Chapter 13 Flashcards
IL Laws
Temporary insurance producer
In Illinois, a temporary insurance producer license can be issued for up to 90 days, without requiring an exam, if the applicant meets the requirements of the Article. The Director may also renew a temporary license for an additional 180 days without requiring an exam.
The Director may issue a temporary license in the following circumstances:
* To the surviving spouse or court-appointed personal representative of a licensed insurance producer who dies or becomes disabled
* To an employee or member of a business entity licensed as an insurance producer, if the designated individual dies or becomes disabled
The Director may limit the authority of a temporary licensee, require a sponsor, or revoke the license if the interest of the public or insureds is endangered
What can be done under temporary insurance license?
The holder of this type of license may only engage in activities related to the continuance of existing business, such as renewing policies or collecting premiums due to the estate or the firm.
**The holder of a temporary license is not permitted to solicit or sell new insurance **
Reinstatement
An individual insurance producer who allows their license to lapse may, within twelve (12) months after the due date of the renewal fee, be issued a license without the necessity of passing a written examination. However, a penalty in the amount of double the unpaid renewal fee shall be required after the due date ($360).
Continuing Education (CE)
This section of Illinois law states that before each license renewal, an insurance producer must satisfactorily complete at least twenty-four (24) credit hours of continuing education. Three (3) of the twenty-four (24) hours of course study must consist of ethics instruction .
Controlled Business
Controlled business is a disproportionate amount of insurance written on a producer’s own life, person, property, or risks, or the life, person, property, or risks of the producer’s spouse, employer, employees, or partners .
For example, if a producer’s commissions during the past two (2) years on sales of controlled business exceed the commissions received from sales on all other business sold to the public, the Director will find that the producer is engaging in controlled business. Controlled business may also be measured by premium amounts as well. Therefore, producers must sell more insurance to others than they write on their own risks.
FIDUCIARY RESPONSIBILITIES
Any premiums handled by an insurance producer, limited lines producer, temporary licensee, business entity, or surplus lines producer must be held in a fiduciary capacity. A fiduciary must act with a high degree of trust since they are handling the monies of the public. It also means that the producer must consider these funds as being held in trust for another party (i.e., the insurer or client).
These funds collected may not be misappropriated, misused, converted (using illegally), or commingled with personal funds . A single instance of misusing, misappropriating, or improperly withholding $150 or less of premium funds is a Class A misdemeanor.
PREMIUM FUND TRUST ACCOUNT
A special account must be established for premium funds if the producer :
- Holds premiums for fifteen (15) days or more before paying them to the insurer; or
- Deposits premiums into any kind of account or otherwise uses the premiums for any length of time.
The account must be maintained in a federally or state-chartered bank or savings and loan institution located in the state of Illinois. The words “Premium Fund Trust Account” must appear on account records, checks, and any other account data.
If a producer must establish a premium fund trust account, all premiums handled by the producer must be deposited in the account. The account may not be used as a general operating account or claims payment account . The only disbursements permitted by the account are:
BOOKS AND RECORDS
Licensees must maintain accurate books and records of account reflecting all insurance and insurance-related operations. All transactions and amounts receivable must be posted to the books and recorded no less than every thirty (30) days. All books and records for a calendar or fiscal year must be maintained for at least seven (7) years thereafter .
COMMISSIONS AND COMPENSATION
Illinois law states that an insurance producer, limited lines producer, or business entity is only permitted to pay commissions, service or brokerage fees, or other considerations to an individual who holds a license at the time the insurance service is provided
MARKETING PRACTICES
State law prohibits:
- Unfair claim practices;
- Falsification of records;
- Deceptive statements by an insurer or producer regarding the financial condition of a competing insurer (i.e., defamation);
- Unfair discrimination in rating based upon race, color, religion, or national origin;
- Rebating or other illegal inducements;
- Engaging in coercion, boycott, or intimidation; or
- Charging a higher rate due to the physical disability of an applicant or insured.
REBATING
Anything of value offered by a producer or insurer to an applicant that is not specified in the policy as an inducement or incentive to purchase insurance is considered rebating . An offer of a rebate or an agreement to accept a rebate is illegal . The most common form of rebating occurs when a producer offers a “kick-back” of their commissions back to the applicant in exchange for purchasing a policy. Offering to buy, sell, give, or option any type of securities, stocks, bonds, mutual funds, season tickets to sporting events, leather jacket or briefcase, any dividends or income from securities or property, or any other item of value is also rebating. Other forms of rebating include:
- A producer pays the premium for coverage on behalf of a client;
- Providing the customer a special advantage regarding the date of the policy or age of issue;
- Providing the customer with any paid employment or contract for services; or
- Offering to provide a favor or anything else of value to the client.
MISREPRESENTATION
Misrepresenting the terms, benefits, or dividends of a policy or circulating or allowing false representations of the same is considered to be misrepresentation .
If an insurer or producer compares policies unfairly in a misleading way in order to induce a policyholder to lapse their existing coverage for a new policy, they have engaged in a form of misrepresentation known as twisting .
DEFAMATION
Defamation
Defamation involves anyone (i.e., producer or insurer) making a false or malicious statement concerning the financial condition of an insurer to intentionally injure any authorized insurer’s business or reputation .
UNFAIR CLAIMS PRACTICES
All insurers are required to maintain detailed records of claims paid and denied. Documentation must include the claim number, line of coverage, date of loss, date of payment or denial, or the date that the claim file is closed without payment. Claim records must be kept for all open and closed claim files during the current year and for the previous two (2) years .
Records kept may be of the paper type or on computer disk as long as all information is accessible
ILLINOIS INSURANCE GUARANTY FUND
The Property and Casualty Insurance Guaranty Fund consists of all property and casualty insurers authorized to do business in Illinois.
The purpose of this association is to:
- Protect the public against the failure of an insurer to pay claims due to insolvency;
- Provide a mechanism for the payment of covered claims under property and casualty insurance policies;
- Avoid excessive delay in payment of covered claims; and
- Avoid financial loss to claimants or policyholders because of the entry of an order of liquidation against an insolvent company.
LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION
The Life and Health Insurance Guaranty Fund consists of all life and health insurers authorized to do business in Illinois. The purpose of this Association is to protect the public against the failure of an insurer to pay claims due to insolvency. If a member suffers financial trouble, the Association will fulfill that member’s contractual obligations to:
(1) policy owners who are Illinois residents; and
(2) beneficiaries of Illinois policy owners, regardless of where the beneficiaries reside. Funds needed to make payments are derived by assessing member insurers.
ADVERTISING AND SALES
Illinois law and regulations stipulate the minimum standards and guidelines for insurance advertising and sales in order to assure full and truthful disclosure to the public of all information. According to Illinois law, advertising is defined as any type of communication that is intended: (1) to create interest in life insurance, or annuities, or in an insurer, or; (2) to induce a person to buy, increase, modify, change, reinstate, or retain a policy.
REPLACEMENT OF INSURANCE POLICIES
Section 917 of Illinois insurance law specifies that the purpose of Illinois replacement regulations is to ensure that specific steps are followed in replacement situations. These steps are designed to: (1) ensure that policyowners receive the information they need to make a decision which reflects their own best interests; and (2) reduce opportunities for misrepresentation and incomplete disclosure.
Replacement is defined as a sale that results in existing coverage being lapsed, forfeited, surrendered, or terminated in any way; continued under any non-forfeiture option; reduced in benefit, term of coverage, or cash value; reissued with a reduction in cash value; or pledged as collateral for a loan or subjected to substantial borrowing for more than 25% of its cash value.
DUTIES OF AGENTS
All life insurance or annuity applications must contain two statements. One must be signed by the applicant, while the other is signed by the producer. Both statement must indicate whether the sale involves replacement. If the existing insurer and the replacing insurer are the same, nothing further is required even if the sale involves replacement. In all other replacement situations, the producer must sign and provide the applicant with a “Notice Regarding Replacement of Life Insurance or Annuity.”
LIFE INSURANCE SOLICITATION REGULATIONS
The purpose of life solicitation rules is to require insurers to deliver at least certain minimum information that is designed to help buyers select the most appropriate plan of life insurance for their needs, understand the basic features of the policy under consideration, and evaluate the relative costs of similar plans of life insurance.
LIFE INSURANCE Agent’s reponsibilities under SOLICITATION REGULATIONS
It is the responsibility of the producer to provide both a policy summary as well as the Buyer’s Guide to the consumer. The policy summary must also be provided at or prior to policy delivery. This is a separate document that is titled Statement of Policy Cost and Benefit Information which contains: (1) the producer’s name and address, or the procedure for obtaining answers to questions about the policy; (2) the issuing insurer’s full name and address; (3) the policy’s generic name; (4) the policy loan interest rate (if a whole life policy); (5) life insurance cost indexes for 10 and 20 years; (6) cash dividends information with a statement that they are not guaranteed; (7) the annual premium for the basic policy and any rider premium; (8) guaranteed death benefit and the cash surrender value; and (9) the guaranteed endowment value if applicable.
SUITABILITY IN THE SALE OF LIFE INSURANCE AND ANNUITIES
What is the requirement for Annuity Selling?
As of 6/30/12, all producers who sell annuity products must complete a one-time, four (4) hour annuity suitability training course. These hours may also be used toward the biennial continuing education requirement for a resident producer.
Record Keeping requirement?
Insurers, general agents, independent agencies, and insurance agents must maintain or be able to maintain records of the information that is collected from the consumer and used in making the recommendations that were the basis for insurance transactions for seven (7) years after the insurance transaction is completed by the insurer. An insurer is permitted, but not required, to maintain documentation on behalf of an insurance agent.
Accelerated Benefits
Benefits may be accelerated if a terminal medical condition which would generally result in the insured’s death within two years or less (i.e., 24 months), or any condition which requires continuous confinement in an eligible institution where the insured is expected to remain until death occurs. A qualified covered condition is a medical condition which, when it occurs, may result in the payment of an accelerated benefit up to 75% of the policy’s face amount.
Illustrations
Section 1406 states that the purpose of this regulation is to provide rules for life insurance policy illustrations that will: (1) protect consumers and encourage consumer education; (2) prescribe standards to be followed when illustrations are used; and (3) specify the disclosures that are required in connection with illustrations. Insurers must eliminate the use of footnotes and define terms that are used in illustrations in language that can be easily understood by the average person. These regulations apply to all individual and group life insurance policies that are sold and issued in the State of Illinois . This does not include variable contracts, annuity contracts, credit life insurance, group term life insurance, and life insurance policies with guaranteed death benefits of $10,000 or less (or illustrated death benefits less than $15,000).
How many temporary insurance producer license one can hold in a lifetime?
One
which of the following types of insurance may a limited lies producer sell?
A limited lines producer is an insurance producer who specializes in a specific type of insurance, and in Illinois, industrial life is one of the types of insurance that a limited lines producer can specialize in
In how many days a producer must forward the collected premium to the insurer?
90 days
Who negotiates Vertical settlements between a policy owner and a vertical settlement provider?
Vertical settlement broker
Which of the policy is covered under replacement regulation?
Life insurance policy
Policy owner decides to cancel the insurance policy within 90 days of the issue date. In how many days producer is required to refund a prorated portion of any fee charged
30 Days
