North Carolina State Regulations

Understanding North Carolina’s insurance statutes and regulations is essential for both passing the licensing exam and for ethical, compliant practice in the insurance industry. This chapter provides a detailed overview of the legal framework that governs how insurance is conducted in the state, as established by the North Carolina General Statutes (G.S.) and the North Carolina Administrative Code (NCAC).

The Pearson VUE North Carolina Insurance Licensing Exam tests not only your understanding of insurance concepts but also your ability to apply the state’s legal requirements in practical scenarios. Many exam questions are drawn directly from the North Carolina General Statutes Chapter 58 and the Administrative Code, Title 11 (Department of Insurance).

This chapter is organized to mirror the Pearson VUE content outline, ensuring that every tested topic is clearly explained. Each section includes:

• Plain-language summaries of key statutes and administrative rules
• Definitions and legal concepts found in the exam outline
• References to specific General Statutes (e.g., G.S. 58-33-30) and Administrative Code citations (e.g., 11 NCAC 4 .0423) so you can locate the original legal source if needed

By studying this chapter, you’ll gain not only the knowledge necessary to answer exam questions correctly but also the context to understand why these rules exist and how they shape professional conduct in the insurance industry.

Once licensed, every insurance professional in North Carolina is legally bound to follow the statutes and regulations established by the North Carolina Department of Insurance (NCDOI). These rules:

• Protect consumers through fair marketing and claims practices
• Ensure agents, brokers, and adjusters act with honesty and competence
• Promote financial stability and solvency among insurers
• Establish consistent standards for licensing, advertising, policy issuance, and claims handling

Understanding these laws helps you operate ethically, avoid violations, and build trust with your clients. In daily practice, these rules guide activities such as:

• Handling policy replacements or cancellations correctly
• Using accurate and transparent sales materials
• Protecting client information under privacy laws
• Meeting continuing education and licensing renewal requirements

How to Read the Statutory References

Each legal citation in this chapter corresponds to a section of North Carolina’s insurance laws or administrative regulations:

• G.S. (General Statutes) — These are laws passed by the North Carolina General Assembly and codified under Chapter 58 for insurance. For example, G.S. 58-33-30 refers to Article 33, Section 30 of Chapter 58, which governs the licensing of agents and brokers.

• 11 NCAC (North Carolina Administrative Code) — These are detailed regulations issued by the North Carolina Department of Insurance that explain how statutes are implemented. For example, 11 NCAC 4 .0423 covers ethical standards for licensed insurance professionals.

Each section of this chapter lists the relevant statutes and code references at the beginning, allowing you to connect the study material to its legal foundation — just as they appear on the state exam outline.

Learning Objectives

After completing this chapter, you should be able to:

1. Identify and interpret the major provisions of North Carolina’s insurance laws and administrative rules.
2. Explain the authority, responsibilities, and enforcement powers of the Commissioner of Insurance.
3. Recognize key licensing requirements and ethical standards applicable to agents, brokers, and adjusters.
4. Describe the rules governing fair marketing, policy issuance, and replacement practices.
5. Apply North Carolina statutes and regulations to everyday professional activities in a compliant and ethical manner.

North Carolina Life Insurance Statutes and Regulations

A. Contract of Insurance

Reference: Article 1 (G.S. 58-1-10)

In North Carolina, a contract of insurance is defined as an agreement where one party (the insurer), in exchange for consideration (premium), promises to provide benefits or pay a sum of money to another party (beneficiary) upon the happening of a specified event, such as death in the case of life insurance.

• The contract must be based on the principles of good faith. Both parties are expected to deal honestly and disclose all material facts.
• The insurer’s promise is legally enforceable under state law once the contract is issued.
• Insurance contracts must also comply with all applicable North Carolina statutes and regulations to be valid. Contracts must meet the legal elements:
  1. Offer and acceptance – an application is the offer; the insurer’s approval is acceptance.
  2. Consideration – premium paid by insured; promise to pay claims by insurer.
  3. Competent parties – both must have legal capacity.
  4. Legal purpose – contract must be lawful.
• Insurance policies in NC must be approved by the Department of Insurance (DOI) and written in plain, clear language.

B. Definitions

Reference: Article 1 (G.S. 58-1-5)

The General Statutes provide specific definitions that apply across North Carolina’s insurance code. A few key ones for life insurance include:

• Insurer: Any company, association, or person authorized to do insurance business in NC.
• Policyholder/Owner: The person who owns the insurance contract and has rights such as naming beneficiaries.
• Insured: The person whose life or health is covered by the policy.
• Premium: The consideration (payment) made by the policyholder to keep the insurance in force.
• Beneficiary: The person or entity designated to receive policy benefits.

Know the statutory definitions. “Insurer,” “insured,” “beneficiary,” “premium,” and “policyholder” are often tested terms.

C. Commissioner of Insurance

Reference: Article 2 (G.S. 58-2-5 through 58-2-200; 11 NCAC Ch. 19 Sec. .0103)

The North Carolina Commissioner of Insurance is the chief regulator of the insurance industry in the state.

• Role and Authority:
  • Enforces insurance laws.
  • Issues rules and regulations.
  • Oversees licensing of agents and companies.
  • Examines insurer financial conditions.
  • Investigates complaints and unfair practices.
• Powers Include:
  • Administering oaths, issuing subpoenas, and compelling witness testimony.
  • Conducting financial examinations of insurers (at least once every 5 years).
  • Imposing fines, suspensions, or revocations of licenses.
  • Taking action against fraud or misconduct.
• Regulatory Framework:
  • The Commissioner is an elected official in North Carolina (unlike many states where the position is appointed).
  • They serve a 4-year term and are accountable to the citizens of North Carolina.

The Commissioner enforces NC insurance laws, regulates licensing, conducts examinations, and can fine, suspend, or revoke licenses. Remember: the Commissioner is an elected official in NC.

D. General Regulations for Insurance

Reference: Article 3 (G.S. 58-3-25, 30, 40, 115, 120, 130, 135, 140, 145)

These general statutes provide baseline rules for all insurance practices in NC:

• Certificates of Authority (58-3-25): An insurer must be licensed in NC to sell insurance in the state.
• Policy Standard Provisions (58-3-30, 40): All policies must contain certain mandatory provisions for clarity and consumer protection.
• Discrimination Prohibited (58-3-115): Insurers may not unfairly discriminate in premiums, terms, or benefits based on race, sex, or genetic characteristics.
• Policy Language (58-3-120, 130): Policies must be written in clear, understandable language.
• Free Look (58-3-135): Certain policies must provide a minimum 10-day free-look period for the policyholder to review and cancel with full refund.
• Notice Requirements (58-3-140, 145): Policies must clearly state cancellation and renewal provisions.

Insurers must be authorized, policies must include mandatory provisions, no unfair discrimination is allowed, and policyholders are given protections like free-look rights.

E. Licensing of Agents, Brokers, Limited Representatives, and Adjusters

Reference: Article 33 (G.S. 58-33-1 through 135); 11 NCAC 4.0423

North Carolina requires anyone who sells, solicits, or negotiates insurance to hold a valid license.

• Types of Licensees:
  • Agents/Producers: Represent insurers in selling insurance.
  • Brokers: Represent the insured (though in NC, the producer licensing system has largely replaced the distinction).
  • Limited Representatives: Authorized for restricted lines (e.g., credit insurance).
  • Adjusters: Investigate and settle insurance claims.
• Requirements:
  • Minimum age: 18.
  • Must complete pre-licensing education.
  • Must pass the state licensing exam.
  • Must be of good character, with no recent felony convictions.
• Maintaining a License:
  • Renewal every 2 years with continuing education.
  • Must report any address change or disciplinary actions.
  • The Commissioner can suspend, revoke, or refuse renewal for violations.

To sell life insurance in NC, you must be licensed. Agents must be at least 18, pass education and exam requirements, and comply with renewal/CE rules. The Commissioner enforces all licensing standards.

F. Insurance Information & Privacy Protection Act

Reference: Article 39 (G.S. 58-39-5 through 58-39-120)

This Act regulates how insurers collect, use, and disclose personal information.

• Key Protections:
  • Insurers must notify applicants if they collect personal or credit information.
  • Individuals have the right to access and correct their records.
  • Disclosure of personal information is restricted unless authorized by the individual or permitted by law.
  • Insurers must safeguard consumer information against unauthorized use.

G. Unfair Trade Practices

Reference: Article 63 (G.S. 58-63-15, 20, 50)

Unfair or deceptive acts in insurance are prohibited. Examples include:

• Misrepresentation: Giving false or misleading information about a policy.
• False Advertising: Exaggerating policy benefits.
• Defamation: Making false or malicious statements about competitors.
• Unfair Discrimination: Charging different premiums to people in similar situations without a valid reason.
• Rebating or Inducements: Offering anything of value (rebates, gifts) not specified in the policy to induce a sale.

For the Exam know examples of unfair trade practices: misrepresentation, false advertising, defamation, discrimination, rebating.

H. False Pretenses and Cheats

Reference: Article 19 (G.S. 14-100)

This criminal statute makes it illegal to obtain money, property, or insurance benefits through fraud or false pretenses.

• Conviction is a felony.
• Applies to fraudulent claims, applications, or misrepresentations.
• Penalties include fines, imprisonment, and loss of license.

I. Continuing Education

Reference: 11 NCAC Ch. 6A Sec. .0800

Licensed producers must complete continuing education (CE) to keep their licenses active.

• Requirement: 24 credit hours every 2 years, including 3 hours of ethics.
• Must be completed before license renewal.
• CE ensures agents remain current on products, laws, and ethics.
• Failure to comply can result in license suspension or non-renewal.

J. General Regulations of Business

Reference: Article 58 (G.S. 58-58-1 through 170); 11 NCAC 4.0423

This article governs the operation of life insurers in NC.

• Standard Policy Provisions: Policies must include required provisions for fairness and clarity.
• Beneficiaries: Rules governing designations and payment of death benefits.
• Grace Period: Minimum 30 days for late premium payment.
• Incontestability: After 2 years, policies generally cannot be contested for misstatements.
• Suicide Clause: Benefits may be limited if death occurs by suicide within the first 2 years.
• Nonforfeiture Provisions: Policies must provide guaranteed values (cash value, reduced paid-up, or extended term) if premiums stop.

Life insurance policies must include standard provisions (grace period, incontestability, nonforfeiture, suicide clause).

K. Regulations of Life Insurance Solicitation

Reference: Article 60 (G.S. 58-60-1 through 35)

These rules regulate how life insurance is marketed and sold.

• Disclosure: Insurers must provide a buyer’s guide and policy summary before or at the time of sale.
• Comparisons: Must be accurate and not misleading.
• Illustrations: Must be clear, truthful, and not deceptive.

Agents must provide buyers with disclosures and ensure all sales practices are fair and accurate.

L. Replacement Regulations

Reference: 11 NCAC Ch. 12 Sec. .0612(a)(4)

Replacement occurs when a new policy is purchased and an old one is terminated or reduced.

• Agent Duties:
  • Provide a “Notice Regarding Replacement.”
  • Explain potential disadvantages (e.g., new contestability period).
• Insurer Duties:
  • Must notify the existing insurer within 5 business days.
  • Provide safeguards to protect consumers from harmful replacements.

Replacement rules require disclosure, consumer protection, and notice to existing insurers.

M. General Regulations (Ethical Standards)

Reference: 11 NCAC Ch. 4 Sec. .0423

North Carolina requires producers to follow high ethical standards.

• Place the customer’s interest first.
• Provide full and fair disclosure.
• Avoid conflicts of interest.
• Maintain professional competence.

Agents must act ethically: honesty, integrity, disclosure, and putting the client first.

N. Fraternal Benefit Societies

Reference: Article 24 (G.S. 58-24-1)

Fraternal benefit societies are nonprofit organizations that provide insurance benefits to members.

• Operate under a lodge system with a representative form of government.
• Provide life and health benefits to members and their beneficiaries.
• Exempt from some state insurance regulations due to nonprofit structure.

Fraternal benefit societies are nonprofit, member-based groups that provide insurance benefits.

O. Life and Health Insurance Guaranty Association

Reference: Article 62 (G.S. 58-62-6, 21(d), 86)

This Association protects policyholders if an insurer becomes insolvent.

• Funded by assessments of member insurers.
• Provides coverage for life and health insurance up to statutory limits.
• All authorized insurers must participate.

The Guaranty Association protects consumers if an insurer fails, up to coverage limits.

P. Viaticals

Reference: G.S. 58-58-205(11)

Viatical settlements involve selling a life insurance policy to a third party before death.

• Typically done by terminally ill policyholders.
• Regulated to protect consumers from exploitation.
• Requires proper disclosure and licensing of viatical settlement providers.

Viaticals allow policyholders to sell their policies for cash, but are strictly regulated to protect consumers.