HF 623

as introduced - 79th Legislature (1995 - 1996) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act
  1.2             relating to insurance; life insurance and annuities; 
  1.3             requiring certain disclosures prior to replacement of 
  1.4             an existing policy or contract; proposing coding for 
  1.5             new law in Minnesota Statutes, chapter 61A. 
  1.6   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.7      Section 1.  [61A.53] [DEFINITIONS.] 
  1.8      Subdivision 1.  [APPLICABILITY.] For purposes of sections 
  1.9   61A.53 to 61A.60, the terms defined in this section have the 
  1.10  meanings given. 
  1.11     Subd. 2.  [REPLACEMENT.] "Replacement" means any 
  1.12  transaction in which new life insurance or a new annuity is to 
  1.13  be purchased, and it is known or should be known to the 
  1.14  proposing agent or broker or to the proposing insurer if there 
  1.15  is no agent, that by reason of such transaction, existing life 
  1.16  insurance or annuity has been or is to be: 
  1.17     (1) lapsed, forfeited, surrendered, or otherwise 
  1.18  terminated; 
  1.19     (2) converted to reduced paid-up insurance, continued as 
  1.20  extended term insurance, or otherwise reduced in value by the 
  1.21  use of nonforfeiture benefits or other policy values; 
  1.22     (3) amended so as to effect either a reduction in benefits 
  1.23  or in the term for which coverage would otherwise remain in 
  1.24  force or for which benefits would be paid; 
  1.25     (4) reissued with any reduction in cash value; or 
  2.1      (5) pledged as collateral or subjected to borrowing, 
  2.2   whether in a single loan or under a schedule of borrowing over a 
  2.3   period of time for amounts in the aggregate exceeding 25 percent 
  2.4   of the loan value set forth in the policy. 
  2.5      Subd. 3.  [CONSERVATION.] "Conservation" means any attempt 
  2.6   by the existing insurer or its agent or broker to dissuade a 
  2.7   policy owner or contract holder from the replacement of existing 
  2.8   life insurance or annuity.  Conservation does not include 
  2.9   routine administrative procedures such as late payment 
  2.10  reminders, late payment offers, or reinstatement offers. 
  2.11     Subd. 4.  [DIRECT-RESPONSE SALE.] "Direct-response sale" 
  2.12  means any sale of life insurance or annuity where the insurer 
  2.13  does not use an agent in the sale or delivery of the policy or 
  2.14  contract. 
  2.15     Subd. 5.  [EXISTING INSURER.] "Existing insurer" means the 
  2.16  insurance company whose policy or contract is or will be changed 
  2.17  or terminated in such a manner as described within the 
  2.18  definition of "replacement." 
  2.19     Subd. 6.  [EXISTING LIFE INSURANCE OR ANNUITY.] "Existing 
  2.20  life insurance or annuity" means any life insurance or annuity 
  2.21  in force, including life insurance under a binding or 
  2.22  conditional receipt or a life insurance policy or annuity 
  2.23  contract that is within an unconditional refund period. 
  2.24     Subd. 7.  [REPLACING INSURER.] "Replacing insurer" means 
  2.25  the insurance company that issues or proposes to issue a new 
  2.26  policy or contract which is a replacement or existing life 
  2.27  insurance or annuity. 
  2.28     Sec. 2.  [61A.54] [EXEMPTIONS.] 
  2.29     Unless otherwise specifically included, sections 61A.53 to 
  2.30  61A.60 do not apply to transactions involving: 
  2.31     (1) credit life insurance; 
  2.32     (2) group life insurance or group annuities; 
  2.33     (3) an application to the existing insurer that issued the 
  2.34  existing life insurance, where a contractual change or a 
  2.35  conversion privilege is being exercised; 
  2.36     (4) proposed life insurance that is to replace life 
  3.1   insurance under a binding or conditional receipt issued by the 
  3.2   same company; or 
  3.3      (5) transactions where the replacing insurer and the 
  3.4   existing insurer are the same, or are subsidiaries or affiliates 
  3.5   under common ownership or control; provided, however, that 
  3.6   agents or brokers proposing replacement shall comply with 
  3.7   section 61A.55, subdivision 1. 
  3.8      Sec. 3.  [61A.55] [DUTIES OF AGENTS AND BROKERS.] 
  3.9      Subdivision 1.  [SUBMISSION TO INSURER.] Each agent or 
  3.10  broker who initiates the application shall submit to the insurer 
  3.11  to which an application for life insurance or annuity is 
  3.12  presented, with or as part of each application: 
  3.13     (1) a statement signed by the applicant as to whether 
  3.14  replacement of existing life insurance or annuity is involved in 
  3.15  the transaction; and 
  3.16     (2) a signed statement as to whether the agent or broker 
  3.17  knows replacement is or may be involved in the transaction. 
  3.18     Subd. 2.  [REPLACEMENT INFORMATION.] Where a replacement is 
  3.19  involved, the agent or broker shall: 
  3.20     (1) present to the applicant, not later than at the time of 
  3.21  taking the application, a "notice regarding replacement" in the 
  3.22  form as described in section 61A.60, subdivision 1, or other 
  3.23  substantially similar form approved by the commissioner.  The 
  3.24  notice shall be fully completed and signed by both the applicant 
  3.25  and the agent or broker and left with the applicant.  The 
  3.26  completed notice must list all existing life insurance and 
  3.27  annuity to be replaced, properly identified by name of insurer, 
  3.28  the insured, and contract number.  If a contract number has not 
  3.29  been assigned by the existing insurer, alternative 
  3.30  identification, such as an application or receipt number, shall 
  3.31  be listed; 
  3.32     (2) leave with the applicant the original or a copy of 
  3.33  written or printed communications used for presentation to the 
  3.34  applicant; and 
  3.35     (3) submit to the replacing insurer with the application a 
  3.36  copy of the fully completed and signed replacement notice 
  4.1   provided under this subdivision. 
  4.2      Subd. 3.  [MATERIALS USED TO DISSUADE REPLACEMENT.] Each 
  4.3   agent or broker who uses written or printed communications in a 
  4.4   conservation shall leave with the applicant the original or a 
  4.5   copy of the communications. 
  4.6      Sec. 4.  [61A.56] [DUTIES OF ALL INSURERS.] 
  4.7      Each insurer shall: 
  4.8      (1) inform its field representatives or other personnel 
  4.9   responsible for compliance with sections 61A.53 to 61A.60 of the 
  4.10  requirements of those sections; and 
  4.11     (2) require with or as a part of each completed application 
  4.12  for life insurance or annuity a statement signed by the 
  4.13  applicant as to whether the proposed insurance or annuity will 
  4.14  replace existing life insurance or annuity. 
  4.15     Sec. 5.  [61A.57] [DUTIES OF INSURERS THAT USE AGENTS OR 
  4.16  BROKERS.] 
  4.17     Each insurer that uses an agent or broker in a life 
  4.18  insurance or annuity sale shall: 
  4.19     (a) require with or as part of each completed application 
  4.20  for life insurance or annuity, a statement signed by the agent 
  4.21  or broker as to whether the agent or broker knows replacement is 
  4.22  or may be involved in the transaction; 
  4.23     (b) where a replacement is involved: 
  4.24     (1) require from the agent or broker with the application 
  4.25  for life insurance or annuity, a copy of the fully completed and 
  4.26  signed replacement notice provided the applicant under section 
  4.27  61A.55.  The existing life insurance or annuity shall be 
  4.28  identified by name of insurer, insured, and contract number.  If 
  4.29  a number has not been assigned by the existing insurer, 
  4.30  alternative identification, such as an application or receipt 
  4.31  number, shall be listed; and 
  4.32     (2) send to each existing insurer a written communication 
  4.33  advising of the replacement or proposed replacement and the 
  4.34  identification information obtained under this section.  This 
  4.35  written communication shall be made within three working days of 
  4.36  the date that the application is received in the replacing 
  5.1   insurer's home or regional office, or the date the proposed 
  5.2   policy or contract is issued, whichever is sooner. 
  5.3      (c) The replacing insurer shall maintain evidence of the 
  5.4   "notice regarding replacement" and a replacement register, 
  5.5   cross-indexed, by replacing agent and existing insurer to be 
  5.6   replaced.  Evidence that all requirements were met shall be 
  5.7   maintained for at least three years or until the conclusion of 
  5.8   the next succeeding regular examination by its state of 
  5.9   domicile, whichever is earlier. 
  5.10     (d) The replacing insurer shall provide in its policy 
  5.11  contract, or in a separate written notice which is delivered 
  5.12  with the policy or contract, that the applicant has a right to 
  5.13  an unconditional refund of all premiums paid, which right may be 
  5.14  exercised within a period of 20 days beginning from the date of 
  5.15  delivery of the policy. 
  5.16     Sec. 6.  [61A.58] [DUTIES OF INSURERS WITH RESPECT TO 
  5.17  DIRECT RESPONSE SALES.] 
  5.18     (a) If in the solicitation of a direct response sale, the 
  5.19  insurer did not propose the replacement, and a replacement is 
  5.20  involved, the insurer shall send to the applicant with the 
  5.21  policy or contract a replacement notice as described in section 
  5.22  61A.60, subdivision 2, or other substantially similar form 
  5.23  approved by the commissioner.  
  5.24     (b) If the insurer proposed the replacement, it shall: 
  5.25     (1) provide to applicants or prospective applicants with or 
  5.26  as a part of the application a replacement notice as described 
  5.27  in section 61A.60, subdivision 2, or other substantially similar 
  5.28  form approved by the commissioner; 
  5.29     (2) request from the applicant with or as part of the 
  5.30  application, a list of all existing life insurance policies or 
  5.31  annuity contracts to be replaced and properly identified by name 
  5.32  of insurer and insured; and 
  5.33     (3) comply with the requirements of section 61A.55, 
  5.34  subdivision 3, if the applicant furnishes the names of the 
  5.35  existing insurers, and the requirements of section 61A.57, 
  5.36  except that it need not maintain a replacement register. 
  6.1      Sec. 7.  [61A.59] [PENALTIES.] 
  6.2      (a) An agent, broker or insurer shall not recommend the 
  6.3   replacement or conservation of an existing policy or contract by 
  6.4   use of a substantially inaccurate presentation or comparison of 
  6.5   an existing policy's or contract's premiums and benefits or 
  6.6   dividends and values, if any.  Any insurer, agent, 
  6.7   representative, officer, or employee of the insurer failing to 
  6.8   comply with the requirements of sections 61A.53 to 61A.60 is 
  6.9   subject to such penalties as may be appropriate under this 
  6.10  chapter.  
  6.11     (b) Patterns of action by policy holders or contract 
  6.12  holders who purchase replacing policies or contracts from the 
  6.13  same agent or broker, after indicating on applications that 
  6.14  replacement is not involved, shall be deemed prima facie 
  6.15  evidence of the agent's or broker's knowledge that replacement 
  6.16  was intended in connection with the sale of those policies, and 
  6.17  such patterns of action shall be deemed prima facie evidence of 
  6.18  the agent's or broker's intent to violate sections 61A.53 to 
  6.19  61A.60. 
  6.20     (c) Sections 61A.53 to 61A.60 do not prohibit the use of 
  6.21  additional material other than that which is required that does 
  6.22  not violate those sections or any other statute or rule. 
  6.23     Sec. 8.  [61A.60] [REQUIRED REPLACEMENT NOTICE AND FORM.] 
  6.24     Subdivision 1.  [NOTICE FORM; AGENT SALES.] The notice 
  6.25  required where sections 61A.53 to 61A.60 refer to this 
  6.26  subdivision is as follows: 
  6.27                         IMPORTANT NOTICE 
  6.28  
  6.29  DEFINITION:  REPLACEMENT IS any transaction where, in connection
  6.30               with the purchase of New Insurance, you LAPSE, 
  6.31               SURRENDER, CONVERT to Paid-up Insurance, Place on 
  6.32               Extended Term, or BORROW all or part of the policy 
  6.33               loan values on an existing insurance policy.  (See 
  6.34               reverse side for DEFINITIONS.) 
  6.36  IF YOU       In connection with the purchase of this insurance, 
  7.1   INTEND TO    if you have REPLACED or intend to REPLACE your 
  7.2   REPLACE      present life insurance coverage, you should be 
  7.3   COVERAGE     certain that you understand all the relevant 
  7.4                factors involved.
  7.5                You should BE AWARE that you may be required to
  7.6                provide [EVIDENCE OF INSURABILITY] and 
  7.8                1)  If your HEALTH condition has CHANGED since 
  7.9                the application was taken on your present 
  7.10               policies, you may be required to pay ADDITIONAL 
  7.11               PREMIUMS under the NEW POLICY, or be DENIED 
  7.12               coverage. 
  7.14               2)  Your present occupation or activities [may not
  7.15               be covered or could require additional premiums.]
  7.17               3)  The INCONTESTABLE and SUICIDE CLAUSE will 
  7.18               begin anew in a new policy.  This could RESULT 
  7.19               in a [CLAIM under the new policy BEING DENIED] 
  7.20               that would otherwise have been paid.
  7.22               4)  Current law DOES NOT REQUIRE your present 
  7.23               insurer(s) to REFUND any premiums.
  7.25               5)  It is to your advantage to OBTAIN INFORMATION
  7.26               regarding your existing policies [from the 
  7.27               insurer or agent from whom you purchased the 
  7.28               policy.]
  7.30               THE INSURANCE I INTEND TO PURCHASE FROM 
  7.31               _______________________________________INSURANCE CO.
  7.32               MAY REPLACE OR ALTER EXISTING LIFE INSURANCE 
  7.33               POLICY(IES). 
  7.35               The following policy(ies) may be replaced as a 
  7.36               result of this transaction:
  8.2            [Insurer                              [Insured 
  8.3    as it appears on the policy]       as it appears on the policy]
  8.4   ______________________________     ______________________________
  8.5   ______________________________     ______________________________
  8.6   ______________________________     ______________________________
  8.7   ______________________________     ______________________________
  8.8          [Policy Number]                  [Insured Birthdate]
  8.9   ______________________________     ______________________________
  8.10  ______________________________     ______________________________
  8.11  ______________________________     ______________________________
  8.12  ______________________________     ______________________________
  8.13          The proposed policy is:
  8.14          ______________________________________  $_______________
  8.15          type of policy-generic name                face amount
  8.17          ________________________________________________________
  8.18          signature of applicant                   date
  8.20          ________________________________________________________
  8.21          address of applicant        city              state
  8.23          I certify that this form was given to and completed by 
  8.25          ________________________________________________________
  8.26                      (applicant-please print or type)
  8.28          prior to taking an application and that I am leaving a 
  8.29          signed copy for the applicant.
  8.31               ___________________________________________________
  8.32               agent's signature                    date
  8.34               ___________________________________________________
  8.35                                address
  8.36   
  8.37               ___________________________________________________
  8.38                       city                       state
  8.39            [NOTE IMPORTANT STATEMENT ON REVERSE SIDE]
  8.40     Subd. 2.  [NOTICE FORM; DIRECT RESPONSE SALES.] The notice 
  8.41  required where sections 61A.53 to 61A.60 refer to this 
  8.42  subdivision is as follows: 
  8.43                         IMPORTANT NOTICE
  8.44                           REQUIRED BY
  8.45                     MINNESOTA INSURANCE LAW
  8.47  DEFINITION: REPLACEMENT IS any transaction where, in connection 
  8.48              with the purchase of New Insurance or a New Annuity, 
  9.1               you LAPSE, SURRENDER, CONVERT to Paid-up Insurance, 
  9.2               Place on Extended Term, or BORROW all or part of 
  9.3               the policy loan values on an existing insurance 
  9.4               policy or an annuity.  (See reverse side for 
  9.5               DEFINITIONS.) 
  9.7   IF YOU      In connection with the purchase of this insurance 
  9.8   INTEND TO   or annuity, if you have REPLACED or intend to 
  9.9   REPLACE     REPLACE your present life insurance coverage or 
  9.10  COVERAGE    annuity(ies), you should be certain that you 
  9.11              understand all the relevant factors involved. 
  9.13                You should BE AWARE that you may be required 
  9.14              to provide [Evidence of insurability] and 
  9.16              (1) If your HEALTH condition has CHANGED since 
  9.17                  the application was taken on your present 
  9.18                  policies, you may be required to pay 
  9.19                  ADDITIONAL PREMIUMS under the NEW POLICY, 
  9.20                  or be DENIED coverage. 
  9.21              (2) Your present occupation or activities [may 
  9.22                  not be covered or could require additional 
  9.23                  premiums.]
  9.24              (3) The INCONTESTABLE and SUICIDE CLAUSE will 
  9.25                  begin anew in a new policy.  This could 
  9.26                  RESULT in a [CLAIM under the new policy 
  9.27                  BEING DENIED] that would otherwise have 
  9.28                  been paid. 
  9.29              (4) Current law DOES NOT REQUIRE your present 
  9.30                  insurer(s) to REFUND any premiums. 
  9.31              (5) It may be to your advantage to OBTAIN 
  9.32                  INFORMATION regarding your existing 
  9.33                  policies [from the insurer or agent from
  9.34                  whom you purchased the policy.] 
  9.36                (If an annuity is being purchased, Items 1, 
 10.1               2 and 3 above would not apply to the new 
 10.2               contract.)
 10.4   CAUTION     If after studying the information made 
 10.5               available to you, you decide to replace your 
 10.6               existing life insurance or annuity with our 
 10.7               contract, you are urged not to take action to 
 10.8               terminate or alter your existing coverage until 
 10.9               after you have been issued the new policy, 
 10.10              examined it and found it to be acceptable to 
 10.11              you.  If you should terminate or otherwise 
 10.12              materially alter your existing coverage and 
 10.13              fail to qualify for the life insurance for 
 10.14              which you have applied, you may find yourself 
 10.15              unable to purchase other life insurance or be 
 10.16              able to purchase it only at substantially 
 10.17              higher rates. 
 10.19  INSURER'S MAILING DATE:...............................
 10.20     Subd. 3.  [DEFINITIONS.] The following definitions must 
 10.21  appear on the back of the notice forms provided in subdivisions 
 10.22  1 and 2: 
 10.23                           DEFINITIONS 
 10.24     PREMIUMS:  Premiums are the payments you make in exchange 
 10.25  for an insurance or annuity contract.  They are unlike deposits 
 10.26  in a savings or investment program, because if you drop the 
 10.27  policy, you might get back less than you paid in. 
 10.28     CASH SURRENDER VALUE:  This is the amount of money you can 
 10.29  get in cash if you surrender your life insurance policy or 
 10.30  annuity.  If there is a policy loan, the cash surrender value is 
 10.31  the difference between the cash value printed in the policy and 
 10.32  the loan value.  Not all policies have cash surrender values. 
 10.33     LAPSE:  A life insurance policy may lapse when you do not 
 10.34  pay the premiums within the grace period.  If you had a cash 
 10.35  surrender value, the insurer might change your policy to as much 
 10.36  extended term insurance or paid-up insurance as the cash 
 11.1   surrender value will buy.  Sometimes the policy lets the insurer 
 11.2   borrow from the cash surrender value to pay the premiums. 
 11.3      SURRENDER:  You surrender a life insurance policy when you 
 11.4   either let it lapse or tell the company you want to drop it.  
 11.5   Whenever a policy has a cash surrender value, you can get it in 
 11.6   cash if you return the policy to the company with a written 
 11.7   request.  Most insurers will also let you exchange the cash 
 11.8   value of the policy for paid-up or extended term insurance. 
 11.9      CONVERT TO PAID-UP INSURANCE:  This means you use your cash 
 11.10  surrender value to change your insurance to a paid-up policy 
 11.11  with the same insurer.  The death benefit generally will be 
 11.12  lower than under the old policy, but you will not have to pay 
 11.13  any more premiums. 
 11.14     PLACE ON EXTENDED TERM:  This means you use your cash 
 11.15  surrender value to change your insurance to term insurance with 
 11.16  the same insurer.  In this case, the net death benefit will be 
 11.17  the same as before.  However, you will only be covered for a 
 11.18  specified period of time stated in the policy. 
 11.19     BORROW POLICY LOAN VALUES:  If your life insurance policy 
 11.20  has a cash surrender value, you can almost always borrow all or 
 11.21  part of it from the insurer.  Interest will be charged according 
 11.22  to the terms of the policy, and if the loan with unpaid interest 
 11.23  ever exceeds the cash surrender value, your policy will be 
 11.24  surrendered.  If you die, the amount of the loan and any unpaid 
 11.25  interest due will be subtracted from the death benefits. 
 11.26     EVIDENCE OF INSURABILITY:  This means proof that you are an 
 11.27  acceptable risk.  You have to meet the insurer's standards 
 11.28  regarding age, health, occupation, etc., to be eligible for 
 11.29  coverage. 
 11.30     INCONTESTABLE CLAUSE:  This says that after one or two 
 11.31  years, depending on the policy or insurer, the life insurer will 
 11.32  not resist a claim because you made a false or incomplete 
 11.33  statement when you applied for the policy.  For the early years, 
 11.34  though, if there are wrong answers on the application and the 
 11.35  insurer finds out about them, the insurer can deny a claim as if 
 11.36  the policy had never existed. 
 12.1      SUICIDE CLAUSE:  This says that if you commit suicide after 
 12.2   being insured for less than one or two years, depending on the 
 12.3   policy and insurer, your beneficiaries will receive only a 
 12.4   refund of the premiums that were paid. 
 12.5      Subd. 4.  [PRINTING OF NOTICES.] The notices in 
 12.6   subdivisions 1 and 2 must be reproduced in their entirety on one 
 12.7   side of an 8-1/2 by 11 inch sheet of plain paper.  The 
 12.8   definitions contained in subdivision 3 must be printed on the 
 12.9   reverse side.  The insurer may print its legal name in the space 
 12.10  provided.  
 12.11     Sec. 9.  [EFFECTIVE DATE.] 
 12.12     Sections 1 to 8 are effective January 1, 1996.