Ins 2.01 History
; emerg. am. eff. 6-22-76; am. Register, September, 1976, No. 249
, eff. 10-1-76.
Ins 2.02 Stock life insurance corporations writing participating policies. Ins 2.02(1)
The repeal of the rule previously in effect and the adoption of this rule is for the purpose of revising the formal interpretation of certain statutes consistent with statutes and business methods now in existence. This rule implements and interprets applicable statutes including ss. 601.04
, Stats., and chs. 611
This rule shall apply to stock insurance corporations when transacting the kinds of insurance authorized by s. Ins 6.75 (1) (a)
in the form of participating policies.
(3) Limitation of profits inuring to the benefit of stockholders.
The protection of the interest of the public purchasing participating policies and contracts issued by stock life insurance corporations requires a reasonable limitation of the profits on participating business that shall be made available to stockholders. In consideration of the amount of life insurance customarily transacted in relation to the capital contribution of stockholders and to safeguard the interest of policyholders in this state, no profits on participating policies and contracts in excess of the larger of a) 10% of such profits or b) 50¢ per year per $1,000 of participating life insurance in force at the end of the year shall inure to the benefit of stockholders.
(4) License requirements.
No stock life insurance corporation doing business in this state in which policyholders are entitled to share in the surplus shall be licensed or relicensed to transact business in this state unless the corporation shall file an agreement (evidenced by a resolution of its board of directors or other appropriate body having the power to bind such corporation and its stockholders) to the effect that:
No profits on participating policies and contracts in excess of the larger of 10% of such profits or 50¢ per year per $1,000 of participating life insurance in force at the end of the year shall inure to the benefit of stockholders.
The profits on its participating policies and contracts shall be ascertained annually by allocating to such policies and contracts specific items of gain, expense, or loss attributable to such policies and contracts and an equitable proportion of the general gains or outlays of the company.
Such profits as shall inure to the benefit of stockholders shall be determined and apportioned annually.
The accounts of the participating and nonparticipating classes will be kept separate.
No part of the funds accumulated or belonging to the participating class shall be transferred to the nonparticipating class.
The agreement shall remain in effect so long as any outstanding participating policies or contracts of such company are held by persons resident in Wisconsin except as the applicable requirements of statute or administrative rule may be modified or superseded by subsequent enactments.
In accordance with s. 632.62
, Stats., the agreement required by sub. (4) (e)
may be modified to the extent necessary to be consistent with the existing charter of the stock life insurance corporation.
(6) Annual filing.
No stock life insurance corporation doing business in this state in which policyholders are entitled to share in the surplus shall be licensed or relicensed to transact business in this state unless the corporation shall annually file the information required by s. 601.42
Ins 2.02 Note
Note: Before issuing a new or renewal license to transact insurance in this state, the commissioner of insurance is required by ss. 201.045 and 201.34, Stats., to be satisfied that the methods and practices of the insurer adequately safeguard the interests of its policyholders and the people of this state. Section 206.13, Stats., provides for the issuance of participating life insurance policies by stock companies.
Ins 2.02 Note
The nature of participating policies is that the premium charge includes an additional loading which acts as the safety factor to provide for various contingencies that may develop during the term of the policy. The additional premium thus collected is then returned to the policyholder in the form of dividends. Section 201.36, Stats., provides for the annual apportionment and return of such sums after making provision for required reserves and liabilities.
Ins 2.02 Note
In respect to those policies in which the policyholder is entitled to share in the surplus, s. 206.36, Stats., provides for the payment of authorized dividends on capital stock from the surplus accumulations of the participating business of the company. Section 201.54, Stats., authorizes distribution of savings, earnings, or surplus to any class of policyholder by filing a schedule thereof with the commissioner in those cases where such a distribution was not specified in the policy. In such cases the commissioner has an obligation to be satisfied that the methods and practices of the company are such as to safeguard the interest of the policyholders.
Ins 2.02 Note
The principal portion of the earnings on participating policies is due to the additional loading in the premium charged for the policy. It would be a misrepresentation of the participating provisions of any such policy or contract if a substantial portion of the profits accruing from such policies or contracts were not to be returned to the policyholders. Sections 206.51 (1) and 207.04 (1) (a), Stats., prohibit the misrepresentation of the dividends or share in surplus to be received on any policy.
Ins 2.02 Note
It is evident that a stock insurance corporation should not have complete freedom in determining the amounts that are to be removed from the funds accumulated or belonging to the participating class of policyholders and used for the benefit of stockholders. A reasonable limitation in the amounts that shall inure to the benefit of stockholders is necessary for the fair and equitable treatment of stock life insurance corporations, stockholders, and policyholders. Section 216 (6) of the New York insurance statutes provides for a limitation comparable to that stated in the rule. The record in that state indicates such a limitation to be reasonable and workable and we believe it to be a proper safeguard of the interests of the people of this state. All present tense statutory references herein are to 1973 Stats.
Ins 2.02 History
; r. and recr. Register, August, 1962, No. 80
, eff. 9-1-62; renum. (4) (d) to be (4) (f) cr. (4) (d), (4) (e), (5) and (6), Register, January, 1964, No. 97
, eff. 2-1-64; am. (1) and (6), Register, May, 1975, No. 233
, eff. 6-1-75; emerg. am. (1), (2), (5) and (6), eff. 6-22-76; am. (1), (2), (5) and (6), Register, September, 1976, No. 249
, eff. 10-1-76; am. (1) and (2), Register, March, 1979, No. 279
, eff. 4-1-79.
Ins 2.03 Policies not dated back to lower insurance age. Ins 2.03(1)(1)
No company shall issue for delivery in this state any policy or contract of life insurance which purports to be issued or take effect as of a date more than 6 months before the application therefor was made, if thereby the premium on such policy or contract is reduced below the premium which would be payable thereon as determined by the nearest birthday of the insured at the time when such application was made. The date of application must be considered to be the date on which the application (Part I) or the medical examination (Part II) is completed, whichever is the later.
This ruling does not prohibit the exchange, alteration or conversion of policies of life insurance as of the original date of such policies if the amount of insurance provided under the new policy does not exceed the amount of insurance under the original policy or the amount of insurance which the premium paid for the original policy would have purchased if the new policy had been originally applied for, whichever is greater; nor prohibit the exercise of any conversion privilege contained in any policy or contract.
Ins 2.04 Substandard risk rates.
Life insurance companies may charge premiums in excess of the maximum premiums as defined in s. 206.26
, 1973 Stats., provided the addition to the maximum premium is made to cover the extra risk owing to the fact that the person is a substandard risk, or is engaged in a hazardous occupation.
Ins 2.04 History
; emerg. am. eff. 6-22-76; am. Register, September, 1976, No. 249
, eff. 10-1-76.
Ins 2.05 Separate statement of premiums for certain disability insurance benefits included in life or endowment insurance policies. Ins 2.05(1)
This rule provides guidelines to determine which disability coverages may be included in life or endowment insurance policies without a separate statement of premium charge. This rule interprets and implements the separation of premium requirements stated in s. 632.44 (1)
, Stats., as they relate to the inclusion of disability insurance by policy provision or rider in life or endowment insurance policies such as authorized by s. Ins 6.70
and s. 627.06
This rule shall apply to the kinds of disability insurance authorized by s. Ins 6.75 (1) (a)
, when such insurance is provided in a life or endowment policy either by specific policy provision or by a rider attached to such policy.
Ins 2.05(3)(a)(a) Life or endowment insurance.
The basic life or endowment insurance coverage provided by the policy and additional disability benefits which have been determined by the standards in sub. (4)
to be benefits which are life or endowment insurance or an integral part of such coverages.
(b) Disability insurance benefit.
Insurance coverages written under the authority of s. Ins 6.75 (1) (a)
, to indemnify persons in whole or in part for financial loss due to bodily injury, death by accident, or health of persons.
(c) Separate statement of premium.
Individual statement of the exact gross premium charged for each distinct disability insurance coverage required by this rule to be stated separately from the premium charge for the basic life or endowment insurance coverage.
(4) Standards and procedures for determination.
The following criteria or standards in pars. (a)
shall be used to determine whether a disability benefit, coverage, or clause may be included in the basic life or endowment policy without a separate statement of the premium charged for such disability benefit. Subject to the approval of the commissioner of insurance, a disability benefit, coverage, or clause which satisfies the standards listed below may be included in the basic life or endowment coverage without a separate statement of cost. Disability coverages not meeting these standards may be included in or attached to the policy only with a separate statement of the premium if they otherwise meet the statutory requirements in respect to combination of coverages. The rule in no way requires that a disability benefit, coverage, or clause be included in the premium charge for the basic life or endowment coverage if the company desires to show the premium separately.
Small or very nominal cost for the disability coverage when compared with the cost of the basic life or endowment coverage.
Logical reason for including the disability benefit without a separate statement of premium.
There is a demonstrated need for, and the applicant would usually desire, the inclusion of the disability benefit.
Inclusion of the disability coverage could be easily understood by the applicant and is not subject to possible misinterpretation.
Custom of the insurance business has classed the disability coverage as basically a life insurance benefit.
(5) Disability benefits which require a separate statement.
The following list constitutes a partial listing of disability coverages considered by the commissioner to be additional benefits which generally require a separate statement of premium charge if they are attached to or included in life or endowment coverage in accordance with other statutory requirements. Any such benefit may be included in a life or endowment insurance policy without a separate statement of premium if it is demonstrated that it meets the requirements listed in sub. (4)
Waiver of premium benefit for death and/or disability of payor.
(6) Disability benefits not listed.
Disability benefits which are not specifically listed above will be examined at the time of filing to determine whether a separate statement of premium is required.
(7) Reserve values.
Reserve values, on account of included provisions, will be based upon the requirements of s. 623.06
, Stats., or other applicable statutes or, in the absence of specific requirements, on such additional standards as the commissioner of insurance may prescribe.
(8) Effective date.
On or after April 1, 1965, no life insurance policy shall be approved for use and no such policy heretofore approved shall be issued or delivered in this state unless it meets the requirements of this rule.
Ins 2.05 Note
See historical note relating to s. Ins 2.05
as printed with this rule as released in December, 1984.
Ins 2.05 History
; r. and recr. Register, March, 1965, No. 111
, eff. 4-1-65; emerg. am. (1), (2) and (3) (b), eff. 6-22-76; am. (1), (2) and (3)(b), Register, September, 1976, No. 249
, eff. 10-1-76; am. (1), (2) and (3) (b), Register, March, 1979, No. 279
, eff. 4-1-79; r. (9) under s. 13.93 (2m) (b) 16., Stats., Register December, 1984, No. 348
; corrections made under s. 13.93 (2m) (b) 6., Stats., Register, June, 1997, No. 498
Ins 2.07 Replacement of life insurance or annuity contracts; disclosure requirements. Ins 2.07(1)
The purpose of this section is:
To regulate the activities of insurers and producers with respect to the replacement of existing life insurance and annuities.
To protect the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to be observed in replacement or financed purchase transactions to assure that purchasers receive information with which a decision can be made in the purchaser's best interest, reduce the opportunity for misrepresentation and incomplete disclosure, and establish penalties for failure to comply with requirements of this section.
This section shall apply to the solicitation of life insurance and annuities authorized by s. Ins 6.75 (1) (a)
, covering residents of this state, and issued by insurers including insurance corporations, fraternal benefit societies, or the State Life Insurance Fund. Except as specifically stated, this section shall not apply to transactions involving any of the following:
Group life insurance or group annuities where there is no direct solicitation of individuals by a producer. Direct solicitation shall not include any group meeting held by a 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 sub. (8)
Group life insurance and annuities used to fund prearranged funeral contracts.
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 commissioner; or, when a term conversion privilege is exercised among corporate affiliates.
Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the same insurer.
Policies or contracts used to fund an employee pension or welfare benefit plan that is covered by the Employee Retirement Income Security Act, ERISA, 29 USC 1001
et. seq., a plan described by sections 401
(k) or 403
(b) of the Internal Revenue Code, where the plan, for purposes of ERISA, is established or maintained by an employer, a governmental or church plan defined in section 414
of the Internal Revenue Code, 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 a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor. This section 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 2 or more insurers and there is a direct solicitation of an individual employee by a producer for the purchase of a contract or policy. As used in this subsection, direct solicitation shall not include any group meeting held by a 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.
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.
Existing life insurance that is a non-convertible term life insurance policy that will expire in 5 years or less from the date of issue and cannot be renewed.
Immediate annuities that are purchased with proceeds from an existing annuity contract. Immediate annuities purchased with proceeds from an existing life insurance policy are not exempted from the requirements of this section.
Registered contracts shall be exempt from the requirements of subs. (6) (a) 2.
and (7) (b)
with respect to the provision of illustrations or policy summaries; however, premium or contract contribution amounts and identification of the appropriate prospectus or offering circular shall be required instead.
“Direct response solicitation" means a solicitation through a sponsoring or endorsing entity or individually solely through mail, telephone, the Internet or other mass communication media.
“Existing insurer" means the insurer whose policy or contract is or will be changed or affected in a manner described within the definition of “replacement."
“Existing policy or contract" means an individual life insurance policy or annuity contract in force, including a policy under a binding or conditional receipt or a policy or contract that is within an unconditional refund period.
“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 insurer within 4 months before or 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 sub. (5) (a)
“Illustration" means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years as defined in s. Ins 2.17
“Policy summary" 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 need not be limited to, the following information: current death benefit; annual contract premium; current cash surrender value; current dividend; application of current dividend; and amount of outstanding loan. For universal life policies “policy summary" means a written statement that shall contain at least the following information: the beginning and end date of the current report period; the policy value at the end of the previous report period and at the end of the current report period; the total amounts that have been credited or debited to the policy value during the current report period, identifying each by type, for example, interest, mortality, expense and riders; the current death benefit at the end of the current report period on each life covered by the policy; the net cash surrender value of the policy as of the end of the current report period; and the amount of outstanding loans, if any, as of the end of the current report period.
“Producer" shall include intermediaries, agents, brokers and producers.
“Registered contract" means a variable annuity contract or variable life insurance policy subject to the prospectus delivery requirements of the Securities Act of 1933, 15 USC 77a
“Replacement" means a 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 lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated, 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, 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, reissued with any reduction in cash value, or used in a financed purchase.
“Replacing insurer" means the insurer that issues or proposes to issue a new policy or contract that replaces an existing policy or contract or is a financed purchase.
“Sales material" means a sales illustration and any other written, printed or electronically presented information created, or completed or provided by the insurer or producer and used in the presentation to the policy or contract owner related to the policy or contract purchased.
A producer who initiates an 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 replacement are complete.
If the applicant answered “yes" to the question regarding existing coverage referred to in par. (a)
, 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 I or other substantially similar form approved by the commissioner. 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.
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.
In connection with a replacement transaction the producer shall leave with the applicant at the time an application for a new policy or contract is completed the original or a copy of 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.
Except as provided in sub. (6) (c)
, 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 individualized sales materials, including any illustrations related to the specific policy or contract purchased.
(5) Duties of insurers that use producers.
Each insurer shall do all of the following:
Maintain a system of supervision and control to insure compliance with the requirements of this section that shall at a minimum: inform its producers of the requirements of this section and incorporate the requirements of this section into all relevant producer training manuals prepared by the insurer, provide to each producer a written statement of the insurer's position with respect to the acceptability of replacements providing guidance to its producer as to the appropriateness of these transactions, establish and maintain a system to review the appropriateness of each replacement transaction that the producer does not indicate is in accord with the written statement of the insurer's position with respect to the acceptability of replacements, establish and maintain procedures to confirm that the requirements of this section have been met, and establish and maintain 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 paragraph may include systematic customer surveys, interviews, confirmation letters, or programs of internal monitoring.
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 commissioner. The capacity to monitor shall include the ability to produce records for each producer's replacements, including financed purchases, as a percentage of the producer's total annual sales for life insurance, number of lapses of policies by the producer as a percentage of the producer's total annual sales for life insurance, annuity contract replacements as a percentage of the producer's total annual annuity contract sales, number of transactions that are unreported replacements of existing policies or contracts by the existing insurer detected by the insurer's monitoring system, and replacements, indexed by replacing producer and existing insurer.
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.