Louisiana Administrative Code › Title 37 - INSURANCE › Part XIII - Regulations › Chapter 69 - Regulation 21-Special Policies and Provisions: Prohibitions, Regulations, and Disclosure Requirements › Section XIII-6901 - Policy Directive Number Seven to All Companies Authorized to Write Life Insurance in the State of Louisiana

Current through Register Vol. 50, No. 6, June 20, 2024
A. Authority and Purpose
1. This directive is issued under the
				authority granted to the Insurance Commissioner by the
Louisiana
				Insurance Code
for the purpose of protecting the Louisiana
				insurance-buying public and the insurers from the effect of sales of certain
				types of insurance policies which experience has shown, in this and other
				states, has not been in the public interest.
2. Effective November 12, 1962, no policy of
				the type described in §6901. A.3 shall be approved for use in the state of
				Louisiana. Any such policy of the type described in §6901. A.3 which has
				heretofore been approved for use in Louisiana shall not be used after March 1,
				1963, the approval of such form being specifically revoked on such
				date.
3.
a. A policy form which guarantees a certain
				amount each year, either level or variable, where such amount is predicated
				upon a specified number of shares of stock of the company. Such forms usually
				provide that a certain amount is payable to the owner of the policy, usually
				upon payment of the second annual premium, or it will provide that the owner of
				the policy receive the same amount of money as the dividend which is declared
				upon a given number of shares of stock of the company during the
				year.
b. A policy which usually has
				some identifying language indicating that it will be made available to a
				limited number of persons or sold in specifically pre-determined numbers of
				units of fixed dollar amounts. Also, any policy form which contains provisions
				representing that the policyholder will be eligible to participate, with
				special advantage not available to persons holding other types of participating
				or nonparticipating policies issued by the same company, in any future
				distribution of general company profits. Such forms are often so drafted that
				it appears to a prospective policyholder that he is purchasing a preferential
				share of future profits and earnings of the company, rather than purchasing
				life insurance policies which may be subject to refunds of premiums.
i. Every participating contract shall
				stipulate that dividends, if any, shall be ascertained and apportioned by the
				Board of Directors, and shall not specify the sources of such
				dividends.
c. Any policy
				for which an extra premium is paid which is not used to purchase insurance but
				where such extra premium is set aside in a fund which is to be invested by the
				insurer for the benefit of the policyholders holding this type of contract.
				Dividends or guaranteed allocations or coupons used in connection with the
				policy are used to purchase stock in business corporations or other insurance
				companies for the exclusive benefit of the purchasers of the policies. Such
				policies contain language wherein it is indicated that dividends and capital
				gains from stock purchased with the excess portion of the premium paid for the
				policy are to be accumulated and distributed exclusively to those policyholders
				who continue to be such to the end of a specified period of time. Those persons
				who, for one reason or another, terminate or lapse their policies, or if the
				face amount of the policy is paid by reason of death of the insured, do not
				participate in the final distribution of the funds, although they may have
				contributed substantially to its formation.
4. Policies of the type described in §6901.
				A.3 generally purport to provide a means to an end result that is not
				authorized by statute, and in many cases, an end result that is without
				reasonable expectation of achievement. Such policies usually represent as an
				inducement to the purchase of insurance that the person who buys such a policy
				is procuring a preferential interest in the future profits and earnings of the
				insurance company. Inasmuch as distribution of earnings, profits or surplus
				must be fair and equitable to all policyholders, and must not discriminate
				unfairly between individuals of the same class and equal expectation of life,
				policies containing such provisions will henceforth be considered as contrary
				to statute and the public interest.
a. It is
				also in the public interest that every policy of life insurance should bear in
				a prominent place a reasonably accurate brief description of the nature of the
				insurance contract afforded by the insurance policy. To that end, phrases as
				"profit sharing", "charter plan", "Founder's Plan" and other such words and
				phrases when used in connection with any type of life insurance policy shall be
				deemed to be misleading and ambiguous and a violation of the insurance statutes
				of this state.
5.
				Insurance policies which include a series of coupons or additional benefits
				featured in combination with an insurance contract will be permitted in this
				state. Such coupons are usually pure endowments, and are essentially a return
				of a portion of the premium which the policyholder has already paid. This being
				true, they should be properly identified as such. Therefore, the policy shall
				state that a portion of the premium charged is for the coupon benefit. Such
				language shall be prominently displayed in proximity to the language used to
				set forth the consideration for the policy.
a.
				For policies issued under
				R.S.
				22:163, the reserves and nonforfeiture values
				of such policies must be so calculated that the present value of the pure
				endowments represented by the coupons, on the same mortality table and interest
				rate as the policy, are included in the calculation of the nonforfeiture
				factors, the first year and net renewal premiums and the reserves and
				non-forfeiture values, but shall be excluded in the calculation of the
				equivalent level amount.
b. For
				policies issued under
				R.S.
				22:162(C), the calculations
				under ordinary insurance shall conform to Illinois Standard Valuation or shall
				produce reserves equivalent to such standard. The Illinois Standard referred to
				reads as follows:
"If the premium charged for term insurance under a limited
				  payment life preliminary term policy providing for the payment of all premiums
				  thereon in less than twenty years from the date of the policy or under an
				  endowment preliminary term policy, exceeds that charged for like insurance
				  under twenty-payment life preliminary term policies of the same company, the
				  reserve thereon at the end of any year, including first, shall not be less than
				  the reserve on a twenty-payment life preliminary term policy issued in the same
				  year and at the same age together with an amount which shall be equivalent to
				  the accumulation of a net level premium sufficient to provide for a pure
				  endowment at the end of the premium payment period equal to the difference
				  between the value at the end of such period of such twenty-payment life
				  preliminary term policy and the full reserve at such time of such a limited
				  payment life or endowment policy. The premium-payment period is the period
				  during which premiums am concurrently payable under such twenty-payment life
				  preliminary term policy and such limited-payment life or endowment
				  policy."
c. The premiums
				referred to shall be construed to mean net premiums so as to make the law's
				application uniform for all companies. The new 20-payment life premium, on the
				full one-year preliminary term basis, is thus made the measure for determining
				whether the premium for, and the valuation of, other plans of insurance shall
				be upon the full preliminary term basis or the 20-payment life preliminary term
				basis. Therefore, the basis is determined not so much by plan of insurance as
				by relative size of premium at the age of issue.
d. In order that the Insurance Department may
				be sure that this directive is complied with, each such form which is filed
				must include a complete and detailed description of the actuarial basis of the
				policy together with formulae and calculations for at least one specimen age.
				Also the cover letter must certify that the recommendations of the Hooker
				Committee have been complied with for policies issued under
				R.S.
				22:163.
6. Before consideration will be given to any
				policy, the letter of transmittal must contain a certification by an executive
				officer that such policy has been approved by the insurer's domiciliary
				state.