Insurance

Administration

Rule R590-177: Life Insurance Illustrations Rule

Effective Date: 01/24/2023

Admin. Code Reference: R590-177

Rule Type: Current Rule

R590. Insurance, Administration.

R590-177. Life Insurance Illustrations Rule.

R590-177-1. Authority.

This rule is promulgated by the commissioner pursuant to Sections 31A-2-201, 31A-22-425, and 31A-23a-402.

R590-177-2. Purpose and Scope.

(1) The purpose of this rule is to:

(a) establish rules for life insurance policy illustrations to protect consumers and foster consumer education;

(b) provide formats, standards, and required disclosures; and

(2) This rule applies to a group or individual life insurance policy or certificate sold on or after January 1, 1997, except:

(a) variable life insurance;

(b) individual and group annuity contracts;

(d) a life insurance policy with no illustrated death benefit on any individual exceeding $10,000.

R590-177-3. Definitions.

Terms used in this rule are defined in Section 31A-1-301. Additional terms are defined as follows:

(1) "Actuarial Standards Board" means the board established by the American Academy of Actuaries to promulgate standards of actuarial practice.

(2) "Contract premium" means the gross premium required to be paid under a policy, including the premium for a rider if the rider benefits are shown in the illustration.

(3) "Currently payable scale" means a scale of non-guaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next 95 days.

(4)(a) "Disciplined current scale" means a scale of non-guaranteed elements, certified annually by an illustration actuary, constituting a limit on illustrations currently being illustrated by an insurer and reasonably based on recent historical experience.

(b) Further guidance in determining the disciplined current scale, as contained in standards established by the Actuarial Standards Board, may be relied upon if the standards:

(i) are consistent with this rule;

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

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

(iv) do not permit assumed expenses to be less than minimum assumed expenses.

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

(6) "Guaranteed element" means a premium, benefit, value, credit, or charge under a life insurance policy that is guaranteed and determined at issue.

(7) "Non-guaranteed element" means a premium, benefit, value, credit, or charge under a life insurance policy that is not guaranteed or not determined at issue.

(8) "Illustrated scale" means a scale of non-guaranteed elements that is not more favorable to the policy owner than the lesser of:

(a) the disciplined current scale; or

(b) the currently payable scale.

(9) "Illustration" means a presentation or depiction that includes a non-guaranteed element of a life insurance policy over a period of years as defined below:

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

(b) "Supplemental illustration" means an illustration furnished in addition to a basic illustration that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements permitted in a basic illustration.

(10) "Illustration actuary" means an actuary who meets the requirements of Section R590-177-10 and certifies an illustration based on the standard of practice promulgated by the Actuarial Standards Board.

(11) "Lapse-supported illustration" means an illustration of a policy form failing the test of self-supporting as defined in this rule, under a modified persistency rate assumption using persistency rates underlying the disciplined current scale for the first five years and 100% policy persistency thereafter.

(12)(a) "Minimum assumed expense" means the minimum expense that may be used in the calculation of the disciplined current scale for a policy form.

(b) An insurer may choose to designate the method of determining assumed expenses each year for all policy forms from the following:

(i) fully allocated expenses;

(ii) marginal expenses; and

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

(d) If no generally recognized expense table is approved, fully allocated expenses must be used.

(13) "Non-term group life" means a group life insurance policy or an individual life insurance policy issued to a member of an eligible group where:

(a) each plan of coverage was selected by the group representative;

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

(14) "Policy owner" means the owner named in a policy or the certificate holder in the case of a group policy.

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

(16)(a) "Self-supporting illustration" means an illustration of a policy form for which it can be demonstrated that, when using experience assumptions underlying the disciplined current scale, for all illustrated points in time on or after the 15th policy anniversary or the 20th policy anniversary for second-or-later-to-die policies, or upon policy expiration if sooner, the accumulated value of all policy cash flows equals or exceeds the total policy owner value available.

(b) The policy owner value in a self-supporting illustration includes cash surrender values and any other illustrated benefit amounts available at the policy owner's election.

R590-177-4. Policies to Be Illustrated.

(1) An insurer marketing a policy subject to this rule shall notify the commissioner whether a policy form will be marketed with or without an illustration.

(a) The notice shall be made in writing at the time of filing.

(b) Any previous identification may be changed by notice to the commissioner.

(2) If an insurer identifies a policy form to be marketed without an illustration, any use of an illustration before the first policy anniversary is prohibited.

(3) If a policy form is marketed with an illustration, a basic illustration that complies with this rule is required.

(a) A basic illustration need not be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals.

(b) The illustration furnished to an applicant for a group life insurance policy or a policy issued to a single applicant on multiple lives may be either an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.

(4) Potential enrollees of non-term group life insurance subject to this rule shall be furnished a quotation with the enrollment materials.

(a) The quotation shall show potential policy values for sample ages and policy years on a guaranteed and non-guaranteed basis appropriate to the group and the coverage.

(b) The quotation is not considered an illustration under this rule, but all information provided shall be consistent with the illustrated scale.

(c) A basic illustration shall be provided at delivery of the certificate to an enrollee for non-term group life insurance who enrolls for more than the minimum premium necessary to provide pure death benefit protection.

(d) The insurer shall make a basic illustration available to any non-term group life insurance enrollee who requests it.

R590-177-6. General Rules and Prohibitions.

(1) An illustration used in the sale of a life insurance policy shall comply with this rule, be clearly labeled "life insurance illustration," and contain the following information:

(a) the name and address of the insurer;

(b) the name and business address of the producer or insurer's authorized representative, if any;

(d) the underwriting or rating classification on which the illustration is based;

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

(f) the initial death benefit; and

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

(2) When using an illustration in the sale of a life insurance policy, an insurer or its producer or other authorized representative may not:

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

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

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

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

(f) provide an applicant with an incomplete illustration;

(g) represent or imply that a premium payment will not be required for each year of the policy maintain the illustrated death benefit, unless that is the fact;

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

(i) except for a policy that can never develop nonforfeiture values, use an illustration that is "lapse-supported"; or

(j) use an illustration that is not "self-supporting."

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

(4) An insurer may not use a footnote or caveat to define contract terms.

(5) An insurer shall use language that is understood by an average person.

R590-177-6. Standards for Basic Illustrations.

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

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

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

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

(e)(i) The assumed payments the illustrated benefits and values are based on shall be identified as premium outlay or contract premium, as applicable.

(ii) For a policy that does not require a specific contract premium, the illustrated payments shall be identified as a premium outlay.

(f) Any guaranteed death benefit and values available upon surrender for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

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

(h) Any guaranteed elements shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements, for example, "see page one for guaranteed elements."

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

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

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

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

(i) the benefits and values are not guaranteed;

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

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

(m) If the illustration shows that the premium payer may have the option to allow policy charges to be paid using a non-guaranteed value, the illustration must clearly disclose that:

(i) a charge continues to be required; and

(ii) depending on actual results, the premium payer may need to continue or resume premium outlays.

(A) Similar disclosure shall be made for a premium outlay of lesser amounts or shorter durations than the contract premium.

(B) If a contract premium is due, the premium outlay display may not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.

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

(o) The illustration shall be complete, not misleading, and the narrative summary, numeric summary, and tabular detail shall be consistent.

(2) Narrative Summary. A basic illustration shall include:

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

(b)(i) a brief description of the premium outlay or contract premium, as applicable, for the policy; or

(ii) for a policy that does not require payment of a specific contract premium, an illustration of the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premium allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code;

(c) a brief description of any policy feature, rider, or option, guaranteed or non-guaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy;

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

(e) a statement containing substantially the following: "This illustration assumes that the currently illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown."

(3) Numeric Summary.

(a) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefit and values and the premium outlay and contract premium, as applicable.

(i) For a policy that provides for a contract premium, the guaranteed death benefit and values shall be based on the contract premium and shall be shown for at least policy years 5, 10, and 20, and at age 70, if applicable, on the bases in Subsection (3)(a)(iii).

(ii) For multiple life policies, the summary shall show at least policy years 5, 10, 20, and 30 on the bases in Subsection (3)(a)(iii).

(iii) The bases to be shown in a numeric summary are:

(A) policy guarantees;

(B) insurer's illustrated scale; and

(I) dividends at 50% of the dividends contained in the illustrated scale used;

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

(III) all non-guaranteed charges, including term insurance charges, and mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(b) In addition, if coverage would cease before policy maturity or age 100, the year in which coverage ceases shall be identified for each of the three bases.

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

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

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

(5) Tabular Detail.

(a) A basic illustration shall include the following for at least each policy year from one to ten and for every fifth policy year thereafter ending at age 100, policy maturity, or final expiration and, except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, is to change:

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

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

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

(b) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender shall correspond to the contract premium.

(i) In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, non-guaranteed elements may be shown if the insurer's current practice is to pay terminal dividends.

(ii) If any non-guaranteed elements are shown they must be shown at the same durations as the corresponding guaranteed elements, if any.

(iii) If no guaranteed benefit or value is available at any duration for which a non-guaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

R590-177-7. Standards for Supplemental Illustrations.

(1) A supplemental illustration may be provided if:

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

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

(d) for a policy that has a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration; and

(e) for a policy that does not require a contract premium, the premium outlay underlying the supplemental illustration shall be equal to the premium outlay shown in the basic illustration.

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

R590-177-8. Delivery of Illustration and Record Retention.

(1)(a) If a basic illustration is used in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this rule, shall be:

(i) submitted to the insurer at the time of policy application; and

(ii) provided to the applicant.

(b) If the policy issued is not as applied for, a revised basic illustration conforming to the policy as issued shall:

(i) be sent with the policy;

(ii) conform to the requirements of this rule;

(iii) be labeled "Revised Illustration"; and

(iv) be signed and dated by the applicant or policy owner and producer or other authorized representative of the insurer no later than the time the policy is delivered; and

(2)(a) If no illustration is used by an insurance producer or other authorized representative in the sale of a life insurance policy or if the policy applied for is not as illustrated, the producer or representative shall certify to that effect in writing on a form provided by the insurer.

(i) The form shall include an acknowledgement from the applicant that:

(A) no illustration conforming to the policy applied for was provided; and

(B) an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery.

(ii) The form shall be submitted to the insurer at the time of policy application.

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

(3) If the basic or revised illustration is sent to the applicant or policy owner by mail from the insurer, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer.

(a) The insurer's obligation is satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page.

(b) The requirement to make a diligent effort is satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.

(4)(a) A copy of any basic or revised basic illustration, signed as applicable, shall be retained by the insurer until three years after the policy is no longer in force, along with any certification that either:

(i) no illustration was used; or

(ii) the policy applied for was not as illustrated.

(b) A copy of a basic or revised basic illustration need not be retained if no policy is issued.

R590-177-9. Annual Report; Notice to Policy Owners.

(1) If a policy is designated as one for which an illustration will be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall contain the information in Subsection (1)(a) or (1)(b).

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

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

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

(iii) the total amounts that have been credited or debited to the policy value during the current report period, identifying each by type, such as interest, mortality, expense, and riders;

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

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

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

(vii) if, assuming guaranteed interest, mortality and expense loads, and any required premium payments, the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice shall be included in the report.

(b) For any other policy, where applicable:

(i) the current death benefit;

(ii) the annual contract premium;

(iii) the current cash surrender value;

(iv) the current dividend;

(v) the application of current dividend; and

(vi) the amount of any outstanding loan.

(c) An insurer writing a life insurance policy that does not develop nonforfeiture values is only required to provide an annual report for those years when a change has been made to non-guaranteed policy elements by the insurer.

(2)(a) If the annual report does not include an in force illustration, it shall prominently display the following notice:

"IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, such an illustration by calling (insurer's phone number), writing to (insurer's name) at (insurer's address) or contacting your producer. If you do not receive a current illustration of your policy within 30 days from your request, you should contact your state insurance department."

(b) The insurer may vary the sequential order of the methods for obtaining an in force illustration.

(3) Upon the request of a policy owner, an insurer shall furnish an in force illustration of current and future benefits and values based on the insurer's present illustrated scale.

(a) The illustration shall comply with the requirements of Subsections R590-177-5(1), R590-177-5(2), R590-177-6(1), and R590-177-6(5).

(b) No signature or acknowledgment of receipt of this illustration is required.

(4) If, since the last annual report, an insurer has made an adverse change in a non-guaranteed element that could affect the policy, the annual report shall prominently display a notice describing the nature of the change.

R590-177-10. Annual Certifications.

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

(2) The illustration actuary shall certify that:

(a) the disciplined current scale used in any illustration conforms to the Actuarial Standard of Practice No. 24, Compliance with the NAIC Life Insurance Illustrations Model Regulation promulgated by the Actuarial Standards Board; and

(b) the illustrated scale used in an insurer-authorized illustration meets the requirements of this rule.

(3) The illustration actuary shall:

(a) be a member in good standing of the American Academy of Actuaries;

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

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

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

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

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

(d) notify the commissioner of any action taken by a commissioner of another state similar to that under Subsection (3)(c);

(e) disclose in the annual certification whether, since the last certification, a currently payable scale applicable for business issued within the previous five years and within the scope of the certification has been reduced for a reason other than a change in the experience factors underlying the disciplined current scale;

(i) if a non-guaranteed element illustrated for a new policy is not consistent with the illustration for a similar in force policy, this shall be disclosed in the annual certification; and

(ii) if a non-guaranteed element illustrated for both a new and an in force policy is not consistent with the non-guaranteed element being paid, charged, or credited to the same or similar form, this shall be disclosed in the annual certification; and

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

(i) fully allocated expenses;

(ii) marginal expenses; or

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

(4)(a) The illustration actuary shall file a certification with the insurer's board of directors:

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

(ii) before a policy form is illustrated.

(b) If the illustration actuary becomes aware of an error in a previous certification, the illustration actuary shall promptly notify the insurer's board of directors and the commissioner.

(5) If an illustration actuary certify the scale for any policy form illustration the insurer intends to use, the actuary shall promptly notify the insurer's board of directors and the commissioner.

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

(a) that the illustration formats meet the requirements of this rule and that the scales used in any illustration are scales certified by the illustration actuary; and

(b) that the company has provided each producer and authorized representative information about the expense allocation method used by the company in its illustrations and disclosed as required in Subsection (3)(f).

(7) The annual certification shall be:

(a) completed each year by a date determined by the insurer;

(b) maintained by the insurer for a period of five years; and

(8) If an insurer changes the illustration actuary responsible for any portion of the company's policy forms, the insurer shall notify the commissioner and disclose the reason for the change.

R590-177-11. Severability.

If any provision of this rule, Rule R590-177, or its application to any person or situation is held invalid, such invalidity does not affect any other provision or application of this rule that can be given effect without the invalid provision or application. The remainder of this rule shall be given effect without the invalid provision or application.

KEY: insurance

Date of Last Change: January 24, 2023

Notice of Continuation: February 6, 2026

Authorizing, and Implemented or Interpreted Law: 31A-23-302