TITLE 13 INSURANCE
CHAPTER 9 LIFE INSURANCE AND ANNUITIES
PART 5 LIFE INSURANCE DISCLOSURE
13.9.5.1 ISSUING AGENCY: New Mexico Public Regulation Commission, Insurance Division.
[13.9.5.1 NMAC - Rp 13 NMAC 9.5.1, 12-31-03]
13.9.5.2 SCOPE:
A. This rule applies to:
(1) any solicitation, negotiation or procurement of life insurance occurring within this state;
(2) any issuer of life insurance contracts including fraternal benefit societies.
B. Unless specifically included, this rule shall not apply to:
(1) annuities;
(2) credit life insurance;
(3) group life insurance (except for disclosures relating to preneed funeral contracts or prearrangements as provided in this rule; these disclosure requirements shall extend to the issuance or delivery of certificates as well as to the master policy);
(4) 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), 29 U.S.C. Section 1001 et seq. as amended; or
(5) variable life insurance under which the amount or duration of the life insurance varies according to the investment experience of a separate account.
[13.9.5.2 NMAC - Rp 13 NMAC 9.5.2, 1-1-04]
13.9.5.3 STATUTORY AUTHORITY: Sections 59A-2-8, 59A-2-9, 59A-16-4, and 59A-16-5 NMSA 1978.
[13.9.5.3 NMAC - Rp 13 NMAC 9.5.3, 1-1-04]
13.9.5.4 DURATION: Permanent.
[13.9.5.4 NMAC - Rp 13 NMAC 9.5.4, 1-1-04]
13.9.5.5 EFFECTIVE DATE: 1-1-04, unless a later date is cited at the end of a section.
[13.9.5.5 NMAC - Rp 13 NMAC 9.5.5, 1-1-04]
13.9.5.6 OBJECTIVE: The objective of this rule is to require insurers to deliver to purchasers of life insurance information which will improve the buyer’s ability to select the most appropriate plan of life insurance for the buyer’s needs, improve the buyer’s understanding of the basic features of the policy which has been purchased or which is under consideration and improve the ability of the buyer to evaluate the relative costs of similar plans of insurance. This rule does not prohibit the use of additional material which is not a violation of this rule or any other statute or rule.
[13.9.5.6 NMAC - Rp 13 NMAC 9.5.6, 1-1-04]
13.9.5.7 DEFINITIONS: For the purposes of this rule, the following definitions apply:
A. “buyer’s guide” means the Life Insurance Buyer’s Guide contained in 13.9.5.14 NMAC or other language approved by the superintendent;
B. “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;
C. “generic name” means a short title that is descriptive of the premium and benefit patterns of a policy or a rider;
D. “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 non-guaranteed if any of the underlying non-guaranteed elements are used in its calculation;
E. “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: illustrated annual, other periodic, and terminal dividends; premiums; death benefits; cash surrender values and endowment benefits;
F. “policy summary” means a written statement describing the elements of the policy and meeting the requirements of 13.9.5.8 NMAC; and
G. “preneed funeral contract or prearrangement” means an 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.
[13.9.5.7 NMAC - Rp 13 NMAC 9.5.7, 1-1-04]
13.9.5.8 CONTENTS OF POLICY SUMMARY: Every policy summary shall include at least the following information:
A. The prominently placed title “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 five (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 cost comparison indexes are displayed and the earlier of at least one age from sixty (60) through sixty-five (65) and policy maturity:
(1) the annual premium for the basic policy;
(2) the annual premium for each optional rider;
(3) 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, which is provided by the basic policy and each optional rider; with benefits provided under the basic policy and each rider shown separately;
(4) the total guaranteed cash surrender values at the end of the year with values shown separately for the basic policy and each rider; and
(5) any endowment amounts payable under the policy which 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.
G. The date on which the policy summary is prepared.
[13.9.5.8 NMAC - Rp 13 NMAC 9.5.13, 1-1-04]
13.9.5.9 DUTIES OF INSURERS:
A. The insurer shall provide a buyer’s guide to all prospective purchasers, prior to accepting the applicant’s initial premium or premium deposit. However, if the policy for which the application is made contains an unconditional refund provision for at least ten (10) days, the buyer’s guide may be delivered with the policy or prior to delivery of the policy.
B. 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 the required infoormation set out in a manner that does not minimize or reender any portion of the summary obscure. Any amounts that remain level for two (20 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 Subsection E of 13.9.5.8 NMAC 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 seperately for each insured or for each class of insured if death benefits do not differ within 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 Subsection A of this section.
[13.9.5.9 NMAC - Rp 13 NMAC 9.5.15, 1-1-04]
13.9.5.10 REQUIREMENTS APPLICABLE TO EXISTING POLICIES:
A. Upon request of the policyowner, the insurer shall furnish either policy data or an in force illustration as follows:
(1) For policies issued prior to the effective date of 13.9.14 NMAC, the insurer shall furnish policy data, or, at its option, an in force illustrations meeting the requirements of 13.9.14 NMAC.
(2) For policies issued after the effective date of the illustration rule 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 the rule.
(3) If the policy was issued after the effective date of the illustration rule and declared to be used with an illustration, an in force illustration shall be provided.
(4) Unless otherwise requested, the policy data shall be provided for twenty 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 reasonable fee, not to exceed $20.00, for the preparation of the statement.
B. 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.
C. If the insurer makes a material revision in the terms and conditions under which it will limit its right to change any nonguaranteed factor; it shall, no later than the first policy anniversary following the revision, advise accordingly each affected policy owner residing in this state.
[13.9.5.10 NMAC - Rp 13 NMAC 9.5.17, 1-1-04]
13.9.5.11 PRENEED FUNERAL CONTRACTS OR PREARRANGEMENTS: The following information shall be adequately disclosed at the time an application is made, prior to accepting the applicant’s initial premium or deposit, for a preneed funeral contract or prearrangement that is funded or to be funded by a life insurance policy:
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 on the prearrangement:
(1) of any changes in the life insurance policy including but not limited to, changes in the assignment, beneficiary designation or use of the proceeds;
(2) of any penalties to be incurred by the policyholder as a result of failure to make premium payments;
(3) of 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 if so, the identity of such individuals or entities to whom it is paid.
[13.9.5.11 NMAC - Rp 13. NMAC 9.5.23, 1-1-04]
13.9.5.12 GENERAL RULES:
A. Each insurer shall maintain, at its home office or principal office, a complete file containing one copy of each document authorized and used by the insurer pursuant to this rule. Such file shall contain one copy of each authorized form for a period of three (3) years following the date of its last authorized use unless otherwise provided by this rule.
B. 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 the agent is representing to the buyer. In sales situations in which an agent is not involved, the insurer shall identify its full name.
C. An insurance agent, broker or producer shall not use terms such as “financial planner”, “investment advisor”, “financial consultant”, or “financial counseling” in such a way as to imply that he or she is primarily engaged in an advisory business in which compensation is unrelated to sales unless such is actually the case. This provision is not intended to preclude persons who hold some form of formal recognized financial planning or consultant designation from using this designation even when they are only selling insurance. This provision also is not intended to preclude persons who are members of a recognized trade or professional association having such terms as part of its name from citing membership, providing that aperson citing membership, if authorized only to sell insurance products discloses that fact. This provision does not permit persons to charge an additional fee for services that are customarily associated with solicitation, negotiation or sevicing of policies.
D. Any reference to nonguaranteed elements shall include a statement that such item is not guaranteed and is based on the company’s current scale of nonguaranteed elements (use appropriate term 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 this effect must be included in any reference to nonguaranteed elements. A presentation or depiction of a policy issued after the effective date of 13.9.14 NMAC that includes nonguaranteed elements over a period of years shall be governed by that rule.
[13.9.5.12 NMAC - Rp 13 NMAC 9.5.24, 1-1-04]
13.9.5.13 FAILURE TO COMPLY: Failure of an insurer to provide or deliver a buyer’s guide, a policy summary or policy data as provided in 13.9.5.9 through 13.9.5.10 NMAC shall constitute an omission which misrepresents the benefits, advantages, conditions or terms of an insurance policy.
[13.9.5.13 NMAC - Rp 13 NMAC 9.5.25, 1-1-04]
13.9.5.14 LIFE INSURANCE BUYER’S GUIDE:
[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.
Reprinted by. . .
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 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 would 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 that 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.
[13.9.5.14 NMAC - Rp 13 NMAC 9.5.26, 1-1-04]
HISTORY OF 13.9.5
NMAC:
Pre-NMAC History: The material in this part was derived from that previously filed with the commission of public records - state records center and archives.
INS Rule 80-3, Life Insurance Solicitation Rule, filed 9-12-80.
History of Repealed Material: 13 NMAC 9.5, Life Insurance Disclosure (filed 5-27-97), repealed 12-31-03.
Other History:
INS Rule 80-3, Life Insurance Solicitation Rule, filed 9-12-80, renumbered, reformatted and replaced by 13 NMAC 9.5, Life Insurance Disclosure, effective 7-1-97. 13 NMAC 9.5, Life Insurance Disclosure, filed 5-27-97, was replaced by 13.9.5 NMAC, Life Insurance Disclosure, effective 1-1-04.