Chapter 3901-6 Life Insurance

(A) Purpose

This rule is issued by the superintendent of insurance pursuant to section 3901.041 of the Revised Code which requires the superintendent to ”... adopt, amend, and rescind rules and make adjudication necessary to discharge his duties and exercise his powers …” under various chapters and Title XXXIX of the Revised Code, subject to section 119.01 to 119.13 of the Revised Code. This rule is issued to implement and interpret applicable statutes including sections 3901.19 to 3901.23, 3915.14, 3999.04, 3999.05, 3999.08 and 3999.10 of the Revised Code by identifying and prohibiting certain statements, illustrations, advertisements, circulars, acts, practices and contract forms or unfair, deceptive and unsound methods of transacting the business of life insurance and by establishing certain requirements pertaining to solicitation and sale of life insurance and annuity contracts in order that policyholders and prospects shall not be subject to misrepresentations or be misinformed or be misled concerning contracts of life insurance or annuities. This rule is promulgated to serve the best interest of the public and to maintain a fair and honest life insurance and annuity market free of deceptive and illegal practices and is not directed at any company or group of companies or any agent or any group of agents. This rule is intended to be prospective in application only and is not intended to suggest that the use of any sales practice or presentation by any company before the effective date of this rule constitutes or does not constitute misrepresentation of such company’s policy or policies.

(B) Applicability

This rule shall apply to all kinds of life insurance, annuities and acts and practices involved in the sale thereof.

(C) Prohibition of misleading policies

In reviewing policies for approval or disapproval, the superintendent may study and take into consideration the titles, terms and text of such policy, and in addition may request and review the following materials and data in connection therewith:

(1) Any and all advertisements, estimates, comparisons, illustrations, circulars, statements, notices, brochures, pamphlets, letters, posters, announcements, articles, projections, literature, pictures, reports, books, newspapers, magazines, records, films or other matter of any nature whatsoever made, issued, circulated, published, disseminated, delivered, used, referred to or placed before the public in any manner whatsoever relating to or in connection with any such policy.

(2) Any and all oral statements, assertions or representations, the sales techniques or procedures and the training, study or learning devices or programs made, used, followed or employed by the officers, agents, employees or representatives of the insurance company.

(D) Policy name or title

No person, insurance company, insurance agent, insurance broker or insurance company representative shall deliver within this state or issue for delivery within this state, any policy of life insurance or sales or advertising material relating thereto without the use of the words “life insurance” in its name or title unless accompanied by other language clearly indicating that the contract is a policy of life insurance or in the case of an annuity, an annuity contract.

(E) Sales practices

No life insurance company nor any official, employee, broker, agent, solicitor, or other representative, in writing or orally, in order to induce the purchase of any policy, shall within this state:

(1) Make any statement or use any sales or advertising material in connection with any policy which provides a pure guaranteed annual endowment unless the gross premium and the amount of such benefit shall be shown separately and distinctly from the gross premium for and the amount of the life insurance benefit on the same page and without undue emphasis or prominence to either benefit.

(2) Make any statement or use any sales or advertising material, unless the amount of the pure guaranteed annual endowment shall be expressed in dollars and not as a percentage of any premium or benefit.

(3) Make any statement or use any sales or advertising material wherein the pure guaranteed annual endowment is described as a “guaranteed check”, “guaranteed dividend”, “return”, etc. Or anything other than a guaranteed benefit for which a premium is being paid by the policyholder.

(4) While offering a policy containing a series of pure guaranteed annual endowments fail to disclose to the prospect, orally and in writing, in dollars on a year-to-year cumulative basis, the amount of benefit on such annual endowments and the cost, including the amount by which premiums are reduced after maturity of the last endowment. Paragraphs (E) (1) to (E) (4) of this rule shall only apply to pure guaranteed annual endowments that are equal to or less than the gross annual premium for the policy.

(5) Make any statement or reference to dividends on a life insurance policy or annuity contract which would reasonably imply any of the following;

(a) That dividends are anything other than an adjustment of the cost of insurance in the form of an equitable distribution of surplus which reflects the actual experience of the insurance company principally in mortality, interest return on investment and administrative expense.

(b) That dividends to a policyholder are substantially “profits”, “earnings”, “return”, or “investment return” unless and to the extent that aggregate dividends received exceed the gross premiums paid by the policyholder.

(c) That dividends during the premium paying period are paid on other than a single year’s premium.

(d) That dividends are income tax free without an explanation that they constitute a partial refund of the policyholder’s premium, and, therefore, would constitute income only when, and to the extent that, distributions during the life of the insured or annuitant exceed the aggregate premiums paid on the policy.

(e) That dividends in the future are apt to increase because of the historical trend of dividend payments by the life insurance company unless there is also a disclosure of any deficit in unassigned surplus during the years those dividend payments were made.

(6) Make any statement or illustration with respect to sharing in divisible surplus or surplus of the company other than on the basis of the company’s current dividend scale accompanied by a disclosure that such scale may increase or decrease in the future and, if such is the case, a disclosure that there is a deficit in unassigned surplus.

(7) State or imply that a policyholder will secure a right to a stated percentage of net gain from operations or other benefits which are not a part of the policy itself or made a part thereof by rider or other instrument previously approved by the department of insurance.

(8) Use the terms “investment”, “investment plan”, “expansion plan”, “profit”, “profits”, “profit sharing”, and other similar terms in connection with a policy of life insurance or an annuity contract in a context or under such circumstances or conditions as to have the capacity or tendency to mislead a purchaser or prospect to believe that he will receive something other than a life insurance policy or annuity contract.

(9) Refer to a policyholder as a “partner” unless he has been advised that he does not have the legal rights of a partner in a statutory or common law sense.

(10) Make any statement or distribute any sales literature which is prepared by an allegedly independent third person or unrelated company which purports to analyze the policy or life insurance company without disclosing the amount of remuneration or fee, if any, paid, directly or indirectly, to such third person or company for its analysis.

(11) Make any statement (such as the policy will be “self-supporting”) or imply that projected dividends under a participating policy will be or can be sufficient at any time to assure the receipt of any benefits, such as a paid-up policy, without the further payment of premiums, unless the statement is accompanied but not limited thereto by an adequate explanation as to:

(a) What benefits or coverage would be provided or discontinued at such time; and

(b) The conditions under which this would occur;

(12) Make any statement or reference relating to the growth of the life insurance industry or to the tax status of life insurance companies in connection with any solicitation of an application for life insurance in a context which could reasonably be understood to interest a prospect in the purchase of shares of stock in an insurance company or becoming an investor therein rather than in the purchase of a life insurance policy.

(13) Make any statement which reasonably gives rise to the inference that the policyholder or a prospective policyholder, by virtue of purchasing a policy of life insurance, will enjoy a status common to a stockholder or will acquire a stock ownership interest in the insurance company, its parent or any affiliated company.

(14) Make any reference to or statement concerning an insurance company’s “investment department”, “insured investment department”, or similar terminology in such a manner as to imply that the policy was sold or issued by the investment department of the life insurance company.

(15) Make any statement or reference which would reasonably imply that by purchasing a policy, the purchaser or prospective purchaser will become a member of a limited group of persons who are to receive special advantages or favored treatment in the payment of dividends unless the policy form filed with and approved by the department of insurance contains such a provision in express and clear terms. (This clause has no relation or applicability to policies under which insured persons of one class or risk may receive dividends at a higher rate than persons of another class of risk nor shall it imply that any policy may contain a preferential benefit which discriminates against future policyholders), except that this paragraph shall not apply to or constitute evidence of the wrongful sale of any policy(s), the form of which has been filed with and not disapproved by the superintendent of insurance pursuant to Chapter 3915. Of the Revised Code, if such sale was made prior to the effective date of this rule.

(16) Make any statement or reference concerning a parent or affiliate’s growth, earnings or future prospects without a clear explanation that such company is not the life insurance company whose policy is offered for sale.

(17) State or imply that life insurance proceeds payable at death are in lieu of “profits” or shares of surplus the policyholder would have received had he lived or otherwise infer that life insurance protection merely is incidental to the contract.

(18) State or imply that sales of a policy are limited to shareholders, persons recommended by shareholders or to insurance released by shareholders unless an assignable option to purchase life insurance is granted to each shareholder, which option may not be assigned to the life insurance company, and a record of all assignments identifying both assignor and assignee is maintained by the company, except that this paragraph shall not apply to or constitute evidence of the wrongful sale of any policy(s), the form of which has been filed with and not disapproved by the superintendent of insurance pursuant to Chapter 3915 of the Revised Code, if such sale was made prior to the effective date of this rule.

(19) State or imply that policyholders who are said to act as “centers of influence” (or descriptions of similar context) for an insurance company will share, because of so acting, in the company’s surplus, earnings or profits in some preferential manner unless the preference is clearly expressed in the provisions contained in the policy form filed with and not disapproved by the department of insurance; (a provision that the “policy shall participate in the surplus of the company” does not create such a preference as such language by statute is common to participating policies), except that this paragraph shall not apply to or constitute evidence of the wrongful sale of any policy(s), the form of which has been filed with and not disapproved by the superintendent of insurance pursuant to Chapter 3915 of the Revised Code, if such sale was made prior to the effective date of this rule.

(20) Describe or refer to premium payments in language which states that the payment is a “deposit” unless:

(a) The payment establishes a debtor-creditor relationship between the life insurance company and the policyholder and a showing is made as to when and how the deposit may be withdrawn: or

(b) The term is used in conjunction with the word “premium” in such manner as to indicate clearly the true character of the payment;

(21) Provide any illustration or projection of future dividends on a policy unless:

(a) The illustration or projection is based upon the experience currently used by the insurance company for dividends or upon a scale adopted by the company, and

(b) The illustration or projection clearly indicates that the dividends shown are not guaranteed;

(22) Use the words “dividends”, “cash dividends”, “surplus”, or similar phrases in such a manner as to state or imply that the payment of dividends in any amount is guaranteed or certain to occur.

(23) State or imply that a purchaser of a policy will share in all or part of the earnings, profits or net operating gains of the insurance company (nothing in this subsection is intended to prohibit a representation that a holder of a participating life insurance policy will participate equitably in any future distributions out of the surplus of the company).

(24) State that the insured is guaranteed certain benefits if the policy is allowed to lapse without making an adequate explanation of the nonforfeiture benefits.

(25) Describe a life insurance policy or premium payments therefor in terms of “units of participation” or “units”, or use the words “contract”, “contract plan”, “plan” or similar terms unless accompanied by other language clearly indicating the reference is to a life insurance policy.

(26) Include in sales kits and prepared sales presentations proposed answers, to be used in response to a prospect’s questions as to whether life insurance is being sold, which are designed to avoid a clear and unequivocal statement that life insurance is the subject matter of the solicitation.

(27) Display in any manner to a prospective policyholder any material which includes illustrations, using dollar amounts, in connection with the proposed sale of a life insurance policy or endowment benefits unless the material clearly identifies the source of the dollar amounts and the subject to which such amounts pertain.

(28) Make any general statement that insurance companies make a profit as a result of policy lapse or surrenders.

(29) Make any comparison to the past experience of life insurance companies which issued a policy represented to be similar to that being offered if such policy currently is unlawful to issue and without making a fair and reasonable disclosure of other companies which have had unfavorable experience with such type of policy.

(30) State or imply that possession of a license to sell life insurance or a charter to engage in the business of life insurance is unique, or anything other than that which is required of all persons or companies who market life insurance.

(31) State that the sales presentation delivered to the prospect is on file with the department of insurance of this state.

(32) State that a policy contains certain features which are not found in other life insurance policies, unless that be true.

(33) Represent that an option to purchase insurance in the future is equivalent to having in force currently the amount of insurance obtainable through exercise of the option.

(34) Offer to sell any life insurance policy or annuity contract in any capacity other than that of a fully licensed life insurance agent.

(35) Make reference to a policy of life insurance or an annunity contract in such a manner as to misrepresent the true nature of the policy or contract.

(36) Distribute any literature or make any statement about any other company or any of its policies based upon the company’s being required to change any policy forms or its sales or other related materials or presentations for the purpose of inducing any policyholder or prospect to purchase, amend, lapse, forfeit, change or surrender insurance.

(37) State or imply that a prospective policyholder must purchase a policy immediately upon initial contact of such prospective policyholder by agent or lose the opportunity to purchase such policy.

(38) The above listing of proscribed acts is not intended to be exhaustive; other acts, not listed above but otherwise unlawful, will not be condoned.

(F) Penalties

A violation of any of the provisions of this rule by whatever means, including but not being limited to the use of presentations, whether involving language or illustrations disseminated by means of sales kits, policy jackets, letters, personal confrontations, visual aids or other media, shall be deemed to be in violation of the insurance law of this state and shall subject any person, firm or corporation so violating any provisions of this rule to all penalties provided by law.

(G) Existing policies and contracts

This rule does not affect the validity of any life insurance policy or annuity contract in force on the effective date hereof.

(H) Severability

If any provision of this rule or the application thereof to any person or situation is held invalid, such invalidity shall not effect any other provision or application of the rule which can be given effect without the invalid provision or application and to this end the provisions of this rule are declared to be severable.

Replaces: Former Rule 3901-1-06

R.C. 119.032 review dates: 12/23/2003 and 12/23/2008

Promulgated Under: 119.03

Statutory Authority: 3901.041

Rule Amplifies: 3901.19-3901.23, 3915.14, 3999.04, 3999.05, 3999.08, 3999.10

Prior Effective Dates: 8/1/1972, 10/1/1997

(A) Purpose

This rule is issued by the superintendent of insurance pursuant to section 3901.041 of the Revised Code, which empowers the superintendent ”... to adopt, amend and rescind rules and to make adjudications necessary to discharge his duties and exercise his powers …” under various sections of the Revised Code, subject to sections 119.01 to 119.13 of the Revised Code. This rule implements sections 3901.21, 3901.99, 3905.02, 3905.20, 3909.07, 3911.20, 3911.22, 3911.23, 3911.24, 3915.14, 3999.08, and 3999.11 of the Revised Code by establishing minimum standards for the form of proposals and statements used to solicit, service, or collect premiums for life insurance which is sold in correlation with a mutual fund or other security.

(B) Applicability

This rule shall apply:

(1) To acts and practices in the advertising promotion, solicitation, negotiation of or effecting the sale of:

(a) Life insurance policies (which term shall include annuity contracts for purposes of this rule) in correlation with the sales of shares of a mutual fund or other security;

(b) Contracts which contemplate the purchase of a life insurance policy in correlation with the sale of shares of a mutual fund or other security;

(2) To any acts and practices, whether they involve the use of language disseminated by means of sales kits, policy jackets or covers, letters, personal presentations, visual aids and other sales media in connection with the solicitation, sale, servicing or collection of premiums for life insurance in correlation with a mutual fund or other security engaged in by any insurance company, agent, or person, defined as an individual, corporation, partnership, association, trust, or fund.

As used in this rule, “security” shall have the same meaning as set forth in Chapter 1707. of the Revised Code, and shall mean, in addition, participation in common trust funds of any financial institution.

(C) Statement of policy

There shall be full disclosure of relevant facts in the sale of life insurance in correlation with the sale of shares of a mutual fund or other security. Accordingly, this rule sets forth certain proposed procedures and requirements establishing minimum standards for disclosure of information in sales of life insurance and mutual fund shares or other securities.

(D) Responsibility of company and agent

No insurance company, agent, or person to whom this rule applies shall make, in connection with correlated sales of life insurance and mutual fund shares or other securities, a proposal or billing other than in accordance with the requirements of this rule. Every such company must inform its agents of the requirements of this rule.

(E) Tie-in sales

The agent, at the commencement of and throughout the sales presentation, must fully disclose to the purchaser that he has the right to purchase life insurance only, mutual fund shares or other securities only, or both life insurance and mutual fund shares or other securities.

(F) Written proposal

In any solicitation of an offer to buy, or in any sale of life insurance in correlation with the sale of shares of a mutual fund or other security, the prospect or policyholder must be furnished a copy of a clear and unambiguous written proposal not later than at the time the solicitation or proposal is made. A copy of such written proposal shall be kept on file by the agent, or by the company if no agent is involved.

(G) Contents of proposal

Any proposal referred to in this rule must:

(1) Be dated and signed by the insurance agent;

(2) State the name of the company in which the life insurance is to be written;

(3) State that the purchaser has the right to purchase life insurance only, mutual fund shares or other securities only, or both life insurance and mutual fund shares or other securities;

(4) Contain no misrepresentations or false, deceptive or misleading words, figures or statements. It must be accurate and complete and state all facts without which the proposal would have the capacity or tendency to mislead or deceive;

(5) Show the premium charge for life insurance separately from any other charge;

(6) If values which may accrue prior to the death of the insured are involved in the presentation, show the value of the life insurance policy separately from any other values;

(7) Show, if it is involved in the presentation, the amount of the death benefit for the life insurance separately from any other benefit which may accrue upon the death of the insured;

(8) Set forth all matters pertaining to life insurance separately from any matter not pertaining to life insurance;

(9) Set forth policy numbers, name of company, face values and cash values of all existing policies of the insured, indicating those policies which are to be surrendered if the proposal is accepted.

(H) Statement to be separate

Any bill, statement, draft, or representation sent or delivered to any prospect or policyholder must show the premium charge for the life insurance and any other information mentioned concerning life insurance separate from any other charges or values shown in the same billing, but nothing in this section shall prevent the total of the premium charge for life insurance with any other charges or values shown in the same billing to arrive at the total billing charge.

(I) Maintenance of file by company

(1) File of advertising and other sales material:

Each insurance company to whom this rule applies shall maintain at its home or principal office a complete file containing every printed, published, or prepared advertisement, advertising material, sales literature and sales aid of any other kind used in connection with the correlated sale of life insurance and mutual fund shares or other securities as may hereafter be prepared or disseminated in this state, with a notation attached to each such piece of material which shall indicate, the manner and extent of distribution, the nature of use and the form number of any policy issued in connection with such correlated plan and such document. Such file shall be subject to regular and periodical inspection by this department. All such material shall be maintained in said file for a period of not less than three years.

(2) Certificate of compliance:

Each insurer required to file an annual statement which is now or which hereafter becomes subject to the provisions of the rule must file with this department, together with its annual statement, a certificate executed by an authorized officer of the insurer wherein it is stated that to the best of his knowledge, information and belief, the advertisements, advertising material, sales literature and sales aids which were disseminated by the insurer during the preceding statement year comply or were made to comply in all respects with the provisions of the insurance laws of this state as implemented and interpreted by this rule.

(J) Exclusion

The provisions of this rule shall not apply to any arrangement for the correlated purchase of life insurance and mutual fund shares or other securities which arrangement would be deemed a “security” as defined by the Securities Act of 1933 or the Ohio Securities Act of July 22, 1929 (Chapter 1707. of the Revised Code). However, any sales literature and contract to purchase life insurance in connection with such arrangement shall be furnished the department of insurance prior to the sale of any life insurance under such arrangement.

(K) Dual license required

No person shall solicit an offer to buy or a sale of life insurance in correlation with a sale of shares of a mutual fund or other security unless he is licensed and appointed as a life insurance agent in accordance with the provisions of sections 3905.02 and 3905.20 of the Revised Code and is also licensed to sell securities by the division of securities of the department of commerce, state of Ohio, in accordance with Chapter 1707. of the Revised Code.

(L) Violation

Companies or persons in violation of this rule shall be subject to fine, revocation or suspension of license to do business, denial of renewal of license to do business, to proceedings under section 3999.08 of the Revised Code relating to misrepresentations and to proceedings under Chapter 3901. of the Revised Code relating to unfair methods of competition and unfair and deceptive acts and practices.

HISTORY: Replaces: Former Rule 3901-1-03; Eff 5-1-65; 10-1-97; 3-28-04

Rule promulgated under: RC 119.03

Rule authorized by: RC 3901.041

Rule amplifies: RC 3901.21, 3901.99, 3905.02, 3905.20, 3909.07, 3911.20, 3911.22, 3911.23, 3911.24, 3915.14, 3999.08, 3999.11

RC 119.032 review dates: 12/31/98, 12/23/03, 12/23/08

(A) Purpose

(1) The purpose 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 life insurance.

(2) This rule does not prohibit the use of additional material which is not a violation of this rule or any other Ohio statute or rule.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.21 of the Revised Code.

(C) Scope

(1) Except for the exemptions specified in paragraph (C)(2) of this rule, this rule shall apply to any solicitation, negotiation or procurement of life insurance occurring within this state. This rule shall apply to any issuer of life insurance contracts including fraternal benefit societies.

(2) Unless specifically included, this rule shall not apply to:

(a) Annuities;

(b) Credit life insurance;

(c) Group life insurance;

(d) 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 SEO. As amended; or

(e) Variable life insurance under which the amount or duration of the life insurance varies according to the investment experience of a separate account.

(D) Definitions

for the purposes of this rule, the following definitions shall apply:

(1) “Buyer’s Guide” is a document that contains, and is limited to, the current buyer’s guide, which has been recommended for use by the national association of insurance commissioners. A company must use the current buyer’s guide no later than six months after approval by the national association of insurance commissioners.

(2) Cost comparison indexes

(a) “Surrender Cost Comparison Index — Guaranteed Basis” is calculated by applying the following steps:

(i) Step one: determine the guaranteed cash surrender value, if any, available at the end of the tenth and twentieth policy years.

(ii) Step two: divide the result of step one 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 one over the respective periods stipulated in step one. If the period is ten years, the factor is 13.207 and if the period is twenty years, the factor is 34.719.

(iii) Step three: determine the equivalent guaranteed level premium by accumulating each guaranteed annual premium payable for the basic policy or rider at five per cent interest compounded annually to the end of the period stipulated in step one and dividing the result by the respective factors stated in step two. (This amount is the guaranteed annual premium payable for a level premium plan.)

(iv) Step four: subtract the result of step two from step three.

(v) Step five: Divide the result of step four by the number of thousands of the equivalent guaranteed level death benefit, using the company’s guaranteed rate schedule to determine the amount payable upon death for purposes of paragraph (D)(3)(a) of this rule, to arrive at the “Surrender Cost Comparison Index-Guaranteed Basis.”

(b) “Net Payment Cost Comparison Index — Guaranteed Basis” is calculated in the same manner as the comparable “Surrender Cost Comparison Index — Guaranteed Basis” except that the cash surrender value is set at zero.

(3) “Equivalent Guaranteed Level Death Benefit” of a policy or term life insurance rider is an amount calculated as follows:

(a) Step six: accumulate the amount payable upon death, regardless of the cause of death, at the beginning of each policy year for ten and twenty years at five per cent interest compounded annually to the end of the tenth and twentieth policy years respectively.

(b) Step seven: divide each accumulation of step six by an interest factor that converts the accumulation into one equivalent level annual amount that, if paid at the beginning of each year, would accrue to the value in step six over the respective periods stipulated in step six. If the period is ten years, the factor is 13.207 and if the period is twenty years, the factor is 34.719.

(4) “Generic Name” is a short title that is descriptive of the premium and benefit patterns of a policy or a rider.

(5) “Policy Data” is a display or schedule of guaranteed numerical values for each policy year or a series of designated policy years of the following information: premiums; death benefits; cash surrender values and endowment benefits.

(6) “Policy summary” is a written statement describing the elements of the policy, including, but not limited to:

(a) A prominently placed title as follows:

“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 where 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 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 through sixty-five and policy maturity:

(i) The guaranteed annual premium for the basic policy;

(ii) The guaranteed annual premium for each optional rider;

(iii) The guaranteed 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;

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

(v) Any guaranteed endowment amounts payable under the policy which are not included under cash surrender values in this paragraph.

(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 cost comparison indexes for ten and twenty years but in no case beyond the premium-paying period. Separate indexes shall be displayed for the basic policy and for each optional term life insurance rider. Such indexes need not be included for optional riders which are limited to benefits; such as accidental death benefits, disability waiver of premium, preliminary term life insurance coverage of less than twelve months and guaranteed insurability benefits; nor for any basic policies or optional riders covering more than one life.

(h) This statement in close proximity to the cost comparison indexes:

“An explanation of the intended use of these indexes is provided in the Life Insurance Buyer’s Guide.”

(i) The date on which the policy summary is prepared.

The policy summary must consist of a separate document. All information required to be disclosed must be set out in such a manner as not to minimize or render any portion obscure. Any amounts which remain level for two 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 paragraph (D)(6)(e) of this rule shall be listed in total, not on a per thousand nor per unit basis. If more than one insured is covered under one policy or rider, death benefits shall be displayed separately for each insured or for each class of insureds if death benefits do not differ within the class. Zero amounts shall be displayed as a zero and not as a blank.

(E) Duties of insurers

(1) The insurer shall provide, to all prospective purchasers, a buyer’s guide and a policy summary prior to accepting the applicant’s initial premium or premium deposit; provided, however, that:

(a) If an illustration subject to the requirements of rule 3901-6-04 of the Administrative Code, (life insurance illustrations), is used in the sale of a policy, a policy summary does not have to be provided. Only guarantees may be shown in the policy summary for policies written with an application date on or after the effective date of rule 3901-6-04 of the Administrative Code (life insurance illustrations).

(b) If the policy for which application is made or its policy summary contains an unconditional refund provision of at least ten days, the buyer’s guide and policy summary must be delivered with the policy or prior to delivery of the policy.

(c) If the equivalent guaranteed level death benefit of the policy for which application is made does not exceed five thousand dollars, the requirement for providing a policy summary will be satisfied by delivery of a written statement containing the information described in paragraphs (D)(6)(b), (D)(6)(c), (D)(6)(d), (D)(6)(e)(i), (D)(6)(e)(ii), (D)(6)(e)(iii), (D)(6)(e)(iv), (D)(6)(f), (D)(6)(g), (D)(6)(h), and (D)(6)(i) of this rule.

(2) In the case of a solicitation by direct response methods, the insurer shall provide a buyer’s guide and a policy summary prior to accepting the applicant’s application; provided however, that if the policy for which application is made contains an unconditional refund provision of at least ten days, the buyer’s guide and a policy summary may be delivered with the policy.

(3) If any prospective purchaser requests a buyer’s guide, a policy summary or policy data, the insurer shall provide the item or material requested.

(F) Special plans

This paragraph modifies the application of this rule as indicated for certain special plans of life insurance:

(1) “Flexible Premium and Benefit Policies.” For policies commonly called “universal life insurance policies,” which:

(a) Permit the policyowner to vary, independently of each other, the amount and timing of premium payments, or the amount payable on death; and

(b) Provide for a cash value that is based on separately identified interest credits and mortality and expense charges applied to the policy.

All indexes and other data shall be displayed assuming specific schedules of anticipated premiums and death benefits at issue.

In addition to all other information required by this rule, the policy summary shall indicate when the policy will expire based on the interest rates and mortality and other charges guaranteed in the policy and the anticipated or assumed annual premiums shown in the policy summary.

(2) “Multitrack Policies.” For policies which allow a policyowner to change or convert the policy from one plan or amount to another, the policy summary:

(a) Shall display all indexes and other data assuming that the option is not exercised; and

(b) May display all indexes and other data using a stated assumption about the exercise of the option.

(3) “Policies with Any Rate Subject to Continued Insurability.” For policies which allow a policyowner a reduced premium rate if the insured periodically submits evidence of continued insurability, the policy summary:

(a) Shall display cost indexes and other data assuming that the insured always qualifies for the lowest premium;

(b) Shall display cost indexes and other data assuming that the company always charges the highest premiums allowable; and

(c) Shall indicate the conditions that must be fulfilled for an insured to qualify periodically for the reduced rate.

(G) General rules

(1) 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 years following the date of its last authorized use unless otherwise provided by this rule.

(2) An agent shall inform the prospective purchaser, prior to commencing a life insurance sales presentation, that the agent 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.

(3) Terms such as financial planner, investment advisor, financial consultant, or financial counseling shall not be used in such a way as to imply that the insurance agent is primarily engaged in an advisory business in which compensation is unrelated to sales unless such is actually the case.

(4) There shall be no reference to a dividend or non-guaranteed element.

(5) Any statement regarding the use of the cost comparison indexes shall 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.

(H) Failure to comply

Failure of an insurer or an agent to provide or deliver a buyer’s guide, a policy summary or policy data as provided in paragraphs (E) and (F) of this rule shall constitute an omission which misrepresents the benefits, advantages, conditions or terms of an insurance policy. In addition to any other penalties provided by the laws of this state, an insurer, agent, or authorized representative of the insurer that violates a requirement of this rule shall be guilty of a violation of section 3901.21 of the Revised Code.

(I) Severability

If any paragraph, term or provision of this rule is adjudged invalid for any reason, such judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, and remaining paragraphs, terms and provisions shall be and shall continue in full force and effect.

Replaces: Former rule 3901-1-33

R.C. 119.032 review dates: 12/23/2003 and 12/23/2008

Promulgated Under: 119.03

Statutory Authority: 3901.041, 3901.21

Rule Amplifies: 3901.19-3901.23

Prior Effective Dates: 8/5/1978; 10/1/1997

(A) Purpose

The purpose of this rule is to provide rules for life insurance policy illustrations that will protect consumers and foster consumer education. The rule provides illustration formats, prescribes standards to be followed when illustrations are used, and specifies the disclosures that are required in connection with illustrations. The goals of this rule are to ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable. Insurers will, as far as possible, eliminate the use of footnotes and caveats and define terms used in the illustration in language that would be understood by a typical person within the segment of the public to which the illustration is directed.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.21 of the Revised Code.

(C) Scope

This rule applies to all group and individual life insurance policies and certificates except:

(1) Variable life insurance;

(2) Individual and group annuity contracts;

(3) Credit life insurance; or

(4) Life insurance policies with illustrated death benefits on any individual not exceeding ten thousand dollars.

(D) Definitions

(1) “Actuarial Standards Board” means the board established by the American academy of actuaries to develop and promulgate standards of actuarial practice.

(2) “Contract premium” means the gross premium that is required to be paid under a fixed premium policy, including the premium for a rider for which benefits are shown in the illustration.

(3) “Currently payable scale” means a scale of non-guaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next ninety-five days.

(4) “Disciplined current scale” means a scale of non-guaranteed elements constituting a limit on illustrations currently being illustrated by an insurer that is reasonably based on actual recent historical experience, as certified annually by an illustration actuary designated by the insurer. Further guidance in determining the disciplined current scale as contained in standards established by the actuarial standards board may be relied upon if the standards:

(a) Are consistent with all provisions of this rule;

(b) Limit a disciplined current scale to reflect only actions that have already been taken or events that have already occurred;

(c) Do not permit a disciplined current scale to include any projected trends of improvements in experience or any assumed improvements in experience beyond the illustration date; and

(d) Do not permit assumed expenses to be less than minimum assumed expenses.

(5) “Generic name” means a short title descriptive of the policy being illustrated such as “whole life,” “term life,” or “flexible premium adjustable life.”

(6) “Guaranteed elements” and “non-guaranteed elements”

(a) “Guaranteed elements” means the premiums, benefits, values, credits or charges under a policy of life insurance that are guaranteed and determined at issue.

(b) “Non-guaranteed elements” means the premiums, benefits, values, credits or charges under a policy of life insurance that are not guaranteed or not determined at issue.

(7) “Illustrated scale” means a scale of non-guaranteed elements currently being illustrated that is not more favorable to the policy owner than the lesser of:

(a) The disciplined current scale; or

(b) The currently payable scale.

(8) “Illustration” means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years and that is one of the three types defined below:

(a) “Basic illustration” means a ledger of proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements.

(b) “Supplemental illustration” means an illustration furnished in addition to a basic illustration that meets the applicable requirements of this rule, and that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration.

(c) “In force illustration” means an illustration furnished at any time after the policy that it depicts has been in force for one year or more.

(9) “Illustration actuary” means an actuary meeting the requirements of paragraph (K) of this rule who certifies to illustrations based on the standard of practice promulgated by the actuarial standards board.

(10) “Lapse-supported illustration” means an illustration of a policy form failing the test of self-supporting as defined in this rule, under a modified persistency rate assumption using persistency rates underlying the disciplined Current scale for the first five years and one hundred per cent policy persistency thereafter.

(11)(a) “Minimum assumed expenses” means the minimum expenses that may be used in the calculation of the disciplined current scale for a policy form. The insurer may choose to designate each year the method of determining assumed expenses for all policy forms from the following:

(i) Fully allocated expenses;

(ii) Marginal expenses; and

(iii) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the national association of insurance commissioner (NAIC) or by the superintendent.

(b) Marginal expenses may be used only if greater than a generally recognized expense table. If no generally recognized expense table is approved, fully allocated expenses must be used.

(12) “Non-term group life” means a group policy or individual policies of life insurance issued to members of an employer group or other permitted group where:

(a) Every plan of coverage was selected by the employer or other group representative;

(b) Some portion of the premium is paid by the group or through payroll deduction; and

(c) Group underwriting or simplified underwriting is used.

(13) “Policy owner” means the owner named in the policy or the certificate holder in the case of a group policy.

(14) “Premium outlay” means the amount of premium assumed to be paid out-of-pocket by the policy owner or other premium payer.

(15) “Self-supporting illustration” means an illustration of a policy form for which it can be demonstrated that, when using experience assumptions underlying the disciplined current scale, for all illustrated points in time on or after the fifteenth policy anniversary or the twentieth policy anniversary for second-or-later-to-die policies (or upon policy expiration if sooner), the accumulated value of all policy cash flows equals or exceeds the total policy owner value available. For this purpose, policy owner value will include cash surrender values and any other illustrated benefit amounts available at the policy owner’s election.

(E) Policies to be illustrated

(1) Each insurer marketing policies to which this rule is applicable shall notify the superintendent whether a policy form is to be marketed with or without an illustration. For all policy forms being actively marketed on the effective date of this rule, the insurer shall identify in writing those forms and whether or not an illustration will be used with them. For policy forms filed after the effective date of this regulation, the identification shall be made at the time of filing. Any previous identification may be changed by notice to the superintendent.

(2) If the insurer identifies a policy form as one to be marketed without an illustration, any use of an illustration for any policy using that form prior to the first policy anniversary is prohibited.

(3) If a policy form is identified by the insurer as one to be marketed with an illustration, a basic illustration prepared and delivered in accordance with this regulation is required, except that a basic illustration need not be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals. The illustration furnished an applicant for a group life insurance policy or policies issued to a single applicant on multiple lives may be either an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.

(4) Potential enrollees of non-term group life subject to this rule shall be furnished a quotation with the enrollment materials. The quotation shall show potential policy values for sample ages and policy years on a guaranteed and non-guaranteed basis appropriate to the group and the coverage. This quotation shall not be considered an illustration for purposes of this rule, but all information provided shall be consistent with the illustrated scale. A basic illustration shall be provided at delivery of the certificate to enrollees for non-term group life who enroll for more than the minimum premium necessary to provide pure death benefit protection. The insurer shall make a basic illustration available to any non-term group life enrollee who requests it.

(F) General rules and prohibitions

(1) An illustration used in the sale of a life insurance policy shall satisfy the applicable requirements of this rule, be clearly labeled “life insurance illustration” and contain the following basic information:

(a) Name of insurer;

(b) Name and business address of agent or insurer’s authorized representative, if any;

(c) Name, age and sex of proposed insured, except where a composite illustration is permitted under this rule;

(d) Underwriting or rating classification upon which the illustration is based;

(e) Generic name of policy, the company product name, if different, and form number;

(f) Initial death benefit; and

(g) Dividend option election or application of non-guaranteed elements, if applicable.

(2) When using an illustration in the sale of a life insurance policy, an insurer or its agents or other authorized representatives shall not:

(a) Represent the policy as anything other than a life insurance policy;

(b) Use or describe non-guaranteed elements in a manner that is misleading or has the capacity or tendency to mislead;

(c) State or imply that the payment or amount of non-guaranteed elements is guaranteed;

(d) Use an illustration that does not comply with the requirements of this rule;

(e) Use an illustration that at any policy duration depicts policy performance more favorable to the policy owner than that produced by the illustrated scale of the insurer whose policy is being illustrated;

(f) Provide an applicant with an incomplete illustration;

(g) Represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact;

(h) Use the term “vanish” of “vanishing premium,” or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums;

(i) Except for policies that can never develop nonforfeiture values, use an illustration that is “lapse-supported”; or

(j) Use an illustration that is not “self-supporting.”

(3) If an interest rate used to determine the illustrated non-guaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.

(G) Standards for basic illustrations

(1) Format. A basic illustration shall conform with the following requirements:

(a) The illustration shall be labeled with the date on which it was prepared.

(b) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration (e.g., the fourth page of a seven-page illustration shall be labeled “page 4 of 7 pages”).

(c) The assumed dates of payment receipt and benefit pay-out within a policy year shall be clearly identified.

(d) If the age of the proposed insured is shown as a component of the tabular detail, it shall be issue age plus the number of years the policy is assumed to have been in force.

(e) The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable. For policies that do not require a specific contract premium, the illustrated payments shall be identified as premium outlay.

(f) Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

(g) If the illustration shows any non-guaranteed elements, they cannot be based on a scale more favorable to the policy owner than the insurer’s illustrated scale at any duration. These elements shall be clearly labeled non-guaranteed.

(h) The guaranteed elements, if any, shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements (e.g., “see page one for guaranteed elements.”)

(i) The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.

(j) The value available upon surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount available to the policy owner in a lump sum after deduction of surrender charges, policy loans and policy loan interest, as applicable.

(k) Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.

(l) Any illustration of non-guaranteed elements shall be accompanied by a statement indicating that;

(i) The benefits and values are not guaranteed;

(ii) The assumptions on which they are based are subject to change by the insurer; and

(iii) Actual results may be more or less favorable.

(m) If the illustration shows that the premium payer may have the option to allow policy charges to be paid using non-guaranteed values, the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays. Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium. If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark with an explanation that the policy is not paid up.

(n) If the applicant plans to use dividends or policy values, guaranteed or non-guaranteed, to pay all or a portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.

(2) Narrative summary. A basic illustration shall include the following:

(a) A brief description of the policy being illustrated, including a statement that it is a life insurance policy;

(b) A brief description of the premium outlay or contract premium, as applicable, for the policy. For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code;

(c) A brief description of any policy features, riders, or options, guaranteed or non-guaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy;

(d) Identification and a brief definition of column headings and key terms used in the illustration; and

(e) A statement containing the following: “this illustration assumes that the currently illustrated non-guaranteed elements used will not change for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown.”

(3) Numeric summary.

(a) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable. For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium. This summary shall be shown for at least policy years five, ten and twenty and at age seventy, if applicable, on the three bases shown below. For multiple life policies the summary shall show policy years five, ten, twenty and thirty.

(i) Policy guarantees;

(ii) Insurer’s illustrated scale;

(iii) Insurer’s illustrated scale used but with the non-guaranteed elements reduced as follows:

(a) Dividends at fifty per cent of the dividends contained in the illustrated scale used;

(b) Non-guaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used; and

(c) All non-guaranteed charges, including but not limited to, term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(b) In addition, if coverage would cease prior to policy maturity or age one hundred, the year in which coverage ceases shall be identified for each of the three bases.

(4) Statements. Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policy owner in the case of an illustration provided at time of delivery, as required in this rule.

(a) A statement to be signed and dated by the applicant or policy owner reading as follows: “I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower. The agent has told me they are not guaranteed.”

(b) A statement to be signed and dated by the insurance agent or other authorized representative of the insurer reading as follows: “I certify that this illustration has been presented to the applicant and that I have explained that any non-guaranteed elements illustrated are subject to change. I have made no statements that are inconsistent with the illustration.”

(5) Tabular detail.

(a) A basic illustration shall include the following for at least each policy year from one to ten and for every fifth policy year thereafter ending at age one hundred, policy maturity or final expiration; and except for term insurance beyond the twentieth year, for any year in which the premium outlay and contract premium, if applicable, is to change:

(i) The premium outlay and mode the applicant plans to pay and the contract premium, as applicable;

(ii) The corresponding guaranteed death benefit, as provided in the policy; and

(iii) The corresponding guaranteed value available upon surrender, as provided in the policy.

(b) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender, shall correspond to the period of time (policy year) for which the contract premium has been paid.

(c) Non-guaranteed elements may be shown if described in the contract. In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, they may be shown if the insurer’s current practice is to pay terminal dividends. If any non-guaranteed elements are shown they must be shown at the same durations as the corresponding guaranteed elements, if any. If no guaranteed benefit or value is available at any duration for which a non-guaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

(H) Standards for supplemental illustrations

(1) A supplemental illustration may be provided so long as:

(a) It is appended to, accompanied by or preceded by a basic illustration that complies with this rule;

(b) The non-guaranteed elements shown are not more favorable to the policy owner than the corresponding elements based on the scale used in the basic illustration;

(c) It contains the same statement required of a basic illustration that non-guaranteed elements are not guaranteed; and

(d) For a policy that has a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration. For policies that do not require a contract premium, the premium outlay underlying the supplemental illustration shall be equal to the premium outlay shown in the basic illustration.

(2) The supplemental illustration shall include a notice referring to the basic illustration for guaranteed elements and other important information.

(I) Delivery of illustration and record retention

(1) (a) If a basic illustration is used by an insurance agent or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this rule, shall be submitted to the insurer at the time of policy application. A copy also shall be provided to the applicant.

(b) If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy. The revised illustration shall conform to the requirements of this rule, shall be labeled “Revised Illustration” and shall be signed and dated by the applicant or policy owner and agent or other authorized representative of the insurer no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

(2) (a) If no illustration is used by an insurance agent or other authorized representative of the insurer in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the agent or representative shall certify to that effect in writing on a form provided by the insurer. On the same form the applicant shall acknowledge that no illustration conforming to the policy applied for was provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery. This form shall be submitted to the insurer at the time of policy application.

(b) If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

(3) If the basic illustration or revised illustration is sent to the applicant or policy owner by mail from the insurer, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer. The insurer’s obligation under this paragraph shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page. 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 numeric summary page.

(4) A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, shall be retained by the insurer until three years after the policy is no longer in force. A copy need not be retained if no policy is issued.

(J) Annual report; notice to policy owners

(1) In the case of a policy designated as one for which illustrations will be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall contain at least the following information;

(a) For universal life policies, the report shall include the following:

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

(ii) The policy value at the end of the previous report period and at the end of the current report period;

(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);

(iv) The current death benefit at the end of the current report period on each life covered by the policy;

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

(vi) The amount of outstanding loans, if any, as of the end of the current report period; and

(vii) For fixed premium policies:

If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy’s net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report; or

(viii) For flexible premium policies:

If, assuming guaranteed interest, mortality and expense loads, the policy’s net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.

(b) For all other policies, where applicable:

(i) Current death benefit;

(ii) Annual contract premium;

(iii) Current cash surrender value;

(iv) Current dividend;

(v) Application of current dividend; and

(vi) Amount of outstanding loan.

(c) Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years when a change has been made to non-guaranteed policy elements by the insurer.

(2) If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently: ” IMPORTANT POLICY OWNER NOTICE: you should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, such an illustration by calling [insurer’s phone number], writing to [insurer’s name] at [insurer’s address] or contacting your agent. If you do not receive a current illustration of your policy within thirty days from your request, you should contact your state insurance department.” The insurer may vary the sequential order of the methods for obtaining an in force illustration.

(3) Upon the request of the policy owner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer’s present illustrated scale. This illustration shall comply with the requirements of paragraphs (F)(1), (F)(2), (G)(1) and (G)(5) of this rule. No signature or other acknowledgment of receipt of this illustration shall be required.

(4) If an adverse change in non-guaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change prominently displayed.

(K) Annual certifications

(1) The board of directors of each insurer shall appoint one or more illustration actuaries.

(2) The illustration actuary shall certify that the disciplined current scale used in illustrations is in conformity with the actuarial standard of practice for compliance with the NAIC model regulation on life insurance illustrations promulgated by the actuarial standards board, and that the illustrated scales used in insurer-authorized illustrations meet the requirements of this rule.

(3) The illustration actuary shall:

(a) Be a member in good standing of the American academy of actuaries;

(b) Be familiar with the standard of practice regarding life insurance policy illustrations;

(c) Not have been found by the superintendent, following appropriate notice and hearing to have:

(i) Violated any provision of, or any obligation imposed by, the insurance law or other law in the course of his or her dealings as an illustration actuary;

(ii) Been found guilty of fraudulent or dishonest practices;

(iii) Demonstrated his or her incompetence, lack of cooperation, or untrustworthiness to act as an illustration actuary; or

(iv) Resigned or been removed as an illustration actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of a failure to adhere to generally acceptable actuarial standards;

(d) Not fail to notify the superintendent of any action taken by a commissioner of another state similar to that under paragraph (K)(3)(c) of this rule;

(e) Disclose in the annual certification whether, since the last certification, a currently payable scale applicable for business issued within the previous five years and within the scope of the certification has been reduced for reasons other than changes in the experience factors underlying the disciplined current scale. If non-guaranteed elements illustrated for new policies are not consistent with those illustrated for similar in force policies, this must be disclosed in the annual certification. If non-guaranteed elements illustrated for both new and in force policies are not consistent with the non-guaranteed elements actually being paid, charged or credited to the same or similar forms, this must be disclosed in the annual certification; and

(f) Disclose in the annual certification the method used to allocate overhead expenses for all illustrations:

(i) Fully allocated expenses;

(ii) Marginal expenses; or

(iii) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the NAIC or by the superintendent.

(4)(a) The illustration actuary shall file a certification with the board and with the superintendent:

(i) Annually for all policy forms for which illustrations are used; and

(ii) Before a new policy form is illustrated.

(b) If an error in a previous certification is discovered, the illustration actuary shall notify the board of directors of the insurer and the superintendent promptly.

(5) If an illustration actuary is unable to certify the scale for any policy form illustration the insurer intends to use, the actuary shall notify the board of directors of the insurer and the superintendent promptly of his or her inability to certify.

(6) A responsible officer of the insurer, other than the illustration actuary, shall certify annually:

(a) That the illustration formats meet the requirements of this rule and that the scales used in the insurer-authorized illustrations are those scales certified by the illustration actuary; and

(b) That the company has provided its agents with information about the expense allocation method used by the company in its illustrations and disclosed as required in paragraph (K)(3)(f) of this rule.

(7) The annual certifications shall be provided to the superintendent each year by a date determined by the insurer.

(8) If an insurer changes the illustration actuary responsible for all or a portion of the company’s policy forms, the insurer shall notify the superintendent of that fact promptly and disclose the reason for the change.

(L) Penalties

In addition to any other penalties provided by the laws of this state, an insurer, agent, or authorized representative of the insurer that violates a requirement of this rule shall be guilty of a violation of section 3901.21 of the Revised Code.

(M) Severability

If any paragraph, term or provision of this rule is adjudged invalid for any reason, such judgment shall not affect, impair or invalidate any other paragraph, term or provision of this rule, and the remaining paragraphs, terms and provisions shall be and shall continue in full force and effect.

(N) Effective date

This rule shall apply to policies illustrated or written with an application date on or after the effective date.

R.C. 119.032 review dates: 03/07/2008 and 12/27/2012

Promulgated Under: 119.03

Statutory Authority: 3901.041, 3901.21

Rule Amplifies: 3901.19 to 3901.23

Prior Effective Dates: 10/1/97

(A) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3901.21 of the Revised Code. This rule implements sections 3901.19 to 3901.221 of the Revised Code.

(B) Purpose and scope

(1) The purpose of this rule is:

(a) To regulate the activities of insurers and producers with respect to the replacement of existing life insurance and annuities.

(b) 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. It will:

(i) Assure that purchasers receive information with which a decision can be made in his or her own best interest;

(ii) Reduce the opportunity for misrepresentation and incomplete disclosure; and

(iii) Establish penalties for failure to comply with requirements of this rule.

(2) Unless otherwise specifically included, this rule shall not apply to transactions involving:

(a) Credit life insurance;

(b) 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 connections with enrolling that individual. Group life insurance or group annuity certificates marketed through direct response solicitation shall be subject to the provisions of paragraph (H) of this rule.

(c) Group life insurance and annuities used to fund prearranged funeral contracts;

(d) 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 superintendent; or, when a term conversion privilege is exercised among corporate affiliates;

(e) Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the same company;

(f)

(i) Policies or contracts used to fund:

(a) An employee pension or welfare benefit plan that is covered by the “Employee Retirement and Income Security Act (ERISA)”;

(b) A plan described by sections 401(a), 401(k) or 403(b) of the “Internal Revenue Code,” where the plan, for the purposes of “ERISA,” is established or maintained by an employer;

(c) 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

(d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(ii) Notwithstanding paragraph (B)(2)(f)(i), this rule 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 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 paragraph, 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 connections with enrolling that individual employee;

(g) 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;

(h) Existing life insurance that is a non-convertible term life insurance policy that will expire in five years or less and cannot be renewed;

(i) Immediate annuities that are purchased with proceeds from an existing contract. Immediate annuities purchased with proceeds from an existing policy are not exempted from the requirements of this rule; or

(j) Structured settlements.

(3) Registered contracts shall be exempt from the requirements of paragraphs (F)(1)(b) and (G)(2) of this rule 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.

(C) Definitions

As used in this rule:

(1) “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.

(2) “Existing insurer” means the insurance company whose policy or contract is or will be changed or affected in a manner described with the definition of “replacement.”

(3) “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.

(4) “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 months before or thirteen 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 paragraph (E)(1)(e) of this rule.

(5) “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 rule 3901-6-04 of the Administrative Code.

(6) “Policy summary” :

(a) 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.

(b) For universal life policies, 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 (e.g., 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.

(7) “Producer,” for purposes of this rule, shall be defined to include agents, brokers and producers.

(8) “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.

(9) “Registered contract” means a variable annuity contract or variable life insurance policy subject to the prospectus delivery requirements of the “Securities Act of 1933,” as amended.

(10) “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:

(a) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated;

(b) 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;

(c) 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;

(d) Reissued with any reduction in cash value; or

(e) Used in a financed purchase.

(11) “Sales material” means a sales illustration and any other written, printed or electronically presented information created, or 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.

(D) Duties of producers

(1) 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.

(2) If the applicant answered “yes” to the question regarding existing coverage referred to in paragraph (D)(1) of this rule, 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” to this rule or other substantially similar form approved by the superintendent. 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.

(3) 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.

(4) 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.

(5) Except as provided in paragraph (F)(3) of this rule, 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.

(E) Duties of insurers that use producers

Each insurer shall:

(1) Maintain a system of supervision and control to ensure compliance with the requirements of this rule that shall include at least the following:

(a) Inform its producers of the requirements of this rule and incorporate the requirements of this rule into all relevant producer training manuals prepared by the insurer;

(b) 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;

(c) A system to review the appropriateness of each replacement transaction that the producer does not indicate is in accordance with paragraph (E)(1)(b) of this rule;

(d) Procedures to confirm that the requirements of this rule have been met; and

(e) 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 rule may include, but shall not be limited to, systematic customer surveys, interviews, confirmation letters, or programs of internal monitoring.

(2) 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 superintendent of insurance. The capacity to monitor shall include the ability to produce records for each producer’s:

(a) Life replacements, including financed purchases, as a percentage of the producer’s total annual sales for life insurance;

(b) Number of lapses of policies by the producer as a percentage of the producer’s total annual sales for life insurance;

(c) Annuity contract replacements as a percentage of the producer’s total annual annuity contract sales;

(d) 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 paragraph (E)(1)(e) of this rule; and

(e) Replacements, indexed by replacing producer and existing insurer;

(3) 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;

(4) 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” to this rule.

(5) When the applicant has existing policies or contracts, each insurer shall be able to produce copies of any sales material required by paragraph (D)(5) of this rule, 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 years after the termination or expiration of the proposed policy or contract;

(6) Ascertain that the sales material and illustrations required by paragraph (D)(5) of this rule meet the requirements of this rule and are complete and accurate for the proposed policy or contract;

(7) If an application does not meet the requirements of this rule, notify the producer and applicant and fulfill the outstanding requirements; and

(8) Maintain records in paper, photograph, microprocess, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.

(F) Duties of replacing insurers that use producers

(1) Where a replacement is involved in the transaction, the replacing insurer shall:

(a) Verify that the required forms are received and are in compliance with this rule;

(b) Notify any other existing insurer that may be affected by the proposed replacement within five 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 business days of a request from an existing insurer;

(c) Be able to produce copies of the notification regarding replacement required in paragraph (D)(2) of this rule, indexed by producer, for at least five years or until the next regular examination by the insurance department of a company’s state of domicile, whichever is later; and

(d) Provide to the policy or contract owner notice of the right to return the policy or contract within thirty 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 “Appendix C” to this rule.

(2) 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.

(3) 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 paragraph (D)(5) of this rule, the insurer may:

(a) Require with each application a statement signed by the producer that:

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

(ii) States that copies of all sales material were left with the applicant in accordance with paragraph (D)(4) of this rule; and

(b) Within ten days of the issuance of the policy or contract:

(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 paragraph (D)(4) of this rule;

(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

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

(c) Be able to produce a copy of the letter or other verification in the policy file for at least five years after the termination or expiration of the policy or contract.

(G) Duties of the existing insurer

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

(1) Retain and be able to produce all replacement notifications received, indexed by replacing insurer, for at least five years or until the conclusion of the next regular examination conducted by the insurance department of its state of domicile, whichever is later.

(2) 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 with five business days of receipt of a notice that an existing policy or contract is being replaced. The information shall be provided within five business days of receipt of the request from the policy or contract owner.

(3) 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 reuired to send the notice at the time of the first loan.

(H) Duties of insurers with respect to direct response solicitations

(1) 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 any 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” to this rule, or other substantially similar form approved by the superintendent.

(2) 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:

(a) Provide to applicants or prospective applicants with the policy or contract a notice, as described in “Appendix C” to this rule, or other substantially similar form approved by the superintendent. 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 superintendent. 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 paragraph; and

(b) Comply with the requirements of paragraph (F)(1)(b) of this rule, if the applicant furnishes the names of the existing insurers, and the requirements of paragraphs (F)(1)(c), (F)(1)(d) and (F)(2) of this rule.

(I) Violations and penalties

(1) Any failure to comply with this rule shall be considered a violation of section 3901.20 of the Revised Code. Examples of violations include:

(a) Any deceptive or misleading information set forth in sales material;

(b) Failing to ask the applicant in completing the application the pertinent questions regarding the possibility of financing or replacement;

(c) The intentional incorrect recording of an answer;

(d) Advising an applicant to respond negatively to any question regarding replacement in order to prevent notice to the existing insurer; or

(e) 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.

(2) 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 regulation.

(3) Where it is determined that the requirements of this regulation 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 “Appendix C” to this rule.

(4) Violations of this rule shall subject the violators to penalties that may include the revocation or suspension of a producer’s or company’s license, monetary fines and the forfeiture of any commissions or compensation paid to a producer as a result of the transaction in connection with which the violations occurred. In addition, where the superintendent has determined that the violations were material to the sale, the insurer may be required to make restitution, restore policy or contract values and pay interest on the amount refunded in cash.

(J) Severability

If any paragraph, term, or provision of this rule is adjudged invalid for any reason, such judgment shall not affect, impair, invalidate any other paragraph, term or provision of this rule, and the remaining paragraphs, terms and provisions shall be and shall continue in full force and effect.

APPENDIX A

IMPORTANT NOTICE:

REPLACEMENT OF LIFE INSURANCE OR ANNUITIES

This document must be signed by the applicant and the producer, if there is one, and a copy left with the applicant.

You are contemplating the purchase of a life insurance policy or annuity contract. In some cases this purchase may involve discontinuing or changing an existing policy or contract. If so, a replacement is occurring. Financed purchases are also considered replacements.

A replacement occurs when a new policy or contract is purchased and, in connection with the sale, you discontinue making premium payments on the existing policy or contract, or an existing policy or contract is surrendered, forfeited, assigned to the replacing insurer, or otherwise terminated or used in a financed purchase.

A financed purchase occurs when the purchase of a new life insurance policy involves the use of funds obtained by the withdrawal or surrender of or by borrowing some or all of the policy values, including accumulated dividends, of an existing policy to pay all or part of any premium or payment due on the new policy. A financed purchase is a replacement.

You should carefully consider whether a replacement is in your best interests. You will pay acquisition costs and there may be surrender costs deducted from your policy or contract. You may be able to make changes to your existing policy or contract to meet your insurance needs at less cost. A financed purchase will reduce the value of your existing policy and may reduce the amount paid upon the death of the insured.

We want you to understand the effects of replacements before you make your purchase decision and ask that you answer the following questions and consider the questions on the back of this form.

1. Are you considering discontinuing making premium payments, surrendering, forfeiting, assigning to the insurer, or otherwise terminating your existing policy or contract? ___ YES ___ NO

2. Are you considering using funds from your existing policies or contracts to pay premiums due on the new policy or contract? ___ YES ___ NO

If you answered “yes” to either of the above questions, list each existing policy or contract you are contemplating replacing (include the name of the insurer, the insured or annuitant, and the policy or contract number if available) and whether each policy or contract will be replaced or used as a source of financing:

INSURER NAME – CONTRACT OR POLICY # – INSURED OR ANNUITANT – REPLACED (R) OR FINANCING (F)

1.

2.

3.

Make sure you know the facts. Contact your existing company or its agent for information about the old policy or contract. If you request one, an in force illustration, policy summary or available disclosure documents must be sent to you by the existing insurer. Ask for and retain all sales material used by the agent in the sales presentation. Be sure that you are making an informed decision.

The existing policy or contract is being replaced because

_______________________________________________.

I certify that the responses herein are, to the best of my knowledge, accurate:

---

Applicant’s Signature and Printed Name                           Date

---

Producer’s Signature and Printed Name                           Date

I do not want this notice read aloud to me. (Applicants must initial only if they do not want the notice read aloud.) A replacement may not be in your best interest, or your decision could be a good one. You should make a careful comparison of the costs and benefits of your existing policy or contract and the proposed policy or contract. One way to do this is to ask the company or agent that sold you your existing policy or contract to provide you with information concerning your existing policy or contract. This may include an illustration of how your existing policy or contract is working now and how it would perform in the future based on certain assumptions. Illustrations should not, however, be used as a sole basis to compare policies or contracts. You should discuss the following with your agent to determine whether replacement or financing your purchase makes sense:

PREMIUMS: Are they affordable?

Could they change?

You’re older — are premiums higher for the proposed new policy?

How long will you have to pay premiums on the new policy? On the old policy?

POLICY VALUES: New policies usually take longer to build cash values and to pay dividends.

Acquisition costs for the old policy may have been paid, you will incur costs for the new one.

What surrender charges do the policies have?

What expense and sales charges will you pay on the new policy?

Does the new policy provide more insurance coverage?

INSURABILITY: If your health has changed since you bought your old policy, the new one could cost you more, or you could be turned down.

You may need a medical exam for a new policy.

Claims on most new policies for up to the first two years can be denied based on inaccurate statements.

Suicide limitations may begin anew on the new coverage.

IF YOU ARE KEEPING THE OLD POLICY AS WELL AS THE NEW POLICY:

How are premiums for both policies being paid?

How will the premiums on your existing policy be affected?

Will a loan be deducted from death benefits?

What values from the old policy are being used to pay premiums?

IF YOU ARE SURRENDERING AN ANNUITY OR INTEREST SENSITIVE LIFE PRODUCT:

Will you pay surrender charges on your old contract?

What are the interest rate guarantees for the new contract?

Have you compared the contract charges or other policy expenses?

OTHER ISSUES TO CONSIDER FOR ALL TRANSACTIONS:

What are the tax consequences of buying the new policy?

Is this a tax free exchange? (See your tax advisor.)

Is there a benefit from favorable “grandfathered” treatment of the old policy under the federal tax code?

Will the existing insurer be willing to modify the old policy?

How does the quality and financial stability of the new company compare with your existing company?

APPENDIX B

NOTICE REGARDING REPLACEMENT

REPLACING YOUR LIFE INSURANCE POLICY OR ANNUITY?

Are you thinking about buying a new life insurance policy or annuity and discontinuing or changing an existing one? If you are, your decision could be a good one — or a mistake. You will not know for sure unless you make a careful comparison of your existing benefits and the proposed policy or contract’s benefits.

Make sure you understand the facts. You should ask the company or agent that sold you your existing policy or contract to give you information about it.

Hear both sides before you decide. This way you can be sure you are making a decision that is in your best interest.

APPENDIX C

IMPORTANT NOTICE:

REPLACEMENT OF LIFE INSURANCE OR ANNUITIES

You are contemplating the purchase of a life insurance policy or annuity contract. In some cases this purchase may involve discontinuing or changing an existing policy or contract. If so, a replacement is occurring. Financed purchases are also considered replacements.

A replacement occurs when a new policy or contract is purchased and, in connection with the sale, you discontinue making premium payments on the existing policy or contract, or an existing policy or contract is surrendered, forfeited, assigned to the replacing insurer, or otherwise terminated or used in a financed purchase.

A financed purchase occurs when the purchase of a new life insurance policy involves the use of funds obtained by the withdrawal or surrender of or by borrowing some or all of the policy values, including accumulated dividends, of an existing policy, to pay all or part of any premium or payment due on the new policy. A financed purchase is a replacement.

You should carefully consider whether a replacement is in your best interests. You will pay acquisition costs and there may be surrender costs deducted from your policy or contract. You may be able to make changes to your existing policy or contract to meet your insurance needs at less cost. A financed purchase will reduce the value of your existing policy and may reduce the amount paid upon the death of the insured.

We want you to understand the effects of replacements and ask that you answer the following questions and consider the questions on the back of this form.

1. Are you considering discontinuing making premium payments, surrendering, forfeiting, assigning to the insurer, or otherwise terminating your existing policy or contract? ___ YES ___ NO

2. Are you considering using funds from your existing policies or contracts to pay premiums due on the new policy or contract? ___ YES ___ NO

Please list each existing policy or contract you are contemplating replacing (include the name of the insurer, the insured, and the policy or contract number if available) and whether each policy or contract will be replaced or used as a source of financing:

INSURER NAME – CONTRACT OR POLICY # – INSURED OR ANNUITANT – REPLACED (R) OR FINANCING (F)

1.

2.

3.

Make sure you know the facts. Contact your existing company or its agent for information about the old policy or contract. If you request one, an in force illustration, policy summary or available disclosure documents must be sent to you by the existing insurer. Ask for and retain all sales material used by the agent in the sales presentation.

Be sure that you are making an informed decision.

I certify that the responses herein are, to the best of my knowledge, accurate:

---

Applicant’s Signature and Printed Name                          Date

A replacement may not be in your best interest, or your decision could be a good one. You should make a careful comparison of the costs and benefits of your existing policy or contract and the proposed policy or contract. One way to do this is to ask the company or agent that sold you your existing policy or contract to provide you with information concerning your existing policy or contract. This may include an illustration of how your existing policy or contract is working now and how it would perform in the future based on certain assumptions. Illustrations should not, however, be used as a sole basis to compare policies or contracts. You should discuss the following with your agent to determine whether replacement or financing your purchase makes sense:

PREMIUMS: Are they affordable?

Could they change?

You’re older — are premiums higher for the proposed new policy?

How long will you have to pay premiums on the new policy? On the old policy?

POLICY VALUES: New policies usually take longer to build cash values and to pay dividends.

Acquisition costs for the old policy may have been paid, you will incur costs for the new one.

What surrender charges do the policies have?

What expense and sales charges will you pay on the new policy?

Does the new policy provide more insurance coverage?

INSURABILITY: If your health has changed since you bought your old policy, the new one could cost you more, or you could be turned down.

You may need a medical exam for a new policy.

Claims on most new policies for up to the first two years can be denied based on inaccurate statements.

Suicide limitations may begin anew on the new coverage.

IF YOU ARE KEEPING THE OLD POLICY AS WELL AS THE NEW POLICY:

How are premiums for both policies being paid?

How will the premiums on your existing policy be affected?

Will a loan be deducted from death benefits?

What values from the old policy are being used to pay premiums?

IF YOU ARE SURRENDERING AN ANNUITY OR INTEREST SENSITIVE LIFE PRODUCT:

Will you pay surrender charges on your old contract?

What are the interest rate guarantees for the new contract?

Have you compared the contract charges or other policy expenses?

OTHER ISSUES TO CONSIDER FOR ALL TRANSACTIONS:

What are the tax consequences of buying the new policy?

Is this a tax free exchange? (See your tax advisor.)

Is there a benefit from favorable “grandfathered” treatment of the old policy under the federal tax code?

Will the existing insurer be willing to modify the old policy?

How does the quality and financial stability of the new company compare with your existing company?

Replaces: 3901-6-05

Effective: 03/01/2007

R.C. 119.032 review dates: 12/22/2008

Promulgated Under: 119.03

Statutory Authority: 3901.041, 3901.21

Rule Amplifies: 3901.19-3901.221

Prior Effective Dates: 12/30/79, 10/1/97

(A) Purpose

The purpose of this rule is to regulate accelerated benefit provisions of individual and group life insurance policies and to provide required standards of disclosure.

(B) Authority

This rule is promulgated pursuant to the authority vested in the superintendent under sections 3901.041 and 3915.24 of the Revised Code.

(C) Scope

This rule shall apply to all accelerated benefit provisions of individual and group life insurance policies, except those subject to the long-term care statutes and rules, issued or delivered in this state on or after the effective date of this rule.

(D) Definitions

(1) “Accelerated benefits” covered under this rule are benefits payable under a life insurance contract:

(a) To a policyowner or certificateholder, during the lifetime of the insured, in anticipation of death or upon the occurrence of specified life-threatening or catastrophic conditions as defined by the policy or rider; and

(b) Which reduce the death benefit otherwise payable under the life insurance contract; and

(c) Which are payable upon the occurrence of a single qualifying event in an amount fixed at the time of acceleration.

(2) “Qualifying event” shall mean one or more of the following:

(a) A medical condition which would result in a drastically limited life span as specified in the contract, for example, twenty-four months or less; or

(b) A medical condition which has required or requires extraordinary medical intervention, such as, but not limited to, major organ transplant or continuous artificial life support, without which the insured would die; or

(c) Any condition which usually requires continuous confinement in an eligible institution as defined in the contract if the insured is expected to remain there for the rest of his or her life; or

(d) A medical condition which would, in the absence of extensive or extraordinary medical treatment, result in a drastically limited life span. Such conditions may include, “but are not limited to,” one or more of the following:

(i) Coronary artery disease resulting in an acute infarction or requiring surgery;

(ii) Permanent neurological deficit resulting from cerebral vascular accident;

(iii) End stage renal failure;

(iv) Acquired immune deficiency syndrome (AIDS); or

(v) Other medical conditions which the superintendent shall approve for any particular filing; or

(e) Other qualifying events which the superintendent shall approve for any particular filing.

(E) Type of product

Accelerated benefit riders and life insurance policies with accelerated benefit provisions are primarily mortality risks rather than morbidity risks. They are life insurance benefits subject to Chapter 3915. of the Revised Code.

(F) Assignee/beneficiary

Prior to the payment of the accelerated benefit, the insurer is required to obtain from an assignee or irrevocable beneficiary a signed acknowledgment of concurrence for payout. If the insurer making the accelerated benefit is itself the assignee under the policy, no such acknowledgment is required.

(G) Criteria for payment

(1) Lump sum settlement option required contract payment options shall include the option to take the benefit as a lump sum. The benefit shall not be made available as an annuity contingent upon the life of the insured.

(2) Restrictions on use of proceeds

No restrictions are permitted on the use of the proceeds.

(3) Accidental death benefit provision

If any death benefit remains after payment of an accelerated benefit, the accidental death benefit provision, if any, in the policy or rider shall not be affected by the payment of the accelerated benefit.

(H) Disclosures

(1) Descriptive title

The terminology “accelerated benefit” shall be included in the descriptive title. Products regulated under this rule shall not be described or marketed as long-term care insurance or as providing long-term care benefits.

(2) Tax consequences

A disclosure statement is required at the time of application for the policy or rider and at the time the accelerated benefit payment request is submitted that receipt of these accelerated benefits may be taxable and that assistance should be sought from a personal tax advisor. The disclosure statement shall be prominently displayed on the first page of the policy or rider and any other related documents.

(3) Solicitations

(a) A written disclosure including, but not necessarily limited to, a brief description of the accelerated benefit and definitions of the conditions or occurrences triggering payment of the benefits shall be given to the applicant. The description shall include an explanation and a generic illustration numerically demonstrating any effect of the payment of a benefit on the policy’s cash value, account value, death benefit, premium, policy loans and policy liens.

(i) In the case of agent solicited insurance, the agent shall provide the disclosure form to the applicant prior to or concurrently with the application. Acknowledgment of the disclosure shall be signed by the applicant and writing agent.

(ii) In the case of a solicitation by direct response methods, the insurer shall provide the disclosure form to the applicant at the time the policy is delivered, with a notice that a full premium refund shall be received if the policy is returned to the company within the free look period.

(iii) In the case of group insurance policies, the disclosure form shall be contained as part of the certificate of coverage or any related document furnished by the insurer for the certificateholder.

(b) Disclosure of premium charge

(i) Insurers with financing options other than as described in paragraphs (L)(1)(b) and (L)(1)(c) of this rule shall disclose to the policyowner any premium or cost of insurance charge for the accelerated benefit. These insurers shall make a reasonable effort to assure that the certificateholder is aware of any additional premium or cost of insurance charge if the certificateholder is required to pay such charge.

(ii) Insurers shall furnish an actuarial demonstration to the state insurance department when filing the product disclosing the method of arriving at their cost for the accelerated benefit.

(c) Disclosure of administrative expense charge the insurer shall disclose to the policyowner any administrative expense charge. The insurer shall make a reasonable effort to assure that the certificateholder is aware of any administrative expense charge if the certificateholder is required to pay such charge.

(4) Effect of the benefit payment

When a policyowner or cert