North Carolina Administrative Code › Title 11 - INSURANCE › Chapter 04 - CONSUMER SERVICES DIVISION › Section .0300 - LIFE: ACCIDENT AND HEALTH › Section 04 .0318 - LIFE INSURANCE SALES: FINANCING FIRST YEAR PREMIUM

Current through Register Vol. 39, No. 2, July 15, 2024
(a) The
				Commissioner shall consider an unfair trade practice the failure by an
				insurance company to adhere to the following procedures concerning the sale of
				life insurance contracts for which the first year's premium or any portion
				thereof is financed through a device suggested by the insurer or its agent with
				the insurance policy itself being assigned as security:
(1) Minimum Down-Payment Required. A minimum
				down-payment of twenty five dollars ($25.00) in cash or by valid and currently
				collectible check of the applicant is required for the insurance. Under no
				circumstances shall a company or an agent directly or indirectly either furnish
				this down-payment or waive this requirement.
(2) Financing Device to be Explained in
				Policy Application. The furnishing of a promissory note in connection with
				financing part of the first year's premium must be explained in the policy
				application. The explanation must be clear and complete and shall specify the
				principal sum of the note or notes, the interest payable, the due date, the
				amount payable on that due date, the interest rate and the annual percentage
				rate.
(3) Execution of Promissory
				Note. All blank spaces in a promissory note form or an assignment of an
				insurance policy form subsequently executed by the insured must be filled in by
				the handwriting of the insured except blank spaces relating to the policy
				number to be issued, and the signatures of witnesses and co-makers. No agent or
				anyone acting under his or her direction or control other than the insured
				shall write in such spaces.
(4)
				Promissory Note May be Sold Only With Recourse. If a promissory note is taken
				to finance part of the first year's premium, the note may be sold or otherwise
				transferred by the payee with recourse only, and this fact must appear in bold
				print on the face of the note.
(5)
				Note to be Retained Until Policy Acceptance is Executed. Any promissory note
				given by the applicant in connection with an application for a policy shall not
				be sold or otherwise transferred by the agent or company, nor any commissions
				on the sale paid to the agent until 15 days after a properly executed policy
				acceptance form has been received in the home office of the insurance company
				issuing the policy.
(6) Copy of
				Note to be Furnished Applicant. A copy of the note executed by the applicant
				must be attached to the policy when delivered.
(7) Policy Acceptance to be Executed on
				Delivery of the Policy; Contract Rescission. Upon delivery of the policy, a
				policy acceptance form must be executed that recites the following:
(a) The policy has been issued as
				represented;
(b) The applicant
				acknowledges and understands the provisions and obligations of the debt he has
				incurred in connection with applying for the policy and the terms are set forth
				in the record;
(c) The applicant
				understands that he or she may cancel the policy and his or her promissory note
				and his or her down-payment will be returned if he or she refuses to accept
				delivery of the policy and sign the acceptance form, and the applicant
				understands that at any time within 10 days after the execution of the policy
				acceptance form he or she shall be allowed to rescind the agreement, and the
				promissory note, together with the total amount of his or her down-payment,
				shall be returned to the applicant;
(d) The applicant further understands that
				the rescission or rejection must be communicated to the company by mail and
				return of the policy within the 10 day period; and
(e) The applicant acknowledges that the
				obligations of the debt cannot be altered by a cancellation of the policy at
				his or her request unless properly cancelled within 10 days, in writing, mailed
				to the company at the address specified. The policy acceptance form shall
				contain a number designation corresponding to the policy issued and shall not
				be made available to the agent until the application is received in the home
				office. The provisions of Sub-items (7)(c) and (d) of this Item shall be
				printed in bold type upon the face of the policy.
(8) Insured to be Notified of Assignment. The
				insurer, the note purchaser, assignee or company shall notify the note maker
				(insured) and all co-makers regarding the purchase, transfer or assignment of
				the note, after such transfer, inviting any questions relative to the note or
				the policy that is used as collateral security for the note.
(9) Requests for Cancellation to be Handled
				Promptly. The company and its agents shall give prompt and complete cooperation
				to the insured and the Department when requests to cancel the policy and
				premium financing arrangements are received.
(10) Special Rule in Event Applicant is Under
				Eighteen Years of Age. If the applicant is a minor and executes a promissory
				note for the payment of part or all of the first year's premium, the note must
				be witnessed by at least one of the applicant's parents or guardian.
(11) Disclosure of Extended Obligations. The
				agent shall clearly disclose to the insured that the cancellation of the note
				may reduce the cash surrender value of the policy in direct proportion to the
				amount of the promissory note. The agent shall not use terms such as "bonus
				payment", "free insurance", or any other term that induces the applicant to
				believe that the promissory note will be paid by monies other than his or her
				policy cash values. Terms leading the applicant to believe that he is receiving
				free insurance by deferring the premium payment for the first year shall not be
				employed.
(12) Cash Values. Cash
				values shown at the presentation shall be based on the policy offered. The cash
				values shown at the time of presentation shall be a specimen of the policy
				being offered and not for a larger policy.
(13) Cancellation of Existing Insurance. The
				disturbing of any permanent insurance, including the partial or total
				replacement of any provisions of an existing policy for the purpose of placing
				additional insurance, or "twisting" as defined in
				G.S.
				58-3-115, will be cause for investigation and
				review by the Department of Insurance.
(14) Licensed Agents. Only licensed agents
				are eligible to sell life insurance. No person other than a licensed agent
				shall participate in or receive commission or any other valuable consideration
				in connection with the solicitation, negotiation, procurement, or making of
				life insurance contracts in this State.
(15) Agent Identification. An agent or field
				representative who is licensed by this State as a life insurance agent shall
				not represent, refer to, or hold himself or herself out to the public under any
				special title that would obscure the fact that he is a licensed agent of the
				company. Identification as an agent or representative of a special division may
				be permitted providing such a division actually exists and the agency
				relationship is disclosed.