Law & Ethics Update

Life Insurance; Discrimination on Basis of Sickle-Cell Trait Prohibited §626.9706


Insurers authorized to transact insurance in Florida cannot refuse to issue and deliver a policy of life insurance solely because the person to be insured has the sickle-cell trait.

 

No life insurance policy issued and delivered in Florida can carry a higher premium rate or charge solely because the person to be insured has the sickle-cell trait. [See also §626.9707, Disability Insurance; Discrimination of Basis of Sickle-Cell Trait Prohibited]

 

 

Life Insurance Solicitation §626.99


The purpose of statute §626.99,
Insurance Field Representatives and Operations; Life Insurance Solicitation, requires insurers to provide purchasers of life insurance:  

· Information that will improve the buyer’s ability to select the most appropriate plan of life insurance

· Improve the buyer’s understanding of the basic features of the policy purchased or under consideration

· Improve the ability of the buyer to evaluate the relative costs of similar plans of life insurance

 

Statute does not prohibit an insurer from using additional material, if not a violation of any statute or regulation.

Except as exempted, this statute applies to any solicitation, negotiation, or procurement of life insurance occurring in Florida. It also applies to any issuer of life insurance contracts, including a fraternal benefit society.

 

 

Definitions and Formulas – Annuities §626.99(3)


Unless otherwise specifically included, what follows does not apply to: 

 

· Annuities (except the paragraphs specifically on annuities)

· Credit life insurance

· Group life insurance

· Life insurance policies issued in connection with pension and welfare plans as defined by and subject to ERISA

· Variable life insurance under which the death benefits and cash values vary in accordance with unit values of investments held in a separate account

· Buyer’s Guide is a document that contains all the requirements of, and is substantially similar to the NAIC Shoppers Guide. This is written for the consumer.

· Cash dividend means the current illustrated dividend that can be applied toward payment of the gross premium.

 

· Equivalent level annual dividend is calculated by applying:

1. Accumulate the annual cash dividends at 5 percent interest compounded annually to the end of the 10th and the end of the 20th policy years.

2. Divide each accumulation of the first step by an interest factor that converts it into one, equivalent level annual amount that, if paid at the beginning of each year, would accrue to the values in step one, over the respective periods stipulated. If the period is 10 years, the factor is 13.207; and if the period is 20 years, the factor is 34.719.

3. Divide the results of step two by the number of thousands of the equivalent level death benefits to arrive at the equivalent level annual dividend.

· Equivalent level death benefit of a policy or term life insurance rider is an amount calculated by applying the following steps:

Þ Accumulate the guaranteed amount payable at death, regardless of the cause of death, at the beginning of each policy year for 10 and 20 years at 5 percent interest compounded annually to the end of the 10th and 20th policy years respectively.

Þ Divide each accumulation by an interest factor that converts it into one, equivalent level annual amount that, if paid at the beginning of each year, would accrue to the value in step one over the respective periods stipulated in step one. If the period is 10 years, the factor is 13.207; and if the period is 20 years, the factor is 34.719.

· Generic name means a short title descriptive of the premium and benefit patterns of a policy or a rider.

· Life insurance surrender cost index is calculated by applying the following steps:

1. Determine the guaranteed cash surrender value, if any, available at the end of the 10th and the end of the 20th policy years.

2. For participating policies, add the terminal dividend payable upon surrender, if any, to the accumulation of the annual cash dividends at 5 percent interest compounded annually to the end of the period selected and add this sum to the amount determined in step one.

3. Divide the result of step two (step one for guaranteed-cost policies) by an interest factor that converts it into an equivalent level annual amount that, if paid at the beginning of each year, would accrue to the value in step two (step one for guaranteed-cost policies) over the respective periods stipulated in step one. If the period is 10 years, the factor is 13.207; and if the period is 20 years, the factor is 34.719.

4. Determine the equivalent level premium by accumulating each annual premium payable for the basic policy or rider at 5 percent interest compounded annually to the end of the period stipulated in step one and dividing the result by the respective factors stated in step three (this amount is the annual premium payable for a level premium plan).

5. Subtract the result of step 3 from step 4.

6. Divide the result of step 5 by the number of thousands of the equivalent level death benefit to arrive at the life insurance surrender cost index.

· Life insurance net payment cost index is calculated in the same manner as the comparable life insurance cost index, except that the cash surrender value and any terminal dividend are set at zero.

 

· Policy summary is a written statement describing the elements of the  policy, including:

o A prominently placed title as follows:  STATEMENT OF POLICY COST AND BENEFIT INFORMATION;

o The name and address of the insurance agent or, if no agent is involved, a statement of the procedure to be followed in order to receive responses to inquiries regarding the policy summary;

o The full name and home office or administrative office address of the company in which the life insurance policy is or has been written;

o The generic name of the basic policy and each rider;

The following amounts, when applicable, for the first five policy years and representative policy years thereafter, sufficient to clearly illustrate the premium and benefit patterns, including the years for which life insurance cost indexes are displayed and at least one age from 60 through 65, or maturity of the policy, whichever is earlier:

· The annual premium for the basic policy;

· The annual premium for each optional rider;

· The guaranteed amount payable on death, at the beginning of the policy year regardless of the cause of death other than suicide, or other specifically enumerated exclusions, which is provided by the basic policy and each optional rider, with benefits provided under the basic policy and each rider shown separately;

· The total guaranteed cash surrender values at the end of the year, with values shown separately for the basic policy and each rider;

· The cash dividends payable at the end of the year, with values shown separately for the basic policy and each rider (dividends need not be displayed beyond the 20th policy year); and

· The guaranteed endowment amounts payable under the policy, not included under guaranteed cash surrender values indicated above;

· The effective policy loan annual percentage interest rate, if the policy contains this provision, must specify whether this rate is applied in advance or in arrears. If the policy loan interest rate is variable, the policy summary must include the maximum annual percentage rate;

· Life insurance cost indexes for 10 and 20 years, but in no case beyond the premium-paying period. Separate indexes must be displayed for the basic policy and for each optional term life insurance rider.

· An illustration showing the equivalent level annual dividend, in the case of participating policies and participating optional term life insurance riders, under the same circumstances and for the same durations at which life insurance cost indexes are displayed;

· For a policy summary that includes dividends, a statement that dividends are based on the company’s current dividend scale and are not guaranteed, in addition to a statement in close proximity to the equivalent level annual dividend as follows: “An explanation of the intended use of the equivalent level annual dividend is included in the life insurance Buyer’s Guide”;

· A statement in close proximity to the life insurance cost indexes as  follows: “An explanation of the intended use of these indexes is provided in the life insurance Buyer’s Guide”; and

· The date on which the policy summary is prepared. The policy summary has to be a separate document. All information required to be disclosed must be set out in such a manner as not to minimize the effect of any portion of the policy or to render any portion obscure.

· Any amounts, which remain level for a single number, may represent two or more years of the policy if it is clearly indicated what amounts are applicable for each policy year. Amounts in fifth bullet point must be listed in total, not on a per-thousand or per-unit basis.

· If more than one insured is covered under one policy or rider, guaranteed death benefits will not be displayed separately for each insured or for each class of insureds, if death benefits do not differ within the class.

· Zero amounts are displayed as zero and not a blank space.

 

 

General Rules Relating to Solicitation §626.99(5)


Insurers subject to Unfair Methods of Competition and Unfair or Deceptive Acts must maintain, at its home or principal office, a complete file containing one copy of each document authorized by the insurer. The file must contain one copy of each authorized form for a period of three years following the date of its last authorized use. 

 

· An agent is required to inform the prospective purchaser, prior to commencing a life insurance sales presentation, that the agent is acting as a life insurance agent and will inform the prospective purchaser of the full name of the insurance company the agent is representing. In sales situations in which an agent is not involved, the insurer must identify its full name.

· Terms such as financial planner, investment adviser, financial consultant, or financial counseling are not to be used in any way that implies the insurance agent is generally engaged in an advisory business in which compensation is unrelated to sales unless this is actually the case.

· Any reference to policy dividends must include a statement that dividends are not guaranteed.

· A system or presentation that does not recognize the time value of money through the use of appropriate interest adjustments cannot be used for comparing the cost of two or more life insurance policies.

· Such a system may be used for the purpose of demonstrating the cash-flow pattern of a policy if it is accompanied by a statement disclosing that the presentation does not recognize that, due to interest, a dollar in the future has less value than a dollar today.

· A presentation of benefits cannot display guaranteed and nonguaranteed benefits as a single sum unless they are shown separately in close proximity to one another.

· A statement regarding the use of the life insurance cost indexes must include an explanation to the effect that the indexes are useful only for the comparison of the relative costs of two or more similar policies.

· A life insurance cost index that reflects dividends or, in the alternative, an equivalent level annual dividend, must accompany a statement that it is based on the insurer’s current dividend scale and is not guaranteed.

· The annual premium for a basic policy or rider (as used in this section), for which the insurer reserves the right to change the premium, will be the maximum annual premium.

· If a replacement policy is proposed by an insurer to a prospective purchaser that would be issued in any rating class other than the most favorable for a person of the same age and gender, the replacing insurer must provide to the prospective purchaser, any disclosure and rate comparisons required by law in insurance replacement transactions.

· If an appropriately licensed agent proposes to replace a life insurance policy or an in-force annuity with a registered securities product, pre-application notice requirements do not apply.

 

Adoption of Buyer’s Guide; Requirements §626.99(6)


Any insurer soliciting life insurance in Florida must adopt and use a Buyer’s Guide. Adoption and use of the Buyer’s Guide of the NAIC Life Insurance Disclosure Model Regulation is in compliance with these requirements.



Failure to Comply §626.99(7)


The failure of an insurer to provide or deliver a Buyer’s Guide or a policy summary constitutes an omission, which misrepresents the benefits, advantages, conditions, or terms of an insurance policy.

 

 

Disability insurance; discrimination on basis of sickle-cell trait prohibited.

No insurer authorized to transact insurance in this state shall refuse to issue and deliver in this state any disability insurance policy, for delivery in this state and which affords benefits and coverage for any medical treatment or service solely because the person to be insured has the sickle-cell trait. No disability insurance policy issued or delivered in this state shall carry a higher premium rate or charge solely because the person to be insured has the sickle-cell trait. [Source: 626.9707]

 

 

Understanding Required Premium Discounts

 

When was the last time you saw a coupon for an insurance company? You haven’t. You won’t. Rates are set by each state, but there are premium discounts available. Applying these discounts to insureds not meeting the requirements is fraud.

Insureds pay their premiums for the risk taken by the insurer. Not all insureds pose the same risks to insurer. Those who are a greater risk, pay a greater premium. Those who are a lower risk receive premium discounts and pay a lower premium. In essence, premiums are calculated according to how big of a risk the insurer is taking based on the likelihood it will pay a claim. Low risk customers pay premiums based on the “discounts” awarded according to exams or answers to questionnaires completed by customers.

 

Let’s look at two potential customers: Elizabeth and Barbara.

 

 Elizabeth

 Walks 4-5 miles/day

 5'7" and weighs 145

 Chose an HMO for its preventative care

 Wears her seatbelt

 Drives 7 miles round trip to work

 Her last MVA was 17 years ago when someone ran a red light and t-boned her passenger side.

 Work environment is a cubicle

 Nonsmoker

 Married 25 years; 2 grown children

 Sleeps about 7-8 hours

 Points on License - none

 

Barbara

 No regime - admits to good intentions

 5'3" and weighs 145

 Covered by her ex-husband via COBRA

 Drives a vintage care without seatbelts

 Drives a semi-truck statewide

 No "real" MVAs - none that prevented her from doing the restoration on her vintage caddy by herself.

 Works requires unloading transported product

Smokes: 1 to 2 packs per day while driving

Single; Divorced; Twice

Sleeps little, suffers insomnia

Point on License - not sure which still show up

 

From the get-go we know Elizabeth is the lower risk. She leads a sedentary lifestyle, deduced by her work environment, exercise, not smoking or drinking, scheduling healthcare appointments regularly, carries no points on her license and hasn’t had a motor vehicle accident for 17 years, at which she was not at fault.

 

Elizabeth is a healthy, 47-year old who loves gardening, reading and golfing in the women's golf league. She gets her teeth cleaned twice/year, has a physical once/year and eye exam every two years. She enjoys a good glass of wine if friends stop by but otherwise carries her water bottle everywhere. Lisa cans the surplus from her garden and, truly, makes the best dill pickles EVER, which have won blue ribbons at the last several county fairs.

 

Barbara is a 47-year old thrill seeker who loves bungee jumping, walking bridges and skydiving. She bores easily and the last time she saw a doctor was for a broken wrist (bad landing). She loves to throw a few back after a day on the road at the local bar and depending on the time, will get a burger or pizza while she's there. She keeps a street licensed, pocket rocket in her truck, to drive home if she's had a few too many.


Barbara: Oh Barbara!  Being a tomboy isn’t high risk. Skydiving, bungee jumping, drinking daily, smoking, drunk driving on her pocket rocket, bad eating habits and insomnia despite a job that has her on the road all day and unloading her truck (which can result in injuries now and as she ages). So, while “tomboy” is ok, “thrill seeking” is risky, as is her lifestyle.

 

  Regardless of whether you’re writing health or life policies, Elizabeth’s premium is going to be less for the same coverage. The only similarity will be in mortality tables, which will provide the same life expectancy; however, the information you gather will not. Average life expectancy aside; the reality is Elizabeth is more likely to live to the expected age. She is a low risk customer, to which premium discounts will apply; thus, Elizabeth will pay a smaller premium for her coverage.

 

If customers all paid the same premiums, it would be like an all-you-can eat buffet: You hope for light eaters to make up for the big eaters and break even, right? Wrong. The hope is to make a profit from the buffet. If there are more heavy eaters than light, the restaurant probably would not offer all-you-can eat, because they need to make a profit.  It’s a business. Like insurance – a profit needs to be made to stay in business. Low risk customers pay lower, discounted premiums, while high-risk customers will pay the premium rates without discounts applied.


Customers answering the way they think you want them to answer (rather than being truthful) and are not honest in their answers are committing fraud. Completing a questionnaire without speaking with the customer is not possible. Face-to-face is best. Completing forms you
think you know the answers to could cause you to record fraudulent replies. If you’re writing for a friend and you know he doesn’t wear a seatbelt (but answers “yes”), or if he asks you to put “non-smoker” because he plans on quitting, Excuse yourself, throw a little water on your face and remember: This is your career, not a sarcastic, jovial conversation while play Major League Baseball on PS4! Besides, a friend wouldn’t ask you to put your job on the line, right?

 

  In most insurance types, there are opportunities for premium discounts. Perhaps one of the best known is the non-smoker discount that life and health policies offer. Some policy types might offer discounts for those with a healthy lifestyle. We often see application questionnaires that ask questions regarding the amount of exercise the applicant gets or what types of social interaction take place on a regular basis. These questions are designed to give underwriters an understanding of current lifestyles.

Non-smoking Discounts
  Tobacco use greatly affects the amount paid for insurance, especially types of coverage relating to health and longevity. Although cigarette smoking is the most prevalent, any use of tobacco is a liability not only to an individual’s health but also as it applies to insurance rates. While states vary, many of them allow insurers to charge smokers a higher premium rate. Florida allows charging a maximum increase of 50 percent.

Tobacco use is typically defined as “any tobacco product, including cigarettes, cigars, chewing tobacco, snuff, and pipe tobacco, used four or more times a week within the past six months.” Now we also have electronic cigarettes (E-cigarettes) and vapor products. By mid-2019, it was realized that these posed great health risks too. E-cigarettes are battery-operated nicotine inhalers. According to the FDA, traditional cigarettes and e-cigarettes are in the same category. Insurance companies also take that ingo consideration and treat you the same as traditional smokers.

  E-cigarettes are often used to stop using tobacco products, but recent studies have shown them to be ineffective for this use. In fact, compared to people who did not use e-cigarettes, smokers who did use them were 67 percent less likely to quit tobacco products.

  Employers offering health coverage plans with discounted premiums for non-smoking employees must be careful to comply with HIPAA guidelines and any state-mandated requirements. Allowable discounts typically will not equal more than ten to twenty percent of the total individual coverage premium, including both the employer’s and the employee’s contributions.

  Employers are typically required to offer reasonable programs to help their employees stop smoking or using other tobacco products. Employees cannot generally be forced to quit smoking and can receive the non-smoker discount if they provide documentation of attendance at a smoking cessation program.

  It is not unusual for an insurance applicant to attempt to hide some elements of their lifestyle, with smoking being a primary secret. Is it possible to hide a smoking habit? Is an individual who smokes only one cigarette per day considered the same risk as someone smoking a full pack each day? Life insurance and health carriers certainly want an accurate picture of activities that might affect health care claims or longevity. Questions do not usually specify cigarettes, but rather ask if “nicotine” was used in the past years or currently, along with questions about frequency and form of tobacco use. In lifestyle questions, nicotine use is considered as risky as some types of other activities, such as travel to dangerous countries. Since e-cigarettes do contain nicotine, use should be disclosed when the application question specifically states “nicotine.”

  Exactly who is considered a nicotine user for underwriting purposes? Life insurance companies typically have three broad rate classifications for pricing policies: standard preferred and preferred-plus. Nicotine users will pay significantly higher premiums within each class that accepts nicotine use (the best rates seldom accept nicotine users at all). The definition of “nicotine user” is typically a person who uses any form of nicotine delivery, including cigarettes, vapors, cigars, chewing tobacco, a nicotine patch, and even nicotine gum. The look-back period varies by insurers, but many insurers look at the past five years.

  Some life insurance companies allow what might be termed the “celebratory” or “occasional” cigar smoker who otherwise qualifies for non-smoking rates. Insurers generally define “occasional” as smoking 12 cigars or less within a twelve-month period. Urine samples taken in connection with a completed insurance application will provide the proof required.

  For applicants that are regular smokers or users of tobacco products should not attempt to lie on applications for coverage. If an applicant lies about one aspect considered very relevant to the insurer’s risk, it is likely that he or she would lie about other elements as well. That means the entire application will be scrutinized.

  If an applicant is fortunate enough to get a non-smoker rate due to false or undisclosed information on the insurance application that does not necessarily mean he or she will never be home free, so to speak. If the insured dies of a heart attack, for example, and it comes to light that the insured was a regular smoker, the company could justifiably deny the death claim. It is always best to pay the rate that should be paid and know that protection exists today and at death when benefits would be paid.

  If an applicant initially tells the truth and learns that he or she will pay higher rates, it is not a good idea to turn down the coverage, go to another insurer, and give less-than-accurate information in the hope of a lower premium quote. Medical exam results typically sit in a database operated by MIB Group for seven years. When the second insurer checks the new application against this database (used to detect consumer fraud) the previous information and results will show.

Lifestyle Discounts/Wellness Programs 

Wellness programs equate to spending less on insurance premiums in many cases. Such things as weight loss, stopping a smoking habit, and anything else that improves an individual’s likelihood that he or she will have fewer insurance claims is good for the insurer. Some companies and other groups actually offer rewards for such things, such as televisions or iPods.

 

  Why would companies offer prizes for weight loss and other lifestyle changes? The goal of wellness programs is improved health and if a prize helps achieve that, it is well worth the money.  An inactive person, for example, spends $1,500 more on health costs each year. Healthier workers not only cost more in terms of insurance claims; they are also less productive as employees due to lost work time and physical limitations. Life insurance companies know that healthier people live longer, which is good for their bottom line. No matter what type of insurer we are discussing, healthy people equate to better profits for insurers and employers.

Simultaneous Applications
  Both life and health insurers often give premium discounts when both the husband and wife apply simultaneously for the same type of coverage.

  Life insurance applications do not necessarily base their rates on marital status, but discounts might still be available. In the case of life insurance, it might mean that both individuals will be insured under the same policy, rather than having individual contracts. Some companies might offer discounts when two members of the same household apply for policies, so marriage is not necessarily a criterion.

  Long-term care insurance is the best-known example of giving couple discounts. According to the Life and Health Insurance Foundation for Education, almost all LTC policies allow discounts for married couples. In some cases, there can be as high as a 40 percent discount, based on all application aspects. They do this because it is felt that when one spouse needs care, it is likely that at least initially, care will be provided in the individual’s home by the other spouse. In other words, the insurer is relying on paying fewer claims based on the care provided by the healthy spouse. If only one person applies for coverage it may not be known whether there will be care available by a spouse or other family member. Of course, nonsmoking discounts may also be available.

  Major medical health care insurance is often a large expenditure and any discounts available in this area are important to the financial picture of consumers. Many people went without such coverage due to the cost. With the Affordable Care Act, much of this has changed.

 

 

 

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