Statutes, Rules, and Regulations

Policy Replacement

References: Reg. 4-1-4

Replacement Forms

A replacement occurs when an existing life insurance policy or annuity is terminated, converted, or reduced in value due to the purchase of a new policy. To ensure transparency and protect consumers from being misled, Colorado Regulation 4-1-4 requires:

• Agents to provide the applicant with a Notice Regarding Replacement of Life Insurance or Annuities at the time of application.
• The form must clearly identify both the new and existing policies and include a summary of the possible disadvantages of replacing existing coverage.
• Both the applicant and the producer must sign the notice.

Record Keeping of Replacements

Insurers and producers must maintain replacement records for at least five years or until the next market conduct examination, whichever is longer. Records must include the signed replacement notices, policy comparison statements, and any correspondence related to the replacement transaction.

Example:

If an agent replaces a $100,000 whole life policy with a new universal life policy, the insurer must keep documentation proving that the required disclosure and comparison were provided to the client.

Key points

Proper documentation and client disclosure are essential to prevent “churning” (repeated replacement of policies for commission purposes) and to comply with the Colorado Division of Insurance’s consumer protection goals.

Group Life Insurance

References: C.R.S. §§ 10-7-106; 10-7-201 through 10-7-207

Group life insurance provides coverage to a group of individuals under a single master policy issued to an employer, association, or other eligible group sponsor.

Key Provisions:

• The policyholder (employer or group sponsor) owns the master policy; insured individuals receive certificates of coverage.
• Minimum group size and eligibility criteria must meet statutory requirements.
• Coverage must be offered without individual evidence of insurability if the insured joins within the eligibility period.
• Group policies must contain conversion provisions, allowing a member to convert to an individual policy upon termination of employment or eligibility.

Example:

An employee leaving a company can convert their group life coverage to an individual policy without proof of insurability, as long as they apply within 31 days.

Suicide Clause

Reference: C.R.S. § 10-7-109

Colorado allows a suicide exclusion in life insurance policies only during the first two years after policy issuance. If the insured commits suicide within that period, the insurer may deny payment of the death benefit but must refund all premiums paid.

After two years, the policy must pay full benefits regardless of the cause of death.

Key points

The two-year suicide exclusion aligns with Colorado’s overall policy favoring consumer fairness and uniform claim settlement standards.

Free Look Period and Disclosure

References: C.R.S. § 10-7-302; Reg. 4-1-4

All individual life insurance policies must include a free look period of at least 15 days after the policy is delivered. During this time, the policy owner may review the policy and return it for a full refund of premiums if unsatisfied.

Policies must also include clear, written disclosures summarizing key terms, benefits, exclusions, and potential surrender charges.

Example:

If a client receives their policy on June 1, they may return it by June 16 for a full refund if they change their mind.

Interest on Proceeds

Reference: C.R.S. § 10-7-112

If an insurer fails to pay life insurance proceeds within a reasonable time (typically 30 days after proof of death is received), it must pay interest on the delayed payment from the date of death until the date payment is made.

This law encourages timely claims handling and ensures that beneficiaries receive the full value owed to them.

Sales and Marketing of Life and Annuities

References: C.R.S. § 10-7-103; Regs. 1-2-18; 4-1-1; 4-1-2; 4-1-3; 4-1-8; 4-1-11; 4-1-12

Unfair Trade Practices

Producers may not use misleading, deceptive, or coercive sales tactics. This includes misrepresenting policy benefits, dividends, or surrender values.

Suitability Requirements

Before recommending a life insurance or annuity product, agents must determine that the product is suitable for the client’s financial objectives, age, and needs. This involves collecting relevant financial and personal information and documenting the rationale for the recommendation.

Disclosures

Agents must provide written disclosures regarding:

• The nature of the policy or annuity,
• The insurer’s financial strength,
• Fees, charges, and surrender penalties, and
• Whether the agent receives additional compensation for the sale.

Advertising

All advertisements must be truthful, clear, and not misleading. Any testimonials, statistics, or performance data must be factual and substantiated.

Example:

An advertisement claiming “guaranteed 10% returns” on an annuity would violate Reg. 4-1-1 unless the guarantee is accurate, clearly explained, and approved by the Division of Insurance.

Insurable Interest

References: C.R.S. §§ 10-7-701 through 10-7-710

A policyholder must have an insurable interest in the life of the insured at the time of policy issuance. This means the policyowner must reasonably expect to benefit from the insured’s continued life or suffer a loss from their death.

Examples of valid insurable interests:

• A person insuring their own life,
• Spouses insuring one another,
• A business insuring a key employee (key person insurance).

Key points

Without an insurable interest, the policy is void as a wager on human life.

Lapse Notice Requirement

Reference: C.R.S. § 10-7-105.5 Before a life insurance policy may lapse for nonpayment of premium, the insurer must provide written notice to the policyowner and any designated secondary addressee at least 25 days before the lapse date. This provision protects policyholders—especially elderly insureds—from unintentionally losing coverage due to missed payments.

In the previous chapter, you explored the Colorado statutes, rules, and regulations that govern the sale, marketing, and administration of life insurance products. These laws form the foundation of ethical and compliant insurance practice in the state and are designed to protect consumers while ensuring fair competition among producers and insurers.

You learned how the Colorado Division of Insurance (DOI) enforces these laws under the authority of Title 10 of the Colorado Revised Statutes (C.R.S.) and related DOI regulations. Understanding these provisions helps producers maintain compliance, build client trust, and avoid regulatory penalties.

We covered several key regulatory areas that directly affect everyday producer activities, including policy replacement procedures, consumer disclosure requirements, group life provisions, and lapse notifications. You also examined ethical and professional responsibilities related to marketing, advertising, suitability, and insurable interest, ensuring that sales practices align with the DOI’s consumer protection mission.

Key points

Policy Replacements — Regulation 4-1-4

• Replacements must include specific disclosures, client acknowledgments, and record retention for at least five years.

• The purpose is to prevent consumers from being misled or harmed by unnecessary policy turnover.

Group Life Insurance — C.R.S. §§10-7-201 through 207

• Regulates eligibility, coverage amounts, and conversion rights for group life policies.
• Employers and associations must comply with state-approved plan structures.

Suicide Clause — C.R.S. §10-7-109

• Limits the insurer’s liability if the insured commits suicide within two years of policy issuance.
• Ensures fairness by distinguishing early suicide risk from legitimate claims.

Free Look and Disclosure — C.R.S. §10-7-302; Reg. 4-1-4

• Consumers have at least 15 days to review a new life insurance policy and receive a full refund if they cancel within that period.
• Disclosure requirements help ensure transparency in all sales transactions.

Interest on Proceeds — C.R.S. §10-7-112

• Insurers must pay interest on death benefits from the date of death until the claim is settled.

• This protects beneficiaries from undue payment delays.

Sales and Marketing Standards — Regs. 4-1-1 through 4-1-12

• Producers must follow ethical advertising, suitability, and disclosure standards when selling life or annuity products.
• Misleading statements, exaggerations, and omissions are prohibited under the state’s Unfair Trade Practices Act.

Insurable Interest — C.R.S. §§10-7-701 through 710
A valid insurable interest must exist at policy inception.

• Common examples include family relationships, business partnerships, and financial dependency.

Lapse Notice Requirements — C.R.S. §10-7-105.5

• Insurers must provide a minimum 25-day written notice before terminating coverage due to nonpayment.
• This ensures policyholders have a fair opportunity to maintain coverage.

Professional Application

• Applying these statutes in daily practice ensures producers maintain ethical standards, legal compliance, and client confidence.

• Understanding disclosure, replacement, and suitability rules is essential for avoiding disciplinary actions and maintaining your professional license.

• By practicing transparency and acting in clients’ best interests, you uphold the Colorado Division of Insurance’s mission to protect consumers and preserve market integrity.

Sidenote

End-of-Chapter Reflection

Before moving on, take a few moments to review:

• Which regulations directly affect your role as a life insurance producer?
• How will you incorporate disclosure, suitability, and ethical sales practices into your client interactions?
• Can you confidently identify when a replacement is considered compliant under Colorado law?

Your understanding of these questions will prepare you not only for the state licensing exam but also for a career built on compliance, integrity, and trust.