Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
304.1-040,
304.5-020,
304.5-030,
304.9-020,
304.12-010,
304.12-030,
304.15-310,
12 C.F.R. 205, 230, 707,
10 U.S.C.
992,
12 U.S.C.
4301,
26 U.S.C.
401(a), (k),
403(b),
408(k),
(p),
414,
457,
501(c)(23),
29 U.S.C.
1001,
38
U.S.C. 1965,
Pub.L.
109-290
NECESSITY, FUNCTION AND CONFORMITY:
KRS
304.12-257 authorizes the commissioner to
promulgate administrative regulations to protect service members of the United
States Armed Forces from dishonest insurance marketing and sales practices.
Pub.L.
109-290 requires the states to collectively work
with the Secretary of Defense to ensure implementation of appropriate standards
to protect members of the Armed Forces from dishonest and predatory insurance
sales practices while on a military installation of the United States and
requires each state to identify its role in promoting the standards in a
uniform manner. This administrative regulation establishes standards to protect
active duty service members of the United States Armed Forces from dishonest
and predatory insurance sales practices by declaring certain identified
practices to be false, misleading, deceptive, or unfair.
Section 1. Definitions.
(1) "Active duty":
(a) Means full-time duty in the active
military service of the United States and includes members of the reserve
component, both the National Guard and Reserve, while serving under published
orders for active duty or full-time training; and
(b) Does not mean members of the reserve
component who are performing active duty or active duty for training under
military calls or orders specifying periods of less than thirty-one (31)
calendar days.
(2)
"Annuity" is defined by
KRS
304.5-030.
(3) "Commissioner" is defined by
KRS
304.1-050(1).
(4) "Department of Defense Personnel" means
all active duty service members and all civilian employees, including
nonappropriated fund employees and special government employees, of the
Department of Defense.
(5)
"Door-to-door" means a solicitation or sales method in which an insurance
producer proceeds randomly or selectively from household to household without a
prior specific appointment.
(6)
"General advertisement" means an advertisement having as its sole purpose the
promotion of the reader's or viewer's interest in the concept of insurance, or
the promotion of the insurer or the insurance producer.
(7) "Insurable needs" means the risks
associated with premature death taking into consideration the financial
obligations and immediate and future cash needs of the applicant's estate or
survivors or dependents.
(8)
"Insurer" is defined by
KRS
304.1-040.
(9) "Insurance producer" is defined by
KRS
304.9-020(10).
(10) "Known" or "knowingly" means the
insurance producer or insurer had actual awareness, or in the exercise of
ordinary care should have known, when the act or practice complained of
occurred, that the person solicited is a service member.
(11) "Life insurance" is defined by
304.5-020.
(12) "Military
installation" means any federally owned, leased, or operated base, reservation,
post, camp, building, or other facility to which service members are assigned
for duty, including barracks, transient housing, and family quarters.
(13) "MyPay" means the Defense Finance and
Accounting Service Web-based system that enables service members to process
certain discretionary pay transactions or provide updates to personal
information data elements without using paper forms.
(14) "Other military survivor benefits" means
the death gratuity, funeral reimbursement, transition assistance, survivor and
dependents' educational assistance, dependency and indemnity compensation,
TRICARE healthcare benefits, survivor housing benefits and allowances, federal
income tax forgiveness, and Social Security survivor benefits.
(15) "SGLI" means the Servicemembers' Group
Life Insurance as established by
38
U.S.C. section 1965.
(16) "Service member" means an active duty
officer, both commissioned and warrant, or enlisted member of the United States
Armed Forces.
(17) "Side fund":
(a) Means a fund or reserve that is part of
or otherwise attached to a life insurance policy by rider, endorsement, or
other mechanism that accumulates premium or deposits with interest or by other
means; and
(b) Does not mean:
1. Accumulated value or cash value or
secondary guarantees provided by a universal life policy;
2. Cash values provided by a whole life
policy subject to standard nonforfeiture law for life insurance; or
3. A premium deposit fund that:
a. Contains only premiums paid in advance
which accumulate at interest;
b.
Does not impose a penalty for withdrawal;
c. Does not permit funding beyond future
required premiums;
d. Is not
marketed or intended as an investment; and
e. Does not carry a commission, either paid
or calculated.
(18) "Specific appointment" means a
prearranged appointment agreed upon by both parties and definite as to place
and time.
(19) "United States Armed
Forces" means all components of the Army, Navy, Air Force, Marine Corps, and
Coast Guard.
(20) "VGLI" means the
Veterans' Group Life Insurance, as established by U.S.C. Title 38.
Section 2. Scope. This
administrative regulation shall apply only to the solicitation or sale of a
life insurance policy or annuity by an insurer or insurance producer to an
active duty service member of the United States Armed Forces.
Section 3. Exemptions.
(1) This administrative regulation shall not
apply to solicitations or sales involving:
(a) Credit insurance;
(b) Group life insurance or group annuities
if:
1. An in-person, face-to-face
solicitation of individuals by an insurance producer is not made; or
2. The contract or certificate does not
include a side fund;
(c)
An application to the existing insurer that issued the existing policy or
contract if:
1. A contractual change or a
conversion privilege is being exercised;
2. The existing policy or contract is being
replaced by the same insurer pursuant to a program filed with and approved by
the commissioner in accordance with KRS Chapter 304; or
3. A term conversion privilege is exercised
among corporate affiliates;
(d) Individual stand-alone health policies,
including disability income policies;
(e) Contracts offered by SGLI or
VGLI;
(f) Life insurance contracts
offered through or by a non-profit military association, qualifying under
26 U.S.C.
501(c)(23), and that are not
underwritten by an insurer; or
(g)
Contracts used to fund:
1. An employee
pension or welfare benefit plan that is covered by the Employee Retirement and
Income Security Act, 29 U.S.C. Chapter 18;
2. A plan established by
26 U.S.C.
401(a),
401(k),
403(b),
26
U.S. C. 408(k) or 408(p), if established or maintained by an
employer;
3. A governmental or
church plan established in
26 U.S.C.
414;
4. A governmental or church welfare benefit
plan, or a deferred compensation plan of a state or local government or tax
exempt organization under
26
U.S.C. 457;
5. A nonqualified deferred compensation
arrangement established or maintained by an employer or plan sponsor;
6. Settlements of or assumptions of
liabilities associated with personal injury litigation or any dispute or claim
resolution or process; or
7.
Prearranged funeral contracts.
(2) This administrative regulation shall not
abrogate the ability of a nonprofit organization or another organization to
educate members of the United States Armed Forces in accordance with Department
of Defense Instruction 1344.07, Personal Commercial Solicitation on DoD
Installations.
(3)
(a) General advertisements, direct mail, and
internet marketing shall not constitute solicitation.
(b) Telephone marketing shall not constitute
solicitation if the caller:
1. Explicitly and
conspicuously discloses that the product concerned is life insurance;
and
2. Does not make a statement
that avoids a clear and unequivocal statement that life insurance is the
subject matter of the solicitation.
(c) This subsection shall not exempt an
insurer or insurance producer from the requirements of this administrative
regulation in any in-person, face-to-face meeting established as a result of
the exemptions established in this subsection.
Section 4. Practices Declared False,
Misleading, Deceptive, or Unfair on a Military Installation.
(1) The following acts or practices, if
committed on a military installation by an insurer or insurance producer, with
respect to the in-person, face-to-face solicitation of life insurance shall be
false, misleading, deceptive, or unfair:
(a)
Knowingly soliciting the purchase of any life insurance product:
1. Door to door; or
2. Without first establishing a specific
appointment for each meeting with the prospective purchaser;
(b) Soliciting service members in
a group or mass audience or in a captive audience if attendance is not
voluntary;
(c) Knowingly making
appointments with or soliciting service members during their normally scheduled
duty hours;
(d) Making appointments
with or soliciting service members in:
1.
Barracks;
2. Day rooms;
3. Unit areas;
4. Transient personnel housing; or
5. Other areas where the installation
commander has prohibited solicitation;
(e) Soliciting the sale of life insurance
without first obtaining permission from the installation commander or the
commander's designee;
(f) Posting
unauthorized bulletins, notices, or advertisements;
(g) Failing to present Department of Defense
Form 2885, Personal Commercial Solicitation Evaluation, to service members
solicited or encouraging service members solicited not to complete or submit a
Department of Defense Form 2885; or
(h) Knowingly accepting an application for
life insurance or issuing a policy of life insurance on the life of an enlisted
member of the United States Armed Forces without first obtaining for the
insurer's files a completed copy of a required form, which confirms that the
applicant has received counseling or fulfilled any other similar requirement
for the sale of life insurance established by regulations, directives, or rules
of the US Department of Defense, or any branch of the US Armed
Forces.
(2) The
following acts or practices, if committed on a military installation by an
insurer or insurance producer, shall constitute corrupt practices, improper
influences, or inducements and shall be false, misleading, deceptive, or
unfair:
(a) Using US Department of Defense
personnel, directly or indirectly, as a representative or agent in any official
or business capacity with or without compensation with respect to the
solicitation or sale of life insurance to service members; and
(b) Using an insurance producer to
participate in any United States Armed Forces sponsored education or
orientation program.
Section 5. Practices Declared False,
Misleading, Deceptive, or Unfair Regardless of Location.
(1) The following acts or practices by an
insurer or insurance producer shall constitute corrupt practices, improper
influences, or inducements and shall be false, misleading, deceptive, or
unfair:
(a)
1. Submitting, processing, or assisting in
the submission or processing of any allotment form or similar device used by
the United States Armed Forces to direct a service member's pay to a third
party for the purchase of life insurance including using or assisting in using
a service member's "MyPay" account or other similar internet or electronic
medium for those purposes;
2. This
subsection shall not prohibit assisting a service member by providing insurer
or premium information necessary to complete an allotment form;
(b)
1. Knowingly receiving funds from a service
member for the payment of premium from a depository institution with which the
service member does not have a formal banking relationship;
2. For purposes of this subsection, a formal
banking relationship shall be established if the depository institution:
a. Provides the service member a deposit
agreement and periodic statements and makes the disclosures required by the
Truth in Savings Act,
12 U.S.C.
4301 et seq. and 12 C.F.R. 205, 230, and 707;
and
b. Permits the service member
to make deposits and withdrawals unrelated to the payment or processing of
insurance premiums;
(c) Employing a device or method or entering
into an agreement if funds received from a service member by allotment for the
payment of insurance premiums are identified on the service member's leave and
earnings statement or equivalent or successor form as "savings" or "checking"
and if the service member has no formal banking relationship;
(d) Entering into any agreement with a
depository institution for the purpose of receiving funds from a service member
if the depository institution, with or without compensation, agrees to accept
direct deposits from a service member with whom it has no formal banking
relationship;
(e) Using US
Department of Defense personnel, directly or indirectly, as a representative or
agent in an official or unofficial capacity with or without compensation with
respect to the solicitation or sale of life insurance to service members who
are junior in rank or grade, or to the family members of personnel;
(f) Offering or giving anything of value,
directly or indirectly, to US Department of Defense personnel to procure their
assistance in encouraging, assisting, or facilitating the solicitation or sale
of life insurance to another service member;
(g) Knowingly offering or giving anything of
value to a service member for the member's attendance at any event at which an
application for life insurance is solicited; or
(h) Advising a service member to change the
member's income tax withholding or state of legal residence for the sole
purpose of increasing disposable income to purchase life insurance.
(2) The following acts or
practices by an insurer or insurance producer lead to confusion regarding
source, sponsorship, approval, or affiliation and shall be false, misleading,
deceptive, or unfair:
(a)
1. Making any representation, or using any
device, title, descriptive name, or identifier that has the tendency or
capacity to confuse or mislead a service member into believing that the
insurer, insurance producer, or product offered is affiliated, connected, or
associated with, endorsed, sponsored, sanctioned, or recommended by the U.S.
Government, the United States Armed Forces, or any state or federal agency or
government entity;
2. This
subsection shall not prohibit a person from using a professional designation
awarded after the successful completion of a course of instruction in the
business of insurance by an accredited institution of higher learning;
or
(b) Soliciting the
purchase of any life insurance product through the use of or in conjunction
with a third party organization that promotes the welfare of or assists members
of the United States Armed Forces in a manner that has the tendency or capacity
to confuse or mislead a service member into believing that either the insurer,
insurance producer, or insurance product is affiliated, connected, or
associated with, endorsed, sponsored, sanctioned, or recommended by the U.S.
Government or the United States Armed Forces.
(3) The following acts or practices by an
insurer or insurance producer lead to confusion regarding premiums, costs, or
investment returns and shall be false, misleading, deceptive, or unfair:
(a) Using or describing the credited interest
rate on a life insurance policy in a manner that implies that the credited
interest rate is a net return on premium paid; or
(b) Excluding individually issued annuities,
misrepresenting the mortality costs of a life insurance product, including
stating or implying that the product "costs nothing" or is "free."
(4) The following acts or
practices by an insurer or insurance producer regarding SGLI or VGLI shall be
false, misleading, deceptive, or unfair:
(a)
Making any representation regarding the availability, suitability, amount,
cost, exclusions, or limitations to coverage provided to a service member or
dependents by SGLI or VGLI, which is false, misleading, or deceptive;
(b) Making any representation regarding
conversion requirements, including the costs of coverage, exclusions, or
limitations to coverage of SGLI or VGLI to private insurers that is false,
misleading, or deceptive; or
(c)
Suggesting, recommending, or encouraging a service member to cancel or
terminate his or her SGLI policy or issuing a life insurance policy that
replaces an existing SGLI policy unless the replacement shall take effect upon
or after the service member's separation from the United States Armed
Forces.
(5) The
following acts or practices by an insurer or insurance producer regarding
disclosure shall be false, misleading, deceptive, or unfair:
(a) Deploying, using, or contracting for a
lead generating material designed exclusively for use with service members that
does not clearly and conspicuously disclose that the recipient will be
contacted by an insurance producer, if that is the case, for the purpose of
soliciting the purchase of life insurance;
(b) Failing to disclose that a solicitation
for the sale of life insurance will be made if establishing a specific
appointment for an in-person, face-to-face meeting with a prospective
purchaser;
(c) Excluding
individually issued annuities, failing to clearly and conspicuously disclose
the fact that the product being sold is life insurance;
(d) Failing to make, at the time of sale or
offer to an individual known to be a service member, the written disclosures
required by Section 10 of the "Military Personnel Financial Services Protection
Act,"
Pub.
L. No. 109-290, p.16; or
(e) Excluding individually issued annuities,
if the sale is conducted in-person face-to-face with an individual known to be
a service member, failing to provide the applicant if the application is taken:
1. An explanation of a free look period with
instructions on how to cancel if a policy is issued; and
2.
a. A copy
of the application; or
b.
(i) A written disclosure.
(ii) The copy of the application or the
written disclosure shall state the type of life insurance and the death benefit
applied for and the policy or benefit expected first year cost. A basic
illustration that complies with
806 KAR
12:140 shall be sufficient to meet this requirement
for a written disclosure.
(6) The following acts or practices by an
insurer or insurance producer shall be false, misleading, deceptive, or unfair:
(a) Excluding individually issued annuities,
recommending the purchase of any life insurance product that includes a side
fund to a service member unless the insurer has reasonable grounds for
believing that the life insurance death benefit, standing alone, is
suitable;
(b) Offering for sale or
selling a life insurance product that includes a side fund to a service member
who is:
1. Currently enrolled in SGLI;
and
2. Presumed unsuitable unless,
after the completion of a needs assessment, the insurer demonstrates that the
applicant's SGLI death benefit, together with any other military survivor
benefits, savings and investments, survivor income, and other life insurance
are insufficient to meet the applicant's insurable needs for life
insurance;
(c) Excluding
individually issued annuities, offering for sale or selling a life insurance
contract that includes a side fund:
1. Unless
interest credited accrues from the date of deposit to the date of withdrawal
and permits withdrawals without limit or penalty;
2. Unless the applicant has been provided
with a schedule of effective rates of return based upon cash flows of the
combined product.
a. The effective rate of
return shall consider all premiums and cash contributions made by the
policyholder and all cash accumulations and cash surrender values available to
the policy-holder in addition to life insurance coverage.
b. The schedule shall be provided for at
least each policy year from one (1) to ten (10) and for every subsequent fifth
policy year ending at age 100, policy maturity, or final expiration;
and
3. That by default
diverts or transfers funds accumulated in the side fund to pay, reduce, or
offset any premiums due; or
(d) Excluding individually issued annuities,
offering for sale or selling a life insurance contract that after considering
all policy benefits, does not comply with
KRS
304.15-310.
Section 6. Incorporation by Reference.
(1) The following material is incorporated by
reference:
(a) "Department of Defense
Instruction Number 1344.07, Personal Commercial Solicitation on DoD
Installations", (March 30, 2006); and
(b) "Department of Defense Form 2885,
Personal Commercial Solicitation Evaluation", (April 2006).
(2) This material may be
inspected, copied, or obtained, subject to applicable copyright law, at the
Department of Insurance, Mayo-Underwood Building, 500 Mero Street, Frankfort,
Kentucky 40601, Monday through Friday, 8 a.m. to 4:30 p.m. This material is
also available on the department's website at:
http://insurance.ky.gov.
STATUTORY AUTHORITY:
KRS
304.2-110(1),
304.12-257,
10 U.S.C.
992(9)(a)(2),
Pub.L.
109-290