Chapter 6

compliance

meeting official requirements

disclosure

revealing information to help someone make an intelligent and educated decision

ERISA (employee retirement income security act

defines federal standards for private pension plans

nonguaranteed elements

policy components that are not guaranteed in the contract or that may fluctuate (e.g. dividends and interest)

subsidiary

a company own or controlled by another company

suitability

a requirement to determine if an insurance product is appropriate for a particular customer

surplus

excess of company's net worth (extra capital remaining after all expenses are paid)

replacement

- means any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuity has been or will be any of the following
- lapsed, forfeited, surrender, or otherwise terminated
- reissued with any

replacing insurer

- the company that issues the new policy

existing insurer

the company whose policy is being replaced

duties of the replacing producer

- present to the applicant a notice regarding replacement that is signed by both the applicant and the producer. a copy must be left with the applicant
- obtain a list of all existing life insurance and/or annuity policies to be replaced including policy

each producer who initiates the application must submit the following to the insurance company with or as part of each applicaton

- a statement by the applicant as to whether replacement of existing life insurance or annuity is involved in the transaction
- a signed statement as to whether the producer knows replace is or may be involved in the transaction

duties of the replacing insurance company

- require from the producer a list of the applicant's life insurance or annuity contracts to be replaced an a copy of the replacement notice provided to the applicant
- send each existing insurance company a written communication advising of the proposed

exist insurer is required to do the following

- retain all replacement notifications received by the replacing insurer for at 5 years or until the next examination, whichever is later
- send a letter to the policyowner of the right to receive information regarding the values of the existing policy wi

replacement regulations

- replacement policies must be regulated in order to be legal, and in the best interest of the policyowners and insured

life insurance replace regulations do the following:

- regulate the activities of insurers and producers
- protect the interests of policyholders by establishing minimum standards
- assure purchasers receive adequate information to make an informed decision
- reduce the opportunity for misrepresentation
- e

violations

any failure to comply with the replacement procedures is considered a violation

examples of violations

- any deceptive or misleading information
- failing to ask the applicant questions regarding replacement
- intentionally answering a question incorrectly
- advising an applicant to answer incorrectly
- advising a policy owner to contact the company in suc

violations of the replacement rules may be subject to the following penalties

- revocation or suspension of a producer's or insurer's license
- monetary fines
- forfeiture of any commissions
- paying restitution or restoring contract values and pay interest

disclosure for annuities

- purpose of the annuity disclosure regulation is to establish standards for the disclosure of certain minimum information about the annuity contracts in order to protect and educate consumers

disclosure standards apply to annuity contracts

- if annuity application is taken in a face-to-face meeting, the applicant must be given the disclosure document and the buyer's guide at or before the time of application
- if annuity application is taken any other way, the insurer must send to the appli

suitability

- it is a producer's responsibility to make sure that annuity transactions address consumers' needs and financial objectives

to ensure suitability producers must make a reasonable effort to obtain information from the consumer and evaluate the following factors

- age
- annual income
- tax status
- financial needs and timeline
- investment objectives
- liquidity needs and liquid net worth
- existing assets
- intended use of annuity
- risk tolerance
Must maintain records of the information collected from the consu