or an act that was a breach of trust subsequent to their appointment. If you have been convicted of a felony or an act that was a breach of trust, you should contact Foresters Director, Sales Operations at , extension Needs Analysis and Suitability Foresters requires that the sale of its products be suitable to the needs and financial circumstances of its members. The sale of any Foresters product should be predicated on identified financial needs. The producer is responsible for the collection, documentation and analysis of the information needed to reach a proper recommendation regarding the type and amount of life insurance needed. The producer should collect appropriate information and document that information in his/her files in the event that questions are asked during the underwriting process or once the certificate is issued. If the member is reluctant to disclose sufficient information to perform a needs analysis, the producer should respect the member s wishes. However, we recommend that the producer document in his or her notes that the client declined to provide US (09/08) Internal Use Only 3

6 sufficient information to conduct a needs analysis. Foresters requires that the sale of its products be suitable to the needs and financial circumstances of its members. The producer is required to consider in his/her analysis the age of the member, the member s current and future financial and personal circumstances and any other factors that would influence the suitability of the product recommended to the member, including the member s current insurance. It is the producer s responsibility to determine the suitability of the product applied for in the application. By submitting the application the producer verifies that the product applied for is suitable. Providing Producer, Company and Product Disclosures The producer must provide the member with certain disclosures of important information about the producer, Foresters, the basis for the producer s recommendation, the product applied for and the features, benefits and costs of the product applied for to ensure that the member understands how the product being applied for meets his or her needs. The disclosures required to be made for a specific sale will vary depending on the circumstances of the sale, the state where the member resides, and the product applied for, etc. The producer is responsible for providing the appropriate disclosures required at the appropriate time during the sales process. The following is a list of disclosures that a producer should make to the member as part of the sales process. Examples of improper disclosures are provided in some cases, however, these are for illustrative purposes only and do not represent all potentially improper disclosures. The producer should disclose that he/she is a licensed life insurance producer. The producer may not identify himself/herself as a financial planner, investment adviser, financial consultant or financial counselor, or with any other title that implies that the producer is primarily engaged in an advisory business in which compensation is unrelated to sales. The producer should disclose Foresters full, legal name, i.e., The Independent Order of Foresters, head office address at 789 Don Mills Road Toronto, Canada, and 800-telephone number ( ). This can be done verbally or in writing. The information appears on the insurance application form and on Foresters sales literature. The producer should disclose the name of the product being applied for and that the product applied for is life insurance. In describing the product being applied for a producer should not use the following as names for the product because they may be seen as concealing that the product being sold is life insurance: Accumulation plan/program/strategy Business plan/program/strategy College funding alternative Educational plan Estate plan/program Funding plan/program/strategy Future gifting plan/program/strategy Guaranteed retirement plan Income plan/program/strategy Insured retirement savings plan Interest plan/program Mortgage redemption/funding plan Mortgage maximization program/plan Mortgage protection plan Pension predicament Pension maximization plan Personal retirement plan Private pension plan/strategy Retirement plan/program/strategy US (09/08) Internal Use Only 4

7 A producer should not use the following terms or phrases to describe the features, benefits, characteristics, etc. of a life insurance certificate or annuity contract: Account (when referring to a certificate) Contribution(s) (as a description of premium) Deposits, deposit premium, premium deposit (when referring to premiums) Earnings (to refer to life insurance cash values or dividends) Emergency account (to refer to cash values) Guaranteed cost (when referring to premiums) Guaranteed income, savings (when referring to cash values or dividends) Investment, investment premium (to refer to premiums) Investment(s) (when referring to additions to investment accounts) Liquid (to refer to funds for which withdrawal charges may apply) Liquidity account (to refer to cash values) Mutual fund accounts (when referring to variable products separate or sub account(s)) Passbook savings (to refer to cash values) Profit(s), profit sharing (when referring to increases in cash values or sub account values) Savings, savings plan (to refer to cash values) Savings account (to refer to cash values or premiums) Special Benefit (to refer to cash values or other features or characteristics of the product). A producer should not minimize, ignore or avoid discussing aspects of the products and services because they are complicated or potentially unfavorable. When providing disclosures about Foresters product features, benefits, advantages and disadvantages, a producer should exercise care in the use of superlatives and words that can be misinterpreted. Words such as, "new", "special", "best", "all", "full", "comprehensive", "unlimited", "generous", or "low" (as in low cost, low premium, etc.) should be avoided unless there is clear evidence that the description is accurate and supportable. The following are examples of words and descriptions that should be avoided: All At no extra cost Best (e.g., company, certificate, etc.) Completely (e.g., safe) Comprehensive Guaranteed (except in relation to a product s guaranteed elements) Free (e.g., service, risk, etc.) Expert Full (e.g., coverage) Highest (e.g., yield, interest, etc.) Inexpensive Limited (e.g., availability to the public, etc.) Lowest (e.g., cost, risk, etc.) Maximum/Minimum Most (e.g., successful, etc.) New No (e.g., cost, added cost, risk, additional cost, etc. Only Safest Special Superior Unique (e.g., features, process). Unparalleled Utmost in safety. A producer should disclose that the insurer will evaluate the application during the underwriting period and has the right to modify or reject the application. A producer should disclose any state and federal tax related issues that impact the features, benefits, costs or operation of the products and services recommended or applied for. However, a producer should not provide legal, tax or accounting advice. A producer should encourage the client to seek independent tax, estate planning and legal advice regarding the impact of Canada Revenue Agency and state rules and regulations. A producer should provide copies of all state mandated forms and guides to applicants at the appropriate time during the sales process US (09/08) Internal Use Only 5

8 Comparisons Between Products and Companies Comparisons Between Products Producers should exercise care when making comparisons between products as part of the sales process. Some states limit comparisons and may require specific disclosure. In any event, all comparisons between products should be based on verifiable referenced sources to ensure that they are fair, balanced, accurate and complete. The comparisons should specifically identify the products, features, benefits and costs being compared. General comparisons should be avoided. Omitting information, providing inaccurate information, failing to disclose information or providing inaccurate statements may be interpreted as deceptive sales practices. Comparisons of only one or selected features of products are incomplete and may be seen as misleading. A producer should maintain in his/her files the reference source for any comparison. Comparisons Between Companies Often called company bashing, making disparaging remarks about another company, its products and services or producers is prohibited by state law. Historically, disparaging remarks focused on allegations about the financial condition of competitors. However, today the term is typically used to characterize any unfounded, inappropriate and damaging statement about a company, its products or producers. Producers are prohibited from using inaccurate, unfounded or inappropriate information about another company, its financial condition, or its products or producers in the process of selling Foresters products and services. Comparisons between companies are often oriented toward their financial conditions or strength. When referring to rating agency ratings, evaluations or information, a producer must provide the specific reference and the scope and meaning of the rating, evaluation or information. Only accurate, up-to-date and appropriate information should be used in any comparisons. We suggest producers use the following wording when referring specifically to The Independent Order of Foresters to describe the most often referenced commercial rating service: Foresters financial strength, as measured by A.M. Best Company, is rated "A" (Excellent). An "A" (Excellent) rating is assigned to companies that have a strong ability to meet their ongoing obligations to policyholders and have, on balance, excellent balance sheet strength, operating performance and business profile when compared to the standards established by A.M. Best Company. In assigning our rating, A.M. Best stated that Foresters rating outlook is "stable", which means it is unlikely to change in the near future, assuming our financial strength is maintained and our operations grow. A.M./ Best assigns ratings from A++ to F, A++ being superior ratings and A and A- being excellent ratings. Producers should ensure they are referring at all times to Foresters most current rating. Replacements In accordance with Foresters policy, a replacement is a transaction in which a new certificate or contract is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer if there is no producer, that by reason of the transaction, an existing certificate or contract has been or is to be: (1) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated; (2) Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other certificate values; (3) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid; (4) Reissued with any reduction in cash value; (5) Used in a financed purchase; or US (09/08) Internal Use Only 6

9 (6) Continued with a stoppage of premium payments or reduction in the amount of premium paid. (Adapted from the NAIC Model Replacement Regulation, 1998, Section 2.J.) Amended 2000 This definition includes almost any transaction that reduces the value of the policy to be replaced. Foresters policy is to include term-to-term product replacements, since it is in the best interests of the member to be fully informed of the impact and consequences of a potential replacement of their current coverage. This definition includes both internal and external replacements. When the life insurance certificate or annuity that is being replaced and the new life insurance or annuity that is being sold are both provided by Foresters, it is an internal replacement. When the policies or contracts being replaced and the replacing policy or contract are from different companies, it is an external replacement. There are a number of terms used to identify improper replacement practices: Twisting misrepresenting the benefits of lapsing one policy and purchasing another with a different company, so that the client suffers a monetary loss with little or no gain, e.g., you need a new policy because the old one isn t any good anymore. Churning purchasing a new policy with the values of an existing policy without disclosing the impact of the use of policy values on the original policy, e.g., you can purchase more coverage without having to pay any more money. Vanishing Premium misrepresenting the use of policy values to pay premiums on an existing policy, e.g., in 8 years this certificate won t require any more premium payments. A producer is responsible for determining if a replacement will occur and whether the proposed replacement is in the best interests of the member. When recommending a replacement, a producer should have a demonstrable rationale for his/her recommendation that the replacement is in the member s best interests. Foresters reviews replacements based on their suitability to the member s financial and personal circumstances. Any applications determined to not be in the member s best interest will be declined. It is a producer s responsibility to know if a replacement will occur with the sale of a new certificate. A producer is required to identify on the application if a replacement is involved in the sale of the applied for product. All Foresters and state required forms must be accurately completed and submitted with the application for it to be considered. Dates on forms must be consistent with the date of the application. Member signatures must be provided on all forms where required. A producer should maintain copies of all forms and information regarding the rationale for the replacement in his/her files and provide this information in the event that there are questions regarding the replacement s suitability. A producer is responsible for providing full disclosure to the member regarding any replacement. Foresters required forms and sales materials must be used to provide this disclosure. It is the producer s responsibility to ensure that the member understands the advantages and disadvantages and consequences and impact of the replacement on a short-term and long-term basis. It is recommended that a producer obtain a signed acknowledgement that proper disclosure has been provided. Evidence of proper disclosure should be maintained in a producer s files. If the sale involves a replacement, a producer should caution the member not to take action to terminate or alter his/her existing life insurance coverage until after he/she has been issued the new certificate, examined it and has found it to be acceptable. Evidence of this disclosure should also be maintained in a producer s files US (09/08) Internal Use Only 7

10 Monitoring Foresters is required to monitor and report on all types of replacement activity and address situations appearing to be excessive or inappropriate. Foresters monitors the flow of money out of certificates within thirteen (13) months before or after the effective date of a new certificate and will identify this transaction and investigate to determine if the appropriate disclosure form(s) were submitted. Undisclosed replacements will result in reversal of commissions and/or other appropriate action(s). Evaluation of Replacements There are many issues that producers and applicants need to consider before a replacement occurs. Some of these issues include but are not limited to: Current health status that will be used to underwrite the new contract; Contestability and suicide clauses generally start over in the new contract; Potential immediate and future tax consequences; Potential cash value losses; Higher cost of insurance on new contract due to applicant s older age; Possible loss of lower contract interest loan rate or other favorable contract provisions; Potential surrender charges, front and/or back loads, or penalties; Fees; and Suitability. Producers should also consider: What are the advantages of continuing the existing certificate without changes? Why can t the existing certificate meet the applicant s needs? What are the primary reasons for recommending a replacement? Factors to Consider in Evaluating a Replacement Producers should disclose all the information needed to help the applicant make an informed decision by understanding the actions he/she is planning to take, and their potential consequences, both positive and negative. Financial Impact to the Applicant A replacement should be carefully analyzed to determine its impact on the applicant's financial situation. If the new certificate costs less and provides more benefits (net of costs incurred as a result of the replacement or to satisfy a need expressed by the applicant despite higher net cost), the applicant may be in a better position. If the new certificate costs more and provides fewer benefits, it is probably not in the applicant's best interest to replace. Consider the tax consequences. Will the applicant incur tax gains now or in the future? Do the tax implications offset any potential advantages? Producers are generally not qualified to provide tax advice and should advise the applicant to consult his/her personal tax advisor. Meeting the Applicant s Needs Consider whether the applicant s needs could better be met by modifying the existing policy or certificate versus a replacement. Is it more cost effective to purchase additional coverage without affecting the current policy or certificate? US (09/08) Internal Use Only 8

11 Affordability A new life insurance certificate for the same amount of coverage may be available at a lower cost, in spite of an increase in the applicant s attained age. Consider whether by consolidating small existing certificates into one, the applicant may be able to reduce cost. Affordability is also sometimes an issue when the cash surrender values from the existing policy or certificate is used to pay the initial premium on the new certificate or to fund increased coverage under an existing certificate (which is a replacement). Applicants must understand that premiums are required to be paid on the new certificate or on increased coverage, even though the initial premium payments have been made without out-of-pocket funds. Producers should not recommend a new certificate when cash surrender values are used to fund the initial premiums, if the applicant cannot afford to pay future premiums. Is the applicant withdrawing cash values from an existing policy or certificate and putting the proceeds into another investment? Is the applicant using the gains from the investment to fund a new life insurance certificate or increase coverage under an existing certificate? If so, it may be unwise to base estimated affordability on the gains from anything except a guaranteed investment. Can the applicant afford to pay premiums on the new certificate if his/her investment had no gains? Producers should explain the impact of any charges and fees on the value of the policy or contract to be replaced and on any new policy or contract. Some certificates, because of surrender charges, sales loads and fees, the certificates have little or no cash surrender value in the early years. For annuities, the analysis should take into account whether or not the applicant will need to access the funds in the annuity, thereby, incurring additional charges and fees that reduce the value of the annuity. The life span of any charges should also be considered. For example, the existing product may be near the end of the surrender charge period while the charges start anew with the new insurance. Illustrations Illustrations can be valuable tools in evaluating the advantages and disadvantages of replacements. Up-todate illustrations should be used in any analysis. Illustrations can help to identify advantages and disadvantages related to a replacement. They provide information on guaranteed and nonguaranteed values. Applicants must understand the difference between guaranteed and non-guaranteed values. Because non-guaranteed values are hypothetical or projected, any advantage for a replacement based on them is likewise, hypothetical or projected, and must be evaluated with care Certificate Loans/Withdrawal of Certificate Values Charges and Fees Surrender charges, sales loads, fees, etc. should be included in any analysis of the advantages and disadvantages of a replacement. Policy or certificate values provide a foundation for the existing policy or certificate. Withdrawal or borrowing of these values to pay new certificate US (09/08) Internal Use Only 9

12 premiums exposes the existing policy or certificate to lapse. that could be paid by dividends are only an estimate. The use of policy or certificate values may have significant disadvantages. Analysis of a replacement involving a loan should consider the tax implications and repayment requirements, if any. An outstanding loan will reduce the death benefit and is subject to additional payment of interest on the loan. In some cases, an analysis of the financial implications and security needs of the applicant may show that it may be in the applicant s best interest to surrender the existing certificate and replace it with a new certificate. Producers must consider any tax implications of surrendering the existing certificate, including the use of 1035 Exchange, where appropriate, to minimize these consequences. Producers must explain and ensure the applicant understands any tax implications of this type of replacement. Producers must disclose that premiums are required to be paid to keep the certificate in force, that use of certificate values is one method of premium payment and explain how future reductions in dividends can affect both existing and new certificates. Producers should ensure the applicant understands that dividends are not guaranteed and document that this disclosure was made. Change in Underwriting Classification If the existing certificate or policy has a less favorable underwriting classification and the insurer is not willing to re-evaluate its rating; it may be in the applicant s best interest to replace the existing policy. If the existing policy or contract was issued standard and the new certificate is rated, it is generally inappropriate to recommend replacing the existing certificate. Ensure the applicant understands that premium payments are required on any new certificate, even though the initial premium payments may have been made without out-of-pocket funds. Use of Dividend Values Policy and certificate dividends may be used to pay premiums on new certificates or existing certificates. The policy or certificate owner has a contractual right to access these values. Any analysis of the appropriateness of using policy or certificate values to pay premiums on a certificate must examine the long-term implications of this strategy. Non-guaranteed dividend rates vary which means that projections of the number of premiums Dissatisfaction with an Existing Insurer Dissatisfaction with an existing insurer is typically not a sufficient reason to offset the disadvantages of most replacements Applicants should be advised to contact insurance companies that issued their existing life insurance policies to redress issues with that company, rather than replace their life insurance policies If, after being advised of the disadvantages of a replacement, an applicant still wishes to replace a policy because of dissatisfaction with an existing insurer, producers must explain and ensure the applicant understands the costs associated with canceling existing policies or US (09/08) Internal Use Only 10

13 certificates and purchasing new coverage. Undisclosed Replacements It is a breach of state regulations and Foresters policy for a Producer to fail to disclose a replacement of an existing policy or certificate that he/she knew or ought to have known would take place. Producers must use his/her best efforts to determine whether an applicant s plans to lapse, surrender, borrow on, etc. an existing policy or certificate. Producers should carefully document that he/she questioned the applicant about his/her plans regarding other policies or certificates and educate the applicant about the need to fully disclose any plans regarding actions that would lead to replacement of existing certificates or policies. Producers are responsible for demonstrating that his/her analysis of a replacement was proper, that he/she disclosed all relevant information to the applicant and that the applicant understood the information. The appropriate State approved replacement and disclosure forms help a producers fulfill his/her responsibility. Alternatives to a Replacement Producers should consider all available alternatives, review them with the applicant and note them in their records or on the Foresters approved replacement form. Some of the possibilities include: Updating an existing contract to provide better cash value growth. Many companies offer such programs for older contracts. Leaving the existing contract intact and purchasing an additional contract. Exploring the possibility that the applicant qualifies for an improved rating on the existing contract (e.g., standard to preferred to provide better cash value growth). Making allowable adjustments if the applicant has an adjustable or other flexible type of contract. Reviewing other dividend options. Exchanging accumulated dividends for paid-up additions or using them to pay off existing loans. Sometimes a replacement can be avoided by restructuring the existing coverage to meet the applicant s needs. As an example, an applicant has a UL certificate that at our current interest rate is projected to lapse at age 75. The applicant wants life insurance that runs to age 95. Rather than replacing the UL certificate with another certificate, it may be possible to restructure the UL to meet the applicant s current needs. There are a number of ways to restructure a UL to extend the projected lapse date: Premium can be increased. Death benefit can be reduced. Riders can be dropped or rider coverage reduced. Loans can be repaid. If the certificate is an Increasing type, it can be changed to a Level type. All of these actions or a combination of them will extend the projected lapse date. Before replacing a certificate or policy, it is important to examine whether restructuring it to meet the applicant s immediate needs is in the applicant s long term best interests. Applications and Underwriting Applications All applications and any other required forms must be completed accurately by the producer. A producer is required to ask all questions on the application as written and record the member s answers fully and accurately. A producer is required to ask any US (09/08) Internal Use Only 11

14 questions needed to fully explain member answers. The member must initial any changes, alterations, modifications or corrections made to the application by a producer. To facilitate the underwriting process, a producer is required to provide the company with all information known to a producer that is pertinent to the member s application. A producer must not withhold or misrepresent any information that could affect the underwriting process. If any material information becomes available to a producer after the application has been submitted but before the certificate has been issued, a producer is required to provide this information to Foresters in a timely fashion. If the applicant is unwilling to provide the required information, a producer should explain to the member that the application cannot be submitted without complete and accurate information. If there are questions regarding privacy and confidentiality, see the Section entitled, Information Security, Privacy and Confidentiality for additional information. The applicant must sign the completed application in the presence of a producer. A producer must then sign the application as witness to its execution at the time it was signed by the member. A producer must not sign partially completed or blank applications. All member signatures acknowledge and attest to the accuracy of the information provided on the application. Every application, document and form requiring a member s signature must be signed by, and only by, the member. Only the person whose signature the application, document or form calls for can sign the application, document or form. Producers, the member s family members or spouse may not sign for the member whose signature is required. Underwriting The Underwriting Department s goal is the timely review, approval and issuing of the product applied for. To facilitate this process, a producer may be asked for additional information or help in obtaining information such as attending physician statements. Failure to support the underwriting process can lead to applications being delayed or declined. Certificate Delivery Certificate delivery is an important part of the sales process. It provides producers with the opportunity to review the reasons why the certificate was purchased and how it meets the member s needs and objectives. It also provides an opportunity to review the features, benefits and costs of the certificate. Producers must deliver the member s certificate within the time frame established by Foresters. Producers are prohibited from retaining the member s certificate in their possession. When delivering the certificate, a producer must inform the member of the free look requirements of the state where the member resides and describe the process the member should use if he/she decides not to keep the certificate. Producers may deliver a certificate in person or by mail (except juvenile universal life certificates / policies, which must be delivered in person). Producers who deliver a certificate in person must obtain a signed and dated proof of delivery receipt and submit it to the company in a timely manner. Producers should maintain a copy of the signed and dated delivery receipt in their files. Producers who deliver a certificate by mail must obtain and return a postal delivery receipt signed by the member and submit it to the company in a timely manner. The insurance contracts issued by fraternal benefit societies are called certificates as they are open contracts with the members. The certificate represents both insurance and membership aspects that the member has with the fraternal US (09/08) Internal Use Only 12

15 Advertising, Sales Materials and Illustrations Advertising and Sales Materials Producers are allowed to use only Forestersapproved advertising and sales material in connection with the solicitation and sale of Foresters products and services. Advertising and sales materials are defined as any material or information designed to create public interest in life insurance, annuities, or an insurer, or to induce the public to purchase, increase, modify, reinstate, or retain a certificate, including: (1) Printed and published material, audio visual material, and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio and television scripts, billboards, and similar displays; (2) Descriptive literature and sales aids issued by an insurer or producer including circulars, leaflets, booklets, depictions, illustrations and form letters; (3) Information provided to the public on web sites and other electronic media; (4) Prepared sales talks, presentations, and material for use by producers; and (5) Material used for recruitment, training, and education of an insurer's producers and management designed to be used to induce the public to purchase, increase, modify, reinstate, or retain policies. Advertising and sales materials do not include: (1) Communications or materials used within an insurer's own organization and not intended for dissemination to the public; (2) Communications with policy holders other than material urging them to purchase, increase, modify, reinstate, or retain a policy; or (3) General announcements from a group or blanket policy holder to eligible persons that a policy has been written or arranged, provided the announcement states that it is preliminary to issuance of a booklet explaining the proposed coverage. (Based on the NAIC model advertising and sales material code.) All Foresters-approved advertising and sales materials have an item code number displayed on the sales material. If you are unsure if a piece of advertising or sales material is approved for use, please call Foresters Advertising Manager at , extension Producers are prohibited from using any sales materials marked, For Producer Use Only, For Internal Use Only, Not For Use with the Public, etc. with the public. This prohibition extends beyond giving copies of the material to members to include showing the material or using the information with the public. This includes any information on a page with this as a header, footer or overlay. It typically also pertains to multi-page documents that have these labels on their cover. Illustrations and rate quotes Illustrations and printed rate quotes can be of value in helping applicants understand how Foresters products and services can help them fulfill their needs and objectives. Only approved Foresters illustrations and rate quotes should be used. Because state regulations vary, producers can only use those Foresters illustrations or rate quotes that have been designed for the jurisdiction in which the applicant resides. When presenting a multi-page illustration or rate quote, all pages must be provided at the same time to the applicant. If an illustration is shown to the applicant during the sales process, the member should receive a copy of the illustration. A producer should maintain a copy of all illustrations and rate quotes used in the sales process in his/her files US (09/08) Internal Use Only 13

16 Maintaining Books and Records, File Documentation Accurate and reliable records are necessary to meet both your professional responsibilities and Foresters legal and financial obligations. Because of this, you are required to keep upto-date records and files of all transactions, correspondence, documentation, etc. relating to Foresters members with whom you have been involved. You must make your records involving Foresters members available to enable Foresters to respond to any regulatory or administrative requirement or investigation. Producers are required to: Maintain separate Foresters files; Maintain all pertinent records and files related to sales of Foresters products, including but not limited to copies of all applications, forms, correspondence between the company and a producer and the member and the date and content of any telephone calls to the member; Maintain a record of all sales materials provided to the member; Preserve all records, while a producer of Foresters; and Turn over all Foresters records to Foresters when a producer s contract with Foresters is terminated. Questions regarding maintaining books and records and required documentation should be directed to Foresters Director, Sales Operations at , extension Rebates and Tie-In Sales Rebates Rebating is the practice of offering to pay or return a portion of the premiums or commissions as an inducement to a member to purchase a life insurance product or service. A rebate may also be a nonmonetary gift, a service or a reciprocal arrangement. Unless rebates are permitted under state law in the jurisdiction in which the sale is made, producers are prohibited from offering rebates to applicants / members. Sales inducements are monetary payments, gifts, prizes, goods or services provided to induce referrals from real estate producers, banks, etc. In some states, producers are prohibited from offering sales inducements to obtain referrals. Producers should consult regulations in each of the states in which they hold licenses to determine if sales inducements are prohibited. When sales inducements are tied to premiums or commissions paid, they may be considered a form of commission payment. State regulations allow only licensed producers to receive commissions for the sale of life insurance. Producers are prohibited from providing a portion of their commissions to unlicensed individuals or to enter into an agreement to that effect. Tie-In Sales Tie-in sales are agreements to purchase a life insurance product only on the condition that another insurance product is purchased. For example, the sale of a life insurance product cannot be conditional on the purchase of a property and casualty product. Producers are prohibited from making the purchase of a life insurance product conditional on the purchase of any other product or service. Regulatory Audits and Company Examinations It is Foresters obligation to cooperate with any regulatory authority s audit or examination of its producers. As a producer selling Foresters products you are required to cooperate in any regulatory audit. A producer who is notified that he/she will be the subject of a regulatory audit is required to notify Foresters in a timely manner of the nature and date of the audit. A producer must make his or her files related to Foresters members available to examiners from Foresters or the organization s designees. Foresters will provide notice to a producer of any planned examinations US (09/08) Internal Use Only 14

17 Maintaining Up-To-Date Policies And Procedures A producer is required to review and maintain copies of all Foresters policies and procedures including all periodic updates to those policies and procedures. Though Foresters will periodically provide information on its policies and procedures, it is a producers' responsibility to keep themselves informed. A producer should familiarize himself/herself with state regulatory web sites and review them periodically, since they often provide up-to-date information on changes to state laws and regulations impacting producers. Training and Education To properly carry out their responsibilities, Foresters producers are expected to acquire and maintain the knowledge and skills required to provide sound professional advice about Foresters, its products and services and how those products and services can help members fulfill their financial needs and objectives. Though Foresters provides educational information about its products and services, producers are responsible for maintaining their professional competence. Producers are expected to participate in professional training and education and to continue their development throughout their career. Producers are responsible for fulfilling their continuing education requirements and providing Foresters with proof that they have met the continuing education requirements of the jurisdictions in which they hold a license. Depending on the renewal requirements and timing for a particular jurisdiction, producers are advised to complete their requirements far enough in advance of any deadlines, so that evidence can be provided to Foresters prior to the expiration of their license. In addition to any state mandated license, a producer s knowledge, skills and experience dictate the markets a producer should work in and the products he or she should sell. A producer must avoid giving advice, making recommendations and presenting himself/herself as having expertise in areas where he/she is not qualified. Communication With Members and the Public Do Not Call Rules Foresters privacy policy restricts the activities of persons who solicit by telephone. Telephone calls to members should not be made before 8:00AM or after 9:00PM local time. At the beginning of the call producers must identify themselves by name and, if calling on behalf of Foresters, the full legal name of Foresters and the purpose of the call. Producers should be courteous and end the call as soon as the member states that he/she wishes the call to end. If a producer contacts a person who wishes to be placed on Foresters Do Not Call list, a producer is required to contact Foresters service center at , or Foresters Compliance Officer at , extension 4002, or send an to Ask Compliance and provide that person s name and phone number so it can be added to Foresters list. Complaint Handling Foresters is committed to providing the highest quality service to its members. Foresters producers must endeavor to provide this service in all parts of the sales process and after the certificate has been issued through regular contact with the member. However, in spite of a producer s and Foresters best efforts, members may become dissatisfied with some aspects of the product or services we provide, which may lead to a complaint. Foresters defines a complaint as a written or documented oral expression of a grievance or dissatisfaction against Foresters or its producers or employees. A complaint can include, but is not limited to, an allegation of the following: US (09/08) Internal Use Only 15