• Increase Text Icon
  • Decrease Text Icon
  • Email Icon
  • Print this page
You are here: Home . rules . 2007 . 0622a-059

SUBCHAPTER HH. MILITARY SALES PRACTICES 28 TAC §§21.4201 - 21.4207

1. INTRODUCTION. The Texas Department of Insurance proposes new Subchapter HH, §§21.4201 - 21.4207, concerning military sales practices, to protect active duty service members of the United States Armed Forces from certain dishonest and predatory practices with respect to the sale of life insurance. This proposal sets forth the basis for the determination that activities in the proposed subchapter are false, misleading, deceptive or unfair acts or practices. This proposal is necessary because of the Department's finding, during its investigation commenced in 2004 of life insurance sales practices to active duty service members located in Texas, of numerous violations by insurance agents of United States Department of Defense (DoD) policy, and because of the findings of the United States Congress that active duty service members have been subjected to abusive and misleading life insurance sales practices.

During its investigation, the Department determined that some insurance agents were violating DoD policy prescribed in DoD Instruction 1344.07 - PERSONAL COMMERCIAL SOLICITATION ON DOD INSTALLATIONS (DoD Instruction 1344.07) governing commercial solicitation on military installations. The purpose of DoD Instruction 1344.07 is to protect the welfare of DoD personnel as consumers by establishing uniform procedures for personal commercial solicitation and sales to DoD personnel. The Department gained knowledge that agents licensed by the Department had committed the following violations of DoD policy prescribed in DoD Instruction 1344.07 on Texas military installations: soliciting the purchase of insurance products door-to-door in service member residential housing areas without first establishing an appointment; soliciting service members in a mass audience; soliciting service members during normally scheduled duty hours; soliciting on military installations without the permission of the installation commander or commander's designee; circumventing requirements established by the DoD or a branch of the Armed Forces relating to life insurance transactions; participating in education programs sponsored by the Armed Forces; participating in allotment processing directing service member pay to a third party for the purchase of life insurance; offering promotional incentives to facilitate life insurance sales transactions; using titles implying affiliation with the U.S. Government or Armed Forces; giving misleading descriptions of life insurance product features; using deceptive lead materials; failing to disclose that the product to be sold at an appointment would be life insurance, even upon direct questioning; and failing to provide service member life insurance applicants with required information following sales.

It is the Department's position that insurance sales practices committed in violation of DoD policy enacted to safeguard the consumer welfare of DoD personnel constitute false, misleading, unfair or deceptive trade practices. Life insurance solicitation in violation of DoD policy is misleading and deceptive because solicited service members incorrectly believe that the insurer or insurance agent's activities are sanctioned or authorized by the military installation commander, and that the insurers or insurance agents have met certain standards and requirements intended to protect service members. Violations of DoD policies governing commercial solicitation are unfair because they allow violating insurers and insurance agents an undue competitive advantage over compliant insurers and insurance agents. Insurers and insurance agents violating DoD policies are given an undue competitive advantage because they have access to, and communications with, service members in times, places, and manners not afforded to compliant insurers and insurance agents.

In the course of its investigation, the Department also found that insurers licensed by the Department had engaged in establishing fictitious accounts at depository institutions into which premiums for life insurance were deposited directly from service members' pay. This resulted in the life insurance premium deduction being falsely described on service members' Leave and Earnings Statements as "BANK ACCT ALLOT," the notation for a deposit to a checking or savings account held by the service member. Some agents were found to have given deceptive descriptions regarding the propriety of Servicemembers' Group Life Insurance, a low-cost group life insurance program offered to service members and subsidized by the federal government. It is the Department's position that these activities constitute false, misleading, unfair or deceptive trade practices because they involve untrue written and oral statements made by insurers or insurance agents.

The United States Government has also addressed the issue of deceptive insurance sales practices to service members. The Military Personnel Financial Services Protection Act, Public Law 109-290 (Public Law), was passed by Congress and signed into law by President Bush in 2006. Included as rationale for the Public Law, Congress decided that given the great sacrifices that members of the Armed Forces make to protect the United States, they must be offered first-rate financial products. Congress found it imperative that members of our Armed Forces be shielded from "abusive and misleading sales practices," and protected from certain life insurance products that are "improperly marketed as investment products, providing minimal death benefits in exchange for excessive premiums that are front-loaded in the first few years, making them entirely inappropriate for most military personnel." The Public Law finds that a need exists for regulation of life insurance sales practices on military installations, and expressly provides that state laws and regulations governing insurance are applicable on federal land and military installations.

Proposal of the rule defining certain trade practices as unfair methods of competition or false, misleading, deceptive or unfair acts or practices in the sale and solicitation of life insurance is within the scope of authority of the Texas Department of Insurance. Under the authority of Insurance Code §541.003 and §541.401, the Department has determined that certain acts or trade practices are false, misleading, deceptive or unfair with respect to individuals serving in the United States Armed Forces. Section 541.003 prohibits trade practices "defined in this chapter or as determined under this chapter" to be unfair methods of competition, or false, misleading, deceptive or unfair acts or practices in the business of insurance. The phrase "as determined under this chapter" is authority for the Commissioner to determine unfair methods of competition or false, misleading, deceptive or unfair acts or practices through the rulemaking process. Section 541.401(a) authorizes the Commissioner to adopt and enforce reasonable rules the Commissioner determines necessary to accomplish the purposes of Chapter 541. The purpose of Chapter 541, as stated in §541.001, is to regulate trade practices in the business of insurance by defining or providing for the determination of trade practices in this state that are unfair methods of competition or unfair or deceptive acts or practices, and prohibiting those trade practices.

Proposed §21.4201 states the purpose of the subchapter as setting forth standards to protect active duty service members of the United States Armed Forces from certain sales practices by declaring them false, misleading, deceptive or unfair.

Proposed §21.4202(a) defines the scope of the rule as applying only to the solicitation or sale of life insurance and annuity products by insurers or agents to active duty service members of the United States Armed Forces. Proposed §21.4202(b) specifies that the proposal applies only to acts or practices committed on or after the effective date of the subchapter. Proposed §21.4202(c) states that the subchapter applies in addition to statutes and rules governing marketing and solicitation and deceptive or unfair trade practices, and shall not be interpreted to limit those statutes and rules. This subsection also states that the Commissioner's authority to discipline and bring enforcement action under the proposed subchapter is in addition to existing authority.

Proposed §21.4203 exempts the following types of insurance products from the rule: credit insurance; certain group life and group annuity products; certain insurance policies issued by the same company that issued an existing policy; individual stand-alone health policies, including disability income policies; contracts offered by Servicemembers' Group Life Insurance or Veterans' Group Life Insurance, as authorized by 38 U.S.C. §§1965, et seq.; certain life insurance policies offered through non-profit military associations not underwritten by an insurer; contracts funding Employee Retirement and Income Security Act plans; plans described by Section 401(a), 401(k), 403(b), 408(k) or 408(p) of the Internal Revenue Code, if established or maintained by an employer; certain government or church welfare benefit plans; deferred compensation plans of state or local governments or certain tax exempt organizations; certain nonqualified deferred compensation arrangements; settlements of or assumptions of liabilities relating to personal injury litigation or any dispute resolution process; or prearranged funeral contracts. The Department includes these exemptions from the proposed subchapter because the Department is not aware of false, misleading, unfair or deceptive sales practices relating to these types of insurance or contracts targeting service members.

The section also specifies that nothing in the rule shall be construed to restrict the ability of certain organizations to educate members of the United States Armed Forces in accordance with DoD Instruction 1344.07 or successor directive. The section states that general advertisements, direct mail, internet marketing and certain telephone marketing do not constitute solicitation for purposes of the proposed rule, but that the proposed rule does apply to in person, face-to-face meetings established as a result of the solicitation exemptions.

Proposed §21.4204 defines the following terms used in the rule: Active Duty; Department of Defense (DoD) Personnel; Door to Door; General Advertisement; Insurer; Insurance Agent; Known or Knowingly; Life Insurance; Military Installation; MyPay; Service Member; Side Fund; Specific Appointment; and United States Armed Forces.

Proposed §21.4205 declares the following acts or practices false, misleading, deceptive or unfair when committed on a military installation: knowingly soliciting the purchase of a life insurance product "door-to-door" without first establishing a specific appointment; soliciting service members in a group or mass audience or setting where attendance is not voluntary; knowingly making appointments with or soliciting service members during their normally scheduled duty hours; making appointments with or soliciting service members in certain service member living areas or other areas where the installation commander has prohibited solicitation; soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee; posting unauthorized bulletins, notices or advertisements; failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited for life insurance or encouraging such service members solicited not to complete or submit a DD Form 2885; or knowingly accepting an application for life insurance or issuing a life insurance policy on the life of an enlisted member of the United States Armed Forces without first obtaining a completed copy of certain required forms.

The proposed section also provides that using DoD personnel, directly or indirectly, as a representative or agent in any official or business capacity with or without compensation with respect to the solicitation or sale of life insurance to service members or using an insurance agent to participate in any United States Armed Forces sponsored education or orientation program are corrupt practices or improper influences or inducements and are declared to be false, misleading, deceptive or unfair.

Proposed §21.4206(a) provides that the following acts or practices are corrupt practices, improper influences or inducements and are declared to be false, misleading, deceptive or unfair regardless of location: submitting, processing or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member's pay to a third party for the purchase of life insurance; knowingly receiving funds from a service member for the payment of premium on a life insurance policy from a depository institution with which the service member has no formal banking relationship; entering into an agreement whereby funds received from a service member by allotment for the payment of life insurance premiums are identified on the service member's Leave and Earnings Statement or equivalent or successor form as "Savings" or "Checking" and where the service member has no formal banking relationship as defined in the rule; entering into any agreement with a depository institution for the purpose of receiving funds from a service member in which the depository institution agrees to accept direct deposits from a service member with whom it has no formal banking relationship for the payment of premium on a life insurance policy; using DoD personnel as a representative or agent in any capacity with respect to the solicitation or sale of life insurance to service members who are junior in rank or grade, or to the family members of such personnel; offering or giving anything of value to DoD personnel to procure his or her assistance in assisting with the solicitation or sale of life insurance to another service member; knowingly offering or giving anything of value to a service member with a pay grade of E-4 or below for his or her attendance to any event where an application for life insurance is solicited; or advising a service member with a pay grade of E-4 or below to change his or her income tax withholding or state of legal residence for the sole purpose of increasing disposable income to purchase life insurance.

Proposed §21.4206(b) states that the following acts or practices lead to confusion regarding source, sponsorship, approval or affiliation and are declared false, misleading, deceptive or unfair regardless of location: making any representation, or using any device, title, descriptive name or identifier that may confuse or mislead a service member into believing that the insurer, agent or life insurance product offered is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity, or soliciting the purchase of any life insurance product through the use of or in conjunction with any third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that may confuse or mislead a service member into believing that either the insurer, agent or insurance product is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, or the United States Armed Forces. The subsection provides examples of prohibited insurance agent titles and specifies that the rule does not prohibit the use of certain professional designations related to the business of insurance.

Proposed §21.4206(c) states that the following acts lead to confusion regarding premiums, costs or investment returns and are declared to be false, misleading, deceptive or unfair regardless of location: using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid or misrepresenting the mortality costs of a life insurance product, including stating or implying that the product "costs nothing" or is "free."

Proposed §21.4206(d) declares the following acts or practices relating to Servicemembers' Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI) false, misleading, deceptive or unfair regardless of location: making any representation regarding the availability, suitability, amount, cost, exclusions or limitations to SGLI or VGLI coverage which is false, misleading or deceptive; making any representation regarding conversion requirements, including the costs of coverage, or exclusions or limitations to coverage of SGLI or VGLI to private insurers which is false, misleading or deceptive; or suggesting a service member cancel or terminate his or her SGLI policy or issuing a life insurance policy which replaces an existing SGLI policy unless the replacement shall take effect upon or after the service member's separation from the United States Armed Forces.

Proposed §21.4206(e) declares the following acts or practices relating to disclosure false, misleading, deceptive or unfair regardless of location: using any lead generating materials designed exclusively for use with service members that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance agent, if that is the case, for the purpose of soliciting the purchase of life insurance; failing to disclose that a solicitation for the sale of life insurance will be made when establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser; excluding individually issued annuities, failing to clearly and conspicuously disclose the fact that the product being sold is life insurance; failing to make, at the time of sale or offer to an individual known to be a service member, certain written disclosures required by federal law to a service member; or failing to provide applicants with certain explanations and written documents when a sale of life insurance is conducted in-person face-to-face with a known service member.

Proposed §21.4206(f) declares the following acts or practices relating to the sale or solicitation of life insurance products to be false, misleading, deceptive or unfair: recommending the purchase of life insurance products that include a side fund to certain service members in certain lower pay grades under specific circumstances; offering or selling certain life insurance products to service members in certain lower pay grades unless specific needs assessment requirements are met; offering or selling any life insurance contract which fails to comply with Texas statutes governing nonforfeiture provisions; or selling a life insurance product containing a war or military exclusion to a known service member. The subsection describes the circumstances that must be satisfied to avoid a finding that certain sales are false, misleading, deceptive or unfair.

Proposed §21.4207 provides that the remaining provisions of the rules remain valid if any provision is held to be invalid.

2. FISCAL NOTE. William O. Goodman, Special Litigation Counsel, Enforcement Division, has determined that for each year of the first five years the proposal will be in effect, there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the proposal. There will be no measurable effect on local employment or the local economy as a result of the proposal.

3. PUBLIC BENEFIT/COST NOTE. Mr. Goodman has determined that for each year of the first five years the proposal is in effect, the anticipated public benefits will be that active duty service members of the United States Armed Forces in Texas will be shielded from certain false, misleading, deceptive or unfair life insurance sales acts or practices previously targeted towards them. It is not anticipated that the proposed sections will result in any economic cost to the public. It is not anticipated that the proposed sections will result in any economic cost to insurers or insurance agents. It is not anticipated that the proposed sections will have an economic cost to small or micro-businesses. It is neither legal nor feasible to exempt small or micro-businesses or to waive compliance with the proposed rule considering the purpose of the proposal, which is to protect service members from certain false, misleading, deceptive or unfair life insurance sales acts or practices.

4. TAKINGS IMPACT ASSESSMENT. The Department has determined that no private real property interests are affected by this proposal and that this proposal does not restrict or limit an owner's right to property that would otherwise exist in the absence of government action and, therefore, does not constitute a taking or require a taking impact assessment under the Government Code §2007.043.

5. REQUEST FOR PUBLIC COMMENT. To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on August 6, 2007, to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comment must be simultaneously submitted to William O. Goodman, Special Litigation Counsel, Enforcement Division, Mail Code 107-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Any request for a public hearing should be submitted separately to the Office of the Chief Clerk prior to the close of the public comment period. If a hearing is held, written and oral comments presented at the hearing will be considered.

6. STATUTORY AUTHORITY. The new sections are proposed under the Insurance Code §§541.001, 541.003, 541.401(a), 541.008 and 36.001. Section 541.401(a) authorizes the Commissioner to adopt and enforce reasonable rules the Commissioner determines necessary to accomplish the purposes of Chapter 541. Section 541.001 states that the purpose of Chapter 541 is to regulate trade practices in the business of insurance by defining or providing for the determination of trade practices in this state that are unfair methods of competition or unfair or deceptive acts or practices, and prohibiting those trade practices.

Section 541.003 prohibits trade practices defined in Chapter 541 or as determined under Chapter 541 to be unfair methods of competition or unfair or deceptive acts or practices in the business of insurance. Section 541.008 states that Chapter 541 shall be liberally construed and applied. Section 36.001 authorizes the Commissioner to adopt any rules necessary and appropriate to implement the powers and duties of the Department under the Insurance Code and other laws of this state.

7. CROSS REFERENCE TO STATUTE. The following statutes are affected by this proposal:

Rule Statute

§§21.4201 - 21.4207 Insurance Code Chapter 541

8. TEXT.

SUBCHAPTER HH. MILITARY SALES PRACTICES

§21.4201. Purpose. The purpose of this subchapter is to set forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified insurance sales practices to be false, misleading, deceptive or unfair.

§21.4202. Scope.

(a) This subchapter shall apply only to the solicitation or sale of any life insurance or annuity product by an insurer or insurance agent to an active duty service member of the United States Armed Forces.

(b) This subchapter shall apply only to acts or practices committed on or after the effective date of this subchapter.

(c) This subchapter shall apply in addition to all other statutes and Texas Department of Insurance rules concerning the marketing and solicitation of insurance products, as well as statutes and Texas Department of Insurance rules concerning unfair or deceptive trade practices, and shall not be interpreted to limit those statutes and rules in any manner. The commissioner may discipline or enforce an action against an insurer or insurance agent under this subchapter in addition to any other statute or Texas Department of Insurance rule authorizing disciplinary or enforcement action.

§21.4203. Exemptions.

(a) This subchapter shall not apply to solicitations or sales involving:

( 1) credit insurance;

( 2) group life insurance or group annuities where there is no in-person, face-to-face solicitation of individuals by an insurance agent or where the contract or certificate does not include a side fund;

( 3) an application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or, when a term conversion privilege is exercised among corporate affiliates;

( 4) individual stand-alone health policies, including disability income policies;

( 5) contracts offered by Servicemembers' Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI), as authorized by 38 U.S.C. §§1965 et seq.;

( 6) life insurance contracts offered through or by a non-profit military association, qualifying under Section 501 (c)(23) of the Internal Revenue Code (IRC), and which are not underwritten by an insurer; or

( 7) 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), 403(b), 408(k) or 408(p) of the IRC, as amended, if established or maintained by an employer;

(C) a government or church plan defined in Section 414 of the IRC, a government 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 IRC;

(D) a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor;

(E) settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

(F) prearranged funeral contracts.

(b) Nothing herein shall be construed to abrogate the ability of nonprofit organizations (and/or other organizations) to educate members of the United States Armed Forces in accordance with Department of Defense DoD Instruction 1344.07 - Personal Commercial Solicitation on DoD Installations or successor directive.

(c) For purposes of this subchapter, general advertisements, direct mail and internet marketing shall not constitute "solicitation." Telephone marketing shall not constitute "solicitation" provided the caller explicitly and conspicuously discloses that the product concerned is life insurance and makes no statements that avoid a clear and unequivocal statement that life insurance is the subject matter of the solicitation. Provided however, nothing in this subsection shall be construed to exempt an insurer or insurance agent from this subchapter in any in-person, face-to-face meeting established as a result of the "solicitation" exemptions identified in this subsection.

§21.4204. Definitions. The following words and terms, when used in this subchapter, shall have the following meanings unless the context clearly indicates otherwise.

(1) Active duty--Full-time duty in the active military service of the United States and includes members of the reserve component (National Guard and Reserve) while serving under published orders for active duty or full-time training. The term does not include members of the reserve component who are performing active duty or active duty for training under military calls or orders specifying periods of less than 31 calendar days.

(2) Department of Defense (DoD) Personnel--All active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the U.S. Department of Defense.

(3) Door to door--A solicitation or sales method whereby an insurance agent proceeds randomly or selectively from household to household without prior specific appointment.

(4) General advertisement--An advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the insurer or the insurance agent.

(5) Insurer--An insurance company required to be licensed under the laws of this state to provide life insurance products, including annuities.

(6) Insurance agent--A person required to be licensed under Chapter 4054, Insurance Code, and includes a person required to be licensed in accordance with §4054.051(7).

(7) Known or knowingly--Depending on its use in this subchapter, the insurance agent or insurer had actual awareness, or in the exercise of ordinary care should have known, at the time of the act or practice complained of, that the person solicited:

(A) is a service member; or

(B) is a service member with a pay grade of E-4 or below.

(8) Life insurance--Insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the event of death or dismemberment by accident and benefits for disability income and unless otherwise specifically excluded, includes individually issued annuities.

(9) Military installation--Any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters.

(10) MyPay--A Defense Finance and Accounting Service (DFAS) web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements without using paper forms.

(11) Service member--Any active duty officer (commissioned and warrant) or enlisted member of the United States Armed Forces.

(12) Side fund--A fund or reserve that is part of or otherwise attached to a life insurance policy (excluding individually issued annuities) by rider, endorsement or other mechanism which accumulates premium or deposits with interest or by other means. The term does not include:

(A) accumulated value or cash value or secondary guarantees provided by a universal life policy;

(B) cash values provided by a whole life policy which are subject to the provisions of the Insurance Code Chapter 1105; or

(C) a premium deposit fund which:

(i) contains only premiums paid in advance which accumulate at interest;

(ii) imposes no penalty for withdrawal;

(iii) does not permit funding beyond future required premiums;

(iv) is not marketed or intended as an investment; and

(v) does not carry a commission, either paid or calculated.

(13) Specific appointment--A prearranged appointment agreed upon by both parties and definite as to place and time.

(14) United States Armed Forces--All components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.

§21.4205. Practices Declared False, Misleading, Deceptive or Unfair on a Military Installation.

(a) The following acts or practices when committed on a military installation by an insurer or insurance agent with respect to the in-person, face-to-face solicitation of life insurance are declared to be false, misleading, deceptive or unfair:

(1) knowingly soliciting the purchase of any life insurance product "door to door" or without first establishing a specific appointment for each meeting with the prospective purchaser;

(2) soliciting service members in a group or mass audience or in a captive audience where attendance is not voluntary;

(3) knowingly making appointments with or soliciting service members during their normally scheduled duty hours;

(4) making appointments with or soliciting service members in barracks, day rooms, unit areas, or transient personnel housing or other areas where the installation commander has prohibited solicitation;

(5) soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee;

(6) posting unauthorized bulletins, notices or advertisements;

(7) failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited or encouraging service members solicited not to complete or submit a DD Form 2885; or

(8) knowingly accepting an application for life insurance or issuing a policy of life insurance on the life of an enlisted member of the United States Armed Forces without first obtaining for the insurer's files a completed copy of any required form which confirms that the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives or rules of the DoD or any branch of the Armed Forces.

(b) The following acts or practices when committed on a military installation by an insurer or insurance agent constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, deceptive or unfair:

(1) using DoD personnel, directly or indirectly, as a representative or agent in any official or business capacity with or without compensation with respect to the solicitation or sale of life insurance to service members; or

(2) using an insurance agent to participate in any United States Armed Forces sponsored education or orientation program.

§21.4206. Practices Declared Deceptive or Unfair Regardless of Location.

(a) The following acts or practices by an insurer or insurance agent constitute corrupt practices, improper influences or inducements and are declared to be false, misleading, deceptive or unfair:

(1) submitting, processing or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member's pay to a third party for the purchase of life insurance. The foregoing includes, but is not limited to, using or assisting in using a service member's "MyPay" account or other similar internet or electronic medium for such purposes. This subsection does not prohibit assisting a service member by providing insurer or premium information necessary to complete any allotment form;

(2) knowingly receiving funds from a service member for the payment of premium from a depository institution with which the service member has no formal banking relationship. For purposes of this section, a formal banking relationship is established when the depository institution:

(A) provides the service member a deposit agreement and periodic statements and makes the disclosures required by the Truth in Savings Act, 12 U.S.C. §§ 4301 et seq. and the regulations promulgated thereunder; and

(B) permits the service member to make deposits and withdrawals unrelated to the payment or processing of insurance premiums;

(3) employing any device or method or entering into any agreement whereby funds received from a service member by allotment for the payment of insurance premiums are identified on the service member's Leave and Earnings Statement or equivalent or successor form as "Savings" or "Checking" and where the service member has no formal banking relationship as defined in §21.4206(a)(2);

(4) entering into any agreement with a depository institution for the purpose of receiving funds from a service member whereby the depository institution, with or without compensation, agrees to accept direct deposits from a service member with whom it has no formal banking relationship;

(5) using DoD personnel, directly or indirectly, as a representative or agent in any official or unofficial capacity with or without compensation with respect to the solicitation or sale of life insurance to service members who are junior in rank or grade, or to the family members of such personnel;

(6) offering or giving anything of value, directly or indirectly, to DoD personnel to procure their assistance in encouraging, assisting or facilitating the solicitation or sale of life insurance to another service member;

(7) knowingly offering or giving anything of value to a service member with a pay grade of E-4 or below for his or her attendance to any event where an application for life insurance is solicited; or

(8) advising a service member with a pay grade of E-4 or below to change his or her income tax withholding or state of legal residence for the sole purpose of increasing disposable income to purchase life insurance.

(b) The following acts or practices by an insurer or insurance agent lead to confusion regarding source, sponsorship, approval or affiliation and are declared to be false, misleading, deceptive or unfair:

(1) Making any representation, or using any device, title, descriptive name or identifier that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance agent or

product offered is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity. Examples of prohibited insurance agent titles include, but are not limited to, "Battalion Insurance Counselor," "Unit Insurance Advisor," "Servicemen's Group Life Insurance Conversion Consultant" or "Veteran's Benefits Counselor."

Nothing in this subchapter shall be construed to prohibit a person from using a professional designation awarded after the successful completion of a course of instruction in the business of insurance by an accredited institution of higher learning. Such designations include, but are not limited to, Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), Master of Science In Financial Services (MSFS), or Masters of Science Financial Planning (MS).

(2) Soliciting the purchase of any life insurance product through the use of or in conjunction with any third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that has the tendency or capacity to confuse or mislead a service member into believing that either the insurer, insurance agent or insurance product is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, or the United States Armed Forces.

(c) The following acts or practices by an insurer or insurance agent lead to confusion regarding premiums, costs or investment returns and are declared to be false, misleading, deceptive or unfair:

(1) using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid; or

(2) excluding individually issued annuities, misrepresenting the mortality costs of a life insurance product, including stating or implying that the product "costs nothing" or is "free."

(d) The following acts or practices by an insurer or insurance agent regarding SGLI or VGLI are declared to be false, misleading, deceptive or unfair:

(1) making any representation regarding the availability, suitability, amount, cost, exclusions or limitations to coverage provided to a service member or dependents by SGLI or VGLI, which is false, misleading or deceptive;

(2) making any representation regarding conversion requirements, including the costs of coverage, or exclusions or limitations to coverage of SGLI or VGLI to private insurers which is false, misleading or deceptive; or

(3) suggesting, recommending or encouraging a service member to cancel or terminate his or her SGLI policy or issuing a life insurance policy which replaces an existing SGLI policy unless the replacement shall take effect upon or after the service member's separation from the United States Armed Forces.

(e) The following acts or practices by an insurer and/or insurance agent regarding disclosure are declared to be false, misleading, deceptive or unfair:

(1) deploying, using or contracting for any lead generating materials designed exclusively for use with service members that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance agent, if that is the case, for the purpose of soliciting the purchase of life insurance;

(2) failing to disclose that a solicitation for the sale of life insurance will be made when establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser;

(3) excluding individually issued annuities, failing to clearly and conspicuously disclose the fact that the product being sold is life insurance;

(4) failing to make, at the time of sale or offer to an individual known to be a service member, the written disclosures required by Section 10 of the "Military Personnel Financial Services Protection Act," Pub. L. No. 109-290, p.16; or

(5) excluding individually issued annuities, when the sale is conducted in-person face-to-face with an individual known to be a service member, failing to provide the applicant at the time the application is taken:

(A) an explanation of any free look period with instructions on how to cancel if a policy is issued; and

(B) either a copy of the application or a written disclosure. The copy of the application or the written disclosure shall clearly and concisely set out the type of life insurance, the death benefit applied for and its expected first year cost. A basic illustration that meets the requirements of Chapter 21, Subchapter N of this title (relating to Life Insurance Illustrations), shall be deemed sufficient to meet this requirement for a written disclosure.

(f) The following acts or practices by an insurer or insurance agent with respect to the sale of certain life insurance products are declared to be false, misleading, deceptive or unfair:

(1) excluding individually issued annuities, recommending the purchase of any life insurance product which includes a side fund to a service member in pay grades E-4 and below unless the insurer has reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable;

(2) offering for sale or selling a life insurance product which includes a side fund to a service member in pay grades E-4 and below who is currently enrolled in SGLI is presumed unsuitable unless, after the completion of a needs assessment, the insurer demonstrates that the applicant's SGLI death benefit, together with any other military survivor benefits, savings and investments, survivor income, and other life insurance are insufficient to meet the applicant's insurable needs for life insurance.

(A) "Insurable needs" are the risks associated with premature death taking into consideration the financial obligations and immediate and future cash needs of the applicant's estate and/or survivors or dependents.

(B) "Other military survivor benefits" include, but are not limited to: the Death Gratuity, Funeral Reimbursement, Transition Assistance, Survivor and Dependents' Educational Assistance, Dependency and Indemnity Compensation, TRICARE Healthcare benefits, Survivor Housing Benefits and Allowances, Federal Income Tax Forgiveness, and Social Security Survivor Benefits.

(3) Excluding individually issued annuities, offering for sale or selling any life insurance contract which includes a side fund:

(A) unless interest credited accrues from the date of deposit to the date of withdrawal and permits withdrawals without limit or penalty;

(B) unless the applicant has been provided with a schedule of effective rates of return based upon cash flows of the combined product. For this disclosure, the effective rate of return will consider all premiums and cash contributions made by the policyholder and all cash accumulations and cash surrender values available to the policyholder in addition to life insurance coverage. This schedule will be provided for at least each policy year from one to 10 and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and

(C) which by default diverts or transfers funds accumulated in the side fund to pay, reduce or offset any premiums due.

(4) Excluding individually issued annuities, offering for sale or selling any life insurance contract which after considering all policy benefits, including but not limited to endowment, return of premium or persistency, does not comply with the requirements of the Insurance Code Chapter 1105; or

(5) selling any life insurance product to an individual known to be a service member that excludes coverage if the insured's death is related to war, declared or undeclared, or any act related to military service except for an accidental death coverage, e.g., double indemnity, which may be excluded.

§21.4207 Severability. If a court of competent jurisdiction holds that any provision of this subchapter is inconsistent with any statutes of this state, is unconstitutional, or is invalid for any reason, the remaining provisions of this subchapter shall remain in effect.



For more information, contact:

Contact Information and Other Helpful Links