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You are here: Home . rules . 2007 . 1015-059

SUBCHAPTER NN. CONSUMER NOTICES FOR LIFE INSURANCE POLICY AND ANNUITY CONTRACT REPLACEMENTS

28 TAC §§3.9501 - 3.9506

1. INTRODUCTION. The Texas Department of Insurance proposes new Subchapter NN, §§3.9501 - 3.9506, relating to the replacement of certain life insurance policies and annuity contracts. This proposal is necessary because of the requirements of HB 2762, 80th Legislature, Regular Session, effective September 1, 2007, that the Department adopt rules to accomplish and enforce the purpose of new Chapter 1114 of the Insurance Code and adopt or approve model documents to be used as consumer notices under the new chapter.

As provided in §1114.001, Chapter 1114 was enacted to (i) regulate the activities of insurers and agents with respect to the replacement of existing life insurance and annuities; (ii) protect the interests of purchasers of life insurance or annuities by establishing minimum standards of conduct to be observed in replacement or financed purchase transactions; (iii) ensure that purchasers receive information with which a decision in the purchaser's best interest may be made; (iv) reduce the opportunity for misrepresentation and incomplete disclosure; and (v) establish penalties for failure to comply with the requirements adopted under Chapter 1114.

The purpose of the consumer notices proposed in this subchapter is to provide consumers with necessary information regarding potential consequences resulting from the replacement of annuity contract or life insurance policies that will enable them to more likely make a decision that is in their best interest and to reduce the opportunity for misrepresentation and incomplete disclosure.

The text in the proposed Figure: 28 TAC §3.9504(b) notice for insurers using agents, the proposed Figure: 28 TAC §3.9505(a)(1) notice for direct response applicants intending replacement, and the proposed Figure: 28 TAC §3.9505(a)(2) notice required for direct response applicants who respond that they do not intend a replacement or who fail to respond to an insurer's inquiry is verbatim from the National Association of Insurance Commissioners Model Number 613, Life Insurance and Annuities Replacement Model Regulation (NAIC Model). Based upon conversations with life insurance and annuity industry representatives, it is the Department's understanding that these NAIC Model notices are currently in widespread use throughout the industry.

Beginning April 1, 2008, the text in both the proposed Figure: 28 TAC §3.9504(b) notice required for insurers using agents and the proposed Figure: 28 TAC §3.9505(a)(1) notice for direct response applicants intending replacement must be prefaced by the proposed Department consumer advisory in Figure: 28 TAC §3.9506(b). The Department advisory is necessary to alert consumers in a succinct manner to the possible negative consequences that may result from life insurance and annuity replacement transactions and to summarize issues explored in further detail in the remainder of the consumer notice. The effective date of April 1, 2008, for the Department advisory requirement is proposed to allow insurers sufficient time to exhaust any existing supply of notices and to prepare and print notices that include the Department advisory in addition to the required text in the NAIC Model notices.

The proposed adoption of the model notices relating to life insurance and annuity replacement is within the Commissioner's scope of authority under the Insurance Code §§1114.006 and 1114.007. Section 1114.006 requires that the Commissioner by rule adopt or approve model documents to be used for consumer notices under Chapter 1114. Section 1114.007 authorizes the Commissioner to adopt reasonable rules in the manner prescribed by Insurance Code, Subchapter A, Chapter 36, to accomplish and enforce the purpose of Chapter 1114.

Proposed §3.9501 states the purpose of the proposed subchapter.

Proposed §3.9502 specifies that the terms "agent" and "producer" shall have the same meanings when used in the subchapter and defines those terms.

Proposed §3.9503 specifies the content and format requirements for the proposed notices. Proposed §3.9503(a) details the formatting and content requirements for the proposed text in Figure: 28 TAC §3.9504(b), in Figure: 28 TAC §3.9505(a)(1) and in Figure: 28 TAC §3.9505(a)(2) and provides that references that are not applicable to the product being sold or replaced may be omitted from the required text, as provided in §3.9503(c). Proposed §3.9503(b) specifies formatting and content requirements for the proposed text in Figure: 28 TAC §3.9506(b) and provides that references that are not applicable to the product being sold or replaced may be omitted from the required text, as provided in §3.9503(c). Proposed §3.9503(c) specifies that a reference in a required notice is presumed applicable if it could be applicable under any circumstances and therefore may not be omitted from the required notice. Proposed §3.9503(d) specifies that an insurer may add a company name and identifying form number to notices required under the subchapter.

Proposed §3.9504 addresses the consumer notice regarding life insurance policy and annuity contract replacements that is to be used for insurers using agents. Proposed §3.9504(a) requires an agent initiating an application for a life insurance policy or annuity contract to submit information to the insurer on whether an applicant for a life insurance policy or annuity contract has existing policies or contracts. Proposed §3.9504(b) specifies the conditions that require the use of the consumer notice and the procedures for providing the notice to the applicant. The proposed Figure: 28 TAC §3.9504(b) contains the text of the required notice to be used for insurers using agents.

Proposed §3.9505 regulates notices required in direct response sales governed by Insurance Code Chapter 1114. Proposed §3.9505(a) requires insurers to inquire whether an applicant applying in response to a direct response solicitation intends to replace, discontinue, or change an existing policy or contract. Proposed §3.9505(a)(1) requires that if the insurer proposed the replacement or if the applicant responds affirmatively that they intend a replacement, the insurer must send to the applicant the notice specified in the proposed Figure: 28 TAC §3.9505(a)(1). The proposed Figure: 28 TAC §3.9505(a)(1) contains the text of the required notice.

Proposed §3.9505(a)(2) requires that if the applicant states a replacement is not intended or fails to respond to the insurer's inquiry regarding the applicant's replacement intention, the insurer must send the notice specified in the proposed Figure: 28 TAC §3.9505(a)(2). The proposed Figure: 28 TAC §3.9505(a)(2) contains the text of the required notice.

Proposed §3.9506(a) requires that effective April 1, 2008, the text in Figure: 28 TAC §3.9504(b) and Figure: 28 TAC §3.9505(a)(1) be prefaced with the text in Figure: 28 TAC §3.9506(b) Proposed §3.9506(b) specifies that the text in Figure: 28 TAC §3.9506(b) may be printed on a separate piece of paper or printed on the same piece of paper as the text in Figure: 28 TAC §3.9504(b) and Figure: 28 TAC §3.9505(a)(1) but in either case must meet the formatting and content requirements of §3.9503.

2. FISCAL NOTE. Jennifer Ahrens, Senior Associate Commissioner, Life, Health & Licensing 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. Ms. Ahrens has determined that for each year of the first five years the proposal is in effect, the anticipated public benefit will be that consumers will have more information regarding potential consequences resulting from the replacement of annuity contracts or life insurance policies, and will therefore be more likely to make a decision that is in their best interest.

The probable costs to insurers required to comply with the proposed rules will result from the printing and mailing of the consumer notices specified in the proposal. The Department has developed estimated costs for compliance with the proposed rules based on costs that have been previously used by the Department for similar compliance requirements. Individual insurers that identify, based on their own operations, differing costs for those cost components will be able to calculate their particular costs using the Department's cost analysis approach.

The Department's estimated cost assumes the following factors: (i) insurers mailing the required notices in proposed §§3.9505(a)(1) and 3.9505(a)(2) to direct response applicants will include the notices in the same package as mailed policies or contracts, resulting in no additional postage cost; (ii) insurers mailing the required notice in proposed §§3.9505(a)(1) to direct response applicants intending replacement will include a prepaid return envelope in the same package as mailed policies or contracts, resulting in no additional postage cost; (iii) the notice required in proposed §3.9504(b) for insurers using agents and the notice required in §3.9505(a)(1) for direct response applicants intending replacements will be three printed pages; and (iv) that the notice in proposed §3.9505(a)(2) required for direct response applicants not intending a replacement or failing to answer an insurer's inquiry regarding replacement intention will be a single printed page.

The Department is proposing an April 1, 2008 effective date for compliance with the requirement in proposed §3.9506(b) to include the Department advisory in the notices in proposed §3.9504(b) and §3.9505(a)(1). This should allow an insurer to exhaust its existing stock of already printed notices prior to the April 1, 2008 effective date. New notices can be produced in the regular course of business for use beginning on April 1, 2008. Additionally, the Department does not anticipate that the costs associated with the printing and mailing of the required consumer notices in proposed §3.9504(b) and §3.9505(a)(1) will necessarily increase after April 1, 2008, as a result of the requirement to include the proposed §3.9506(b) Department advisory. This is based on the fact that the text in the Department advisory is brief, and that while insurers are required to print the advisory to precede the text of the §3.9504(b) and §3.9505(a)(1) notices, they are provided the option of printing the advisory on the same page as the required §3.9504(b) and §3.9505(a)(1) notices. An insurer's decision to print the Department advisory on a separate piece of paper will result in an additional cost to the insurer.

The estimates used in the Department's analysis assume that a printed page costs $0.05; a return envelope costs $0.05; and return postage for one to three pages of paper is $0.41. Using these assumptions, the following are the estimated costs for each of the three proposed notices.

The consumer notice required by proposed §3.9504(b) is estimated to cost $0.15 per agent transaction (3 pages of paper for the notice multiplied by $0.05). Insurers that choose to print the Department advisory required beginning April 1, 2008, on a separate piece of paper from the notice required by proposed §3.9504(b) will have an additional cost of $0.05 per agent transaction.

The estimated cost for the consumer notice required by proposed §3.9505(a)(1) is $0.61 per transaction involving a direct solicitation applicant intending a replacement (3 pages of paper for the notice multiplied by $0.05 plus $0.05 for a prepaid return envelope, and $0.41 for postage for the return envelope for the applicant to return the signed notice) with no additional cost for postage because the notice and prepaid return envelope will be included in the same package as mailed policies or contracts. Insurers that choose to print the Department advisory required beginning April 1, 2008, on a separate piece of paper from the notice required by proposed §3.9505(a)(1) will have an additional cost of $0.05.

The estimated cost for a consumer notice required by proposed §3.9505(a)(2) is $0.05 per transaction involving a direct solicitation applicant not intending a replacement or failing to answer an insurer's inquiry regarding their replacement intention (one page of paper for the notice) with no additional cost for postage because the notice and prepaid return envelope will be included in the same package as mailed policies or contracts.

The actual total cost to each insurer required to comply with the proposed rules will depend upon the individual insurer's particular costs for each cost component, the number of transactions requiring notices, whether those transactions are agent or direct solicitation sales, the number of pages used in printing the notices and whether the notices are printed one-sided or two-sided.

4. ECONOMIC IMPACT STATEMENT AND REGULATORY FLEXIBILITY ANALYSIS FOR SMALL AND MICRO BUSINESSES.

As required by the Government Code §2006.002(c), the Department has determined that the proposal may have an adverse economic effect on approximately 25 to 50 small or micro-businesses that are required to comply with the proposed rules. The probable cost to small or micro-business insurers required to comply with the proposed rules will result from the printing and mailing of the consumer notices specified in the proposal. The cost of compliance with the proposal will not vary for each required consumer notice between large business and small or micro-businesses, and the Department's cost analysis and resulting estimated costs for insurers in the Public Benefit/Cost Note portion of this proposal is equally applicable to small or micro-businesses. The total cost to large business and small or micro-business insurers for printing and mailing notices required by this proposal is not dependent upon the size of the insurers, but rather is dependent upon the individual insurer's particular costs for each cost component, the number of transactions requiring notices, whether those transactions are agent or direct solicitation sales, the number of pages used in printing the notices and whether the notices are printed one-sided or two-sided.

In accordance with the Government Code §2006.002(c-1), the Department has determined that even though the proposal may have an adverse economic effect on small or micro-businesses that are required to comply with the proposal, the proposal does not require a regulatory flexibility analysis that is mandated by §2006.002(c)(2) of the Government Code. Section 2006.002(c)(2) requires that a state agency, before adopting a rule that may have an adverse economic effect on small businesses, prepare a regulatory flexibility analysis that includes the agency's consideration of alternative methods of achieving the purpose of the proposed rule. Section 2006.002(c-1) of the Government Code requires that the regulatory flexibility analysis "consider, if consistent with the health, safety, and environmental and economic welfare of the state, using regulatory methods that will accomplish the objectives of applicable rules while minimizing adverse impacts on small businesses." Therefore, an agency is not required to consider alternatives that, while possibly minimizing adverse impacts on small and micro-businesses, would not be protective of the health, safety, and environmental and economic welfare of the state.

The purpose of the statute authorizing this proposal, Chapter 1114, as provided in §1114.001, is to (i) regulate the activities of insurers and agents with respect to the replacement of existing life insurance and annuities; (ii) protect the interests of purchasers of life insurance or annuities by establishing minimum standards of conduct to be observed in replacement or financed purchase transactions; (iii) ensure that purchasers receive information with which a decision in the purchaser's best interest may be made; (iv) reduce the opportunity for misrepresentation and incomplete disclosure; and (v) establish penalties for failure to comply with the requirements adopted under Chapter 1114.

The purpose of this proposal is to protect the economic welfare of consumers contemplating the purchase of life insurance policies or annuity contracts by providing them with necessary information to enable them to make important financial decisions that are in their best interest. Applicants without this information or with insufficient information may make life insurance or annuity transaction decisions resulting in surrender charges, penalties, tax liabilities, or an inability to access funds without a penalty for substantial periods of time. The consumer notices proposed to be adopted in this proposal are consistent with the legislative intent of Chapter 1114 of the Insurance Code that the economic interests of all consumers engaging in life insurance and annuity contract replacement transactions are protected and not just the economic interests of those consumers who engage in such transactions with large insurers.

Therefore, the Department has determined in accordance with §2006.002(c-1) of the Government Code that because the purpose of the proposal and the authorizing statute, Chapter 1114 of the Insurance Code, is to protect consumer economic interests, there are no regulatory alternatives to the required notices in this proposal that will sufficiently protect the economic interests of consumers who purchase life insurance or annuities from small or micro-business insurers.

5. 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 takings impact assessment under the Government Code §2007.043.

6. REQUEST FOR PUBLIC COMMENT. To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on November 26, 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 Jennifer Ahrens, Senior Associate Commissioner, Life, Health & Licensing Division, Mail Code 107-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104.

The Commissioner will consider the adoption of the proposed new sections in a public hearing under Docket Number 2675, at 9:00 a.m., on November 20, 2007, in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street, Austin, Texas 78701. Written and oral comments presented at the hearing will be considered.

7. STATUTORY AUTHORITY. The new sections are proposed under the Insurance Code §§1114.006, 1114.007 and 36.001. Section 1114.006 requires the Commissioner by rule to adopt or approve model documents to be used for consumer notices under the Insurance Code Chapter 1114. Section 1114.007 authorizes the Commissioner to adopt reasonable rules in the manner prescribed by Subchapter A, Chapter 36, of the Insurance Code to accomplish and enforce the purpose of the Insurance Code Chapter 1114. Section 1114.001 states that the purpose of Chapter 1114 is to regulate the activities of insurers and agents with respect to the replacement of existing life insurance and annuities; protect the interests of purchasers of life insurance or annuities by establishing minimum standards of conduct to be observed in certain transactions; ensure that purchasers receive information with which a decision in the purchaser's best interest may be made; reduce the opportunity for misrepresentation and incomplete disclosure; and establish penalties for failure to comply with the requirements adopted under Chapter 1114. Section 36.001 authorizes the Commissioner of Insurance to adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

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

Rule Statute

§§3.9501 - 3.9503 Insurance Code §§1114.006 and 1114.007

§3.9504 Insurance Code §§1114.006, 1114.007, and 1114.051

§3.9505 Insurance Code §§1114.006, 1114.007, and 1114.055

§3.9506 Insurance Code §§1114.006, 1114.007, 1114.051, and

1114.055

9. TEXT.

SUBCHAPTER NN. CONSUMER NOTICES FOR LIFE INSURANCE POLICY AND ANNUITY CONTRACT REPLACEMENTS

§3.9501. Purpose. The purpose of this subchapter is to specify the content and procedural requirements for consumer notices for life insurance policy and annuity contract replacements as required by the Insurance Code §1114.006.

§3.9502. Definitions. When used in this subchapter, the words "agent" and "producer" shall mean, unless the context clearly indicates otherwise, an individual who holds a license under Insurance Code Chapter 4054 and who sells, solicits, or negotiates life insurance or annuities in this state.

§3.9503. Consumer Notice Content and Format Requirements.

(a) The text contained in Figure: 28 TAC §3.9504(b), Figure: 28 TAC §3.9505(a)(1) and Figure: 28 TAC §3.9505(a)(2) must be in at least 10 point type and presented in the same order as indicated in each Figure: and without any change to the specified text, including bolding effects, except that references that are not applicable to the product being sold or replaced may be omitted, as provided in subsection (c) of this section.

(b) The text contained in Figure: 28 TAC §3.9506(b) must be in at least 12 point type and presented in the same order as indicated in Figure: 28 TAC §3.9506(b) and without any change to the specified text, including bolding effects, except that references that are not applicable to the product being sold or replaced may be omitted, as provided in subsection (c) of this section.

(c) For purposes of this subchapter, a reference in any notice required under this subchapter to a product that is being sold or replaced is applicable if the reference could be applicable under any possible circumstances and therefore may not be omitted from the required notice.

(d) An insurer may add a company name and identifying form number to notices specified under this subchapter.

§3.9504. Consumer Notice Regarding Replacement for Insurers Using Agents.

(a) An agent who initiates an application for a life insurance policy or annuity contract shall submit to the insurer, with or as part of the application, a statement signed by both the applicant and the agent as to whether the applicant has existing life insurance policies or annuity contracts.

(b) If the applicant states that the applicant does have existing policies or contracts, the agent shall present and read to the applicant, not later than at the time of taking the application, a notice regarding replacement that contains the text contained in Figure: 28 TAC §3.9504(b). The notice shall be signed by both the applicant and the agent attesting that the notice has been read aloud by the agent or that the applicant did not wis h the notice to be read aloud, in which case the agent is not required to read the notice aloud.

Figure: 28 TAC §3.9504(b):

IMPORTANT NOTICE:

REPLACEMENT OF LIFE INSURANCE OR ANNUITIES

This document must be signed by the applicant and the agent

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

_____________________________________ __________________________

Agent'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?

§3.9505. Direct Response Consumer Notices.

(a) In the case of a life insurance or annuity application initiated as a result of a direct response solicitation, the insurer shall inquire whether the applicant, by applying for the proposed policy or contract, intends to replace, discontinue, or change an existing life insurance policy or annuity contract. The inquiry may be included with, or submitted as a part of, each completed application for such policy or contract.

(1) 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 send a notice that contains the text in Figure: 28 TAC §3.9505(a)(1).

Figure: 28 TAC §3.9505(a)(1):

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?

(2) 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 new policy or contract notice that contains the statements in

Figure: 28 TAC §3.9505(a)(2):

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.

§3.9506. Texas Department of Insurance Consumer Advisory.

(a) Effective April 1, 2008 , the text in Figure: 28 TAC §3.9504(b) and Figure: 28 TAC §3.9505(a)(1) must be prefaced with the text in Figure: 28 TAC §3.9506(b).

(b) The text in Figure: 28 TAC §3.9506(b) may be printed on a separate piece of paper or printed on the same piece of paper as the tex t in Figure: 28 TAC §3.9504(b) or Figure: 28 TAC §3.9505(a)(1) of this subchapter, but in either case the text in Figure: 28 TAC §3.9506(b) must meet the requirements of §3.9503.

Figure: 28 TAC §3.9506(b):

TEXAS DEPARTMENT OF INSURANCE CONSUMER ADVISORY

This transaction may have very serious financial consequences for you. Life insurance policies and annuity contracts provide many consumers with needed financial security. However, please be advised that you may be unable to access your funds in a new policy or contract for many years without incurring charges or penalties. There may be additional tax liabilities if you use funds from an existing policy or contract. Consider consulting a tax advisor. Changing your current policies or contracts may result in additional costs, and you may also lose benefits and coverage. Carefully read all documents provided to you during the sale and when your policy or contract is delivered.



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