Massachusetts Life Insurance Sales, Replacement and Underwriting

This chapter covers what Massachusetts requires of a producer and an insurer when life insurance is sold and underwritten: the disclosures at the sales presentation, the Buyer’s Guide and policy summary, the replacement rules, the notices given with an application, and the limits on what an insurer may ask and how it may classify applicants. The chapter on Massachusetts State Regulations covers the privacy authorization and adverse underwriting rules of chapter 175I.

Producer responsibilities

Solicitation and sales presentations (211 CMR 31.00, 31.07)

211 CMR 31.00, the Life Insurance Solicitation regulation, applies to any solicitation, negotiation or procurement of life insurance in Massachusetts. It does not apply to annuities, credit life, most group life, policies in ERISA plans or variable life (211 CMR 31.03). Its purpose is to help the buyer choose the plan that fits their needs, understand the policy’s basic features and evaluate the relative costs of similar plans (31.02(1)).

At the presentation, the regulation’s general rules apply to the producer (31.07):

• Identify yourself and the insurer. Before starting a life insurance sales presentation, the producer tells the prospect that they are acting as an insurance producer and gives the full name of the insurer they represent.
• No misleading titles. Terms such as financial planner, investment advisor or financial consultant may not be used to imply that the producer is mainly in an advisory business with pay unrelated to sales, unless that is so. A person who holds a recognized financial planning designation may still use it.
• Label what isn’t guaranteed. Any reference to a nonguaranteed element (such as a credited interest rate) must state that it is not guaranteed and is based on the insurer’s current scale. If the insurer can change the premium, it must show the maximum annual premium.

The insurer keeps a copy of each form it authorizes under the regulation for three years after its last authorized use (31.07(1)).

Buyer’s guide (211 CMR 31.05(1)(a))

The Buyer’s Guide is the current NAIC Life Insurance Buyer’s Guide, or language the Commissioner approves (31.04). The insurer must give it to every prospective purchaser before accepting the initial premium. If the policy has an unconditional refund provision of at least 10 days, the Buyer’s Guide may instead be delivered with the policy or before it is delivered (31.05(1)(a)).

Policy summary (211 CMR 31.04, 31.05(1)(b))

The insurer must provide a policy summary when it has identified the policy form as one that will not be marketed with an illustration. The summary shows guarantees only, is a separate document, and is delivered on the same timing as the Buyer’s Guide (31.05(1)(b)). It is titled “Statement of Policy Cost and Benefit Information” and shows (31.04):

• The producer’s name and address, and the insurer’s name and home office address
• The generic name of the basic policy and each rider
• For the first five policy years and representative later years, including at least one age from 60 through 65 and maturity: the annual premium for the policy and each rider, the death benefit, guaranteed cash surrender values and any endowment amounts
• The policy loan interest rate, and the date the summary was prepared

Failing to deliver a Buyer’s Guide, policy summary, in-force illustration or policy data as required is an omission that misrepresents the benefits, advantages, conditions or terms of the policy (31.08).

Life insurance policy cost comparison methods (211 CMR 31.00; 211 CMR 34.04(2)(a))

The outline cites 211 CMR 31.04 and 31.05. The solicitation regulation names cost comparison as a purpose (31.02(1)) but sets out no cost index of its own. The Massachusetts text that explains the comparison methods is the replacement notice in 211 CMR 34.04(2)(a):

Policy type	Comparison tool	Reading it
Cash value policy	Yield index for 5, 10 and 20 years: an estimate of the interest rate the insurer projects on the policy’s savings portion	The higher yield index generally indicates the better buy
Term policy	Interest-adjusted cost indices for 5, 10 and 20 years	The lower index is usually the better buy

The notice also warns that premiums alone are not determinative of low cost, and that low early cash values in a new policy often reflect the high expense of issuing it.

Replacement (211 CMR 34.01–34.09)

Replacement is any transaction in which new life insurance or an annuity is bought and the producer knows or should know that existing coverage will be (211 CMR 34.02):

• Lapsed, forfeited, surrendered or otherwise terminated
• Converted to reduced paid-up insurance or continued as extended term insurance
• Amended to reduce benefits or the term of coverage
• Reissued with any reduction in cash value
• Pledged or borrowed against for more than 25% of the loan value

Conservation is any attempt by the existing insurer or its producer to talk the owner out of a replacement. Routine late-payment reminders and reinstatement offers are not conservation.

The regulation does not apply to credit life, group life or group annuities, replacing coverage under a binding or conditional receipt from the same insurer, insurance paid for wholly or partly by an employer or association, or qualified plan policies. An internal replacement within the same insurer or affiliated group is exempt, but a producer proposing it must still meet the requirements for producers who initiate an application (34.03(1)).

The producer’s duties (34.04). With every application, the producer submits a statement signed by the applicant saying whether replacement is involved, and the producer’s own signed statement saying whether they know replacement is or may be involved. When a replacement is involved, the producer must:

1. Present the Commissioner’s “Important Notice” about replacement no later than when the application is taken, have it signed by both the applicant and the producer, and leave it with the applicant
2. List every policy or annuity being replaced, by insurer, insured and contract number
3. Leave with the applicant the original or a copy of any written sales material used
4. Send a copy of the notice to the replacing insurer with the application

A producer who uses written material in a conservation also leaves a copy with the owner.

The insurers’ duties (34.06).

Who	Must	Deadline
Replacing insurer	Notify each existing insurer of the replacement, with the policy list and a policy summary	Within seven working days of receiving the application or issuing the policy, whichever is sooner
Existing insurer that conserves	Give the owner a policy summary of the existing policy, covering at least the next five policy years	Within 20 days of receiving the notice
Replacing insurer	Give the applicant the right to an unconditional refund of all premiums	20 days from delivery of the policy
Both insurers	Keep evidence that the requirements were met	At least three years, or until the next regular examination, whichever is earlier

Penalties (34.08). Recommending a replacement or conservation with a substantially inaccurate or incomplete comparison of premiums, benefits, dividends or values violates the regulation, and a comparison of a participating policy without projected dividends on the current scale is presumed incomplete. A pattern of an owner buying replacing policies from the same producer after answering “no replacement” on the applications is prima facie evidence of the producer’s knowledge and intent. A replacement not done under the regulation is an unfair method of competition and an unfair or deceptive act or practice.

Sidenote

Know this...

The replacement question is answered by two people: the applicant signs a statement of whether replacement is involved, and the producer signs a separate statement of whether they know replacement is or may be involved.

Use and disclosure of insurance information (211 CMR 31.05)

The outline cites 211 CMR 31.05, the insurers’ duties. Besides the Buyer’s Guide and policy summary, 31.05 governs information about an existing policy:

• On the policyowner’s request, the insurer furnishes policy data or an in-force illustration. Unless the owner asks otherwise, policy data covers 20 consecutive years from the previous anniversary and includes nonguaranteed elements on the current scale, any outstanding loans and the current loan rate (31.05(2)(a)).
• If the insurer changes how it sets nonguaranteed elements on existing policies, it tells each affected Massachusetts policyowner no later than the first payment on the new basis. This is not required where the basic death benefit is $5,000 or less (31.05(2)(b)).

Separately, Massachusetts’s privacy law bars an insurer or producer from disclosing personal or privileged information collected in a life, health or disability transaction except with the individual’s written authorization or in the circumstances the law lists (Mass. Gen. Laws ch. 175I, § 13).

Field underwriting

Notice of information practices (Mass. Gen. Laws ch. 175I, § 4)

An insurer or producer must give a notice of information practices (Mass. Gen. Laws ch. 175I, § 4(a)):

• With an application, no later than when the application is made
• On renewal, by the renewal date, unless information is collected only from the policyholder or public records, or a notice was given within the previous 24 months
• On reinstatement or a change in benefits, by the time the request is received, unless information is collected only from the policyholder or public records

The notice is in writing. It states whether information may be collected from persons other than the proposed insured, the types of information and the sources and investigative techniques that may be used, the disclosures the law permits without authorization, the individual’s rights of access and correction and to the reasons for an adverse underwriting decision, and that an insurance-support organization may keep and disclose information from its report (§ 4(b)). An abbreviated notice may be used instead, telling the applicant the main points and that the full notice is available on request (§ 4(c)). The insurer’s collection and disclosure of information is limited to the practices described in the notice (§ 4(e)).

Application procedures including backdating (Mass. Gen. Laws ch. 175, § 130)

A life policy may be backdated to save age, but only so far. A life or endowment policy may not be dated more than six months before the date of the original written application if backdating would give the applicant a younger age at nearest birthday than on the application date. An annuity may not be dated at an age higher than the applicant’s age at nearest birthday on the application date (Mass. Gen. Laws ch. 175, § 130).

For example, on an application dated May 1, a policy may be dated as early as November 1 of the previous year to give the applicant a younger age, but not earlier.

The application itself must be signed or consented to in writing by the person to be insured, except that a parent or guardian may sign for a minor under 15 and a parent, step-parent or spouse may sign for a single policy on several family members (§ 123), and it is part of the contract only if a copy is attached to the policy (§§ 131, 132(3)). A misstatement about the insured’s health does not void a life policy or annuity unless it is material and either was made with actual intent to deceive or increased the risk of loss (§ 186(b)).

Individual underwriting by the insurer

Investigative consumer (inspection) report (Mass. Gen. Laws ch. 175I, § 7)

An insurer, producer or insurance-support organization may not prepare or request an investigative consumer report in connection with an application, renewal, reinstatement or change in benefits unless the individual is told (Mass. Gen. Laws ch. 175I, § 7(a)):

• That they may ask to be interviewed in connection with the report
• That, on request, they are entitled to a copy of the report

Whoever prepares the report must have reasonable procedures to conduct a requested interview; if a support organization prepares it, the insurer tells the organization the interview was requested (§ 7(b), (c)). The report may not contain information designed to determine anyone’s sexual orientation, or information about counseling for AIDS or AIDS-related complex; counseling does not mean diagnosis or treatment (§ 7(d)). The federal Fair Credit Reporting Act rules for these reports, covered in the chapter on Massachusetts State Regulations, apply as well.

Medical examinations and lab tests including HIV (211 CMR 36.03)

211 CMR 36.00 governs HIV testing and HIV-related information for life, health and disability insurance:

• HIV-related information must be treated as highly confidential. No insurer, producer or employee may communicate it to anyone without the written authorization of the person it concerns (36.03(1)).
• An insurer may request or require an HIV test only with the individual’s prior written informed consent, and only on a basis that is not unfairly discriminatory (36.03(2), (3)).
• The consent disclosures say the individual may wish to get counseling first, and that waiting up to 21 days from the request to sign the consent will not prejudice the application, absent changes in underwriting factors (36.04(2)(a)7.).
• The authorization to test is valid for no longer than 90 days after it is signed (36.04(3)(a)).
• A positive result must be reported to the individual as quickly as possible and no later than 45 days after the blood sample is taken, through a physician the individual names or directly by certified letter, at the individual’s choice (36.05(1)).
• Insurers and producers may not ask about counseling for HIV or AIDS, or about the sexual orientation of any applicant, proposed insured, policyholder or beneficiary, including through proxy questions (36.07(1)).

Genetic tests. An insurer, producer or broker may not require a genetic test as a condition of issuing or renewing life insurance. An application may ask whether the applicant has had one, but must tell the applicant that they need not answer and that not answering may result in a higher rate or denial of coverage (Mass. Gen. Laws ch. 175, § 120E).

Selection criteria and unfair discrimination (Mass. Gen. Laws ch. 175, §§ 120, 120A–120F)

A life insurer and its agents may not discriminate between insureds of the same class and equal expectation of life in premiums, dividends or other benefits, or any other term of a life policy or annuity (§ 120). Massachusetts then lists specific grounds an insurer may not use:

Ground	Rule	Section
Intellectual disability	May not refuse an individual life policy for that reason alone to a resident at least age 3, if no other insurance is in force or pending on the person	§ 120A
Blindness	May not refuse an individual life policy for that reason alone	§ 120B
DES exposure	May not cancel, refuse, overcharge or otherwise discriminate primarily because of exposure to diethylstilbestrol	§ 120C
Victim of abuse	May not cancel, refuse or vary rates or terms based on it, and may not seek the information	§ 120D
Genetic information	May not discriminate unless based on reliable information about mortality or morbidity under sound actuarial principles or claim experience	§ 120E
Race, color, religion, sex, marital status, national origin	For annuities issued on or after January 1, 2009, may not make any distinction, or recognize a difference in life expectancy, on these grounds	§ 120F

The DES and abuse-victim rules also reach practices that are fair in form but discriminatory in practice.

Sidenote

Know this...

Section 120F makes Massachusetts annuity terms sex-neutral: an insurer may not pay a woman a smaller monthly annuity than a man of the same age on the ground that women live longer. Section 120F covers annuities and pure endowments.

Lesson summary

• At the presentation the producer gives their role and the insurer’s full name, avoids misleading advisory titles, and labels nonguaranteed elements (211 CMR 31.07).
• The Buyer’s Guide goes to every buyer before the initial premium is accepted, or with the policy if it has a 10-day refund provision; a policy summary (guarantees only) goes with a policy not sold with an illustration (211 CMR 31.05).
• Cost comparison: a higher yield index is better for cash value policies, a lower interest-adjusted cost index for term (211 CMR 34.04).
• Replacement: signed statements from applicant and producer, the Important Notice signed by both, notice to the existing insurer within seven working days, the existing insurer’s summary within 20 days, a 20-day refund right, and records for three years (211 CMR 34).
• The notice of information practices is given no later than the application (175I, § 4). An investigative consumer report requires telling the individual of the right to an interview and a copy (§ 7).
• Policies may be backdated no more than six months to save age (§ 130).
• HIV testing needs written informed consent (valid 90 days), positive results go out within 45 days, and no questions about HIV counseling or sexual orientation (211 CMR 36). No required genetic tests (§ 120E).
• No unfair discrimination within the same class and life expectancy, nor for an intellectual disability, blindness, DES exposure, abuse or genetic information; annuities are sex-neutral since 2009 (§§ 120–120F).