Insurance

Administration

Rule R590-242: Military Sales Practices

Effective Date: 11/21/2023

Admin. Code Reference: R590-242

Rule Type: Current Rule

R590. Insurance, Administration.

R590-242. Military Sales Practices.

R590-242-1. Authority.

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

R590-242-2. Purpose and Scope.

(1)(a) The purpose of this rule is to set forth standards to protect an active duty service member of the United States Armed Forces from dishonest and predatory insurance sales practices.

(b) Nothing in this rule creates or implies a private cause of action for a violation of this rule.

(2)(a) This rule applies to the solicitation, negotiation, or sale of a life insurance product, including an annuity, by an insurer or insurance producer to an active duty service member of the United States Armed Forces.

(b) This rule does not apply to a solicitation, negotiation, or sale involving:

(i) credit insurance;

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

(iii) an application to the existing insurer that issued the existing policy or contract when:

(A) a contractual change or a conversion privilege is being exercised;

(B) the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or

(iv) individual stand-alone health insurance, including income insurance;

(v) a contract offered by SGLI or VGLI;

(vi) life insurance offered through or by a nonprofit military association, qualifying under Section 501(c)(23) of the Internal Revenue Code, and that is not underwritten by an insurer; or

(vii) a contract used to fund:

(A) an employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act;

(B) a plan described by Section 401(a), 401(k), 403(b), 408(k), or 408(p) of the Internal Revenue Code, as amended, if established or maintained by an employer;

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

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

(E) a settlement of or assumption of liabilities associated with personal injury litigation or any dispute or claim resolution process; or

(F) a prearranged funeral contract.

(c) This rule does not prohibit a nonprofit organization from educating a member of the United States Armed Forces in accordance with the DOD Instruction 1344.07 - Personal Commercial Solicitation on DOD Installations or a successor directive.

R590-242-3. Definitions.

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

(1)(a) "Active duty" means full-time duty in the active military service of the United States including members of the National Guard and Reserve, while serving under published orders for active duty or full-time training.

(b) "Active duty" 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 personnel" and "DOD personnel" mean all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the DOD.

(3) "DOD" means the U.S. Department of Defense.

(4) "Door to door" means a solicitation or sales method where an insurance producer proceeds randomly or selectively from household to household without a specific appointment.

(5) "General advertisement" means an advertisement with its purpose being the promotion of the reader's or viewer's interest in the concept of insurance, the promotion of the insurer, or the promotion of an insurance producer.

(6) "Known" or "knowingly" means, depending on its usage, an insurance producer or insurer having actual awareness, or in the exercise of ordinary care should have known that the person solicited:

(a) is a service member; or

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

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

(8) "Military installation" means a 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.

(9) "MyPay" means the Defense Finance and Accounting Service 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.

(10) "Other military survivor benefits" includes the following benefits:

(a) the death gratuity;

(b) funeral reimbursement;

(d) survivor and dependents' educational assistance;

(e) dependency and indemnity compensation;

(f) TRICARE healthcare benefits;

(g) survivor housing benefits and allowance;

(h) federal income tax forgiveness; and

(i) Social Security survivor benefits.

(11) "SGLI" means Servicemembers' Group Life Insurance as authorized by 38 U.S.C. Section 1965 et seq.

(12) "Service member" means an active duty officer, commissioned and warrant, or enlisted member of the United States Armed Forces.

(13)(a) "Side fund" means a fund or reserve that is part of, or otherwise attached to, a life insurance policy, except for individually issued annuities, by rider, endorsement, or other mechanism that accumulates premium or deposits with interest or by other means.

(b) "Side fund" does not include:

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

(ii) cash value provided by a whole life policy subject to standard nonforfeiture law for life insurance; or

(iii) a premium deposit fund that:

(A) contains only premiums paid in advance that accumulate interest;

(B) imposes no penalty for withdrawal;

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

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

(14)(a) "Solicitation" means an offer to a person in this state, either directly or through a third party, to effect insurance.

(b) "Solicitation" does not mean:

(i) a general advertisement;

(ii) a direct mailing;

(iii) internet marketing; or

(iv) telephone marketing, provided the caller explicitly and conspicuously discloses that the product that is the subject of the call is life insurance.

(15) "Specific appointment" means a prearranged appointment agreed upon by both parties and definite as to place and time.

(16) "United States Armed Forces" means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.

(17) "VGLI" means Veterans' Group Life Insurance as authorized by 38 U.S.C. Section 1965 et seq.

R590-242-4. False, Misleading, Deceptive, or Unfair Practices on a Military Installation.

(1) The acts or practices in this Subsection (1), when committed on a military installation by an insurer or insurance producer during an in-person, face-to-face solicitation, negotiation, or sale of life insurance, are false, misleading, deceptive, or unfair.

(a) Knowingly soliciting the purchase of a life insurance product door to door, or without first establishing a specific appointment with a prospective purchaser.

(b) Soliciting service members in a group, mass, or captive audience where attendance is not voluntary.

(c) Knowingly making an appointment with or soliciting a service member during the service member's normally scheduled duty hours.

(d) Making an appointment with or soliciting a service member in barracks, day rooms, unit areas, transient personnel housing, or other areas where the installation commander prohibits solicitation.

(e) Soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee.

(f) Posting an unauthorized bulletin, notice, or advertisement on a military installation.

(g) Failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to a solicited service member or encouraging a solicited service member not to complete or submit DD Form 2885.

(h) 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 any required form confirming that the applicant 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 United States Armed Forces.

(2) An act or practice in this Subsection (2), when committed on a military installation by an insurer or insurance producer is a corrupt practice, improper influence, or inducement that is false, misleading, deceptive, or unfair.

(a) Using DOD personnel, directly or indirectly, as a representative or agent in an official or business capacity, with or without compensation, regarding the solicitation or sale of life insurance to any service member.

(b) Using an insurance producer to participate in any United States Armed Forces sponsored education or orientation program.

R590-242-5. False, Misleading, Deceptive, or Unfair Practices Regardless of Location.

(1) The acts or practices by an insurer or insurance producer in this Subsection (1) are corrupt practices, improper influences, or inducements that are false, misleading, deceptive, or unfair.

(a)(i) Submitting, processing, or assisting in the submission or processing of an 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, including using or assisting with a service member's MyPay account or other similar internet or electronic medium for such purposes.

(ii) Subsection (1)(a)(i) does not prohibit assisting a service member by providing insurer or premium information necessary to complete an allotment form.

(b)(i) 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.

(ii) A formal banking relationship is established when a depository institution:

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

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

(c) Entering into an agreement where 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 when the service member has no formal banking relationship.

(d) Entering into an agreement with a depository institution to receive funds from a service member where the depository institution, with or without compensation, agrees to accept direct deposits from a service member with whom it has no formal banking relationship.

(e) Using DOD personnel, directly or indirectly, as a representative or agent in any official or unofficial capacity, with or without compensation, regarding the solicitation or sale of life insurance to any service member who is junior in rank or grade, or to any family member of such personnel.

(f) Offering or giving anything of value, directly or indirectly, to DOD personnel to procure their assistance in encouraging, assisting, or facilitating the solicitation, negotiation, or sale of life insurance to another service member.

(g) Knowingly offering or giving anything of value to a service member with a pay grade of E-4 or below for the service member's attendance to any event where an application for life insurance is solicited.

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

(2) The acts or practices by an insurer or insurance producer in this Subsection (2) regarding source, sponsorship, approval, or affiliation are confusing and are false, misleading, deceptive, or unfair.

(a) 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 producer, or product offered is affiliated, connected, or associated with, endorsed, sponsored, sanctioned, or recommended by the United States Government, the United States Armed Forces, or any state or federal agency or government entity.

(i) Prohibited insurance producer titles include the following:

(A) Battalion Insurance Counselor;

(B) Unit Insurance Advisor;

(D) Veteran's Benefits Counselor; or

(E) a similar title.

(ii) This rule does not 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 including:

(A) Chartered Life Underwriter, CLU;

(B) Chartered Financial Consultant, ChFC;

(D) Master of Science in Financial Services, MSFS; or

(E) Masters of Science Financial Planning, MS.

(b) Soliciting the purchase of a life insurance product through the use of or in conjunction with a 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, insurance producer, or insurance product is affiliated, connected, or associated with, endorsed, sponsored, sanctioned, or recommended by the United States Government, or the United States Armed Forces.

(3) The acts or practices by an insurer or insurance producer in this Subsection (3) are confusing regarding premiums, costs, or investment returns and are false, misleading, deceptive, or unfair.

(a) 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.

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

(4) The acts or practices by an insurer or insurance producer in this Subsection (4) regarding SGLI or VGLI are false, misleading, deceptive, or unfair.

(a) Making any representation regarding the availability, suitability, amount, cost, exclusions, or limitations of coverage provided to a service member or a service member's dependents by SGLI or VGLI.

(b) Making any representation regarding conversion requirements, including the costs of coverage, exclusions or limitations to coverage of SGLI or VGLI to private insurers.

(c) Suggesting, recommending, or encouraging a service member to cancel or terminate a SGLI policy or issuing a life insurance policy that replaces an existing SGLI policy unless the replacement takes effect upon or after the service member's separation from the United States Armed Forces.

(5) The acts or practices by an insurer or insurance producer in this Subsection (5) regarding disclosure are false, misleading, deceptive, or unfair.

(a) 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 service member will be contacted by an insurance producer, if that is the case, to solicit the purchase of life insurance.

(b) Failing to disclose that a solicitation for the sale of life insurance will be made when making a specific appointment for an in-person, face-to-face meeting with a prospective purchaser.

(c) Except for an individually issued annuity, failing to clearly and conspicuously disclose the fact that the product being sold is life insurance.

(d) Knowingly failing to make, at the time of sale or offer to an individual known to be a service member, the written disclosures under Section 10 of the Military Personnel Financial Services Protection Act, Pub. L. No. 109-290.

(e)(i) Except for an individually issued annuity, when a sale is conducted during an in-person, face-to-face meeting with a known service member, failing to provide the applicant, when 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) a copy of the application or a written disclosure.

(ii) 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.

(iii) A basic illustration that meets the requirements of Rule R590-177 meets this requirement for a written disclosure.

(6) The acts or practices by an insurer or insurance producer in this Subsection (6) regarding the sale of certain life insurance products are false, misleading, deceptive, or unfair.

(a) Except for an individually issued annuity, recommending the purchase of a life insurance product that includes a side fund to a service member in a pay grade E-4 and below unless the insurer has reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable.

(b) Offering for sale or selling a life insurance product that includes a side fund to a service member in a pay grade 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, investments, survivor income, and other life insurance are insufficient to meet the applicant's insurable needs for life insurance.

(c) Except for an individually issued annuity, offering for sale or selling a life insurance policy that includes a side fund:

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

(ii) unless the applicant is provided with a schedule of effective rates of return based upon cash flows of the combined product, wherein the effective rate of return considers 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, and is provided 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

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

(d) Except for an individually issued annuity, offering for sale or selling a life insurance policy that, after considering all policy benefits including an endowment, a return of premium, or persistency, does not comply with Section 31A-22-408.

(e) Selling to a known service member a life insurance policy that excludes coverage if the insured's death is related to war, declared or undeclared, or an act related to military service except for an accidental death coverage.

R590-242-6. Severability.

If any provision of this rule, Rule R590-242, 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, military sales practices

Date of Last Change: November 21, 2023

Notice of Continuation: October 31, 2022

Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-23a-402