Law & Ethics Update

Þ Accumulate the guaranteed amount payable at death, regardless of the cause of death, at the beginning of each policy year for 10 and 20 years at 5 percent interest compounded annually to the end of the 10th and 20th policy years respectively.

Þ Divide each accumulation 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 one over the respective periods stipulated in step one. 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 descriptive of the premium and benefit patterns of a policy or a rider.

· Life insurance surrender cost index is calculated by applying the following steps:

1. Determine the guaranteed cash surrender value, if any, available at the end of the 10th and the end of the 20th policy years.

2. For participating policies, add the terminal dividend payable upon surrender, if any, to the accumulation of the annual cash dividends at 5 percent interest compounded annually to the end of the period selected and add this sum to the amount determined in step one.

3. Divide the result of step two (step one 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 two (step one for guaranteed-cost policies) over the respective periods stipulated in step one. If the period is 10 years, the factor is 13.207; and if the period is 20 years, the factor is 34.719.

4. Determine the equivalent level premium by accumulating each annual premium payable for the basic policy or rider at 5 percent interest compounded annually to the end of the period stipulated in step one and dividing the result by the respective factors stated in step three (this amount is the annual premium payable for a level premium plan).

5. Subtract the result of step 3 from step 4.

6. Divide the result of step 5 by the number of thousands of the equivalent level death benefit to arrive at the life insurance surrender cost index.

· 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.


· Policy summary is a written statement describing the elements of the  policy, including:

o A prominently placed title as follows:  STATEMENT OF POLICY COST AND BENEFIT INFORMATION;

o 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;

o The full name and home office or administrative office address of the company in which the life insurance policy is or has been written;

o The generic name of the basic policy and each rider;

The following amounts, when applicable, for the first five policy years and representative policy years thereafter, sufficient to clearly illustrate the premium and benefit patterns, including the years for which life insurance cost indexes are displayed and at least one age from 60 through 65, or maturity of the policy, whichever is earlier:

· The annual premium for the basic policy;

· The annual premium for each optional rider;

· The guaranteed amount payable on 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;

· The total guaranteed cash surrender values at the end of the year, with values shown separately for the basic policy and each rider;

· The 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 20th policy year); and

· The guaranteed endowment amounts payable under the policy, not included under guaranteed cash surrender values indicated above;

· The effective policy loan annual percentage interest rate, if the policy contains this provision, must specify whether this rate is applied in advance or in arrears. If the policy loan interest rate is variable, the policy summary must include the maximum annual percentage rate;

· Life insurance cost indexes for 10 and 20 years, but in no case beyond the premium-paying period. Separate indexes must be displayed for the basic policy and for each optional term life insurance rider.

· An illustration showing 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;

· For a policy summary that includes dividends, 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”;

· 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”; and

· The date on which the policy summary is prepared. The policy summary has to be a separate document. All information required to be disclosed must be set out in such a manner as not to minimize the effect of any portion of the policy or to render any portion obscure.

· Any amounts, which remain level for a single number, may represent two or more years of the policy if it is clearly indicated what amounts are applicable for each policy year. Amounts in fifth bullet point must 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, guaranteed death benefits will not be displayed separately for each insured or for each class of insureds, if death benefits do not differ within the class.

· Zero amounts are displayed as zero and not a blank space.



General Rules Relating to Solicitation §626.99(5)

Insurers subject to Unfair Methods of Competition and Unfair or Deceptive Acts must maintain, at its home or principal office, a complete file containing one copy of each document authorized by the insurer. The file must contain one copy of each authorized form for a period of three years following the date of its last authorized use. 


· An agent is required to inform the prospective purchaser, prior to commencing a life insurance sales presentation, that the agent is acting as a life insurance agent and will inform the prospective purchaser of the full name of the insurance company the agent is representing. In sales situations in which an agent is not involved, the insurer must identify its full name.

· Terms such as financial planner, investment adviser, financial consultant, or financial counseling are not to be used in any way that implies the insurance agent is generally engaged in an advisory business in which compensation is unrelated to sales unless this is actually the case.

· Any reference to policy dividends must include a statement that dividends are not guaranteed.

· A system or presentation that does not recognize the time value of money through the use of appropriate interest adjustments cannot 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 it is accompanied by a statement disclosing that the presentation does not recognize that, due to interest, a dollar in the future has less value than a dollar today.

· A presentation of benefits cannot display guaranteed and nonguaranteed benefits as a single sum unless they are shown separately in close proximity to one another.

· A statement regarding the use of the life insurance cost indexes must 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.

· A life insurance cost index that reflects dividends or, in the alternative, an equivalent level annual dividend, must accompany a statement that it is based on the insurer’s current dividend scale and is not guaranteed.

· The annual premium for a basic policy or rider (as used in this section), for which the insurer reserves the right to change the premium, will be the maximum annual premium.

· If a replacement policy is proposed by an insurer to a prospective purchaser that would be issued in any rating class other than the most favorable for a person of the same age and gender, the replacing insurer must provide to the prospective purchaser, any disclosure and rate comparisons required by law in insurance replacement transactions.

· If an appropriately licensed agent proposes to replace a life insurance policy or an in-force annuity with a registered securities product, pre-application notice requirements do not apply.


Adoption of Buyer’s Guide; Requirements §626.99(6)

Any insurer soliciting life insurance in Florida must adopt and use a Buyer’s Guide. Adoption and use of the Buyer’s Guide of the NAIC Life Insurance Disclosure Model Regulation is in compliance with these requirements.

Failure to Comply §626.99(7)

The failure of an insurer to provide or deliver a Buyer’s Guide or a policy summary constitutes an omission, which misrepresents the benefits, advantages, conditions, or terms of an insurance policy.



Disability insurance; discrimination on basis of sickle-cell trait prohibited.

No insurer authorized to transact insurance in this state shall refuse to issue and deliver in this state any disability insurance policy, for delivery in this state and which affords benefits and coverage for any medical treatment or service solely because the person to be insured has the sickle-cell trait. No disability insurance policy issued or delivered in this state shall carry a higher premium rate or charge solely because the person to be insured has the sickle-cell trait. [Source: 626.9707]



Understanding Required Premium Discounts


When was the last time you saw a coupon for an insurance company? You haven’t. You won’t. Rates are set by each state, but there are premium discounts available. Applying these discounts to insureds not meeting the requirements is fraud.

Insureds pay their premiums for the risk taken by the insurer. Not all insureds pose the same risks to insurer. Those who are a greater risk, pay a greater premium. Those who are a lower risk receive premium discounts and pay a lower premium. In essence, premiums are calculated according to how big of a risk the insurer is taking based on the likelihood it will pay a claim. Low risk customers pay premiums based on the “discounts” awarded according to exams or answers to questionnaires completed by customers.


Let’s look at two potential customers: Elizabeth and Barbara.






















From the get-go we know Elizabeth is the lower risk. She leads a sedentary lifestyle, deduced by her work environment, exercise, not smoking or drinking, scheduling healthcare appointments regularly, carries no points on her license and hasn’t had a motor vehicle accident for 17 years, at which she was not at fault.

Barbara: Oh Barbara!  Being a tomboy isn’t high risk. Skydiving, bungee jumping, drinking daily, smoking, drunk driving on her pocket rocket, bad eating habits and insomnia despite a job that has her on the road all day and unloading her truck (which can result in injuries now and as she ages). So, while “tomboy” is ok, “thrill seeking” is risky, as is her lifestyle.











Regardless of whether you’re writing health or life policies, Elizabeth’s premium is going to be less for the same coverage. The only similarity will be in mortality tables, which will provide the same life expectancy; however, the information you gather will not.
Average life expectancy aside; the reality is Elizabeth is more likely to live to the expected age. She is a low risk customer, to which premium discounts will apply; thus, Elizabeth will pay a smaller premium for her coverage.


If customers all paid the same premiums, it would be like an all-you-can eat buffet: You hope for light eaters to make up for the big eaters and break even, right? Wrong. The hope is to make a profit from the buffet. If there are more heavy eaters than light, the restaurant probably would not offer all-you-can eat, because they need to make a profit.  It’s a business. Like insurance – a profit needs to be made to stay in business. Low risk customers pay lower, discounted premiums, while high-risk customers will pay the premium rates without discounts applied.
Customers answering the way they think you want them to answer (rather than being truthful) and are not honest in their answers are committing fraud. Completing a questionnaire without speaking with the customer is not possible. Face-to-face is best. Completing forms you
think you know the answers to could cause you to record fraudulent replies. If you’re writing for a friend and you know he doesn’t wear a seatbelt (but answers “yes”), or if he asks you to put “non-smoker” because he plans on quitting, Excuse yourself, throw a little water on your face and remember: This is your career, not a sarcastic, jovial conversation while play Major League Baseball on PS4! Besides, a friend wouldn’t ask you to put your job on the line, right?



Disciplinary and Industry Trends


Recent Violations and Enforcement Actions of Licensed Florida Insurance Professionals


Not everyone feels compelled to follow the rules. Whether desperate, hopeless, greedy, or simply believing the rules don’t apply to you … or at least the way you conduct business. Here’s the thing: There are a boatload of people, from our CFO, to dissatisfied customers, to our Strike Force, with which you don’t want to conduct business regarding the enforcement of violations against you. The following are cases from the DFS, Miami and Tallahassee newspapers. Names have been altered and brevity used, but these real cases should discourage you from dancing with the devil.


The following are instances in which licensees or other persons violated the Florida Insurance Code and the administrative action the department has taken against them. Note: All administrative investigations are subject to referral to the Division of Investigative and Forensic Services for criminal investigation.

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Walks 4-5 miles/day

No regime - admits to good intentions

5'7" and weighs 145

5'3" and weighs 145

Chose an HMO for its preventative care

Covered by her ex-husband via COBRA

Wears her seatbelt

Drives a vintage care without seatbelts

Drives 7 miles round trip to work

Drives a semi-truck statewide

Her last MVA was 17 years ago when someone ran a red light and t-boned her passenger side.

No "real" MVAs - none that prevented her from doing the restoration on her vintage caddy by herself.

Work environment is a cubicle

Works requires unloading transported product


Smokes: 1 to 2 packs per day while driving

Married 25 years; 2 grown children

Single; Divorced; Twice

Sleeps about 7-8 hours

Sleeps little, suffers insomnia

Points on License - none

Point on License - not sure which still show up

Elizabeth is a healthy, 47-year old who loves gardening, reading and golfing in the women's golf league. She gets her teeth cleaned twice/year, has a physical once/year and eye exam every two years. She enjoys a good glass of wine if friends stop by but otherwise carries her water bottle everywhere. Lisa cans the surplus from her garden and, truly, makes the best dill pickles EVER, which have won blue ribbons at the last several county fairs.

Barbara is a 47-year old thrill seeker who loves bungee jumping, walking bridges and skydiving. She bores easily and the last time she saw a doctor was for a broken wrist (bad landing). She loves to throw a few back after a day on the road at the local bar and depending on the time, will get a burger or pizza while she's there. She keeps a street licensed, pocket rocket in her truck, to drive home if she's had a few too many.