POLICY
AND PROCEDURE
RELATING TO
MILITARY
SALES PRACTICES
Prepared by
The Kansas Insurance Department
June 26, 2007
POLICY AND PROCEDURE RELATING
TO
MILITARY SALES
PRACTICES
June 26, 2007
This Policy and Procedure is an adaptation of the
National Association of Insurance Commissioners’ Military Sales Practices Model
Regulation, adopted June 3. 2007.
Deletions in the model have been stricken through and additions are
underlined.
Table of Contents
Section 1. Purpose
Section 2. Scope
Section 3. Authority
Section 4. Exemptions
Section
5. Definitions
Section 6. Practices Declared False, Misleading, Deceptive or Unfair on a Military Installation
Section 7. Practices Declared False, Misleading, Deceptive or Unfair Regardless of Location
Section 8. Severability
Section 9. Effective
Date
Section 1. Purpose
A. The purpose of this regulation is to set
forth 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.
B. Nothing herein shall
be construed to create or imply a private cause of action for a violation of
this regulation.
Drafting Note: The
language of Subsection B comes from the NAIC Unfair Trade Practices Act. If a
state has adopted different language, it should be substituted for Subsection
B.
Section 2. Scope
This regulation shall apply only to the solicitation or sale of any
life insurance or annuity product by an insurer or insurance producer to an
active duty service member of the United States Armed Forces.
Section 3. Authority
This regulation is
issued under the authority of [insert reference to enabling legislation].
Drafting Note: States
may wish to use the Unfair Trade Practices Act as enabling legislation or may
pass a law with specific authority to adopt this regulation.
Section 4. Exemptions
A. This regulation shall not apply to solicitations or sales involving:
1. Credit insurance;
2. Group
life insurance or group annuities where there is no in-person, face-to-face solicitation
of individuals by an insurance producer or where the contract or certificate
does not include a side fund;
3. 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 program filed with and approved by the commissioner; or, when a term
conversion privilege is exercised among corporate affiliates;
4. Individual
stand-alone health policies, including disability income policies;
5. Contracts
offered by Servicemembers’ Group Life Insurance (SGLI) or Veterans’ Group Life
Insurance (VGLI), as authorized by 38 U.S.C. Section 1965 et seq.;
6. Life
insurance contracts offered through or by a non-profit military association,
qualifying under Section 501 (c) (23) of the Internal Revenue Code (IRC), and
which are not underwritten by an insurer; or
7. Contracts
used to fund:
(a) An employee pension or welfare benefit plan that is covered by the
Employee Retirement and Income Security Act (ERISA);
(b) A plan described by Sections 401(a), 401(k), 403(b), 408(k) or
408(p) of the IRC, as amended, if established or maintained by an employer;
(c) A government or church plan defined in Section 414 of the IRC, a
government 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
IRC;
(d) A nonqualified deferred compensation arrangement established or
maintained by an employer or plan sponsor;
(e) Settlements of or assumptions of liabilities associated with
personal injury litigation or any dispute or claim resolution process; or
(f) Prearranged funeral contracts.
B. Nothing
herein shall be construed to abrogate the ability of nonprofit organizations
(and/or other organizations) to educate members of the United States Armed
Forces in accordance with Department of Defense DoD Instruction 1344.07 –
Personal Commercial Solicitation on DoD
Installations or successor directive.
C. For
purposes of this regulation, general
advertisements,
direct mail and internet marketing shall not constitute “solicitation.” Telephone marketing shall not constitute
"solicitation" provided the caller explicitly and conspicuously
discloses that the product concerned is life insurance and makes no statements
that avoid a clear and unequivocal statement that life insurance is the subject
matter of the solicitation. Provided
however, nothing in this subsection shall be construed to exempt an insurer or
insurance producer from this regulation in any in-person, face-to-face meeting
established as a result of the “solicitation” exemptions identified in this subsection.
Section 5. Definitions
A. “Active Duty” means full-time
duty in the active military service of the
B. “Department of Defense (DoD) Personnel” means all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the Department of Defense.
C. “Door to Door” means a solicitation or sales method whereby an insurance producer proceeds randomly or selectively from household to household without prior specific appointment.
D. “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.
E. “Insurer” means an insurance company required to be licensed under the laws of this state to provide life insurance products, including annuities.
F. “Insurance producer” means a person required to be licensed under the laws of this state to sell, solicit or negotiate life insurance, including annuities.
G. “Known” or “Knowingly” means, depending on its use herein, the insurance producer or insurer had actual awareness, or in the exercise of ordinary care should have known, at the time of the act or practice complained of, that the person solicited:
(1) is a service member; or
(2) is a service member with a pay grade of E-4 or below.
H. “Life Insurance” means insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income and unless otherwise specifically excluded, includes individually issued annuities.
I. “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.
J. “MyPay” is a Defense Finance and Accounting Service (DFAS) 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.
K. “Service Member” means any active duty officer (commissioned and warrant) or enlisted member
of the United States Armed Forces.
L. “Side Fund” means a fund or
reserve that is part of or otherwise attached to a life insurance policy
(excluding individually issued annuities) by rider, endorsement or other
mechanism which accumulates premium or deposits with interest or by other means. The term does not include:
(1) accumulated value or cash value or
secondary guarantees provided by a universal life policy;
(2) cash values provided by a whole life
policy which are subject to standard nonforfeiture law for life insurance; or
(3) a premium deposit fund which:
(a) contains only premiums paid in advance
which accumulate at interest;
(b) imposes no 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.
M. “Specific Appointment” means a prearranged appointment agreed
upon by both parties and definite as to place and time.
N. “United States Armed Forces” means all components of the
Army, Navy, Air Force, Marine Corps, and Coast Guard.
Section 6. Practices
Declared False, Misleading, Deceptive or Unfair on a Military Installation
A. The following acts or
practices when committed on a military installation by an insurer or insurance
producer with respect to the in-person, face-to-face solicitation of life
insurance are declared to be false, misleading, deceptive or unfair:
(1) Knowingly soliciting the purchase of any life insurance
product “door to door” or without first establishing a specific appointment for
each meeting with the prospective purchaser.
(2) Soliciting service members in a group or
“mass” audience or in a “captive” audience where attendance is not voluntary.
(3) Knowingly
making appointments with or soliciting service members during their normally
scheduled duty hours.
(4) Making
appointments with or soliciting
service members in barracks, day rooms, unit
areas, or transient personnel housing or other areas where the installation
commander has prohibited solicitation.
(5) Soliciting
the sale of life insurance without first obtaining permission from the
installation commander or the commander’s designee.
(6) Posting
unauthorized bulletins, notices or advertisements.
(7) Failing
to present DD Form 2885, Personal
Commercial Solicitation Evaluation, to service members solicited or
encouraging service members solicited not to complete or submit a DD Form 2885.
(8) 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 any 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 DoD or
any branch of the Armed Forces.
Drafting Note: Currently, Army Regulation 210-7, which
applies only to Army pay grades E-3 and below, requires that DA Form 2056,
“Commercial Insurance Solicitation Record” be completed. At the time this Model Regulation was adopted,
there were no similar requirements for other service branches, although it is
anticipated that in the future there may be similar regulations adopted by
other service branches.
B. The following acts or practices when committed on a military installation by an insurer or insurance producer constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, deceptive or unfair:
(1) Using
DoD 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.
(2) Using
an insurance producer to participate in any United States Armed Forces
sponsored education or orientation program.
Section 7. Practices
Declared False, Misleading, Deceptive or Unfair Regardless of Location
A. The following acts or practices by an insurer or insurance producer constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, deceptive or unfair:
(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. The foregoing
includes, but is not limited to, using or assisting in using a service member's
“MyPay” account or other similar internet or electronic medium for such
purposes. This subsection does not
prohibit assisting a service member by providing insurer or premium information
necessary to complete any allotment form.
(2) Knowingly receiving funds from a service member for the
payment of premium from a depository institution with which the service member
has no formal banking relationship. For
purposes of this section, a formal banking relationship is established when 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 the regulations promulgated thereunder; and
(b) permits the service member to make deposits and withdrawals
unrelated to the payment or processing of insurance premiums.
(3) Employing any device or method or entering into any agreement
whereby 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 where
the service member has no formal banking relationship as defined in subsection 7
(A)(2).
(4) Entering into any agreement with a depository institution for
the purpose of receiving funds from a service member whereby the depository
institution, with or without compensation, agrees to accept direct deposits
from a service member with whom it has no formal banking relationship.
(5) Using DoD personnel, directly or indirectly, as a
representative or agent in any 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
such personnel.
(6) Offering or giving anything of value, directly or indirectly,
to DoD personnel to procure their assistance in encouraging, assisting or facilitating
the solicitation or sale of life insurance to another service member.
(7) Knowingly offering or giving anything of value to a service
member with a pay grade of E-4 or below for his or her attendance to any event where
an application for life insurance is solicited.
(8) Advising a service member with a pay grade of E-4 or below to
change his or her income tax withholding or State of legal residence for the
sole purpose of increasing disposable income to purchase life insurance.
B. The following acts or practices by an insurer or insurance producer lead to confusion regarding source, sponsorship, approval or affiliation and are declared to be false, misleading, deceptive or unfair:
(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. Examples of
prohibited insurance producer titles include, but are not limited to,
"Battalion Insurance Counselor," "Unit Insurance Advisor,"
"Servicemen's Group Life Insurance Conversion Consultant" or
“Veteran’s Benefits Counselor.”
Nothing herein shall be construed to
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. Such designations include, but are not
limited to, Chartered Life Underwriter (CLU), Chartered Financial Consultant
(ChFC), Certified Financial Planner (CFP), Master of Science In Financial
Services (MSFS), or Masters of Science Financial Planning (MS).
(2) Soliciting the purchase of any life insurance product through
the use of or in conjunction with any 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.
C. The following acts or practices by an insurer or insurance producer lead to confusion regarding premiums, costs or investment returns and are declared to be false, misleading, deceptive or unfair:
(1) 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.
(2) 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."
D. The
following acts or practices by an
insurer or insurance producer regarding SGLI or VGLI are declared to be
false, misleading, deceptive or unfair:
(1) 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.
(2) Making any representation regarding conversion
requirements, including the costs of coverage, or exclusions or limitations to
coverage of SGLI or VGLI to private insurers which is false, misleading or
deceptive.
(3) Suggesting, recommending or encouraging a service member to
cancel or terminate his or her SGLI policy or issuing a life insurance policy
which 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.
E. The
following acts or practices by an insurer and or insurance producer regarding
disclosure are declared to be false, misleading, deceptive or unfair:
(1) Deploying, using or contracting for any lead generating
materials designed exclusively for use with service members that do 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.
(2) Failing to disclose that a solicitation for the sale of life
insurance will be made when establishing a specific appointment for an in-person,
face-to-face meeting with a prospective purchaser.
(3) Excluding individually issued annuities, failing to clearly
and conspicuously disclose the fact that the product being sold is life
insurance.
(4) 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.
(5) Excluding individually issued annuities, when the sale is conducted
in-person face-to-face with an individual known to be a service member, failing
to provide the applicant at the time the application is taken:
(a) an explanation of any free look period with instructions on
how to cancel if a policy is issued;
and
(b) either a copy of the application or a written disclosure. The copy of the application or
the written disclosure shall clearly and concisely set out the type of life
insurance, the death benefit applied for and its expected first year cost. A basic illustration that meets the
requirements of [insert reference to state’s illustration or disclosure
regulation] K.A.R. 40-2-25 shall be deemed sufficient to meet this
requirement for a written disclosure.
Drafting Note: In addition
to the items enumerated above, states may wish to add other items required by
their laws and regulations, for example, the NAIC Life Insurance Buyer’s Guide.
F. The
following acts or practices by an insurer or insurance producer with respect to
the sale of certain life insurance products are declared to be false,
misleading, deceptive or unfair:
(1) Excluding individually issued annuities, recommending the purchase
of any life insurance product which includes a side fund to a service member in
pay grades E-4 and below unless the insurer has reasonable grounds for
believing that the life insurance death benefit, standing alone, is
suitable.
(2) Offering for sale or selling a life insurance product which
includes a side fund to a service member in pay grades E-4 and below who is
currently enrolled in SGLI, is 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.
(a) “Insurable needs” are the risks associated with premature death taking into consideration the financial obligations and immediate and future cash needs of the applicant’s estate and/or survivors or dependents.
(b) “Other military survivor
benefits” include, but are not limited to: 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.
(3) Excluding individually issued annuities, offering for sale or
selling any life insurance contract which includes a side fund:
(a) unless interest credited accrues from the date of deposit to the date
of withdrawal and permits withdrawals without limit or penalty;
(b) unless the applicant has been provided with a schedule of
effective rates of return based upon cash flows of the combined product. For
this disclosure, the effective rate of return will consider all premiums and
cash contributions made by the policyholder and all cash accumulations and cash
surrender values available to the policyholder in addition to life insurance
coverage. This schedule will be provided for at least each policy year from one
(1) to ten (10) and for every fifth policy year thereafter ending at age 100,
policy maturity or final expiration; and
(c) which by default
diverts or transfers funds accumulated in the side fund to pay, reduce or
offset any premiums due.
(4) Excluding individually issued annuities, offering for sale or
selling any life insurance contract which after considering all policy
benefits, including but not limited to endowment, return of premium or
persistency, does not comply with standard nonforfeiture law for life
insurance.
(5) Selling any life insurance product to an individual known to
be a service member that excludes coverage if the insured’s death is related to
war, declared or undeclared, or any act related to military service except for an
accidental death coverage, e.g.,
double indemnity, which may be excluded.
Drafting Note: While the drafters are of the opinion that making it
an unfair or deceptive trade practice to market and sell life insurance
policies containing a war or military exclusion to active duty service members
during a time of war is not inconsistent with statutes which permit those
exclusions, others may disagree. Those states may either delete the subsection
or seek to amend their statutes in order to protect service members under this
subsection.
Section 8. Severability
If any provision of these sections or the
application thereof to any person or circumstance is held invalid for any
reason, the invalidity shall not affect the other provisions or any other
application of these sections which can be given effect without the invalid
provisions or application. To this end all provisions of these sections are
declared to be severable.
Section 9. Effective Date
This regulation shall become effective [January
1, 2008, or the effective date set in regulation] and shall apply to acts or
practices committed on or after the effective date.