Life Insurance Combined with Annuities - NAIC

  • We submit that the Model Annuity and Deposit Fund Disclosure Regulation and the Life Insurance Disclosure Model Regulation contain disclosure requirements that would explain to the prospect the relative significance of the life and annuity components.
  • Hence, the potential for the so-called "estate conservation" problem would be eliminated. by the use of these models, because the applicant would then be an informed consumer.  (p151)

1987-2, NAIC Proc.

NAIC Proceedings

  • 1985-1 1st mention re: aka integrated contract
  • 1985-2
  • 1986-1
  • 1986-2
  • 1987-1
  • 1987-2
  • 1988-1

PROPOSED TO THE MARKET CONDUCT OF CONSUMER  AFFAIRS (EX3) SUBCOMMITTEE BY THE  IOWA  DEPARTMENT  OF  INSURANCE

RE:  LIFE  INSURANCE/ANNUITIES PROPOSED MODEL  AMENDMENT TO BE CIRCULATED PRIOR to the DECEMBER, 1984 NAIC MEETING

Introduction

  • The Iowa Department of Insurance submits the attached proposed Model Amendment to the Life Insurance Companies Act as a preventive response to the problems which have arisen in regard the sale of life insurance policies combined with annuities.

Background and Definition

Within the  past five years, a growing number of concerned state insurance departments have undertaken investigations of life insurance companies involved in the sale of various types of life insurance  policies coupled with annuities.

  • These companies have marketed a product under the spurious name, "Estate Conservation  Plan," or similar variations.

The plans were represented as a means to shelter money from federal estate taxes and to provide immediately available funds, at the time of the purchaser's death, for estate preservation and burial expenses.

  • The major target group for the purchase of these  plans were farmers, in particular, elderly  rural people.
  • The investigations revealed that the agents who sold these plans  underwent extensive sales training prior to the marketing of the product.

In the sales presentation of these "Estate  Conservation Plans,"  emphasis was placed on the annuity portion of the package.

  • The life insurance aspect of the product was underscored as  an incidental "Death Benefit," when, in fact, the first year's premium was applied entirely for the establishment of the life policy.
  • The fact that it was not until the second year that a portion of the annual premium paid would be placed in the  interest-bearing annuity was not highlighted.
  • Additionally, unless one-third to one-half of the original investment was paid annually, the policy would not be maintained, the entire first year's premium would be lost and the value of the life insurance benefit would be substantially reduced.

In a nutshell, the investigations of these plans revealed that factually they provided no particular tax advantages and, generally, they were blatantly misrepresented to consumers.

1985-1, NAIC Proc.

(EX3) Task Force - Market Conduct Surveillance
San Francisco - March 9, 1986

  1. Heard report on subgroup on insurance sales and student loans.
  2. Received as an exposure draft Model Regulation on Life Insurance Products Coupled With Annuities.