Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.1-050,
304.2-310,
304.9-440,
304.12-010,
304.12-020,
304.12-040,
304.12-110,
304.12-130,
304.14-120
to
304.14-180
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110(1) authorizes the
Commissioner of Insurance to promulgate administrative regulations necessary
for or as an aid to the effectuation of any provision of the Kentucky Insurance
Code as established in
KRS
304.1-010. This administrative regulation
establishes standards to assure fair disclosure to insurance consumers.
Section 1. Definitions.
(1) "Agent" is defined by
KRS
304.9-020.
(2) "Commissioner" is defined by
KRS
304.1-050(1).
(3) "Consultant" is defined by
KRS
304.9-040.
(4) "Department" is defined by
KRS
304.1-050(2).
(5) "Insurer" is defined by
KRS
304.1-050.
(6) "Person" is defined by
KRS
304.1-020.
(7) "Pure endowment benefit" means a
guaranteed insurance benefit, actuarially determined, the payment of which is
contingent upon the survival of the insured to a specified point in
time.
Section 2.
Applicability. This administrative regulation shall apply to:
(1)
(a) Any
insurance company, person, or consultant;
(b) Acts and practices in the advertising,
promotion, solicitation, and negotiation of or effecting the sale of life
insurance policies; and
(c) Acts
and practices related to the sale of insurance, whether or not they involve the
use of language disseminated by means of sales kits, policy jackets or covers,
letters, personal presentations, visual aids, or other sales media.
(2) This administrative regulation
shall not apply to group insurance policies or to annuity contracts.
Section 3. Statement of Policy.
(1) To assure fair disclosure of relevant
facts in the sale of life insurance and to protect purchasers and prospective
purchasers of life insurance policies sales methods that are misleading shall
not be used, including:
(a) The omission of
facts fairly describing both the subject matter of a life insurance policy and
the benefits obtainable under the policy;
(b) An undue emphasis upon facts that might
be true but are not relevant to the sales of life insurance; and
(c) An undue emphasis upon features that are
of incidental or secondary importance to the life insurance aspects of a
policy.
(2) Although
this administrative regulation is addressed to selected acts and practices that
have been of serious concern to the Department of Insurance, this shall not be
a determination that any act of practice not established in this administrative
regulation is in conformance with the statutory provisions.
(3) The acts and practices established in
Sections 7 through 7 of this administrative regulation shall be
prohibited.
Section 4.
Policy Forms. A company shall not:
(1)
Include coupons as a part of policies containing pure endowment
benefits;
(2) Issue a policy of
insurance containing pure endowment benefits unless the gross premium for these
provisions is shown prominently and separately in the policy as distinct from
the regular insurance gross premium. This subsection shall not apply to any
policy in which the amount of any pure endowment or periodic benefit or
benefits payable during any policy year is greater than the total annual
premium for the year.
(a) This separate gross
premium for the series of pure endowments shall be based on reasonable
assumptions and be consistent with the policy as to interest, mortality, and
expense.
(b) The amount of the
guaranteed series of pure endowment benefits shall be expressed in dollar
amounts and shall not be presented or defined, either in the policy or any
sales and advertising material, as a "percentage" of any premiums or benefits
contained in the policy.
(c) All
policies with pure endowments sold in Kentucky shall include the following
statement stamped on the face of the policy until present stocks are exhausted:
"The premium includes $____ for pure endowment benefits;"
(3) Use a dividend illustration in connection
with a participating life insurance policy unless the dividend illustration is
on file with the commissioner as a part of a rate book or as a separate filing;
and
(4) Use words or phrases such
as "investment or investment plan," "insured investment plan," "profitsharing,"
"charter plan," "founders plan," or similar language in a life insurance
policy, either in context or under circumstances or conditions as to have the
capacity and tendency to mislead a purchaser or prospective purchaser to
believe that he or she will receive or that it is probable he or she will
receive something other than an insurance policy, some benefit not provided in
the policy, or some benefit not available to other persons of the same class
and equal expectation of life.
Section 5. Sales Presentation and
Solicitation. Sales presentations and solicitations shall not:
(1) Reference to a policy using similar
terminology as established in Section 4(4) of this administrative regulation,
including:
(a) Statements or representations
that the prospective policyholder shall receive the right to benefits from the
insurance company that are not stipulated in the policy itself; or
(b) Statements or references that refer to
premium payments in language stating the payment is a "deposit" unless:
1. The payment establishes a debtor-creditor
relationship between the insurance company and the policyholder; or
2. The term is used in conjunction with the
word "premium" in a manner that clearly indicates the true character of the
payment;
(c) Statements
that describe a life insurance policy or premium payments in terms of "unit of
participation", unless accompanied by other language fairly indicating their
reference to a life insurance policy or to premium payments. Statements that
describe a life insurance policy or premium payments in terms of units shall be
followed by the dollar amount representing the annual premium for each unit or
units described, and further wording clearly indicating that the unit or units
represent a life insurance policy; and
(d) Statements that infer that the guaranteed
endowments available under a policy are interest, earnings, return on
investment, or anything other than benefits for which the cost is taken into
consideration in calculating the total premium;
(2) Reference to any policy or contract in a
manner as to misrepresent its true nature and more particularly:
(a) Statements that tend to lead the prospect
to believe that the agent is dealing in other than a life insurance
contract;
(b) Statements that tend
to lead the prospect to believe that life insurance is incidental to the
purchase of the contract;
(c)
Statements or reference relating to the growth of the life insurance industry
or to the tax status of life insurance companies in a context that would
reasonably be understood to interest a prospect in the purchase of shares of
stock in an insurance company rather than in the purchase of a life insurance
policy;
(d) Statements that
reasonably give rise to the inference that the insured will enjoy a status
common to a stockholder or will acquire a stock ownership interest in the
insurance company by virtue of purchasing the policy; and
(e) References or statements to a company's
"investment department," "insured investment department," or similar
terminology in a manner as to imply that the policy was sold, issued, or is
serviced by the investment department of the insurance company;
(3) Reference the payment of
dividends in a manner as to misrepresent their true nature, including:
(a) Providing any illustration as to
projected dividends unless the dividend scale is based on the experience
currently used by the company for dividends and unless the illustration is
expressed in dollar amounts;
(b)
Statements that use the words "dividends," "cash dividends," "surplus," or
similar phrases in a manner as to state or imply that the payment of dividends
is guaranteed or certain to occur;
(c) Statements or references that a purchaser
of a policy will share in a stated percentage or portion of the earnings of the
company;
(d) Statements that use
the word "dividend," "cash dividends," "surplus," or similar terminology not
expressed as a dollar amount. This shall apply to projected dividends and past
experience on dividends; and
(e)
Statements or inferences that projected dividends under a participating policy
are sufficient at any time to assure the receipt of benefits without the
further payment of premiums unless the statement is accompanied by an adequate
explanation as to:
1. What benefits or
coverage would be provided; and
2.
The conditions under which this would occur; and
(4) Reference to any policy or
contract in a manner as to suggest that certain policyholders will receive
preferential treatment, including:
(a)
Statements or references that would reasonably tend to imply that by purchasing
a policy, the purchaser or prospective purchaser will become a member of a
limited group of persons who may receive in the payment of dividends, special
advantages, benefits, or favored treatment. This paragraph shall not apply to
policies under which insured persons of one (1) class of risk may receive
dividends of a higher rate than persons of another class of risk;
(b) Statements or references that each
policyholder is given the right to allocate a specific number of
policies;
(c) Statements or
inferences that only a limited number of person or a limited class of persons,
will be eligible to buy a particular kind of policy, unless the limitation is
related to recognized underwriting practices;
(d) Statements or inferences that
policyholders who act as "centers of influence" for an insurance company in
that capacity will share in the company's surplus earnings in some manner not
available to policyholders of the same class; and
(e) Comparisons to the past experience of
other life insurance companies in which the comparison is based on an arbitrary
selection as to either the companies or the statistics or other data
used.
Section
6. Dividends.
(1) Policyholder
premium or gross cost reductions on participating policies shall be designated
dividends. Other items shall not be designated as dividends.
(a) Dividends shall not be guaranteed as to
amount, percentage, or premium, or other basis.
(b) The decision for declaration of a
dividend shall be determined by the insurance company's board of directors,
based solely on operating results or projection for those policies designated
participating policies.
(2) If dividends are declared for a policy
year classification based on specific plan or age classifications as they
relate to contribution of company ability to declare dividends, dividends shall
be apportioned to all policies so entitled in that policy year.
(3) The date dividends are declared shall be
the date liability is established for the dividends and the reserve established
for this liability shall be the full amount of the dividends
declared.
STATUTORY AUTHORITY:
KRS
304.2-110(1)