Title 210 - NEBRASKA DEPARTMENT OF INSURANCE Chapter 19

Title 210 - NEBRASKA DEPARTMENT OF INSURANCE

Chapter 19 - REPLACEMENT OF LIFE INSURANCE AND ANNUITIES (AMENDED)

001. Statutory authority. This Rule is promulgated pursuant to the authority granted by NEB. REV. STAT. §§ 44-1533

and 44-101.01.

002. Purpose. The purpose of this Rule is:

002.01 To regulate the activities of insurers and producers with respect to the replacement of existing life insurance

and annuities;

002.02 To protect the interests of life insurance and annuity purchasers by establishing minimum standards of

conduct to be observed in replacement transactions or financed purchases by:

002.02AAssuring that the purchasers receive information with which a decision can be made in his or her own

best interest;

002.02B Reducing the opportunity for misrepresentation and incomplete disclosures; and

002.02C Establishing penalties for failure to comply with the requirements of this Rule.

002.03 To declare that failure to comply with the provisions of this Rule will be deemed an unfair method of

competition and an unfair trade practice.

002.04 This Rule is issued for the purpose of defining certain minimum standards which, if violated, would

constitute a violation of NEB. REV. STAT. § 44-1525.

003. Scope. Unless otherwise specifically included, this regulation shall not apply to transactions involving:

003.01 Credit life insurance;

003.02 Group life insurance or group annuities where there is no direct solicitation of individuals by an insurance

producer. Direct solicitation shall not include any group meeting held by an insurance producer solely for the

purpose of educating or enrolling individuals or, when initiated by an individual member of the group, assisting with

the selection of investment options offered by a single insurer in connection with enrolling that individual. Group life

insurance or group annuity certificates marketed through direct response solicitation shall be subject to the

provisions of Section 011;

003.03 Group life insurance and annuities used to fund prearranged funeral contracts;

003.04 An application to the existing insurer that issued the existing policy or contract when a contractual change or

a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same

insurer pursuant to a program filed with and approved by the director; or, when a term conversion privilege is

exercised among corporate affiliates;

003.05 Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the

same company;

003.06

003.06A Policies or contracts used to fund (i) an employee pension or welfare benefit plan that is covered by

the Employee Retirement and Income Security Act (ERISA); (ii) a plan described by Sections 401(a), 401(k) or

403(b) of the Internal Revenue Code; where the plan, for purposes of ERISA, is established or maintained by

an employer; (iii) a governmental or church plan defined in Section 414, a governmental or church welfare

benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under

Section 457 of the Internal Revenue Code; or (iv) a nonqualified deferred compensation arrangement

established or maintained by an employer or plan sponsor.

003.06B Notwithstanding Subparagraph (A), this regulation shall apply to policies or contracts used to fund any

plan or arrangement that is funded solely by contributions an employee elects to make, whether on a pre-tax or

after-tax basis, and where the insurer has been notified that plan participants may choose from among two (2)

or more insurers and there is a direct solicitation of an individual employee by an insurance producer for the

purchase of a contract or policy. As used in this subsection, direct solicitation shall not include any group

meeting held by an insurance producer solely for the purpose of educating individuals about the plan or

arrangement or enrolling individuals in the plan or arrangement or, when initiated by an individual employee,

assisting with the selection of investment options offered by a single insurer in connection with enrolling that

individual employee;

003.07 Where new coverage is provided under a life insurance policy or contract and the cost is borne wholly by

the insureds employer or by an association of which the insured is a member;

003.08 Existing life insurance that is a non-convertible term life insurance policy that will expire in five (5) years or

less and cannot be renewed;

003.09 Immediate annuities that are purchased with proceeds from an existing contract. Immediate annuities

purchased with proceeds from an existing life policy are not exempted from the requirements of this rule; or

003.10 Structured settlements. Registered contracts shall be exempt from the requirements of Subsection(s)

009.01B and 010.01B with respect to the provision of illustrations or policy summaries; however, premium or

contract contribution amounts and identification or the appropriate prospectus or offering circular shall be required

instead.

004. Definition of replacement. "Replacement" means any transaction in which a new policy or contract is to be

purchased, and it is known or should be known to the proposing producer, or to the proposing insurer if there is no

producer, that by reason of the transaction, an existing policy or contract has been or is to be:

004.01 Lapsed, forfeited, surrendered, or partially surrendered, assigned to the replacing insurer or otherwise

terminated;

004.02 Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in

value by the use of nonforfeiture benefits or other policy values;

004.03 Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise

remain in force or for which benefits would be paid;

004.04 Reissued with any reduction in cash value; or

004.05 Used in a financed purchase.

005. Other definitions.

005.01 Direct-response solicitation means a solicitation through a sponsoring or endorsing entity or individually

solely through mails, telephone, the Internet or other mass communication media.

005.02 "Existing Insurer" means the insurance company whose policy or contract is or will be changed or affected

in a manner described within the definition of "replacement."

005.03 Existing policy or contract means an individual life insurance policy (policy) or annuity contract (contract) in

force, including a policy under a binding or conditional receipt or a policy or contract that is within an unconditional

refund period.

005.04 Financed purchase means the purchase of a new policy involving the actual or intended use of funds

obtained by the withdrawal or surrender of, or by borrowing from values of an existing policy to pay all or part of any

premium due on the new policy. For purposes of a regulatory review of an individual transaction only, if a

withdrawal, surrender or borrowing involving the policy values of an existing policy is used to pay premiums on a

new policy owned by the same policyholder and issued by the same company within four (4) months before or

thirteen (13) months after the effective date of the new policy, it will be deemed prima facie evidence of the

policyholders intent to finance the purchase of the new policy with existing policy values. This prima facie standard

is not intended to increase or decrease the monitoring obligations contained in Subsection 008.01E of this

regulation.

005.05 Illustration means a presentation or depiction that includes non-guaranteed elements of a policy of life

insurance over period of years as defined in 210 NEB. ADMIN. R. & REG. 72.

005.06 Policy summary, for purposes of this rule;

005.06A For policies or contracts other than universal life policies, means a written statement regarding a policy

or contract which shall contain to the extent applicable, but not need to be limited to, the following information:

005.06A(i) current death benefit;

005.06A(ii) annual contract premium;

005.06A(iii) current cash surrender value;

005.06A(iv) current dividend;

005.06A(v) application of current dividend; and

005.06A(vi) amount of outstanding loan.

005.06B For universal life policies, means a written statement that shall contain at least the following

information:

005.06B(i) the beginning and end date of the current report period;

005.06B(ii) the policy value at the end of the previous report period and at the end of the current report

period;

005.06B(iii) the total amounts that have been credited or debited to the policy value during the current

report period, identifying each by type (e.g., interest, mortality, expense and riders);

005.06B(iv) the current death benefit at the end of the current report period on each life covered by the

policy;

005.06B(v) the net cash surrender value of the policy as of the end of the current report period; and

005.06B(vi) the amount of outstanding loans, if any, as of the end of the current report period.

005.07 Producer, for the purpose of this regulation, shall be defined to include agents, brokers and producers.

005.08 "Replacing Insurer" means the insurance company that issues or proposes to issue a new policy or contract

that replaces an existing policy or contract or is a financed purchase.

005.09 Registered Contract means a variable annuity contract or variable life insurance policy subject to the

prospectus delivery requirements of the Securities Act of 1933.

005.10 Sales material means a sales illustration and any other written, printed or electronically presented

information created, completed, or provided by the company or producer and used in the presentation to the policy

or contract owner related to the policy or contract purchased.

006. Duties of Producers

006.01 A producer who initiates the application shall submit to the insurer, with or as part of the application a

statement signed by both the applicant and the producer as to whether the applicant has existing policies or

contracts. If the answer is no, the producers duties with respect to the replacement is complete.

006.02 If the applicant answered yes to the question regarding existing coverage referred to in Subsection 006.01,

the producer shall present and read to the applicant, not later than at the time of taking the application, a notice

regarding replacements in the form as described in Appendix A or other substantially similar form approved by the

director of the Department of Insurance or the directors designee. However, no approval shall be required when

amendments to the notice are limited to the omission of references not applicable to the product being sold or

replaced. The notice shall be signed by both the applicant and the producer attesting that the notice has been read

aloud by the producer or that the applicant did not wish the notice to be read aloud (in which case the producer

need not have read the notice aloud) and left with the applicant.

006.03 The notice shall list all life insurance policies or annuities proposed to be replaced, properly identified by

name of insurer, the insured or annuitant, and policy or contract number if available, and shall include a statement

as to whether each policy or contract will be replaced or whether a policy will be used as a source of financing for

the new policy or contract. If a policy or contract number has not been issued by the existing insurer, alternative

identification, such as an application or receipt number, shall be listed.

006.04 In connection with a replacement transaction, the producer shall leave with the applicant, at the time an

application for the new policy or contract is completed, the original or a copy or all sales material. With respect to

electronically presented sales material, it shall be provided to the policy or contract owner in printed form no later

than at the time of policy or contract delivery.

006.05 Except as provided in Subsection 009.03, in connection with a replacement transaction the producer shall

submit to the insurer to which an application for a policy or contract is presented, a copy of each document required

by this section, a statement identifying any preprinted or electronically presented company approved sales

materials used, and copies of any individual sales material, including any illustrations related to the specific policy

or contract purchased.

007. Duties of all insurers. Each insurer shall:

007.01 Inform its field representatives or other personnel responsible for compliance with this Rule of the

requirements of this Rule.

008. Duties of Insurers that use Producers. Each insurer shall:

008.01 Maintain a system of supervision and control to ensure compliance with the requirements of this regulation

that shall include at least the following:

008.01A Inform its producers of the requirements of this regulation and incorporate the requirements of this

regulation into all relevant producer training manuals prepared by the insurer;

008.01B Provide to each producer a written statement of the company’s position with respect to the

acceptability of replacements providing guidance to its producer as to the appropriateness of these

transactions;

008.01C A system to review the appropriateness of each replacement transaction that the producer does not

indicate is in accord with Subsection 008.01B above;

008.01D Procedures to confirm that the requirements of this regulation have been met; and

008.01E Procedures to detect transactions that are replacements of existing policies or contracts by the

existing insurer, but that have not been reported as such by the applicant or producer. Compliance with this

regulation may include, but shall not be limited to, systematic customer surveys, interviews, confirmation letters,

or programs of internal monitoring;

008.02 Have the capacity to monitor each producer’s life insurance policy and annuity contract replacements for

that insurer, and shall produce, upon request, and make such records available to the Insurance Department. The

capacity to monitor shall include the ability to produce records for each producer’s:

008.02A Life replacements, including financed purchases, as a percentage of the producer’s total annual sales

for life insurance;

008.02B Number of lapses of policies by the producer as a percentage of the producer’s total annual sales for

life insurance;

008.02C Annuity contract replacements as a percentage of the producer’s total annual annuity contract sales;

008.02D Number of transactions that are unreported replacements of existing policies or contracts by the

existing insurer detected by the company’s monitoring system as required by Subsection 008.01E of this

section; and

008.02E Replacements, indexed by replacing producer and existing insurer;

008.03 Require with or as a part of each application for life insurance or an annuity a signed statement by both the

applicant and the producer as to whether the applicant has existing policies or contracts;

008.04 Require with each application for life insurance or an annuity that indicates an existing policy or contract a

completed notice regarding replacements as contained in Appendix A;

008.05 Shall be able to produce copies of any sales material required by Subsection 006.05, when the applicant

has existing policies or contracts, the basic illustration and any supplemental illustrations related to the specific

policy or contract that is purchased, and the producer’s and applicant’s signed statements with respect to financing

and replacement for at least five (5) years after the termination or expiration of the proposed policy or contract;

008.06 Ascertain that the sales material and illustrations required by Subsection 006.05 of this regulation meet the

requirements of this regulation and are complete and accurate for the proposed policy or contract;

008.07 Notify the producer and applicant and fulfill the outstanding requirements if an application does not meet the

requirements of this regulation; and

008.08 Maintain records in paper, photograph, microprocess, magnetic, mechanical or electronic media or by any

process that accurately reproduces the actual document.

009. Duties of Replacing Insurers that Use Producers

009.01 Where a replacement is involved in the transaction, the replacing insurer shall:

009.01A Verify that the required forms are received and are in compliance with this rule;

009.01B Notify any other existing insurer that may be affected by the proposed replacement within five (5)

business days of receipt of a completed application indicating replacement or when the replacement is

identified if not indicated on the application, and mail a copy of the available illustration or policy summary for

the proposed policy or available disclosure document for the proposed contract within five (5) business days of

a request from an existing insurer;

009.01C Be able to produce copies of the notification regarding replacement required in Subsection 006.02,

indexed by producer, for at least five (5) years or until the next regular examination by the insurance

department of a company’s state of domicile, whichever is later; and

009.01D Provide to the policy or contract owner notice of the right to return the policy or contract within thirty

(30) days of the delivery of the contract and receive an unconditional full refund of all premiums or

considerations paid on it, including any policy fees or charges or, in the case of a variable or market value

adjustment policy or contract, a payment of the cash surrender value provided under the policy or contract plus

the fees and other charges deducted from the gross premiums or considerations or imposed under such policy

or contract; such notice may be included in Appendix A or C.

009.02 In transactions where the replacing insurer and the existing insurer are the same or subsidiaries or affiliates

under common ownership or control, allow credit for the period of time that has elapsed under the replaced policy’s

or contract’s incontestability and suicide period up to the face amount of the existing policy or contract. With regard

to financed purchases, the credit may be limited to the amount the face amount of the existing policy is reduced by

the use of existing policy values to fund the new policy or contract.

009.03 If an insurer prohibits the use of sales material other than that approved by the company, as an alternative

to the requirements made of an insurer pursuant to Subsection 006.05, the insurer may:

009.03A Require with each application a statement signed by the producer that:

009.03A(i) Represents that the producer used only company-approved sales material; and

009.03A(ii) States that copies of all sales material were left with the applicant in accordance with

Subsection 006.04; and

009.03B Within ten (10) days of the issuance of the policy or contract:

009.03B(i) Notify the applicant by sending a letter or by verbal communication with the applicant by a

person whose duties are separate from the marketing area of the insurer, that the producer has

represented that copies of all sales material have been left with the applicant in accordance with

Subsection 006.04;

009.03B(ii) Provide the applicant with a toll free number to contact company personnel involved in the

compliance function if such is not the case; and

009.03B(iii) Stress the importance of retaining copies of the sales material for future reference; and

009.03C Be able to produce a copy of the letter or other verification in the policy file for at least five (5) years

after the termination or expiration of the policy or contract.

Section 10. Duties of the Existing Insurer

010.01 Where a replacement is involved in the transaction, the existing insurer shall:

010.01A Retain and be able to produce all replacement notifications received, indexed by replacing insurer, for

at least five (5) years or until the conclusion of the next regular examination conducted by the Insurance

Department of its state of domicile, whichever is later.

010.01B Send a letter to the policy or contract owner of the right to receive information regarding the existing

policy or contract values including, if available, an in force illustration or policy summary if an in force illustration

cannot be produced within five (5) business days of receipt of a notice that an existing policy or contract is

being replaced. The information shall be provided within five (5) business days of receipt of the request from

the policy or contract owner.

010.01C Upon receipt of a request to borrow, surrender or withdraw any policy values, send a notice, advising

the policy owner that the release of policy values may affect the guaranteed elements, non-guaranteed

elements, face amount or surrender value of the policy from which the values are released. The notice shall be

sent separate from the check if the check is sent to anyone other than the policy owner. In the case of

consecutive automatic premium loans, the insurer is only required to send the notice at the time of the first

loan.

011. Duties of Insurers with Respect to Direct Response Solicitations

011.01 In the case of an application that is initiated as a result of a direct response solicitation, the insurer shall

require with or as part of each completed application for a policy or contract, a statement asking whether the

applicant, by applying for the proposed policy or contract, intends to replace, discontinue or change an existing

policy or contract. If the applicant indicates a replacement or change is not intended or if the applicant fails to

respond to the statement, the insurer shall send the applicant, with the policy or contract, a notice regarding

replacement in Appendix B, or other substantially similar form approved by the director.

011.02 If the insurer has proposed the replacement or if the applicant indicates a replacement is intended and the

insurer continues with the replacement, the insurer shall:

011.02AProvide to applicants or prospective applicants with the policy or contract a notice, as described in

Appendix C, or other substantially similar form approved by the director. In these instances the insurer may

delete the references to the producer, including the producer’s signature, and references not applicable to the

product being sold or replaced, without having to obtain approval of the form from the director. The insurer’s

obligation to obtain the applicant’s signature shall be satisfied if it can demonstrate that it has made a diligent

effort to secure a signed copy of the notice referred to in this paragraph. The requirement to make a diligent

effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope

with instructions for the return of the signed notice referred to in this section; and

011.02B Comply with the requirements of Subsection 009.01B, if the applicant furnishes the names of the

existing insurers, and the requirements of Subsections 009.01C, 009.01D and 009.02.

012. Violations and Penalties

012.01 Any failure to comply with this regulation shall be considered a violation of the Nebraska Unfair Insurance

Trade Practices as set forth in NEB. REV. STAT. §§ 44-1521 to 44-1535. Examples of violations include, but are not

limited to:

012.01AAny deceptive or misleading information set forth in sales material;

012.01B Failing to ask the applicant in completing the application the pertinent questions regarding the

possibility of financing or replacement;

012.01C The intentional incorrect recording of an answer;

012.01D Advising an applicant to respond negatively to any question regarding replacement in order to prevent

notice to the existing insurer; or

012.01E Advising a policy or contract owner to write directly to the company in such a way as to attempt to

obscure the identity of the replacing producer or company.

012.02 Policy and contract owners have the right to replace existing life insurance policies or annuity contracts after

indicating in or as a part of applications for new coverage that replacement is not their intention; however, patterns

of such action by policy or contract owners of the same producer shall be deemed prima facie evidence of the

producer’s knowledge that replacement was intended in connection with the identified transactions, and these

patterns of action shall be deemed prima facie evidence of the producer’s intent to violate this rule.

012.03 Where it is determined that the requirements of this rule have not been met the replacing insurer shall

provide to the policy owner an in force illustration if available or policy summary for the replacement policy or

available disclosure document for the replacement contract and the appropriate notice regarding replacements in

Appendix A or C.

012.04 This rule does not prohibit the use of additional material, other than that which is required, that is not in

violation of this Rule or any other statute or regulation.

012.05 Any insurer, producer, or representative, officer, employee of such insurer failing to comply with the

requirements of this Rule shall be subject to the penalties of NEB. REV. STAT. § 44-1529.

013. Severability. If any provision of this regulation is for any reason held to be invalid, the remainder of the regulation

shall not be affected thereby.

014. Effective Date. This Amended Rule shall become operative on October 1, 2008.