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REVIEW NOTES

PREPARING PEOPLE TO PASS

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Tennessee General Laws and Rules Review

Commissioner of Commerce and Insurance

The Department of Commerce and Insurance and the Commissioner of Commerce and Insurance are responsible for administering Tennessee’s insurance laws. The Commissioner of Commerce and Insurance, the chief officer of the Tennessee Department of Commerce and Insurance, is appointed by the Governor (Gubernatorial appointment).

Hearings

The commissioner may hold hearings for any purpose within the scope of the insurance code deemed necessary, such as:

• Person engaging in unfair competition, or any unfair or deceptive act • Person engaging in business of insurance without a license • The best interest of the public would be served

Investigations

The Commissioner may subpoena witnesses and examine them under oath. The Department will provide the person with a copy of the complaint within 30 days of issuance of the receipt of the complaint.

• 14 days’ written notice of the Commissioner’s intent to take testimony is required, and the Commissioner must notify both parties within 30 days of completing an investigation

• Investigations must be completed within a two-year period with annual tracking reporting to the Commissioner

Penalties

• After the investigation, if the Commissioner determines that those involved are responsible, a fine can be given up to$1,000 for each violation, not to exceed $100,000 for all violations

• If the violation was committed knowingly, the penalty can be up to$25,000 per violation not to exceed $250,000 total

Regulatory authority

The Commissioner retains the authority to enforce code provisions and impose any penalty against any person under investigation.

Producer

An individual who in any manner sells, solicits, or negotiates insurance on behalf of insurance companies for compensation is an insurance producer

• The licensing of insurance producers is needed to protect the public • In Tennessee, an individual producer is considered to represent the insurance company

Nonresident producers

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A producer who holds a resident license in a different state may apply for a nonresident license in Tennessee, as long as both states have a reciprocal agreement. To apply, nonresidents must submit an application form, proof of resident license in good standing, and fees. Nonresident producer applicants do not have to take the Tennessee state licensing exam but must not have committed any act for which the license could be denied, suspended, or revoked.

• A nonresident producer who moves from one state to another or a resident insurance producer who moves from Tennessee to another state must file a change of address within 30 days of the change of legal residence

Exemption from Examination

The State does not require a producer license or limited insurance representative license of:

1. any officer or employee of an insurer who is on salary; 2. an individual who administers group insurance plans, annuities or health insurance plans where no commission

is received; 3. any officer, director or employee who assists an insurance producer by providing technical advice or assistance

not including the sale, solicitation or negotiation of insurance policies; 4. salaried employees of a creditor who enroll debtors under a group credit life or group credit health policy; 5. members of a fraternal benefit society who provide benefits in the case of death or disability resulting from

accidents without receiving compensation for enrolling those members; or 6. employees of auto rental companies who sell, solicit or negotiate optional insurance such as personal accident

coverage, personal liability insurance or roadside assistance coverage for a term of up to ninety days in connection with an auto rental agreement.

Limited lines producer

A limited lines producer is a person authorized by the Commissioner to sell, solicit, or negotiate limited lines insurance.

Unauthorized insurer

An unauthorized insurer has not applied for or has not qualified for a certificate of authority and is not authorized to transact insurance business in Tennessee.

• A person will be held personally liable for all insurance contracts unlawfully made in Tennessee with or on behalf of an insurance company that is not authorized to do business in Tennessee

Temporary License

The Commissioner may issue a temporary insurance producer license for a maximum period of 180 days (or longer for good cause) without requiring an examination if the Commissioner deems that the temporary license is necessary for the servicing of an insurance business, such as:

• The designee of a licensed insurance producer entering active service in the armed forces • To the surviving spouse or next of kin of a licensed insurance producer who dies or becomes disabled

Probation, suspension, revocation, refusal to issue or renew of licenses

The Commissioner must give written notice to the producer before holding a hearing that may lead to the suspension or revocation of the producer’s license. The Commissioner may place on probation, suspend, revoke, refuse to renew,

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or deny a license to any person who has:

• Provided incorrect, misleading, incomplete or untrue information in the license application • Violating any insurance laws, regulations, subpoena, or orders from the Insurance Commissioner • Obtaining to obtain a license through fraud or misrepresentation • Intentionally misrepresent the terms of an insurance contract • Been convicted of a felony • Committed any insurance unfair trade practice • Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or

financial irresponsibility in this or any other state. • Having an insurance license denied, suspended, or revoked by another state • Forging a name to an insurance document or application • Cheating on an insurance license examination • Knowingly accepting insurance business from an unlicensed individual • Failing to comply with a court order imposing child support • Failing to pay state income tax

Notice

If the Commissioner decides to deny an application for a license, he must notify the applicant and give written notice that the application has been denied within 30 days.

Business entity

A business entity is a corporation, association, partnership, limited liability company, limited liability partnership, or other legal entity.

Authorized and Unauthorized Insurers

Authorized insurer: An insurance company that has qualified and received a Certificate of Authority from the Insurance Department to sell insurance in this state.

• Also called an admitted insurance company

Unauthorized insurer: An insurance company that has been denied or not yet applied for a Certificate of Authority and may not sell insurance in this state. Any producer that sells an insurance policy for an unauthorized insurer runs the risk of being responsible for unpaid claims.

• Also called a non-admitted company

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Commissions/Compensation

No person shall pay or accept commissions to/from an unlicensed individual for the purpose of selling or negotiating insurance business.

Fiduciary responsibility

Producers have a fiduciary responsibility for all funds collected from clients. Producers must not mingle these funds with their own personal funds.

Regulations

Insurance companies are classified according to the location of its corporation. Regardless of where the insurance company is incorporated, it still has to get a Certificate of Authority before transacting insurance within a state.

The following definitions apply:

Domestic insurance company: A company that resides and is incorporated under the laws of the state in which its home office is located.

A company domiciled in Tennessee would be a domestic company in Tennessee

Foreign insurance company: A company whose home office is located in another state. It is considered to be a foreign company in all states except for its home office.

A company domiciled in Pennsylvania would be a foreign company in Tennessee

Alien insurance company: A company that is chartered and organized in any country other than the United States. It is considered an alien company in all states.

A company chartered in Canada would be an alien company in Tennessee

License Requirements

Insurance Transactions

“Insurance Transaction” includes any of the following:

• Solicitation or inducement to purchase insurance • Negotiations toward the sale of insurance • Executing a contract of insurance • Advising on coverages and claims

A licensee may not transact insurance business in Tennessee until the licensee is appointed by an insurer.

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Application and Examination Requirements

Process

An applicant for a resident producer license in Tennessee must

• Be at least 18 years of age • Not have committed any act that is grounds for denial, suspension, or revocation • Completed a prelicensing course • Have passed the state exam for the lines of authority in which licensure is sought • Submit the application with fees • Not intend to use the license primarily to write controlled business

A business entity may also apply for an insurance producer’s license as long as it pays all application fees and designate a current licensed producer to ensure the entity’s compliance with the state’s rules and regulations.

Examination Exemption

With regard to license examination requirements, a producer who holds an insurance license in a different state and moves to Tennessee may apply for the same lines of authority license without completing the prelicensing education or taking the examination again.

Fees

• $50 application fee for an insurance producer license or limited lines producer • $60 fee for an insurance producer license renewal • $30 fee for a limited lines producer license renewal • $15 fee for the appointment or termination of an appointment for an insurance producer or a limited lines

producer

Producer appointments

A producer cannot act as an agent for an insurer unless he or she is appointed to work for that insurer. Insurers are responsible for submitting an appointment notice to the Commissioner within 15 days of an agent’s appointment or submission of first insurance application. The insurer is also responsible for paying the agent’s appointment renewal fee.

• Upon receipt of the notice of appointment, the Commissioner will verify within a reasonable time not to exceed 30 days that the insurance producer is eligible for appointment

• If the producer is determined to be ineligible for appointment, the Commissioner notifies the insurer within 5 days of the determination

Termination of producer appointment

An insurer that terminates an agent appointment must notify the Commissioner within 30 days of the date of termination.

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Continuing education

Resident producers must complete24 hours of continuing education every 2 years to keep their license active. 3 of those hours must be in ethics.

• Nonresident producers are not required to complete Tennessee continuing education requirements as long as their home state requirements are met

Prelicensing education

Applicants for a producer license are required to complete an online or classroom course prior to taking the license examination. Courses must be approved by the Commissioner.

Reinstatement and renewal

A producer who allows his or her license to lapse may, within 12 months from the renewal date, reinstate the license without retaking the state licensing exam. However, a penalty of double the unpaid renewal fee will be required.

• 20 hours for life • 20 hours for accident and health

General Provisions

Address/name change

Producers must report a change in address or name to the Insurance Commissioner within 30 days of the change.

Reporting of actions

Producers must report any bankruptcy, felony conviction, or any other administrative action that occurs in Tennessee or another jurisdiction to the Insurance Department within 30 days after the final deposition. When a producer reports a final disposition of an administrative action against the producer to the Insurance Commissioner, the report must include a copy of the order or other relevant legal documents.

Producer appointments

A producer cannot act as an agent for an insurer unless he or she is appointed to work for that insurer. Insurers are responsible for submitting an appointment notice to the Commissioner within 15 days of an agent’s appointment or submission of first insurance application. The insurer is also responsible for paying the agent’s appointment renewal fee.

Termination of producer appointment

An insurer that terminates an agent appointment must notify the Commissioner within 30 days of the date of termination. Within 15 days of such notice, the insurer must mail a copy of the notice to the terminated agent, after which the agent will have 30 days to submit written comments to the Commissioner.

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Notice

If the Commissioner decides to deny an application for a license, he must notify the applicant and give written notice that the application has been denied within 30 days.

Unfair Trade Practices

False advertising

It is an illegal practice to falsely advertise insurance products or publish misleading information about its insurance coverage. This includes making false statements about the financial condition of an insurer.

Defamation

It is an illegal practice to make any public statement or advertisement that contains false information or unsubstantiated criticisms about an insurance company intended to harm or malign.

Boycott, coercion, and intimidation

It is an illegal practice to commit or coordinate any act or boycott, coercion, or intimidation in order to restrain or monopolize the business of insurance.

Unfair discrimination

It is an illegal practice to unfairly discriminate against a person in any way on an insurance-related matter. An example would be charging a different rate for someone in the same actuarial class. Fair discrimination is necessary for the issuance of life insurance policies, which is based on mortality.

Rebating

It is illegal to offer a prospective client something of value that is not specified in a contract to induce the purchase of an insurance policy.

Other Topics

Misrepresentation

It is an illegal practice to misrepresent any fact about an insurance policy, such as policy terms, benefits, value, cost, effective date, or existence of a contract of insurance.

False financial statements

It is illegal to publish any false financial statement regarding a person or entity.

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Unfair Claims Settlement Practice

The following acts, omissions, or practices are defined as unfair and deceptive claim settlement practices when knowingly committed or performed with such frequency as to indicate a general business practice, and are prohibited:

• Misrepresenting to insured’s pertinent facts or policy provisions relating to coverage at issue • Failing to acknowledge and act reasonably promptly upon communications with respect to an insurance

claim • Failing to adopt and implement reasonable standards for prompt investigation and processing of insured’s

claims • Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements are

completed and submitted by insured’s • Not attempting in good faith to effect prompt, fair and equitable settlements of claims on which liability has

become reasonably clear; Refusing or delaying a settlement solely because there is other insurance available to partially or entirely satisfy the claim loss; the claimant who has a right to recover from more than one insurer has the right to choose the coverage from which to recover and the order in which payment is to be made

• Compelling insured’s to initiate suits to recover amounts due under an insurance policy by offering substantially less than the amount ultimately recovered in those suits

Stock and Mutual Company

Stock Insurance Company: An insurance company that is owned and controlled by stockholders (shareholders). The stockholders provide the capital and share in profits or losses.

• Stock insurance companies are considered nonparticipating because the policyowners do not share in the profits of the company

• The objective is to produce profits for the owners, the stockholders • Stock insurance companies that issues both participating and nonparticipating policies are referred to as a

company doing business on a mixed plan.

Mutual life insurance companies: An insurance company owned and controlled by its policyowners. These policyholders elect a board of trustees or governing body to manage the firm. The profits of a mutual insurance company are returned to the policyowners in the form of dividends or retained as surplus to meet future obligations.

• Mutual insurance companies are considered participating because the policyowners do share in the profits of the company

• The objective is to provide insurance to its owners, the policyowners, at the lowest net cost

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Life and Health Guaranty Association

The purpose of the Guaranty Association is to avoid excessive delay in payment and to avoid loss to policyholders and claimants due to the insolvency of an insurer. The Association shall in no event be liable for more per person than the following:

1. $300,000 in life insurance death benefits for any one life but not more than $100,000 in net cash surrender and net cash withdrawal values for life insurance;

2. $250,000 in present value annuity benefits including net cash surrender or withdrawal values; 3. $500,000 in basic hospital, medical or surgical insurance benefits; 4. $300,000 in disability income benefits; 5. $300,000 in long-term care benefits; and 6. $100,000 for health insurance plans other than medical, disability or long-term care insurance.

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Tennessee Life Laws and Rules Review

Required Provisions

Payment of Premiums

All premiums after the first are payable in advance at the insurer home office or to an agent of the same office.

Grace Period

The required grace period for life insurance policies in Tennessee is 1 month. The grace period is a time which a policy remains in force after the premium is due, but not paid. If the insured dies during the grace period, the death proceeds will still be paid, minus the premium due.

Entire Contract

A provision that states the application and policy with its riders shall constitute the entire contract of an insurance contract.

Incontestability

A provision that the policy terms shall be incontestable after it has been in force for a period of 2 years from its date of issue (unless the purpose for taking out the coverage was fraud).

Misstatement of Age

If the insured’s age is incorrectly stated on the policy, the insurer will pay benefits according to the coverage the premiums would have purchased at the correct age. If the insured was older than stated on application, the benefits would reduce. The reverse would be true if the insured was younger than listed on application.

Participation in Surplus

For participating policies, each policy must participate annually in the divisible surplus of the company no later than the end of the third policy year.

Loan Values and Options Table

A table that shows loan values and available options under each policy for at least the first 20 years of the policy.

Policy Loans

Loans must be made available to the policyowner after the 3rd year in any amount up to the full cash surrender value of the policy.

Reinstatement

A lapsed policy may be reinstated within 3 years from the due date upon evidence of insurability and all back premiums are paid with interest.

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Settlement

Upon receipt of due proof of death, or within no more than 2 months’ time, settlement shall be made by the insurer.

Installment Payments of Policy

A table that shows the amount of installments payable.

Nonforfeiture Law

Insurers shall provide a table showing the cash surrender nonforfeiture values and options in the event of the default of premium payments for at least the first 20 years of a cash value policy.

Definitions

Buyer's Guide

The buyer’s guide enables applicants to compare different life insurance policies and help them choose which policy is best for their needs.

Dividends

Any participating policy shall provide for policy dividends payable not later than the end of the 3rd year including the right to take such dividends in cash, apply them to reduce the premium, use them to purchase paid-up insurance, or accumulate them at interest with the insurer.

• Companies may defer loan transactions for up to 6 months from loan application

Cash Dividend

A cash dividend is the current illustrated dividend that can be applied toward payment of the gross premium.

Equivalent Level Annual Dividend

Dividends vary each year. To determine level dividends, divide the total dividends for 10 or 20 years by the years included to arrive at an average amount.

Equivalent Level Death Benefit

Equivalent Level Death Benefit is a life insurance policy the pays a guaranteed amount regardless of the cause of the death.

Generic Name

A generic name is a short title which is descriptive of the premium and benefit patterns of a policy or a rider.

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Life Insurance Cost Indexes

Any references to the Life Insurance Cost Indexes must explain that they are useful only for comparing similar policies. Whenever dividends are reflected, a statement must explain that they are based on the company’s current dividend scale and are not guaranteed.

Policy Summary

The policy summary contains specific information on the provisions, benefits, and coverage of the policy applied for.

Representations

All statements are representations and not warranties in the absence of fraud.

Disclosure Requirements

Producers must provide applicants and prospects with Buyer’s Guide and Policy Summary to applicants.

General Rules

Each insurer must maintain at its home office a complete file containing one copy of each document authorized by the insurer for use pursuant to this rule. The file must contain one copy of each authorized form for a period of three years following the date of its last authorized use.

• Prior to conducting a life insurance sales presentation, a producer must inform a prospective purchaser that he is acting as a life insurance producer on behalf of an insurer and provide the prospective purchaser with the full name of the insurer.

• Terms such as financial planner, investment advisor, financial consultant or financial counseling may not be used in such a way as to imply that the insurance producer is generally engaged in an advisory or investment business in which compensation is unrelated to sales, unless such is actually the case.

• Any sales presentation that does not recognize the time value of money through the use of appropriate interest adjustments may not be used for comparing the cost of two or more life insurance policies.

• When a producer discusses policy benefits in a sales presentation such benefits may not display guaranteed and non-guaranteed benefits as a single sum unless they are shown separately in close proximity.

• A statement regarding the use of the life insurance cost indexes must include an explanation to the effect that the indexes are useful only for the comparison of the relative costs of two or more similar policies.

Replacement

Notice of Replacement

Under Tennessee law the replacement of life insurance contracts with a new contract requires the producer to give the applicant a written comparison and summary statement at the request of the policyholder and to follow instructions regarding replacement as obtained from the appointing insurer.

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Replacement: means any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuities will be any of the following:

• Lapsed, forfeited, surrendered, or otherwise terminated • Reissued with any reduction in cash value • Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in

value by the use of nonforfeiture benefits or other policy values • Amended so as to affect either a reduction in benefits or in the term for which coverage would otherwise

remain in force or for which benefits would be paid • Reissued with a reduction in cash value • Used in a financed purchase • Subject to a policy loan exceeding 25% of the total cash value

Exemptions

Replacement regulations do not apply to:

Group life insurance Credit life insurance Policies distributed on a mass merchandise basis Policies issued in connection with a pension, profit sharing, individual retirement account, or other benefit

plan qualifying for tax deductibility of premiums Situations where total existing coverage to be replaced represents less than $500 in cash value and less than

$5,000 in face amount.

Duties of the Producer

Present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer. A copy must be left with the applicant.

Obtain a list of all existing life insurance and/or annuity policies to be replaced including policy numbers and the names of all companies being replaced.

Leave the applicant with the original or a copy of written or printed communications used for presentation to the applicant.

Submit to the replacing insurance company a copy of the Replacement Notice with the application. Tennessee producers licensed for fewer than 120 days may not take applications for replacement policies

until 10 days after mailing a notice of intention to replace existing insurance to the replacing insurer

Duties of the Replacing Insurance Company

Require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant.

Send each existing insurance company a written communication advising of the proposed replacement within a specified period of time of the date that the application is received in the replacing insurance company's home or regional office. A policy summary or ledger statement containing policy data on the proposed life insurance or annuity must be included.

The replacing insurer must provide in or with its policy notice that the applicant has a right to an unconditional refund of all premiums paid, which may be exercised within 20 days of the date of policy delivery

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Annuities

Suitability in Annuity Transactions

Standards and procedures are in existence to ensure that anyone looking to purchase, exchange, or replace an annuity is properly informed and the recommendations given to them are in their best interests. The intended goal of this regulation is a consumer who has had their insurance needs and financial objectives properly addressed.

An insurance producer who engages in the sale of annuity products shall complete a one-time four credit training course approved by the Department of Commerce and Insurance. The minimum length of the training required shall be sufficient to qualify for at least four CE credits but may be longer. The training required shall include information on the following topics:

Insurers, general agents, independent agencies and insurance producers shall maintain or be able to make available to the Commissioner records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for five years after the insurance transaction is completed by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of an insurance producer.