This bulletin provides information about the National Association of Insurance Commissioners (NAIC) Model Illustration Regulation and its rules concerning the use of illustrations in the sale of life insurance.
At this time, the life insurance illustration regulation promulgated by the NAIC has been adopted in the following states: Alabama, Alaska, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Washington, West Virginia and Wisconsin. In these jurisdictions, strict compliance with the regulation is mandatory. Any failure to comply could result in severe penalties to the producer and/or the company.
WHICH SALES REQUIRE ILLUSTRATIONS?
Every product that is identified as “illustrated” must be sold with an illustration that conforms to the regulations adopted by the applicable jurisdiction. Only products that are explicitly deemed “not illustrated” can be issued without an illustration. In addition, the illustration regulation is not applicable to variable life insurance, annuities, credit life insurance, or policies which do not have non-guaranteed elements.
* PLEASE NOTE THAT TRANSAMERICA WORKSITE MARKETING DOES NOT PROVIDE AN ILLUSTRATION AT THE TIME LIFE PRODUCTS ARE SOLICITED. THE “NO ILLUSTRATION QUESTION” MUST BE ANSWERED ON ALL LIFE APPLICATIONS BEFORE COVERAGE WILL BE ISSUED. AN ILLUSTRATION WILL BE PROVIDED AT THE TIME OF CONTRACT DELIVERY.
It is important to note that answering the “No Illustration Question” does not take the place of a signed illustration. It merely allows a producer to submit an application prior to presentation of a compliant illustration. (An illustration will be provided to the Insured at the time of contract delivery, along with a business reply envelope to use when returning the signed summary page of the illustration. Transamerica Employee Benefits will retain a copy of all signed illustrations in our files for the length of time required by the regulation.)
In combination with the “No Illustration Question,” quotations, rate sheets and rate guides approved by Transamerica Employee Benefits may be used in the sale of the division’s illustrated life products. The quotes must be shown to the client and potential enrollees prior to, or in conjunction with, the application process. The quotation must show potential policy values for sample ages and policy years on a guaranteed and non-guaranteed basis appropriate to the coverage. This quotation is not considered an illustration for purposes of the NAIC regulation, but all information provided must be consistent with the illustrated scale.
WHAT IF A POLICY IS ISSUED OTHER THAN AS APPLIED FOR?
If a contract is approved other than as applied for (e.g., different face amount), then an illustration reflecting the revised coverage will be generated by the administrative system when the contract is issued for delivery with the Policy/Certificate. Again, a business reply envelope will be included for the insured’s use in returning the signed summary page of the illustration to the company.
SUMMARY OF THE REGULATION
The goal of the regulation is to help clients better understand the coverage they are purchasing. The regulation affects the way you, as producers, do business in several ways. Once again, compliance with the regulation is mandatory.
The regulation prescribes certain numerical tests that limit the non-guaranteed values or “assumptions” that may be used in illustrations. For instance, our actuaries certify annually that the contracts we illustrate are self-supporting and are not subsidized by unrealistic actuarial assumptions. Our actuaries have performed these tests and have used the “fully allocated expense” method in doing so.
THE SIGNED ILLUSTRATION MUST EXACTLY MATCH THE CONTRACT APPLIED FOR
On the basis of the application which it accompanies (i.e., the same face amount, age, sex, premium amount, mode, class of risk, etc.). Any handwritten notes, comments, circling, underlining, or other forms of highlighting on an illustration will create the need for a revised illustration.
Non-guaranteed benefits or policy values cannot be shown without providing the client with a compliant illustration. It is important to note that even a handwritten summary on a napkin, if it contains non-guaranteed numbers, could be considered a non-compliant illustration.
If you have specific product illustration questions, please contact Transamerica’s Sales Support at 1-866-872-6726.
Your cooperation in adhering to these guidelines on the use of the “No Illustration Question,” and rate sheets/rate guides, is expected.