A life insurance illustration is a tool applicants can use to understand how a potential policy is expected to perform over time. It breaks down the guaranteed elements of the policy’s performance alongside the non-guaranteed elements. Show Using life insurance illustrations to understand coverageNot all life insurance companies issue illustrations, and those that do may not issue them for all of their policies. You might not need a policy illustration to understand term life insurance, for example, because it’s a relatively simple type of coverage. But for permanent life insurance that includes a cash value component and/or the payment of dividends, the life insurance illustration can help to outline what the policy owner can expect based on the insurance company’s current projections. Types of life insurance illustrationsThe National Association of Insurance Commissioners (NAIC) uses Model #582 to regulate life insurance illustrations. Per this model, insurers can issue three types of illustrations:
While policy illustrations can be a helpful projection tool, policy owners should know that only the elements specifically labeled as “guaranteed” are just that: guaranteed by the insurer. Everything else is simply a highly educated guess. Requirements for life insurance illustrationsLife insurance illustrations are regulated by NAIC’s Life Insurance Illustration Model Regulation (Model #582). This means there are some required components that need to be present in every illustration, such as:
It has come to the Department’s attention that there may be some confusion between the NAIC requirements for Life Insurance Policy Illustrations and those required by New York’s Statutes and Regulations. Of particular concern is the differences between the explanation of the NAIC Life Insurance Illustrations Model Regulation found in Section 9.12 in the NAIC Questions & Answers Life Illustrations Model Regulation (As of March 19, 1997 -NAIC Q&A document), and Subpart 53-3 of Regulation 74 (11 NYCRR 53). The NAIC Model Regulation and Regulation 74 both set forth standards regarding the use of illustrations in the marketing of life insurance policies. However, New York Regulation 74 differs from the NAIC Model Regulation in specific areas. The purpose of this guidance is to address the applicability in New York of Section 9.12 of the NAIC Q&A document and to set forth some of the differences between the NAIC Model Regulation and Regulation 74 in an effort to eliminate occurrences of non-compliance. It is the responsibility of each insurer to comply fully with the requirements of Regulation 74. I. NAIC Q&A Document Some insurers may be incorrectly relying upon the NAIC Q&A document with respect to the use of sales illustrations displayed on a computer screen. Typically, in this situation an illustration displayed on a computer screen is used in the sale of a life insurance policy, but the applicant is not furnished a hard copy of the illustration at time of application. An illustration conforming to the policy as issued is then provided no later than policy delivery. Section 9.12 of the NAIC Q&A document states in part: “9.12 For Section 9B(1), is it permissible to show an illustration conforming to the model requirements on a computer screen, and obtain the signature at policy delivery? Where a computer screen illustration conforming to the regulation is used and no hard copy is furnished at the time of application, an acknowledgment, signed by the applicant and agent, should be obtained and submitted with the application, conforming to the following requirements:… 2. An acknowledgment consistent with the provisions of Section 9B(1) shall be obtained so that the applicant is aware that a copy of an illustration conforming to the policy as issued will be provided to him or her no later than at the time of policy delivery. …” It is the position of the Department that such a delay in the delivery of a copy of the illustration conflicts with Regulation 74. Section 53-3.5(a) of Regulation 74, which requires a copy of an illustration to be signed by the applicant and furnished to the applicant at the time of application, states in relevant part: “(a) If a basic illustration is used by an insurance producer 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 Subpart, shall be submitted to the insurer at the time of policy application. A copy also shall be provided to the applicant.” It is the position of the Department that, regardless of the format or method by which the illustration was shown to the applicant, a copy of the illustration signed by both the applicant and company’s authorized representative must be furnished to the applicant at the time of application. It should also be noted that Section 53-3.5(d) of Regulation 74 permits a sales illustration to be used in lieu of the preliminary information required by Section 3209(d) of the Insurance Law. The preliminary information is required to be provided at or prior to the time an application is taken. This requirement is found in Section 3209(b)(1). II. Regulation 74 vs. NAIC Model Regulation Below is a comparison highlighting the differences between Sections 53-3.2, 53-3.3, 53-3.5 and 53-3.6 of Regulation 74 and Sections 6, 7, 9, and 10 of the NAIC Model Regulation. While identical in most respects, there are differences. As stated previously, it is the responsibility of each insurer to comply fully with Regulation 74. A. General Rules The language contained in Section 53-3.2(d) of Regulation 74 is absent from Section 6 of the NAIC Model Regulation.
B. Basic Illustrations. Subsections (f), (g), (h), and (i) of Section 53-3.3 of Regulation 74 contain additional requirements not present in Section 7 of the NAIC Model Regulation.
C. Delivery of Illustration and Record Retention. The language contained in Section 53-3.5(d) dealing with compliance with applicable laws and regulations is not contained in Section 9 of the NAIC Model Regulation. With regard with record retention, Section 9(D) and Section 53-3.5(e) state different timeframes in which an insurer is required to keep a copy of an illustration or, if no illustration was used at the time of sale, a certification to that effect.
D. Annual Report; Notice to Policy Owners Section 53-3.6(e) of Regulation 74 contains a section not present in Section 10 of the Model Regulation.
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