COMAR 31.09.13 · Chapter 13 Military Sales Practices

Administrative History Effective date: May 1, 2008 (35:3 Md. R. 290) Authority Insurance Article, §§ 27-101 , et seq., Title 27; Annotated Code of Maryland

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.01 Purpose. A. The purpose of this chapter is to set forth standards to protect active duty service members of the United States Armed Forces from dishonest and predatory insurance sales practices by declaring certain identified practices to be false, misleading, deceptive, or unfair. B. Nothing in this chapter may be construed to create or imply a private cause of action for a violation of this chapter.

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.02 Scope. This chapter applies only to the solicitation or sale of any life insurance or annuity product by an insurer or insurance producer to an active duty service member of the United States Armed Forces.

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.03 Incorporation by Reference. In this chapter, the following documents are incorporated by reference: A. 38 U.S.C. §1965 et seq. (2007); B. Internal Revenue Code, 26 U.S.C. §501(c)(23) (2007); C. Department of Defense DoD Instruction 1344.07—Personal Commercial Solicitation on DoD Installations (March 30, 2006); D. Truth in Savings Act, 12 U.S.C. §4301 et seq. (2007), and the regulations promulgated under it; and E. §10 of the "Military Personnel Financial Services Protection Act," Pub. L. No. 109-290, p.16.

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.04 Definitions. A. In this chapter, the following terms have the meanings indicated. B. Terms Defined. (1) Active Duty. (a) "Active duty" means full-time duty in the active military service of the United States and includes members of the reserve component, National Guard and Reserve, while serving under published orders for active duty or full-time training. (b) "Active duty" does not include members of the reserve component who are performing active duty or active duty for training under military calls or orders specifying periods of less than 31 calendar days. (2) "Annuity" means annuity as defined in Insurance Article, §1-101(d), Annotated Code of Maryland . (3) "Department of Defense (DoD) Personnel" means all active duty service members and all civilian employees, including nonappropriated fund employees and special government employees, of the Department of Defense. (4) "Door-to-door" means a solicitation or sales method whereby an insurance producer proceeds randomly or selectively from household to household without prior specific appointment. (5) "General advertisement" means an advertisement having as its sole purpose the promotion of the reader's or viewer's interest in the concept of insurance, or the promotion of the insurer or the insurance producer. (6) "Insurance producer" has the meaning stated in Insurance Article, §1-101(u), Annotated Code of Maryland . (7) "Insurer" has the meaning stated in Insurance Article, §1-101(v), Annotated Code of Maryland . (8) "Known" or "knowingly" means, depending on its use in this chapter, the insurance producer or insurer had actual awareness, or in the exercise of ordinary care should have known, at the time of the act or practice complained of, that the person solicited: (a) Is a service member; or (b) Is a service member with a pay grade of E-4 or below. (9) "Life insurance" has the meaning stated in Insurance Article, §1-101(x), Annotated Code of Maryland . (10) "Military installation" means any federally owned, leased, or operated base, reservation, post, camp, building, or other facility to which service members are assigned for duty, including barracks, transient housing, and family quarters. (11) "MyPay" is a Defense Finance and Accounting Service (DFAS) web-based system that enables service members to process certain discretionary pay transactions or provide updates to personal information data elements without using paper forms. (12) "Service member" means any active duty officer, commissioned and warrant, or enlisted member of the United States Armed Forces. (13) Side Fund. (a) "Side fund" means a fund or reserve that is part of or otherwise attached to a life insurance policy by rider, endorsement, or other mechanism which accumulates premium or deposits with interest or by other means. (b) "Side fund" does not include: (i) Accumulated value or cash value or secondary guarantees provided by a universal life policy; (ii) Cash values provided by a whole life policy which are subject to standard nonforfeiture law for life insurance; or (iii) A premium deposit fund which contains only premiums paid in advance which accumulate at interest, imposes no penalty for withdrawal, does not permit funding beyond future required premiums, is not marketed or intended as an investment, and does not carry a commission, either paid or calculated. (14) "Specific appointment" means a prearranged appointment agreed upon by both parties and definite as to place and time. (15) "United States Armed Forces" means all components of the Army, Navy, Air Force, Marine Corps, and Coast Guard.

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.05 Exemptions. A. This chapter does not apply to solicitations or sales involving: (1) Credit insurance; (2) Group life insurance or group annuities where there is no in-person, face-to-face solicitation of individuals by an insurance producer or where the contract or certificate does not include a side fund; (3) An application to the existing insurer that issued the existing policy or contract when: (a) A contractual change or a conversion privilege is being exercised; (b) The existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or (c) A term conversion privilege is exercised among corporate affiliates; (4) Individual health policies, including disability income policies; (5) Contracts offered by Service members' Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI), as authorized by 38 U.S.C. §1965 et seq. (2007); (6) Life insurance contracts offered through or by a nonprofit military association, qualifying under 26 U.S.C. §501(c)(23) (2007), and which are not underwritten by an insurer; or (7) Contracts used to fund: (a) An employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act (ERISA); (b) A plan described by §401(a), 401(k), 403(b), 408(k), or 408(p) of the Internal Revenue Code, as amended, if established or maintained by an employer; (c) A government or church plan defined in §414 of the Internal Revenue Code, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under §457 of the Internal Revenue Code; (d) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor; (e) Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process; or (f) Prearranged funeral contracts. B. Nothing in this chapter may be construed to abrogate the ability of nonprofit organizations to educate members of the United States Armed Forces in accordance with Department of Defense DoD Instruction 1344.07—Personal Commercial Solicitation on DoD Installations. C. For purposes of this chapter, general advertisements, direct mail, and internet marketing do not constitute solicitation. D. Telephone Marketing. (1) Telephone marketing does not constitute solicitation, if the caller: (a) Explicitly and conspicuously discloses that the product concerned is life insurance or annuity; and (b) Makes no statements that avoid a clear and unequivocal statement that life insurance or annuity is the subject matter of the solicitation. (2) Nothing in this section may be construed to exempt an insurer or insurance producer from this chapter in any in-person, face-to-face meeting established as a result of the solicitation exemptions identified in this regulation.

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.06 Practices Declared False, Misleading, Deceptive, or Unfair on a Military Installation. A. The following acts or practices when committed on a military installation by an insurer or insurance producer with respect to the in-person, face-to-face solicitation of life insurance or annuity are prohibited as false, misleading, deceptive, or unfair: (1) Knowingly soliciting the purchase of any life insurance product or annuity door-to-door or without first establishing a specific appointment for each meeting with the prospective purchaser; (2) Soliciting service members in a group or mass audience or in a captive audience where attendance is not voluntary; (3) Knowingly making appointments with or soliciting service members during their normally scheduled duty hours; (4) Making appointments with or soliciting service members in barracks, day rooms, unit areas, transient personnel housing, or other areas where the installation commander has prohibited solicitation; (5) Soliciting the sale of life insurance or annuity without first obtaining permission from the installation commander or the commander's designee; (6) Posting unauthorized bulletins, notices, or advertisements; (7) Failing to present DD Form 2885, Personal Commercial Solicitation Evaluation, to service members solicited or encouraging service members solicited not to complete or submit a DD Form 2885, as set forth in §C of this regulation ; and (8) Knowingly accepting an application or issuing a policy for life insurance or annuity, on the life of an enlisted member of the United States Armed Forces without first obtaining for the insurer's files a completed copy of any required form which confirms that the applicant has received counseling or fulfilled any other similar requirement for the sale of life insurance established by regulations, directives, or rules of the DoD or any branch of the Armed Forces. B. The following acts or practices when committed on a military installation by an insurer or insurance producer constitute corrupt practices, improper influences, or inducements and therefore prohibited as false, misleading, deceptive or unfair: (1) Using DoD personnel, directly or indirectly, as a representative or agent in any official or business capacity, with or without compensation with respect to the solicitation or sale of life insurance or annuity to service members; and (2) Using an insurance producer to participate in any United States Armed Forces sponsored education or orientation program. C. Personal Commercial Solicitation Evaluation Form.

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FORM AT END OF CHAPTER

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.07 Practices Declared False, Misleading, Deceptive, or Unfair Regardless of Location. A. The following acts or practices by an insurer or insurance producer constitute corrupt practices, improper influences, or inducements, regardless of location, and therefore, are prohibited as false, misleading, deceptive, or unfair: (1) Submitting, processing, or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member's pay to a third party for the purchase of life insurance or annuity, which acts include but are not limited to: (a) Using or assisting in using a service member's "MyPay" account; or (b) Using another similar internet or electronic medium for such purposes. (2) Knowingly receiving funds from a service member for the payment of premium from a depository institution with which the service member has no formal banking relationship. (3) Employing any device or method, or entering into any agreement whereby funds received from a service member by allotment for the payment of insurance premiums are identified on the service member's Leave and Earnings Statement or equivalent or successor form as Savings or Checking and where the service member has no formal banking relationship as defined in §A(2) of this regulation ; (4) Entering into any agreement with a depository institution for the purpose of receiving funds from a service member whereby the depository institution, with or without compensation, agrees to accept direct deposits from a service member with whom it has no formal banking relationship; (5) Using DoD personnel, directly or indirectly, as a representative or agent in any official or unofficial capacity with or without compensation with respect to the solicitation or sale of life insurance or annuity to service members who are junior in rank or grade, or to the family members of such personnel; (6) Offering or giving anything of value, directly or indirectly, to DoD personnel to procure their assistance in encouraging, assisting, or facilitating the solicitation or sale of life insurance or annuity to another service member; (7) Knowingly offering or giving anything of value to a service member with a pay grade of E-4 or below for his or her attendance to any event where an application for life insurance or annuity is solicited; and (8) Advising a service member with a pay grade of E-4 or below to change his or her income tax withholding or State of legal residence for the sole purpose of increasing disposable income to purchase life insurance or annuity. B. Section A(1) of this regulation does not prohibit: (1) Assisting a service member by providing insurer information; or (2) Premium information necessary to complete any allotment form. C. For purposes of §B(2) of this regulation , a formal banking relationship is established when the depository institution: (1) Provides the service member a deposit agreement and periodic statements and makes the disclosures required by the Truth in Savings Act, 12 U.S.C. §4301 et seq. (2007), and the regulations promulgated under it; and (2) Permits the service member to make deposits and withdrawals unrelated to the payment or processing of insurance premiums. D. Prohibited Practices—Source. (1) The following acts or practices by an insurer or insurance producer regarding source, sponsorship, approval, or affiliation are prohibited as false, misleading, deceptive, or unfair: (a) Making any representation, or using any device, title, descriptive name, or identifier that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance producer, or product offered is affiliated, connected or associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government, the United States Armed Forces, any state or federal agency, or government entity; and (b) Soliciting the purchase of any life insurance product through the use of or in conjunction with any third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that has the tendency or capacity to confuse or mislead a service member into believing that either the insurer, insurance producer, or insurance product is affiliated, connected or associated with, endorsed, sponsored, sanctioned, or recommended by the U.S. Government or the United States Armed Forces. (2) Examples of prohibited insurance producer titles under §D(1)(a) of this regulation include, but are not limited to: (a) Battalion Insurance Counselor; (b) Unit Insurance Advisor; (c) Servicemen's Group Life Insurance Conversion Consultant; or (d) Veteran's Benefits Counselor. (3) Nothing in this chapter may be construed to prohibit a person from using a professional designation awarded after the successful completion of a course of instruction in the business of insurance by an accredited institution of higher learning, including: (a) Chartered Life Underwriter (CLU); (b) Chartered Financial Consultant (ChFC); (c) Certified Financial Planner (CFP); (d) Master of Science In Financial Services (MSFS); or (e) Masters of Science Financial Planning (MS). E. Prohibited Practices—Costs and Returns. The following acts or practices by an insurer or insurance producer regarding premiums, costs, or investment returns are prohibited as false, misleading, deceptive, or unfair: (1) Using or describing the credited interest rate on a life insurance policy or annuity contract in a manner that implies that the credited interest rate is a net return on premium paid; and (2) Misrepresenting the mortality costs of a life insurance product, including stating or implying that the product costs nothing or is free. F. The following acts or practices by an insurer or insurance producer regarding SGLI or VGLI are false, misleading, deceptive, or unfair: (1) Making any false, misleading, or deceptive representations regarding the availability, suitability, amount, cost, exclusions, or limitations to coverage provided to a service member or dependents by SGLI or VGLI; (2) Making any false, misleading, or deceptive representations regarding conversion requirements, including the costs of coverage, exclusions, or limitations to coverage of SGLI or VGLI to private insurers; or (3) Suggesting, recommending, or encouraging a service member to cancel or terminate his or her SGLI policy, or issuing a life insurance policy which replaces an existing SGLI policy unless the replacement will take effect upon or after the service member's separation from the United States Armed Forces. G. The following acts or practices by an insurer or insurance producer regarding disclosure are prohibited as false, misleading, deceptive, or unfair: (1) Deploying, using, or contracting for any lead generating materials designed exclusively for use with service members that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance producer, if done for the purpose of soliciting the purchase of life insurance or annuity; (2) Failing to disclose that a solicitation for the sale of life insurance or annuity will be made when establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser; (3) Failing to clearly and conspicuously disclose the fact that the product being sold is life insurance; (4) Failing to make, at the time of sale or offer to an individual known to be a service member, the written disclosures required by §10 of the "Military Personnel Financial Services Protection Act," Pub. L. No. 109-290, p.16; and (5) When the sale is conducted in-person face-to-face with an individual known to be a service member, failing to provide the applicant at the time the application is taken: (a) An explanation of any free look period with instructions on how to cancel if a policy is issued; and (b) Either a copy of the application or a written disclosure, that: (i) Shall clearly and concisely set out the type of life insurance, the death benefit applied for, and its expected first year cost; or (ii) May be satisfied by a basic illustration that meets the requirements of COMAR 31.09.09 which shall be considered sufficient to meet this requirement for a written disclosure. H. Definitions. (1) In this section, the following terms have the meanings indicated. (2) Terms Defined. (a) "Insurable needs" are the risks associated with premature death taking into consideration the financial obligations and immediate and future cash needs of the applicant's estate and/or survivors or dependents. (b) "Other military survivor benefits" include: (i) The death gratuity; (ii) Funeral reimbursement; (iii) Transition assistance; (iv) Survivor and dependents' educational assistance; (v) Dependency and indemnity compensation; (vi) TRICARE healthcare benefits; (vii) Survivor housing benefits and allowances; (viii) Federal income tax forgiveness; and (ix) Social Security survivor benefits. (3) The following acts or practices by an insurer or insurance producer with respect to the sale of certain life insurance products or annuities are false, misleading, deceptive, or unfair: (a) Recommending the purchase of any life insurance product which includes a side fund to a service member in pay grades E-4 and below unless the insurer has reasonable grounds for believing that the life insurance death benefit, standing alone, is suitable; (b) Offering for sale or selling a life insurance product which includes a side fund to a service member in pay grades E-4 and below who is currently enrolled in SGLI, unless, after the completion of a needs assessment, the insurer demonstrates that the applicant's SGLI death benefit, together with any other military survivor benefits, savings and investments, survivor income, and other life insurance are insufficient to meet the applicant's insurable needs for life insurance; (c) Offering for sale or selling any life insurance contract which includes a side fund unless: (i) Interest credited accrues from the date of deposit to the date of withdrawal and permits withdrawals without limit or penalty; (ii) The applicant has been provided with a schedule of effective rates of return based upon cash flows of the combined product that satisfies the following requirements; (iii) The effective rate of return will consider all premiums and cash contributions made by the policyholder and all cash accumulations and cash surrender values available to the policyholder in addition to life insurance coverage; (iv) The schedule is provided for at least each policy year from 1 to 10 and for every fifth policy year thereafter ending at age 100, policy maturity, or final expiration; and (v) By default funds accumulated in the side fund are diverted and transferred to pay, reduce, or offset any premiums due; (d) Offering for sale or selling any life insurance contract which after considering all policy benefits, including but not limited to endowment, return of premium or persistency, does not comply with standard nonforfeiture law for life insurance; and (e) Selling any life insurance product to an individual known to be a service member that excludes coverage if the insured's death is related to war, declared or undeclared, or any act related to military service except for an accidental death coverage which may be excluded.

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.08 Severability. If any provision of this chapter or the application thereof to any person or circumstance is held invalid for any reason, the invalidity does not affect the other provisions or any other application of these sections which can be given effect without the invalid provisions or application. To this end all provisions of this chapter are declared to be severable.

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.09 Effective Date. This chapter is effective May 1, 2008, and shall apply to acts or practices committed on or after the effective date.

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Attachments 31.09.13.06-form

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31.09.13.06-form

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Previous Chapter 12 Suitability in Annuity Transactions

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Next Chapter 14 Retained Asset Accounts [Repealed]

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