Life Insurance Advertising, Bonuses and Backdating
Wisconsin’s ban on misrepresentation (s. 628.34, Wis. Stat.) applies to every line. For life insurance and annuities, the Commissioner of Insurance adds detailed rules on advertising, on what a “bonus” may be, and on how far back a policy may be dated. Most of them interpret s. 628.34, so breaking them is an unfair marketing practice.
Advertisements, Representations and Solicitations (s. Ins 2.16)
What counts
Section Ins 2.16, Wis. Adm. Code, applies to anyone who advertises, represents or solicits life insurance or annuities on behalf of an insurer, fraternal or intermediary.
Oral statements must conform too (s. Ins 2.16 (5) (b)). Because a representation is any communication, a social media post or a scripted call is covered as well. Variable life and variable annuities fall outside Ins 2.16, as do credit life and immediate annuities, but s. 628.34 still applies to them (s. Ins 2.16 (2) (b)).
The overall-impression test
An advertisement is judged by “the overall impression that the advertisement may be reasonably expected to create upon a person of average education or intelligence within the segment of the public to which it is directed” (s. Ins 2.16 (4) (c)). Accurate fine print does not save a misleading headline. Every ad must be “truthful and not misleading in fact or in implication,” and its meaning may not depend on familiarity with insurance terminology (s. Ins 2.16 (5) (a)).
Specific prohibitions
- Exaggerating benefits or minimizing cost, including by omission (s. Ins 2.16 (7) (a)).
- Bank language. No suggestion that life insurance is the same as a savings account or bank deposit (s. Ins 2.16 (7) (b)).
- Hiding the insurer. Every ad must clearly identify the insurer, and nothing may resemble a government agency’s material (s. Ins 2.16 (8)).
- Government approval. No implying the insurer or its policies are approved or endorsed by a state or federal agency; any mention of licensing needs a disclaimer that it is not an endorsement by the state or the Commissioner (s. Ins 2.16 (10)).
- The security fund. No one may use the Insurance Security Fund’s protection “as a reason for buying insurance” (s. 628.34 (10)).
- Claims promises. No suggesting claims will be settled in a “liberal or generous” way or beyond the policy’s terms (s. Ins 2.16 (17)).
- Changing premiums. Nonlevel premiums, or the insurer’s right to change premiums, must be described prominently (s. Ins 2.16 (20)).
- “No medical exam.” Where issue is not guaranteed, such words must be paired, equally prominently, with a statement that issue may depend on the answers to the health questions (s. Ins 2.16 (26) (a)).
Testimonials, limited offers and graded benefits
A testimonial must be genuine, never fictional, and may not be used more than 2 years after it was given or last confirmed without confirming it again (s. Ins 2.16 (9) (c)). An advertisement must fully and prominently disclose any financial relationship between the insurer and the person giving a testimonial or endorsement, except a person holding a Wisconsin intermediary’s license or an announcer paid on a salaried or union wage scale basis (s. Ins 2.16 (9) (a)).
An ad that limits enrollment must state the period, which runs no less than 10 days and no more than 40 days from the date of the ad, and a new limited enrollment period for the same or a similar policy may not open less than 6 months after the last one closed (s. Ins 2.16 (11)).
Some policies pay no death benefit, or less than the premiums paid, if the insured dies within a set period after issue. An ad for a graded or modified benefit policy must say so prominently: on television for at least 10 seconds, and in a printed ad on the first page in at least 12 point bold type (s. Ins 2.16 (25)).
Who is responsible
The insurer is responsible for every ad of its policies, “regardless of by whom designed, created, written, printed or used,” and must require producers to submit ads for approval before use (s. Ins 2.16 (29)). It keeps each ad on file while in use and for 3 years afterward (s. Ins 2.16 (30)).
Bonuses
Outside the policy. Offering a buyer any benefit not written in the policy to induce the sale is an unfair inducement (s. 628.34 (2)).
“Special advantage” policies. Wisconsin prohibits coupon, charter (“founder’s”) and profit-sharing policies (s. Ins 2.08 (4)), each sold on a promised special share of the insurer’s earnings. Any distribution of earnings to a policyholder “is a refund of the excess premiums paid by that policyholder,” and must be fair to all policyholders of the same class. Ads may not use “investment,” “charter plan,” “profit sharing,” “savings plan” or similar terms to suggest the buyer gets something other than a policy, or a benefit unavailable to others of the same class and life expectancy (s. Ins 2.16 (7) (c)). A pure endowment payment is a benefit the buyer paid for, never a “profit” or “return” (s. Ins 2.16 (20) (d)).
“Free” extras. A benefit may be called “free” or “at no extra cost” only if the insured is truly not charged, and then the ad must name who pays (s. Ins 2.16 (26) (g)).
Bonus interest rates. For annuities, “credited interest rates include any bonus” in the definition of non-guaranteed elements (s. 628.347 (1) (ax), Wis. Stat.). A first-year bonus rate is non-guaranteed, and nothing may imply that a non-guaranteed element is guaranteed (s. Ins 2.16 (21) (b)).
Bonuses paid to producers. Insurers must eliminate “sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period of time” (s. 628.347 (3) (a) 9.). A trip for whoever sells the most of one annuity this quarter is exactly what the law removes.
Backdating (s. Ins 2.03)
Life premiums depend on age, so a client near a birthday may ask to backdate the policy to keep the younger age. No life policy may take effect as of a date more than 6 months before the application if that lowers the premium below what the insured’s age at the nearest birthday on the application date would require (s. Ins 2.03 (1)).
The application date is the date Part I (the application) or Part II (the medical exam) is completed, whichever is later. If Part I is signed March 1 and the exam is done March 20, the 6 months run back from March 20.
The limit does not stop an exchange, alteration or conversion of a policy as of its original date, provided the new amount of insurance does not exceed the original amount (or what the original premium would have bought), and it does not affect a conversion privilege (s. Ins 2.03 (2)).
Other Selling Requirements
Every sales presentation of individual life insurance must follow these rules (s. Ins 2.14 (5)), and annuity presentations carry the same identification, dividend and single-sum rules (s. Ins 2.15 (9)):
- Before presenting, say that you are acting as a life insurance intermediary and give the full name of the insurer you represent.
- Any mention of dividends must state that dividends are not guaranteed.
- Never compare policy costs with a method that ignores the time value of money.
- Never show guaranteed and non-guaranteed benefits as one total unless the guaranteed amounts appear separately, close by and equally prominent.
Every recommendation also needs reasonable grounds to believe it is not unsuitable (s. Ins 2.16 (6)); an annuity recommendation is held to the higher best-interest standard of s. 628.347.
Selling to active-duty service members carries extra rules (s. Ins 2.19). On a military installation, a producer may not knowingly solicit door to door or without a specific appointment, or during normal duty hours. Anywhere, a producer may not use titles implying government affiliation, such as “Battalion Insurance Counselor,” must clearly disclose that the product is life insurance, and may not urge dropping Servicemembers’ Group Life Insurance unless the replacement takes effect at or after separation from service.
Lesson summary
- Section Ins 2.16 covers life and annuity advertising, representations and solicitations, spoken ones included.
- Ads are judged by their overall impression on an average member of the intended audience.
- No bank-deposit comparisons, implied government approval, generous-claims promises or selling on the Insurance Security Fund.
- Testimonials are reconfirmed after 2 years; limited enrollment periods run 10 to 40 days, at least 6 months apart.
- The insurer answers for all ads and approves a producer’s ads before use.
- Special-advantage policies are banned, dividends are a refund of excess premium, and annuity bonus rates are non-guaranteed.
- No backdating more than 6 months before the later of Part I or Part II to lower the premium.
- Identify yourself and the insurer before presenting, and follow the extra rules for service members.