BEFORE THE COMMISSIONER OF SECURITIES AND INSURANCE
MONTANA STATE AUDITOR
In the matter of the adoption of New Rule I and the amendment of ARM 6.6.201, 6.6.202, 6.6.203, 6.6.204, 6,6,205, 6.6.206, 6.6.207, 6.6.208, and 6.6.209, pertaining to Life Insurance Buyer's Guide
NOTICE OF PUBLIC HEARING ON
PROPOSED ADOPTION AND AMENDMENT
TO: All Concerned Persons
1. On November 10, 2016, at 10:00 a.m., the Commissioner of Securities and Insurance, Montana State Auditor (CSI), will hold a public hearing in the 2nd floor conference room, at the Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, to consider the proposed adoption and amendment of the above-stated rules.
2. The CSI will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the CSI no later than 5:00 p.m., November 3, 2016, to advise us of the nature of the accommodation that you need. Please contact Darla Sautter, CSI, 840 Helena Avenue, Helena, Montana, 59601; telephone (406) 444-2726; TDD (406) 444-3246; fax (406) 444-3499; or e-mail firstname.lastname@example.org.
3. The new rule as proposed to be adopted provides as follows:
NEW RULE I FUNERAL PREARRANGEMENTS (1) For a prearrangement that is funded or to be funded by a life insurance policy, the following information shall be adequately disclosed at the time an application is made or prior to accepting the applicant's initial premium or deposit:
(a) the fact that a life insurance policy is involved or being used to fund a prearrangement;
(b) the nature of the relationship among the soliciting agent or agents, the provider of the funeral or cemetery merchandise or services, the administrator and any other person;
(c) the relationship of the life insurance policy to the funding of the prearrangement and the nature and existence of any guarantees relating to the prearrangement;
(d) the impact of the prearrangement, including:
(i) any changes in the life insurance policy including, but not limited to, changes in the assignment, beneficiary designation, or use of the proceeds;
(ii) any penalties to be incurred by the policyholder as a result of failure to make premium payments; and
(iii) any penalties to be incurred or monies to be received as a result of cancellation or surrender of the life insurance policy.
(e) a list of the merchandise and services which are applied or contracted for in the prearrangement and all relevant information concerning the price of the funeral services, including an indication that the purchase price is either guaranteed at the time of purchase or to be determined at the time of need;
(f) all relevant information concerning what occurs and whether any entitlements or obligations arise if there is a difference between the proceeds of the life insurance policy and the amount actually needed to fund the prearrangement;
(g) any penalties or restrictions, including, but not limited to geographic restrictions or the inability of the provider to perform, on the delivery of merchandise, services, or the prearrangement guarantee; and
(h) the fact that a sales commission or other form of compensation is being paid and the identity of the individuals or entities to whom it is paid, if applicable.
AUTH: 33-1-313, 33-20-1503, MCA
IMP: 33-18-201, 33-20-1501, MCA
4. The rules as proposed to be amended provide as follows, new matter underlined, deleted matter interlined:
6.6.201 AUTHORITY (1) The rules contained in this
sub- chapter regulation are adopted and promulgated by the commissioner of in- surance insurance under the authority of Section 33-1-313, MCA.
AUTH: 33-1-313, MCA
IMP: 33-18-201, MCA
6.6.202 PURPOSE (1) The purpose of this
sub-chapter is regulation is to require insurers to deliver to purchasers of life insurance information which that will improve the buyer's ability to select the most appropriate plan of life insurance for his the buyer's needs, im- prove improve the buyer's understanding of the basic features of the policy which that has been purchased or which is under consideration, and improve the ability of the buyer to evaluate the relative costs of similar plans of life insurance.
(2) This regulation does not prohibit the use of additional material
which that is not in a violation of this regulation or any other Montana statute or regulation.
AUTH: 33-1-313, MCA
IMP: 33-18-201, MCA
6.6.203 SCOPE (1) Except as
hereafter exempted identified in (2), this sub-chapter regulation shall apply to any solicitation, negotiation, or procurement of life insurance occurring within this state. This sub-chapter regulation shall apply to any issuer of life insurance contracts including fraternal benefit societies.
(2) Unless otherwise specifically included, this regulation shall not apply to:
Credit credit life insurance .;
Group group life insurance .;
Life life insurance policies issued in connection with pension and welfare plans as defined by and which are subject to the federal Employee Retirement Income Security Act of 1974 (ERISA) .; or
Variable variable life insurance under which the death benefits and cash values vary in accordance with unit values of invest- ments investments held in a separate account.
AUTH: 33-1-313, MCA
IMP: 33-18-201, MCA
6.6.204 DEFINITIONS For the purposes of this
sub-chapter regulation, the following definitions shall apply:
(1) A "buyer's guide"
is a document which contains, and is limited to, the means the current Life Insurance Buyer's Guide adopted by the National Association of Insurance Commissioners (NAIC) or language contained in ARM 6.6.209 or language approved by the commissioner of insurance.
A "cash dividend" is the current illustrated dividend which can be applied toward payment of the gross premium. "Current scale of nonguaranteed elements" means a formula or other mechanism that produces values for an illustration as if there is no change in the basis of those values after the time of illustration.
The "equivalent level annual dividend" is calculated by applying the following steps: "Generic name" means a short title that is descriptive of the premium and benefit patterns of a policy or a rider.
(a) Accumulate the annual cash dividends at 5% interest compounded annually to the end of the 10th and 20th policy years.
(b) Divide each accumulation of step (a) 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 (a) over the respective periods stipulated in step (a) . If the period is 10 years, the factor is 13.207 and if the period is 20 years, the factor is 34.719.
(c) Divide the results of step (b) by the number of thousands of the equivalent level death benefit to arrive at the equivalent level annual dividend.
The "equivalent level death benefit" of a policy or term life insurance rider is an amount calculated as follows: "Nonguaranteed elements" means the premiums, credited interest rates (including any bonus), benefits, values, non-interest based credits, charges, or elements of formulas used to determine any of these that are subject to company discretion and are not guaranteed at issue. An element is considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.
(a) Accumulate the guaranteed amount payable upon death, regardless of the cause of death, at the beginning of each policy year for 10 and 20 years at 5% interest compounded annually to the end of the 10th and 20th policy years respectively.
(b) Divide each accumulation of step (a) 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 (a) over the respective periods stipulated in step (a) . 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 which is descriptive of the premium and benefit patterns of a policy or a rider. "Policy data" means a display or schedule of numerical values, both guaranteed and nonguaranteed for each policy year or a series of designated policy years of the following information:
(a) illustrated annual, other periodic, and terminal dividends;
(c) death benefits; and
(d) cash surrender values and endowment benefits.
"Life insurance cost indexes" includes: "Policy summary" means a written statement describing the elements of the policy, including, but not limited to:
The "life insurance surrender cost index" is calculated by applying the following steps. a prominently placed title as follows: STATEMENT OF POLICY COST AND BENEFIT INFORMATION;
(i) Determine the guaranteed cash surrender value, if any, available at the end of the 10th and 20th policy years.
(ii) For participating policies, add the terminal dividend payable upon surrender, if any, to the accumulation of the annual cash dividends at 5% interest compounded annually to the end of the period selected and add this sum to the amount determined in step (i).
(iii) Divide the result of step (ii) (step (i) 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 (ii) (step (i) for guaranteed cost policies) over the respective periods stipulated in step (i). If the period is 10 years, the factor is 13.207 and if the period is 20 years, the factor is 34.719.
(iv) Determine the equivalent level premium by accumulating each annual premium payable for the basic policy or rider at 5% interest compounded annually to the end of the period stipulated in step (i) and dividing the result by the respec-tive factors stated in step (iii) (this amount is the annual premium payable for a level premium plan).
(v) Subtract the result of step (iii) from step (iv).
(vi) Divide the result of step (v) by the number of thousands of the equivalent level death benefit to arrive at the life insurance surrender cost index.
The "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. 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 the inquiries regarding the policy summary;
(c) the full name and home office or administrative office address of the company in which the life insurance policy is to be or has been written;
(d) the generic name of the basic policy and each rider; and
(e) the following amounts, where applicable, for the first five policy years and representative policy years thereafter sufficient to clearly illustrate the premium and benefit patterns; including at least one age from sixty through sixty-five and policy maturity:
(i) the annual premium for the basic policy;
(ii) the annual premium for each optional rider;
(iii) the amount payable upon death at the beginning of the policy year regardless of the cause of death, other than suicide or other specifically enumerated exclusions, that is provided under the basic policy and each optional rider; with benefits provided under the basic policy and each rider shown separately;
(iv) the total guaranteed cash surrender values at the end of the year with values shown separately for the basic policy and each rider; and
(v) any endowment amounts payable under the policy that are not included under cash surrender values above.
(f) the effective policy loan annual percentage interest rate, if the policy contains this provision, specifying whether this rate is applied in advance or in arrears. If the policy loan interest rate is adjustable, the policy summary shall also indicate that the annual percentage rate will be determined by the company in accordance with the provisions of the policy and the applicable law; and
(g) the date on which the policy summary is prepared.
For the purposes of this sub-chapter, "policy summary" means a written statement describing the elements of the policy including but not limited to: "Prearrangement" means funeral insurance, burial insurance, preneed funeral insurance, prearranged funeral plan, preneed arrangement, or other agreement by or for an individual before that individual's death relating to the purchase or provision of specific funeral or cemetery merchandise or services.
(a) A prominently placed title as follows: STATEMENT OF POLICY COST AND BENEFIT INFORMATION.
(b) 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.
(c) The full name and home office or administrative office address of the company in which the life insurance policy is to be or has been written.
(d) The generic name of the basic policy and each rider.
(e) The following amounts, where applicable, for the first 5 policy years and representative policy years thereafter sufficient to clearly illustrate the premium and benefit patterns, including, but not necessarily limited to, the years for which life insurance cost indexes are displayed and at least one age from 60 through 65 or maturity whichever is earlier:
(i) The annual premium for the basic policy.
(ii) The annual premium for each optional rider.
(iii) Guaranteed amount payable upon 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.
(iv) Total guaranteed cash surrender values at the end of the year with values shown separately for the basic policy and each rider.
(v) 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 twentieth policy year).
(vi) Guaranteed endowment amounts payable under the policy which are not included under guaranteed cash surrender values above.
(f) The effective policy loan annual percentage interest rate, if the policy contains this provisions, specifying whether this rate is applied in advance or in arrears. If the policy loan interest rate is variable, the policy summary includes the maximum annual percentage rate.
(g) Life insurance cost indexes for 10 and 20 years but in no case beyond the premium paying period. Separate indexes are displayed for the basic policy and for each optional term life insurance rider. Such indexes need not be included for optional riders which are limited to benefits such as accidental death benefits, disability waiver of premium, preliminary term life insurance coverage of less than 12 months and guaranteed insurability benefits nor for basic policies or optional riders covering more than one life.
(h) 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.
(i) A policy summary which includes dividends shall also include 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.
(j) 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.
(k) The date on which the policy summary is prepared. The policy summary must consist of a separate document. All information required to be disclosed must be set out in such a manner as to not minimize or render any portion thereof obscure. Any amounts which remain level for two or more years of the policy may be represented by a single number if it is clearly indicated what amounts are applicable for each policy year. Amounts in item (e) of this section shall be listed in total, not on a per thousand nor per unit basis. If more than one insured is covered under one policy or rider, guaranteed death benefits shall be displayed separately for each insured or for each class of insureds if death benefits do not differ within the class. Zero amounts shall be displayed as zero and shall not be displayed as a blank space.
AUTH: 33-1-313, 33-20-1503, MCA
IMP: 33-18-201, 33-20-1501, MCA
6.6.205 GENERAL RULES (1) Each insurer shall maintain at its home office or principal office, a complete file
contain-ing containing one copy of each document authorized by the insurer for use pursuant to this sub-chapter regulation. Such file shall contain one copy of each authorized form for a period of three years following the date of its last authorized use.
(2) An agent shall inform the prospective purchaser, prior to commencing a life insurance sales presentation, that he or she is acting as a life insurance agent and inform the prospective purchaser of the full name of the insurance company which
he the agent is representing to the buyer. In sales situations in which an agent is not involved, the insurer shall indentify identify its full name.
(3) Terms such as financial planner, investment advisor, financial consultant, or financial counseling shall not be used in such a way as to imply that the insurance agent is generally engaged in an advisory business in which compensation is
un-related unrelated to sales unless such is actually the case.
(4) Any reference to
policy dividends must include a statement that dividends are not guaranteed nonguaranteed elements shall include a statement that the item is not guaranteed and is based on the company's current scale of nonguaranteed elements (use appropriate special terms such as "current dividend" or "current rate" scale). If a nonguaranteed element would be reduced by the existence of a policy loan, a statement to that effect shall be included in any reference to nonguaranteed elements. A presentation or depiction of a policy issued after January 1, 2002, that includes nonguaranteed elements over a period of years shall be governed by ARM 6.6.701 through 6.6.718.
(5) A system or presentation which does not recognize the time value of money through the use of appropriate interest adjustments shall not 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 such presentation is accompanied by a statement disclosing that the presentation does not recognize that, because of interest, a dollar in the future has less value than a dollar today.
(6) A presentation of benefits shall not display guaranteed and non-guaranteed benefits as a single sum unless they are shown separately in close proximity thereto.
(7) A statement regarding the use of the life insurance cost indexes shall 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.
(8) A life insurance cost index which reflects dividends or an equivalent level annual dividend shall be accompanied by a statement that it is based on the company's current dividend scale and is not guaranteed.
(9) For the purposes of this sub-chapter, the annual pre-mium for a basic policy or rider, fox which the company reserves the right to change the premium, shall be the maximum annual premium.
AUTH: 33-1-313, MCA
IMP: 33-18-201, MCA
6.6.206 DISCLOSURE REQUIREMENTS (1) The insurer shall provide, to all prospective purchasers, a buyer's guide and a policy summary prior to accepting the applicant's initial premium or premium deposit, unless the policy for which
applica-tion application is made contains an unconditional refund provision of at least 10 days or unless the policy summary contains such an un-conditional unconditional refund offer, in which event the buyer's guide and policy summary must be delivered with the policy or prior to delivery of the policy.
The insurer shall provide a buyer's guide and a policy summary to any prospective purchaser upon request. The insurer shall provide a policy summary to prospective purchasers where the insurer has identified the policy form as one that will not be marketed with an illustration. The policy summary shall show guarantees only. It shall consist of a separate document with all required information set out in a manner that does not minimize or render any portion of the summary obscure. Any amounts that remain level for two or more years of the policy may be represented by a single number if it is clearly indicated what amounts are applicable for each policy year. Amounts in ARM 6.6.204(6)(e) shall 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, death benefits shall be displayed separately for each insured, or for each class of insureds if death benefits do not differ with the class. Zero amounts shall be displayed as a blank space. Delivery of the policy summary shall be consistent with the time for delivery of the Buyer's Guide as specified in (1).
In the case of policies whose equivalent level death benefit does not exceed $5,000, the requirement for providing a policy summary will be satisfied by delivery of a written statement containing the information described in 6.6.204 (7) , items (b), (c), (d), (e)(i), (e)(ii), (e)(iii), (f), (g), (j), and (k). Upon request by the policyholder, the insurer shall furnish either policy data or an in-force illustration as follows:
(a) For policies issued prior to January 1, 2002, the insurer shall furnish policy data, or, at its option, an in-force illustration meeting the requirements of ARM 6.6.207.
(b) For policies issued after January 1, 2002, that were declared not to be used with an illustration, the insurer shall furnish policy data, limited to guaranteed values, if it has chosen not to furnish an in-force illustration meeting the requirements of this regulation.
(c) If the policy was issued after January 1, 2002, and declared to be used with an illustration, an in-force illustration shall be provided.
(d) Unless otherwise requested, the policy data shall be provided for 20 consecutive years beginning with the previous policy anniversary. The statement of policy data shall include nonguaranteed elements according to the current scale, the amount of outstanding policy loans, and the current policy loan interest rate. Policy values shown shall be based on the current application of nonguaranteed elements in effect at the time of the request. The insurer may charge a commercially reasonable fee for the preparation of the statement.
(4) If a life insurance company changes its method of determining scales of nonguaranteed elements on existing policies, it shall, no later than when the first payment is made on the new basis, advise each affected policy owner residing in this state of this change and of its implication on affected policies. This requirement shall not apply to policies for which the amount payable upon death under the basic policy as of the date when advice would otherwise be required does not exceed $5,000.
(5) If the insurer makes a material revision in the terms and conditions under which it will limit its right to change a nonguaranteed factor, it shall, no later than the first policy anniversary following the revision, advise each affected policy owner residing in this state.
AUTH: 33-1-313, MCA
IMP: 33-18-201, MCA
6.6.207 FAILURE TO COMPLY (1) Failure of an insurer to
pro-vide provide or deliver a buyer's guide or a policy summary as provided in ARM 6.6.206 shall constitute an omission which misrepresents the benefits, advantages, conditions, or terms of an insurance policy.
AUTH: 33-1-313, MCA
IMP: 33-18-201, MCA
6.6.208 EFFECTIVE DATE (1) This
sub-chapter regulation shall apply to all solicitations of life insurance which commence on or after December 15, 1978.
AUTH: 33-1-313, MCA
IMP: 33-18-201, MCA
6.6.209 SAMPLE BUYER'S GUIDE (1) The following is a sample form:
The face page of the buyer's guide shall read as follows:
LIFE INSURANCE BUYER'S GUIDE
This guide can show you how to save money when you shop for life insurance. It helps you to:
---Decide how much life insurance you should buy,
---Decide what kind of life insurance policy you need, and
---Compare the cost of similar life insurance policies.
Prepared by the National Association of Insurance Commissioners
Reprinted by (Company Name)
(Month and year of printing)
The buyer's guide shall contain the following language at the bottom of page 2:
The National Association of Insurance Commissioners is an association of state insurance regulatory officials. This association helps the various insurance departments to coordinate insurance laws fox the benefit of all consumers. You are urged to use this Guide in making a life insurance purchase.
THIS GUIDE DOES NOT ENDORSE ANY COMPANY OR POLICY.
The remaining text of buyer's guide shall begin on page 3 as follows:
BUYING LIFE INSURANCE
When you buy life insurance, you want a policy which fits your needs without costing too much. Your first step is to decide how much you need, how much you can afford to pay, and the kind of policy you want. Then, find out what various companies charge for that kind of policy. You can find important differences in the cost of life insurance by using the life insurance cost indexes which are described in this guide. A good life insurance agent or company will be able and willing to help you with each of these shopping steps.
If you are going to make a good choice when you buy life insurance, you need to understand which kinds are available. If one kind does not seem to fit your needs, ask about the other kinds which are described in this guide. If you feel that you need more information than is given here, you may want to check with a life insurance agent or company or books on life insurance in your public library.
CHOOSING THE AMOUNT
One way to decide how much life insurance you need is to figure how much cash and income your dependents would need if you were to die. You should think of life insurance as a source of cash needed for expenses of final illnesses, paying taxes, mortgages or other debts. It can also provide income for your family's living expenses, educational costs and other future expenses. Your new policy should come as close as you can afford to making up the difference between (1) what your dependents would have if you were to die now, and (2) what they would actually need.
CHOOSING THE RIGHT KIND
All life insurance policies agree to pay an amount of money if you die. But all policies are not the same. There are three basic kinds of life insurance.
1. Term insurance.
2. Whole life insurance
3. Endowment insurance
Remember, no matter how fancy the policy title or sales presentation might appear, all life insurance policies contain one or more of the three basic kinds. If you are confused about a policy that sounds complicated, ask the agent or company if it combines more than one kind of life insurance. The following is a brief description of the three basic kinds:
Term insurance is death protection for a "term" of one or more years. Death benefits will be paid only if you die within that term of years. Term insurance generally provides the largest immediate death protection for your premium dollar.
Some term insurance policies are "renewable" for one or more additional terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. You should check the premiums at older ages and the length of time the policy can be continued.
Some term insurance policies are also "convertible". This means that before the end of the conversion period, you may trade the term policy for a whole life or endowment insurance policy even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.
Whole Life Insurance
Whole life insurance gives death protection for as long as you live. The most common type is called "straight life" or "ordinary life" insurance, for which you pay the same premiums for as long as you live. These premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term insurance policy until your later years.
Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance since the premium payments are squeezed into a shorter period.
Although you pay higher premiums, to begin with, for whole life insurance than for term insurance, whole life insurance policies develop "cash values" which you may have if you stop paying premiums. You can generally either take the cash, or use it to buy some continuing insurance protection. Technically speaking, these values are called "nonforfeiture benefits". This refers to benefits you do not lose (or "forfeit") when you stop paying premiums. The amount of these benefits depends on the kind of policy you have, its size, and how long you have owned it.
A policy with cash values may also be used as collateral for a loan. If you borrow from the life insurance company, the rate of interest is shown in your policy. Any money which you owe on a policy loan would be deducted from the benefits if you were to die, or from the cash value if you were to stop paying premiums.
An endowment insurance policy pays a sum or income to you-the policyholder-if you live to a certain age. If you were to die before then, the death benefit would be paid to your beneficiary. Premiums and cash values for endowment insurance are higher than for the same amount of whole life insurance. Thus endowment insurance gives you the least amount of death protection for your premium dollar.
FINDING A LOW COST POLICY
After you have decided which kind of life insurance fits your needs, look for a good buy. Your chances of finding a good buy are better if you use two types of index numbers that have been developed to aid in shopping for life insurance. One is called the "Surrender Cost Index" and the other is the "Net Payment Cost Index". It will be worth your time to try to understand how these indexes are used, but in any event, use them only for comparing the relative cost of similar policies. LOOK FOR POLICIES WITH LOW COST INDEX NUMBERS.
What is Cost?
"Cost" is the difference between what you pay and what you get back. If you pay a premium for life insurance and get nothing back, your cost for the death protection is the premium. If you pay a premium and get something back later on, such as a cash value, your cost is smaller than the premium.
The cost of some policies can also be reduced by dividends; these are called "participating" policies. Companies may tell you what their current dividends are, but the size of future dividends is unknown today and cannot be guaranteed. Dividends actually paid are set each year by the company.
Some policies do not pay dividends. These are called "guaranteed cost" or "non-participating" policies. Every feature of a guaranteed cost policy is fixed so that you know in advance what your future cost will be.
The premiums and cash values of a participating policy are guaranteed, but the dividends are not. Premiums for participating policies are typically higher than for guaranteed cost policies, but the cost to you may be higher or lower, depending on the dividends actually paid.
What Are Cost Indexes?
In order to compare the cost of policies, you need to look at:
2. Cash values
Cost indexes use one or more of these factors to give you a convenient way to compare relative costs of similar policies. When you compare costs, an adjustment must be made to take into account that money is paid and received at different times. It is not enough to just add up the premiums you will pay and to subtract the cash values and dividends you expect to get back. These indexes take care of the arithmetic for you. Instead of having to add, subtract, multiply and divide many numbers yourself, you just compare the index numbers which you can get from life insurance agents and companies:
1. LIFE INSURANCE SURRENDER COST INDEX-- This index is useful if you consider the level of the cash values to be of primary importance to you. It helps you compare costs if at some future point in time, such as 10 or 20 years, you were to surrender the policy and take its cash value.
2. LIFE INSURANCE NET PAYMENT COST INDEX-- This index is useful if your main concern is the benefits that are to be paid at your death and if the level of cash values if of secondary importance to you. It helps you compare costs at some future point in time, such as 10 or 20 years, if you continue paying premiums on your policy and do not take its cash value.
There is another number called the equivalent level annual dividend. It shows the part dividends play in determining the cost index of a participating policy. Adding a policy's equivalent Level Annual Dividend to its cost index allows you to compare total costs of similar policies before deducting dividends. However, if you make any cost comparisons of a participating policy with a non-participating policy, remember that the total cost of the participating policy will be reduced by dividends, but the cost of the non-participating policy will not change.
How Do I Use Cost Indexes?
The most important thing to remember when using cost in-dexes is that a policy with a small index number is generally a better buy than a comparable policy with a larger index number. The following rules are also important:
(1) Cost comparisons should only be made between similar plans of life insurance. Similar plans are those which provide essentially the same basic benefits and require premium payments for approximately the same period of time. The closer policies are to being identical, the more reliable the cost comparison will be.
(2) Compare index numbers only for the kind of policy, for your age and for the amount you intend to buy. Since no one company offers the lowest cost for all types of insurance at all ages and for all amounts of insurance, it is important that you get the indexes for the actual policy, age and amount which you intend to buy. Just because a "shopper's guide" tells you that one company's policy is a good buy for a particular age and amount, you should not assume that all of that company's policies are equally good buys.
(3) Small differences in index numbers could be offset by other policy features or differences in the quality of service you may expect from the company or its agent. Therefore, when you find small differences in the cost indexes, your choice should be based on something other than cost.
(4) In any event, you will need other information on which to base your purchase decision. Be sure you can afford the premiums, and that you understand its cash values, dividends and death benefits. You should also make a judgement on how well the life insurance company or agent will provide service in the future to you as a policyholder.
(5) These life insurance cost indexes apply to new policies and should not be used to determine whether you should drop a policy you have already owned for awhile, in favor of a new one. If such a replacement is suggested, you should ask for information from the company which issued the old policy before you take action.
IMPORTANT THINGS TO REMEMBER -- A SUMMARY
The first decision you must make when buying a life insurance policy is choosing a policy whose benefits and premiums most closely meet your needs and ability to pay. Next, find a policy which is also a relatively good buy. If you compare surrender cost indexes and net payment cost indexes of similar competing policies, your chances of finding a relatively good buy will be better than if you do not shop. REMEMBER, LOOK FOR POLICIES WITH LOWER COST INDEX NUMBERS. A good life insurance agent can help you to choose the amount of life insurance and kind of policy you want and will give you cost indexes so that you can make cost comparisons of similar policies.
Don't buy life insurance unless you intend to stick with it. A policy which is a good buy when held for 20 years can be very costly if you quit during the early years of the policy. If you surrender such a policy during the first few years, you may get little or nothing back and much of your premium may have been used for company expenses.
Read your new policy carefully, and ask the agent or company for an explanation of anything you do not understand. What ever you decide now, it is important to review your life insurance program every few years to keep up with changes in your income and responsibilities.
(a) The face page of the Buyer's Guide shall read as follows:
Life Insurance Buyer's Guide
This guide can help you when you shop for life insurance. It discusses how to:
find a policy that meets your needs and fits your budget
decide how much insurance you need
make informed decisions when you buy a policy
Prepared by the National Association of Insurance Commissioners
The National Association of Insurance Commissioners is an association of state insurance regulatory officials. This association helps the various insurance departments to coordinate insurance laws for the benefit of all consumers.
This guide does not endorse any company or policy
IMPORTANT THINGS TO CONSIDER
1. Review your own insurance needs and circumstances. Choose the kind of policy that has benefits that most closely fit your needs. Ask an agent or company to help you.
2. Be sure that you can handle premium payments. Can you afford the initial premium? If the premium increases later and you still need insurance, can you still afford it?
3. Don't sign an insurance application until you review it carefully to be sure all the answers are complete and accurate.
4. Don't buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
5. Don't drop one policy and buy another without a thorough study of the new policy and the one you have now. Replacing your insurance may be costly.
6. Read your policy carefully. Ask your agent or company about anything that is not clear to you.
7. Review your life insurance program with your agent or company every few years to keep up with changes in your income and your needs.
Buying Life Insurance
When you buy life insurance you want coverage that fits your needs.
First, decide how much you need--and for how long--and what you can afford to pay. Keep in mind the major reason you buy life insurance is to cover the financial effects of unexpected or untimely death. Life insurance can also be one of many ways you plan for the future.
Next, learn what kinds of policies will meet your needs and pick the one that best suits you.
Then, choose the combination of policy premium and benefits that emphasizes protection in case of early death, or benefits in case of long life, or a combination of both.
It makes good sense to ask a life insurance agent or company to help you. An agent can help you review your insurance needs and give you information about the available policies. If one kind of policy doesn't seem to fit your needs, ask about others.
This guide provides only basic information. You can get more facts from a life insurance agent or company or from your public library.
What About the Policy You Have Now?
If you are thinking about dropping a life insurance policy, here are some things you should consider:
If you decide to replace your policy, don't cancel your old policy until you have received the new one. You then have a minimum period to review your new policy and decide if it is what you wanted.
It may be costly to replace a policy. Much of what you paid in the early years of the policy you have now, paid for the company's cost of selling and issuing the policy. You may pay this type of cost again if you buy a new policy.
Ask your tax advisor if dropping your policy could affect your income taxes.
If you are older or your health has changed, premiums for the new policy will often be higher. You will not be able to buy a new policy if you are not insurable.
You may have valuable rights and benefits in the policy you now have that are not in the new one.
If the policy you have now no longer meets your needs, you may not have to replace it. You might be able to change your policy or add to it to get the coverage or benefits you now want.
At least in the beginning, a policy may pay no benefits for some causes of death covered in the policy you have now.
In all cases, if you are thinking of buying a new policy, check with the agent or company that issued you the one you have now. When you bought your old policy, you may have seen an illustration of the benefits of your policy. Before replacing your policy, ask your agent or company for an updated illustration. Check to see how the policy has performed and what you might expect in the future, based on the amounts the company is paying now.
How Much Do You Need?
Here are some questions to ask yourself:
How much of the family income do I provide? If I were to die early, how would my survivors, especially my children, get by? Does anyone else depend on me financially, such as a parent, grandparent, brother, or sister?
Do I have children for whom I'd like to set aside money to finish their education in the event of my death?
How will my family pay final expenses and repay debts after my death?
Do I have family members or organizations to whom I would like to leave money?
Will there be estate taxes to pay after my death?
How will inflation affect future needs?
As you figure out what you have to meet these needs, count the life insurance you have now, including any group insurance where you work or veteran's insurance. Don't forget Social Security, and pension plan survivor's benefits. Add other assets you have: savings, investments, real estate, and personal property. Which assets would your family sell or cash in to pay expenses after your death?
What Is the Right Kind of Life Insurance?
All policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Some build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living. Your choice should be based on your needs and what you can afford.
There are two basic types of life insurance: term insurance and cash value insurance. Term insurance generally has lower premiums in the early years, but does not build up cash values that you can use in the future. You may combine cash value life insurance with term insurance for the period of your greatest need for life insurance to replace income.
Term Insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value.
You can renew most term insurance policies for one or more terms, even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase.
You may be able to trade many term insurance policies for a cash value policy during a conversion period even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.
Cash Value Life Insurance is a type of insurance where the premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the company and builds up a cash value that may be used in a variety of ways. You may borrow against a policy's cash value by taking a policy loan. If you don't pay back the loan and the interest on it, the amount you owe will be subtracted from the benefits when you die, or from the cash value if you stop paying premiums and take out the remaining cash value. You can also use your cash value to keep insurance protection for a limited time or to buy a reduced amount without having to pay more premiums. You also can use the cash value to increase your income in retirement or to help pay for needs such as a child's tuition without canceling the policy. However, to build up this cash value, you must pay higher premiums in the earlier years of the policy. Cash value life insurance may be one of several types; whole life, universal life, and variable life are all types of cash value insurance.
Whole Life Insurance covers you for as long as you live if your premiums are paid. You generally pay the same amount in premiums for as long as you live. When you first take out the policy, premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you eventually pay if you were to keep renewing a term policy until your later years.
Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher since the premium payments are made during a shorter period.
Universal Life Insurance is a kind of flexible policy that lets you vary your premium payments. You can also adjust the face amount of your coverage. Increases may require proof that you qualify for the new death benefit. The premiums you pay (less expense charges) go into a policy account that earns interest. Charges are deducted from the account. If your yearly premium payment plus the interest your account earns is less than the charges, your account value will become lower. If it keeps dropping, eventually your coverage will end. To prevent that, you may need to start making premium payments, or increase your premium payments, or lower your death benefits. Even if there is enough in your account to pay the premiums, continuing to pay premiums yourself means that you build up more cash value.
Variable Life Insurance is a kind of insurance where the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy. Be sure to get the prospectus from the company when buying this kind of policy and study it carefully. You will have higher death benefits and cash value if the underlying investments do well. Your benefits and cash value will be lower or may disappear if the investments you chose didn't do as well as you expected. You may pay an extra premium for a guaranteed death benefit.
Life Insurance Illustrations
You may be thinking of buying a policy where cash values, death benefits, dividends, or premiums may vary based on events or situations the company does not guarantee (such as interest rates). If so, you may get an illustration from the agent or company that helps explain how the policy works. The illustration will show how the benefits that are not guaranteed will change as interest rates and other factors change. The illustration will show you what the company guarantees. It will also show you what could happen in the future. Remember that nobody knows what will happen in the future. You should be ready to adjust your financial plans if the cash value doesn't increase as quickly as shown in the illustration. You will be asked to sign a statement that says you understand that some of the numbers in the illustration are not guaranteed.
Finding a Good Value in Life Insurance
After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money. A simple comparison of the premiums is not enough. There are other things to consider. For example:
Do premiums or benefits vary from year to year?
How much do the benefits build up in the policy?
What part of the premiums or benefits is not guaranteed?
What is the effect of interest on money paid and received at different times on the policy?
Remember that no one company offers the lowest cost at all ages for all kinds and amounts of insurance. You should also consider other factors.
How quickly does the cash value grow? Some policies have low cash values in the early years that build quickly later on. Other policies have a more level cash value build-up. A year-by-year display of values and benefits can be very helpful. (The agent or company will give you a policy summary or an illustration that will show benefits and premiums for selected years.)
Are there special policy features that particularly suit your needs?
How are nonguaranteed values calculated? For example, interest rates are important in determining policy returns. In some companies increases reflect the average interest earnings on all of the company's policies regardless of when issued. In others, the return for policies issued in a recent year, or a group of years, reflects the interest earnings on that group of policies; in this case, amounts paid are likely to change more rapidly when interest rates change.
AUTH: 33-1-313, 33-20-1503, MCA
IMP: 33-18-201, 33-20-150, 33-20-1501, MCA
5. STATEMENT OF REASONABLE NECESSITY: The Montana State Auditor, Commissioner of Securities and Insurance, Monica J. Lindeen (commissioner), is the statewide elected official responsible for administering the Montana Insurance Code and regulating the insurance industry in the state of Montana.
The commissioner is a member, a former Vice President, and former President of the National Association of Insurance Commissioners (NAIC). The NAIC is an organization of insurance regulators from the 50 states, the District of Columbia, and the U.S. Territories. The NAIC provides a forum for the development of uniform policy and regulation when uniformity is appropriate.
The rules relating to life insurance solicitation contained in ARM Title 6, chapter 6, subchapter 2 have not been updated or amended since 1978. Since then, there have been various intervening changes to the industry at large, and particularly with respect to life insurance. The commissioner seeks to adopt the NAIC model regulations relating to solicitation of life insurance to update the regulations and to bring Montana regulations into uniformity with those in other states.
In 2007, the legislature enacted Title 33, chapter 20, part 15, MCA, which regulates funeral insurance. Also, in 2007, the legislature granted the commissioner rulemaking authority to adopt rules to regulate funeral insurance including, but not limited to, rules regarding licensure of producers, form review, and consumer protection pursuant to 33-20-1503, MCA. The commissioner has determined that the new rule be proposed in accord with that section, and that the life insurance rules be amended to reflect industry changes and to establish uniformity with other states that have already made these changes.
NEW RULE I is proposed to be adopted in order to promote transparency in funeral insurance transactions in the special circumstance where the funeral insurance is funded by a life insurance policy. To that end, the rule imposes various up-front consumer disclosure requirements including, but not limited to, the requirement that the consumer be informed that a life insurance contract is funding the arrangement, the type of relationship between the soliciting producer and the funeral service or merchandise provider, penalties that may be incurred for failure to make premium payments, and other disclosures designed to render such transactions transparent to the insurance consumer. The language of New Rule I is adapted from an NAIC model rule, and therefore has the added benefit of greater consistency with the regulations of other states.
The following amendments are reasonably necessary to update and correct errors to the regulations.
ARM 6.6.201 is proposed to be amended to use contemporary rule language and format and to correct a typo.
ARM 6.6.202 is proposed to be amended to use contemporary rule writing language and to make grammatical corrections.
ARM 6.6.203 is proposed to be amended to use contemporary rule writing language, to amend format, and to correct a typo.
ARM 6.6.204 is proposed to be amended to more clearly identify the Life Insurance Buyer's Guide, to conform the language of the rule to the Buyer's Guide, to simplify and bring language to contemporary standards, and to add the definition of funeral insurance.
ARM 6.6.205 is proposed to be amended to eliminate archaic language, correct typographical errors, and to make the rules consistent with the current Buyer's Guide.
ARM 6.6.206 is proposed to be amended to eliminate archaic language, correct typographical errors, and to make the rules consistent with the current Buyer's Guide.
ARM 6.6.207 is proposed to be amended to correct a typographical error and a citation error.
ARM 6.6.208 is proposed to be amended to use contemporary rule writing language.
ARM 6.6.209 is proposed to be amended to replace the old Life Insurance Buyer's Guide with the new Life Insurance Buyer's Guide.
6. Concerned persons may submit their data, views, or arguments concerning the proposed actions either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to Michael Winsor, Attorney, Office of the Commissioner of Securities and Insurance, Montana State Auditor, 840 Helena Ave., Helena, Montana, 59601; telephone (406) 444-2004; fax (406) 444-5223; or e-mail email@example.com, and must be received no later than 5:00 p.m., November 18, 2016.
7. Michael Winsor, Attorney, has been designated to preside over and conduct this hearing.
8. The CSI maintains a list of concerned persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list may sign up by clicking on the blue button on the CSI's web site at: http://csimt.gov/laws-rules/ to specify for which program the person wishes to receive notices. Notices will be sent by e-mail unless a mailing preference is noted in the request. Requests may also be sent to the CSI in writing. Such written request may be mailed or delivered to the contact information in 2 above, or may be made by completing a request form at any rules hearing held by the CSI.
9. An electronic copy of this proposal notice is available through the Secretary of State's web site at http://sos.mt.gov/ARM/Register. The Secretary of State strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Secretary of State works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
10. Pursuant to 2-4-302, MCA, the bill sponsor contact requirements do not apply.
11. With regard to the requirements of 2-4-111, MCA, these rules may impact small businesses, in that they affect solicitations of life insurance or funeral prearrangements. With respect to life insurance in general, the amendments do not impose any new procedures or restrictions; they simply update the language of the rules to make them more readable, and update the language in the life insurance buyer's guide to be more consistent with other states. With respect to the funeral prearrangement disclosure requirements, those disclosures are only triggered in the special circumstance of a funeral prearrangement funded by a life insurance policy, and are reasonably necessary to ensure that consumers are fully aware of the details of any funeral prearrangements they purchase, in keeping with the legislative mandate of 33-20-501, MCA, et seq.
/s/ Michael A. Kakuk /s/ Jesse Laslovich
Michael A. Kakuk Jesse Laslovich
Rule Reviewer Chief Legal Counsel
Certified to the Secretary of State October 3, 2016.