31 Pa. Code § 87.13 - Modified premium life insurance policies

(a) Description of modified premium life products. Modified premium life products shall conform with the following:

(1) Modified premium term insurance is a contract of insurance which involves the payment of an additional first-year premium which is returned to the policyholder at the end of a selected period of years, usually 8 or 10, increased by both interest and forfeitures of those who terminate their contracts during the term period.

(2) Modified premium whole life is similar to modified premium term insurance except that the term insurance benefit is converted to a whole life plan at attained age. This conversion to whole life coverage may be automatic or elected or the coverage period may be continuous. In some policies, the increased additional premium benefit is not paid out in cash upon conversion to whole life. After the conversion, the nonforfeiture values of the whole life policy may or may not be augmented by the value of this additional premium. Some converted policies provide nonforfeiture values which progress so that the additional premium gradually disappears over the life of the policy. Some modified premium whole life policies offer the policyholder the option to "roll over" the value and start a new modified premium whole life policy instead of continuing on the original contract. In this case and depending upon the policy design, some or all of the augmented premium from the original coverage is used as the initial large premium for the new coverage; thus, it is possible for a modified premium whole life insurance policy to be rolled over several times so that it in effect becomes a series of renewable modified premium life insurance policies.

(3) Another life insurance product which is similar to a modified premium life product and is determined by the Insurance Commissioner to be a modified premium life product will be subject to the requirements of this chapter.

(b) Explanation. To avoid possibilities of misunderstanding of the nature of modified premium life products, the products shall be carefully sold and fully explained. This section sets forth minimum disclosure requirements; also, this section sets forth minimum nonforfeiture requirements for modified premium life products.

(c) Minimum disclosure requirements for modified premium life products. Minimum disclosure requirements for modified premium life products shall conform with the following:

(1) Advertisements, sales materials and sales presentations of modified premium life products which fail to fully and fairly inform an applicant or prospective insured as to future premium changes, benefits and related options constitute a misrepresentation as to material facts. Misleading statements or questions may not be made in defining or comparing other types of life insurance products; furthermore, comparison used in solicitations shall be accurate, fair and complete.

(2) A disclosure shall be included in conspicuous print on the first page or specifications page of the policy indicating that, if the policy is terminated prior to a certain policy year, all or a portion of the additional first-year premium will be forfeited.

(3) If the policy contains a provision permitting voluntary additional deposits as provided for by Chapter 86 (relating to premium and retirement deposit funds), the nature thereof shall be disclosed. The disclosure shall distinguish the deposit provision and the rights of the insured thereunder from the additional first-year premium.

(4) If an annuity policy or rider is solicited in connection with a modified premium life product, the following requirements apply:

(i) The nature of the annuity coverage shall be disclosed. The disclosure shall distinguish the annuity coverage and the rights of the annuitant thereunder from the additional first-year premium.

(ii) If provided by a policy, the annuity coverage shall provide annuity benefits which are available under annuity policies generally offered by the insurer; if provided by a rider, the rider shall provide annuity benefits which are available under annuity riders generally offered by the insurer.

(iii) The continuation of the annuity coverage shall be independent of the continuation of the modified premium life product. If the annuity coverage is provided by a rider, the rider shall contain a right of conversion to an annuity policy which, at the option of the insured, provides benefits that are no less favorable than those contained in the converted annuity rider.

(iv) An illustrative disclosure concerning the annuity coverage shall be based on the guaranteed interest rate or rates provided by the annuity policy or rider. Excess interest payments provided by the annuity policy or rider can be illustrated separately but only in addition to the guaranteed rate illustration.

(5) The term "deposit" may not be used in referring to the additional first-year premium.

(6) A disclosure form shall be given to every prospective purchaser of a modified premium life product no later than the time the application form is signed by the applicant. The disclosure form shall be in addition to but can be included in the disclosure statement required by Chapter 83 (relating to disclosures in solicitation of life insurance). The form shall contain amounts pertaining to the specific case and shall show the following amounts for each of the first 20 policy years and representative policy years thereafter sufficient to clearly illustrate the premium and benefit patterns. The disclosure form must also contain the following:

(i) The amount of the annual premium payable for the modified premium life policy, each insurance rider and annuity policy or rider, with the premium amount for each shown separately.

(ii) The guaranteed amounts payable upon death at the end of the policy year as provided by the modified premium life policy, each insurance rider and annuity policy or rider, with the amount for each shown separately.

(iii) The guaranteed cash surrender values at the end of the year of the modified premium life policy, each insurance rider and annuity policy or rider, with values for each shown separately. A guaranteed endowment amount provided by the modified premium life policy may not be included in the illustrated cash values.

(iv) The cash dividends payable at the end of the policy year as provided by the modified premium life policy, each insurance rider and annuity policy or rider, with the amount for each shown separately. Dividends need not be illustrated beyond the 20th policy year.

(v) A guaranteed endowment amount payable under the modified premium life policy.

(7) If the modified premium life policy provides for policy change options, the nature of each option shall be disclosed. The disclosure shall set forth a reasonably complete explanation of the options, including the guaranteed premium rates and insurance benefits. This disclosure shall be provided to the prospective purchaser no later than the time the application form is signed by the applicant and can be included in the disclosure statement required by Chapter 83.

(8) In the case of replacement situations, the premium changes and policy change options shall be fully disclosed to the prospective purchaser. This disclosure can be included in the replacement statement required by Chapter 81 (relating to replacement of life insurance and annuities). In addition, a copy of the disclosure statement required by paragraph (6) shall be furnished to the replaced company on request.

(d) Certifications and maintenance of disclosure form delivery. Certifications and maintenance of disclosure form delivery shall conform with the following:

(1) The agent or representative shall submit to the insurer with or as a part of the insurance application a statement, signed by him, certifying that the written disclosure form was given no later than the time that the application was signed by the applicant.

(2) The insurer shall maintain the agent or representative's certification of disclosure-form delivery in its appropriate files for at least 3 years or until the conclusion of the next succeeding regular examination by the Insurance Department of its domicile, whichever is later. The absence of the certification from the appropriate files of the insurer shall constitute prima facie evidence that no disclosure form was provided to the applicant of a modified premium life policy.

(e) Minimum nonforfeiture requirements for modified premium life products. Minimum nonforfeiture requirements for modified premium life products shall conform with the following:

(1) In the case of modified premium term insurance, nonforfeiture values shall be at least as great as those calculated by applying section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1) to the policy. The present value of the future guaranteed benefits used in the calculation of the adjusted premiums for the policy shall be equal to: to present value, at the date of issue of the policy, of the sum of the guaranteed term insurance benefits provided for by the policy up to the end of the term period plus the pure endowment benefit provided for by the policy at the end of the term period.

(2) In the case of modified premium whole life insurance, minimum nonforfeiture value requirements shall be determined by applying section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1) separately to the term coverage period and the whole life coverage period. If a pure endowment is not paid out in cash to the policyholder upon conversion to whole life insurance, minimum nonforfeiture values for the whole life insurance policy may be not less than those computed under section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1) for the whole life insurance coverage plus the value of the pure endowment benefit accumulated at a rate of interest specified in the policy for accumulating that benefit.

(3) In the case of modified premium life products which differ from those described in subsection (a)(1) and (2), the procedures for determining minimum nonforfeiture value requirements under this subsection shall be consistent with the requirements of paragraphs (1) and (2) and the intent of section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1).

(4) In no event may the calculation procedures set forth in this subsection be construed as permitting a nonforfeiture value lower than those which would otherwise be required in the absence of this subsection.

(f) Fraternal benefit societies. This section applies to fraternal benefit societies authorized to transact the business of life insurance in this Commonwealth.

(g) Compliance. Only those modified premium life insurance policies which are in complete compliance with the requirements of this subchapter may be sold and issued in this Commonwealth.

(h) Penalties. Failure to comply with this section will subject the violator to penalties prescribed by section 354 of The Insurance Company Law of 1921 (40 P. S. § 477b) and other statutes and regulations which apply.

Notes

31 Pa. Code § 87.13

The provisions of this § 87.13 adopted August 6, 1971, 1 Pa.B. 1619; amended December 28, 1979, effective 2/27/1980, 9 Pa.B. 4251.