Washington Laws, Rules, and Regulations for Life Insurance

Question 1

Replacement

Answer 1

Exchange of a new policy already in force.

Question 2

Conservation

Answer 2

Attempt by the existing insurer to dissuade a customer from replacing an existing policy

Question 3

Existing Insurer

Answer 3

Insurer whose policy is being terminated or changed

Question 4

Replacing Insurer

Answer 4

Insurer that issues or proposes to issue a policy to replace an existing policy

Question 5

Duties of Insurers

Answer 5

Applications must solicit information about existing insurance on the proposed insured.
Insurers are responsible for informing producers of replacement regulations.
If the applicant indicates a desire to terminate an existing policy, the producer must provide a disclosure form, also known as “replacement form”. The disclosure form explains the possible consequences of terminating an existing policy. The disclosure form explains the possible consequences of terminating an existing policy.
Producers must provide the applicant the original, or a copy, of written or printed communications used in the presentation of an insurance policy.
The producer must submit a copy of the disclosure form, signed by the applicant and the producer, with the application.
The replacing insurer has 3 working days from receipt of application to send a copy of the replacement notice and a policy summary (or similar document) to the customer’s existing insurer.
If the existing insurer wishes to conserve its policy it must send an updated policy summary (or similar document) to the insured within 20 days of receipt of replacement notice.
The existing insurer must keep conservation records for 3 years. The replacing insurer must keep replacement records for 3 years.
Replacing insurer must provide a 20 day free look period

Question 6

Policies not subject to replacement

Answer 6

Group Insurance, Credit life

Question 7

Policies subject to replacement

Answer 7

WL, Interest sensitive plans (UL), Variable Life, Term, Annuities

Question 8

Subject to replacement laws

Answer 8

The insured forfeits, surrenders, terminates, or lapses an in-force policy.
The policy is changed to a reduced paid-up or extended-term non-forfeiture option.
The policy is amended resulting in a reduction in benefits or length of coverage.
The policy is reissued with any reduction in C.V.
The insured use the policy as collateral or borrows 25% of the cash to buy a new policy.

Question 9

Not subject to replacement laws

Answer 9

When a proposed policy that is subject to the replacement laws is to replace life insurance under a binding or conditional receipt issued by the same company.
When a conversion privilege is being exercised in a policy that is subject to the replacement laws.

Question 10

Disclosure (Applicable to all sales of Annuity or Life contracts)

Answer 10

Purpose:

Insurers (including Fraternal Benefit Societies) are required to deliver to the buyer information that will assist the buyer in:

Determining the best insurance for the buyer’s needs.
Improve the buyer’s understanding of the basic features of policies.
Evaluate costs of similar plans.
This is accomplished by providing the buyer with a Buyer’s Guide and a Policy Summary. This may be referred to as the Washington Solicitation of Life Insurance Regulation.

Question 11

Surrender Cost Index

Answer 11

This index is useful if the level of the C.V. is of primary importance. It helps the buyer compare costs if, at the tenth and twentieth policy year, the policy were to be surrendered and its C.V. taken.

Question 12

Net-payments cost index

Answer 12

This index is useful if the main concern is the benefits that are paid at death and if the level of C.V. is of secondary importance. It helps compare costs at the tenth and twentieth policy years, if premiums on the policy are paid and the C.V. not taken.

Question 13

Policy Summary

Answer 13

A written statement describing the elements of the policy. It must include:

Title: “Statement of Policy Cost and Benefit Information”
Name and address of producer and insurance company.
Generic name of policy. Description of premium and benefit patterns (term, whole life etc.).
The first 5 years and other representative years (e.g., year 10; or age 65) of guaranteed elements.
Annual percentage rate charged on policy loans and whether applied in advance or in arrears.
Cost comparison indexes, for ten and twenty years, for the base policy and term riders.
Date the policy summary was prepared.

Question 14

Purchase or exchange of annuities - Standards, Requirements, Conduct, Penalties, Rules

Answer 14

Before a producer makes any recommendation for the purchase or exchange of a life insurance policy or annuity, the insurance producer, or an insurer (when no producer is involved), shall make reasonable efforts to obtain information concerning:

the consumer’s need for the product being offered,
benefit to the consumer or consumer’s family members,
financial status; tax status;
investment objectives; and other information used or considered to be reasonable in regard to the purchase.
The commissioner may order an insurer, an insurance producer, or both, to take reasonably appropriate corrective action for any consumer harmed by the insurer’s or insurance producer’s violation of this section.

Question 15

Return of Policy and Refund of Premium

Answer 15

Free look period must be disclosed on the policy face or attached to the policy. If insured returns a policy within the 10-day free look period, the insurer must refund premiums paid within 30 days or pay an additional 10% penalty over premium.

Question 16

Policy Loans

Answer 16

Policy loans must be available after 3 full years of premium payment up to the cash surrender value.
Policies issued on or after August 1, 1981, shall provide for policy loan interest rates by containing:
A provision permitting a maximum interest rate of not more than eight percent per annum or a provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law.
The rate of interest charged on a policy loan shall not exceed the higher of the published Moody’s Corporate Bond Yield Average – Monthly Average Corporates for the calendar month ending two months before the date on which the rate is determined; or
A substantially similar average, established by a rule issued by the commissioner.
The life insurer shall notify the policy owner, at the time a cash loan is made, the initial rate of interest on the loan and send a “reasonable” advance notice of any increase in the interest rate.
Provisions include automatic premium loans. If total indebtedness (loan + interest) exceeds the cash surrender value, the policy shall terminate.

Question 17

Policy Settlement - interest

Answer 17

Death benefits are to be paid upon proof of loss (death certificate). Otherwise, insurers shall add an interest penalty to policy proceeds of not less than 8%. After 90 days an additional 3% penalty is added.

Other provisions under settlement: Unpaid premiums, policy loans, and accrued interest can be withheld from policy proceeds.

Question 18

Minimum Nonforfeiture amounts

Answer 18

Any paid-up annuity benefit available under a contract shall be such that its present value on the date annuity payments are to commence is at least equal to the minimum nonforfeiture amount on that date.

Such present value shall be computed using the mortality table, if any, and the interest rate specified in the contract for determining the minimum paid-up annuity benefits guaranteed in the contract.

The interest rate used in determining minimum nonforfeiture amounts is referenced in this statute.

Question 19

Grace Period

Answer 19

This allows the insured additional time to pay the premium, past the due date and avoid lapse.

Policies may have a one month grace period (30 or 31 days), but no less than 30 days, during which the insured can pay a late premium before the policy lapses. If the insured dies during the grace period, the company will pay the full F.V., minus the premium and interest owed.

The insurer may collect interest of up to 6% on overdue premiums.

Question 20

Entire Contract (and Representations)

Answer 20

The policy and attached application (must be included) along with any endorsements and riders, shall constitute the entire contract.

Neither party may refer to any other documents to contest the validity thereof. The statements on the attached application, in absence of fraud, are deemed to be representations and not warranties.
If an application is necessary for the renewal of life or disability insurance and the insured or the beneficiary makes a written request to the insurer for a copy of the application submitted, the insurer must provide a copy of the application to the requesting party, within fifteen days after receipt of such request, whether at its home office or at any of its branch offices.

Question 21

Incontestability

Answer 21

After two years in force from the date of issue, the policy shall be deemed incontestable. The company may not cancel the policy except at the option of the insured, or for nonpayment of premium, even if a material and intentional lie is discovered.

Question 22

Misstatement of Age

Answer 22

If the age or gender of the insured has been misstated, the amount payable under the policy shall be the amount the paid premium would have purchased at the correct age and gender.

Question 23

Limitation of Liability

Answer 23

The insurer may in any life insurance policy or an annuity contract, limit its liability to a determinable amount not less than the full reserve of the policy and of dividend additions thereto in the event only of death occurring:

As a result of war, or any act of war declared or undeclared, or as a result of the suicide of the insured, whether sane or insane, within two years from the date of issue

Question 24

Eligible Groups - Group Life

Answer 24

No contract of life insurance shall be issued in this state to an employer group (insuring more than one life) unless in compliance with the provisions of the statutes of Washington State. (.10)
Eligible groups and minimum numbers: (1) Employee groups: All employees are eligible (no individual selection). The plan must cover at least 2 employees at issue (.20). (2) An association not organized just for group insurance.
Insurers must make dependent coverage available, funded by the employee. The maximum amount of life insurance available for family members (of covered employee), including the spouse, shall not be in excess of the amount on the insured employee. (.030(1))
For group coverage to be made available on Credit unions, Labor unions, or Public employee groups, the organization must have a minimum of 25 members at issue. For labor unions that are “contributory”, 75% of the group must desire the coverage prior to the insurer making it available.
Employees of an Employer-sponsored group life insurance plan (consisting of at least 2 employees), or an association as described below:
Credit unions, Labor unions, and Public employee associations – Minimum of 25
Association groups – 25 members, minimum 1-year charter

Question 25

Payment of Proceeds

Answer 25

Death benefits are to be paid upon proof of loss (death certificate). Otherwise, insurers shall add an interest penalty to policy proceeds of not less than 8%. After 90 days an additional 3% penalty is added. Other provisions under the settlement: Unpaid premiums, policy loans, and accrued interest can be withheld from policy proceeds.

Question 26

Grace Period (for Group coverage)

Answer 26

There shall be a provision that the policyholder is entitled to a grace period of thirty-one days for the payment of any premium due (except the initial payment), during which the death benefit coverage shall continue in force unless previously terminated by the insured.

The policy may provide that the policyholder shall be liable to the insurer for the payment of a pro-rata premium for the time the policy was in force during such a grace period.

Question 27

Limitation of Liability

Answer 27

The insurer may in any group life insurance contract provide that it is not liable, or is liable only in a reduced amount, for losses resulting:
From war or any act of war, declared or undeclared
As a result of the suicide of the insured, whether sane or insane, within two years from the date of issue
From aviation under conditions specified in the policy.
Upon the death of either of these, the insurer may pay the face amount of the policy or $ 1,000, whichever is less.
Insurers may specify other conditions pertaining to the proceeds of insurance which in the commissioner’s opinion are more favorable to the policyholder.