Missouri Code of State Regulations
Title 20 - DEPARTMENT OF COMMERCE AND INSURANCE
Division 400 - Life, Annuities and Health
Chapter 5 - Advertising and Material Disclosures
Section 20 CSR 400-5.400 - Life Insurance and Annuities Replacement
Universal Citation: 20 MO Code of State Regs 400-5.400
Current through September 27, 2023
PURPOSE: This rule regulates the activities of insurers, agents, and brokers with respect to the replacement of existing life insurance and annuities and protects the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to be observed in replacement transactions. This rule effectuates and aids in the interpretation of sections 375.934, 375.936, and 375.948, RSMo.
(1) Purpose and Scope.
(A) The purpose of this rule is-
1. To regulate the activities of insurers and
producers with respect to the replacement of existing life insurance and
annuities; and
2. To protect the
interests of life insurance and annuity purchasers by establishing minimum
standards of conduct to be observed in replacement or financed purchase
transactions. It will-
A. Assure that
purchasers receive information with which a decision can be made in his or her
own best interest; and
B. Reduce
the opportunity for misrepresentation and incomplete disclosure.
(B) Unless otherwise
specifically included, this rule shall not apply to transactions involving-
1. Credit life insurance;
2. Group life insurance or group annuities
where there is no direct solicitation of individuals by an insurance producer.
Direct solicitation shall not include any group meeting held by an insurance
producer solely for the purpose of educating or enrolling individuals or, when
initiated by an individual member of the group, assisting with the selection of
investment options offered by a single insurer in connection with enrolling
that individual in group life insurance or a group annuity. Group life
insurance or group annuity certificates marketed through direct response
solicitation shall be subject to the provisions of section (7) of this
rule;
3. Group life insurance or
annuities used to fund prearranged funeral contracts;
4. An application to the existing insurer
that issued the existing policy or contract when a contractual change or a
conversion privilege is being exercised; or, when the existing policy or
contract is being replaced by the same insurer pursuant to a new policy or
contract filed with and approved by the director; or, when a term conversion
privilege is exercised among corporate affiliates;
5. Proposed life insurance that is to replace
life insurance under a binding or conditional receipt issued by the same
company;
6. (Reserved)
A. Policies or contracts used to fund 1) an
employee pension or welfare benefit plan that is covered by the Employee
Retirement and Income Security Act (ERISA); 2) a plan described by Sections
401(a), 401(k) or 403(b) of the Internal Revenue Code, where
the plan, for purposes of ERISA, is established or maintained by an employer;
3) a governmental or church plan defined in Section 414, a governmental or
church welfare benefit plan, or a deferred compensation plan of a state or
local government or tax exempt organization under Section 457 of the
Internal Revenue Code; or 4) a nonqualified deferred
compensation arrangement established or maintained by an employer or plan
sponsor.
B. Notwithstanding
subparagraph (1)(B)6.A., this rule shall apply to policies or contracts used to
fund any plan or arrangement that is funded solely by contributions an employee
elects to make, whether on a pretax or after-tax basis, and where the insurer
has been notified that plan participants may choose from among two (2) or more
insurers, and there is a direct solicitation of an individual employee by an
insurance producer for the purchase of a contract or policy. As used in this
subsection, direct solicitation shall not include any group meeting held by an
insurance producer solely for the purpose of educating individuals about the
plan or arrangement or enrolling individuals in the plan or arrangement or,
when initiated by an individual employee, assisting with the selection of
investment options offered by a single insurer in connection with enrolling
that individual employee in group life insurance or a group annuity;
7. Where new coverage is provided
under a life insurance policy or contract and the cost is borne wholly by the
insured's employer or by an association of which the insured is a
member;
8. Existing life insurance
that is a nonconvertible term life insurance policy that will expire in five
(5) years or less and cannot be renewed;
9. Immediate annuities that are purchased
with proceeds from an existing contract. Immediate annuities purchased with
proceeds from an existing policy are not exempted from the requirements of this
rule; or
10. Structured
settlements.
(C)
Registered contracts shall be exempt from the requirements of paragraph
(5)(A)2. and subsection (6)(B) of this rule with respect to the provision of
illustrations or policy summaries; however, premium or contract contribution
amounts and identification of the appropriate prospectus or offering circular
shall be required instead.
(2) Definitions.
(A) "Direct-response solicitation" means a
solicitation through a sponsoring or endorsing entity or individually solely
through mails, telephone, the Internet, or other mass communication
media.
(B) "Existing insurer" means
the insurance company whose policy or contract is or will be changed or
affected in a manner described within the definition of
"replacement."
(C) "Existing
contract" means an annuity contract (contract) in force, including a contract
under a binding or conditional receipt or a contract that is within an
unconditional refund period.
(D)
"Existing policy" means an individual life insurance policy (policy) in force,
including a policy under a binding or conditional receipt or a policy that is
within an unconditional refund period.
(E) "Financed purchase" means the purchase of
a new policy or contract involving the actual or intended use of funds obtained
by the withdrawal or surrender of, or by borrowing from values of an existing
policy or contract to pay all or part of any premium due on the new policy or
contract. For purposes of a regulatory review of an individual transaction
only, if a withdrawal, surrender, or borrowing involving the policy or contract
values of an existing policy or contract is used to pay premiums on a new
policy or contract owned by the same policyholder and issued by the same
company within four (4) months before or thirteen (13) months after the
effective date of the new policy or contract, it will be deemed prima
facie evidence of the policyholder's intent to finance the purchase of
the new policy or contract with existing policy or contract values. This
prima facie standard is not intended to increase or decrease
the monitoring obligations contained in paragraph (4)(A)5. of this
rule.
(F) "Illustration" means a
presentation or depiction that includes non-guaranteed elements of a policy of
life insurance or annuity contract over a period of years as defined in section
375.1503, RSMo.
(G) "Policy summary," for the purposes of
this rule-
1. For policies or contracts other
than universal life policies, means a written statement regarding a policy or
contract that shall contain to the extent applicable, but need not be limited
to, the following information: current death benefit; annual contract premium;
current cash surrender value; current dividend; application of current
dividend; and amount of outstanding loan;
2. For universal life policies, means a
written statement that shall contain at least the following information: the
beginning and end date of the current report period; the policy value at the
end of the previous report period and at the end of the current report period;
the total amounts that have been credited or debited to the policy value during
the current report period, identifying each by type (e.g., interest, mortality,
expense, and riders); the current death benefit at the end of the current
report period on each life covered by the policy; the net cash surrender value
of the policy as of the end of the current report period; and the amount of
outstanding loans, if any, as of the end of the current report
period.
(H) "Producer,"
for the purpose of this rule, shall be defined to include agents, brokers, and
producers.
(I) "Replacing insurer"
means the insurance company that issues or proposes to issue a new policy or
contract that replaces an existing policy or contract or is a financed
purchase.
(J) "Registered contract"
means an annuity contract or life insurance policy subject to the prospectus
delivery requirements of the Securities Act of 1933.
(K) "Replacement" means a transaction in
which a new policy 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 policy 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 policy
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;
or
5. Used in a financed
purchase.
(L) "Sales
material" means a sales illustration and any other written, printed, or
electronically presented information created, completed, or provided by the
company or producer and used in the presentation to the policy or contract
owner related to the policy or contract purchased.
(3) Duties of Producers.
(A) A producer who initiates an application
shall submit to the insurer, with or as part of the application, a statement
signed by both the applicant and the producer as to whether the applicant has
existing policies or contracts. If the answer is "no," the producer's duties
with respect to replacement are complete.
(B) If the applicant answered "yes" to the
question regarding existing coverage referred to in subsection (3)(A), the
producer shall present and read to the applicant, not later than at the time of
taking the application, a notice regarding replacements in the form as
described in Appendix A, included herein, or other substantially similar form.
The notice shall be signed by both the applicant and the producer attesting
that the notice has been read aloud by the producer or that the applicant did
not wish the notice to be read aloud (in which case the producer need not have
read the notice aloud) and left with the applicant.
(C) The notice shall list all life insurance
policies or annuities proposed to be replaced, properly identified by name of
insurer, the insured or annuitant, and policy or contract number if available;
and shall include a statement as to whether each policy or contract will be
replaced or whether a policy will be used as a source of financing for the new
policy or contract. If a policy or contract number has not been issued by the
existing insurer, alternative identification, such as an application or receipt
number, shall be listed.
(D) In
connection with a replacement transaction, the producer shall leave with the
applicant at the time an application for a new policy or contract is completed
the original or a copy of all sales material. With respect to electronically
presented sales material, it shall be provided to the policy or contract owner
in printed form no later than at the time of policy or contract
delivery.
(E) Except as provided in
subsection (5)(C), in connection with a replacement transaction, the producer
shall submit to the insurer to which an application for a policy or contract is
presented, a copy of each document required by this section, a statement
identifying any preprinted or electronically presented company approved sales
materials used, and copies of any individualized sales materials, including any
illustrations related to the specific policy or contract purchased.
(F) Failure to comply with the requirements
set forth in section (3) of this rule shall constitute false information and/or
misrepresentations and false advertising of insurance policies and/or
misrepresentation in insurance applications as those terms are used in section
375.936(4), (6), and
(7), RSMo.
(4) Duties of Insurers that Use Producers. Each insurer shall-
(A) Maintain a system of
supervision and control to insure compliance with the requirements of this rule
that shall include at least the following:
1.
Inform its producers of the requirements of this rule and incorporate the
requirements of this rule into all relevant producer training manuals prepared
or distributed by the insurer;
2.
Provide to each producer a written statement of the company's position with
respect to the acceptability of replacements, providing guidance to its
producer as to the appropriateness of these transactions;
3. A system to review the appropriateness of
each replacement transaction that the producer does not indicate is in accord
with paragraph (4)(A)2. above;
4.
Procedures to confirm that the requirements of this rule have been met;
and
5. Procedures to detect
transactions that are replacements of existing policies or contracts by the
existing insurer, but that have not been reported as such by the applicant or
producer. Compliance with this rule may include, but shall not be limited to,
systematic customer surveys, interviews, confirmation letters, or programs of
internal monitoring;
(B)
Have the capacity to monitor each producer's life insurance policy and annuity
contract replacements for that insurer, and shall produce, upon request, and
make such records available to the department. The capacity to monitor shall
include the ability to produce records for each producer's-
1. Life replacements, including financed
purchases, as a percentage of the producer's total annual sales for life
insurance;
2. Number of lapses of
policies by the producer as a percentage of the producer's total annual sales
for life insurance;
3. Annuity
contract replacements as a percentage of the producer's total annual annuity
contract sales;
4. Number of
transactions that are unreported replacements of existing policies or contracts
by the existing insurer detected by the company's monitoring system as required
by paragraph (4)(A)5.; and
5.
Replacements, indexed by replacing producer and existing insurer;
(C) Require with, or as a part of,
each application for life insurance or an annuity, a signed statement by both
the applicant and the producer as to whether the applicant has existing
policies or contracts;
(D) Require
with each application for life insurance or an annuity that indicates an
existing policy or contract, a completed notice regarding replacements as
contained in Appendix A, included herein;
(E) When the applicant has existing policies
or contracts, each insurer shall be able to produce copies of any sales
material required by subsection (3)(E), the basic illustration and any
supplemental illustrations related to the specific policy or contract that is
purchased, and the producer's and applicant's signed statements with respect to
financing and replacement for at least five (5) years after the termination or
expiration of the proposed policy or contract;
(F) Ascertain that the sales material and
illustrations required by subsection (3)(E) of this rule meet the requirements
of this rule and are complete and accurate for the proposed policy or
contract;
(G) If an application
does not meet the requirements of this rule, notify the producer and applicant
and fulfill the outstanding requirements;
(H) Maintains records in paper, photograph,
microprocess, magnetic, mechanical or electronic media, or by any process that
accurately reproduces the actual document; and
(I) Failure to comply with the requirements
set forth in section (4) of this rule shall constitute false information and/or
misrepresentations and false advertising of insurance policies and/or
misrepresentation in insurance applications as those terms are used in section
375.936(4), (6), and
(7), RSMo.
(5) Duties of Replacing Insurers that Use Producers.
(A) Where a replacement is involved
in the transaction, the replacing insurer shall-
1. Verify that the required forms are
received and are in compliance with this rule;
2. Notify any other existing insurer that may
be affected by the proposed replacement within five (5) business days of
receipt of a completed application indicating replacement or when the
replacement is identified if not indicated on the application, and mail a copy
of the available illustration or policy summary for the proposed policy or
available disclosure document for the proposed contract within five (5)
business days of a request from an existing insurer;
3. Be able to produce copies of the
notification regarding replacement required in subsection (3)(B), indexed by
producer, for at least five (5) years or until the next regular examination by
the insurance department of a company's state of domicile, whichever is later;
and
4. Provide to the policy or
contract owner notice of the right to return the policy or contract within
thirty (30) days of the delivery of the contract and receive an unconditional
full refund of all premiums or consideration paid on it, including any policy
fees or charges or, in the case of a variable or market value adjustment policy
or contract, a payment of the cash surrender value provided under the policy or
contract plus the fees and other charges deducted from the gross premiums or
consideration or imposed under such policy or contract. Such notice may be
included in Appendix A or C, included herein.
(B) In transactions where the replacing
insurer and the existing insurer are the same or subsidiaries or affiliates
under common ownership or control, allow credit for the period of time that has
elapsed under the replaced policy's or contract's incontestability and suicide
period up to the face amount of the existing policy or contract. With regard to
financed purchases, the credit may be limited to the amount the face amount of
the existing policy is reduced by the use of existing policy values to fund the
new policy or contract.
(C) If an
insurer prohibits the use of sales material other than that approved by the
company, as an alternative to the requirements made of an insurer pursuant to
subsection (3)(E), the insurer may-
1. Require
with each application a statement signed by the producer that-
A. Represents that the producer used only
company-approved sales material; and
B. States that copies of all sales material
were left with the applicant in accordance with subsection (3)(D);
and
2. Within ten (10)
days of the issuance of the policy or contract-
A. Notify the applicant by sending a letter
or by verbal communication with the applicant by a person whose duties are
separate from the marketing area of the insurer, that the producer has
represented that copies of all sales material have been left with the applicant
in accordance with subsection (3)(D);
B. Provide the applicant with a toll free
number to contact company personnel involved in the compliance function if such
is not the case; and
C. Stress the
importance of retaining copies of the sales material for future reference;
and
3. Be able to produce
a copy of the letter or other verification in the policy file for at least five
(5) years after the termination or expiration of the policy or
contract.
(D) Failure to
comply with the requirements set forth in section (5) of this rule shall
constitute false information and/or misrepresentations and false advertising of
insurance policies and/or misrepresentation in insurance applications as those
terms are used in section
375.936(4), (6), and
(7), RSMo.
(6) Duties of the Existing Insurer. Where a replacement is involved in the transaction, the existing insurer shall-
(A) Retain and be able to produce all
replacement notifications received, indexed by replacing insurer, for at least
five (5) years;
(B) Send a letter
to the policy or contract owner of the right to receive information regarding
the existing policy or contract values including, if available, an in force
illustration or policy summary, if an in force illustration cannot be produced
within five (5) business days of receipt of a notice that an existing policy or
contract is being replaced. The information shall be provided within five (5)
business days of receipt of the request from the policy or contract
owner;
(C) Upon receipt of a
request to borrow, surrender, or withdraw any policy values, send a notice
advising the policy owner that the release of policy values may affect the
guaranteed elements, non-guaranteed elements, face amount, or surrender value
of the policy from which the values are released. The notice shall be sent
separate from the check if the check is sent to anyone other than the policy
owner. In the case of consecutive automatic premium loans, the insurer is only
required to send the notice at the time of the first loan; and
(D) Failure to comply with the requirements
set forth in section (6) of this rule shall constitute false information and/or
misrepresentations and false advertising of insurance policies and/or
misrepresentation in insurance applications as those terms are used in section
375.936(4), (6), and
(7), RSMo.
(7) Duties of Insurers with Respect to Direct Response Solicitations.
(A) In the case of an
application that is initiated as a result of a direct response solicitation,
the insurer shall require, with or as part of each completed application for a
policy or contract, a statement asking whether the applicant, by applying for
the proposed policy or contract, intends to replace, discontinue, or change an
existing policy or contract. If the applicant indicates a replacement or change
is not intended, or if the applicant fails to respond to the statement, the
insurer shall send the applicant, with the policy or contract, a notice
regarding replacement in Appendix B, included herein, or other substantially
similar form approved by the director.
(B) If the insurer has proposed the
replacement or if the applicant indicates a replacement is intended and the
insurer continues with the replacement, the insurer shall-
1. Provide to applicants or prospective
applicants with the policy or contract a notice, as described in Appendix C,
included herein, or other substantially similar form approved by the director.
In these instances the insurer may delete the references to the producer,
including the producer's signature, and references not applicable to the
product being sold or replaced, without having to obtain approval of the form
from the director. The insurer's obligation to obtain the applicant's signature
shall be satisfied if it can demonstrate that it has made a diligent effort to
secure a signed copy of the notice referred to in this paragraph. The
requirement to make a diligent effort shall be deemed satisfied if the insurer
includes in the mailing a self-addressed postage prepaid envelope with
instructions for the return of the signed notice referred to in this section;
and
2. Comply with the requirements
of paragraph (5)(A)2., if the applicant furnishes the names of the existing
insurers, and the requirements of paragraphs (5)(A)3., (5)(A)4., and subsection
(5)(B).
(C) Failure to
comply with the requirements set forth in section (7) of this rule shall
constitute false information and/or misrepresentations and false advertising of
insurance policies and/or misrepresentation in insurance applications as those
terms are used in section
375.936(4), (6), and
(7), RSMo.
(8) Violations.
(A) Any failure to comply with this rule
shall be considered a violation of the Unfair Trade Practice Act, sections
375.930 to
375.948, RSMo, as more fully set
forth in this rule. Examples of violations include:
1. Any deceptive or misleading information
set forth in sales material;
2.
Failing to ask the applicant in completing the application the pertinent
questions regarding the possibility of financing or replacement;
3. The intentional incorrect recording of an
answer;
4. Advising an applicant to
respond negatively to any question regarding replacement in order to prevent
notice to the existing insurer; or
5. Advising a policy or contract owner to
write directly to the company in such a way as to attempt to obscure the
identity of the replacing producer or company.
(B) Policy and contract owners have the right
to replace existing life insurance policies or annuity contracts after
indicating in, or as a part of, an application for new coverage that
replacement is not their intention; however, patterns of inaccurate
recordations of the expression of intention regarding replacement by policy or
contract owners of the same producer shall be deemed prima
facie evidence of the producer's knowledge that replacement was
intended in connection with the identified transactions, and these patterns of
action shall be deemed prima facie evidence of the producer's
intent to violate this rule.
(C)
Where it is determined that the requirements of this rule have not been met,
the replacing insurer shall provide to the policy or contract owner an in force
illustration if available or policy summary for the replacement policy or
available disclosure document for the replacement contract and the appropriate
notice regarding replacements in Appendix A or C, included herein.
(9) Severability. If any section or portion of a section of this rule, or its applicability to any person or circumstances, is held invalid by a court, the remainder of this rule, or the applicability of its provisions to other persons, shall not be affected.
AUTHORITY: sections 374.045 and 375.936, RSMo 2000.* This rule was previously filed as 4 CSR 190-13.060. Original rule filed Jan. 5, 1970, effective Jan. 15, 1970. Amended: Filed June 21, 1970, effective July 1, 1970. Amended: Filed Feb. 18, 1972, effective Feb. 28, 1972. Amended: Filed Aug. 5, 1974, effective Aug. 15, 1974. Amended: Filed Dec. 23, 1975, effective Jan. 2, 1976. Rescinded and readopted: Filed March 15, 1979, effective Sept. 14, 1979. Rescinded: Filed July 3, 1985, effective Oct. 25, 1985. Rescinded and readopted: Filed Aug. 12, 1983, effective Dec. 12, 1983. Amended: Filed July 12, 2002, effective Feb. 28, 2003.
Amended by Missouri Register April 3, 2017/Volume 42, Number 07, effective 5/30/2017
*Original authority: 374.045, RSMo 1967, amended 1993, 1995, 2008; 375.143, RSMo 2007; 375.934, RSMo 1959, amended 1978, 1991; 375.936, RSMo 1959, amended 1967, 1969, 1971, 1976, 1978, 1983, 1991; and 375.948, RSMo 1959, amended 1978, 1991.
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