Texas Administrative Code › Title 28 - INSURANCE › Part 1 - TEXAS DEPARTMENT OF INSURANCE › Chapter 21 - TRADE PRACTICES › Subchapter N - LIFE INSURANCE ILLUSTRATIONS › Section 21.2206 - General Rules and Prohibitions

Current through Reg. 49, No. 28; July 12, 2024
An illustration other than an in force illustration shall
					 conform to the requirements set out in paragraphs (1)-(3) of this
					 section.
(1) Disclosure and format. An
				  illustration used in the sale of a life insurance policy shall satisfy the
				  applicable requirements of this Subchapter, be clearly labeled "life insurance
				  illustration" and contain the basic information set out in subparagraphs
				  (A)-(T) of this paragraph, as follows:
(A)
				  name of insurer;
(B) name and
				  business address of producer or insurer's authorized representative, if
				  any;
(C) name, age and sex of
				  proposed insured, except where a composite illustration is permitted under this
				  Subchapter;
(D) underwriting or
				  rating classification upon which the illustration is based;
(E) generic name of policy, the company
				  product name, if different, and form number;
(F) initial death benefit;
(G) dividend option election or application
				  of non-guaranteed elements, if applicable; and
(H) illustration date.
(I) The illustration shall be prominently
				  labeled "Life Insurance Illustration."
(J) Each page, including any explanatory
				  notes or pages, shall be numbered and show its relationship to the total number
				  of pages in the illustration (e.g., the fourth page of a seven-page
				  illustration shall be labeled "page 4 of 7 pages"). If a Supplemental
				  illustration is used, it may be numbered either sequentially with or separately
				  from the basic illustration.
(K) If
				  the age of the proposed insured is shown as a component of a tabular detail, it
				  shall be issue age plus the numbers of years the policy is assumed to have been
				  in force.
(L) If the illustration
				  shows any non-guaranteed elements, they cannot be based on a scale more
				  favorable to the policy owner than the insurer's illustrated scale at any
				  duration. These elements shall be clearly labeled non-guaranteed.
(M) An illustration may show a concept in
				  either a basic or supplemental illustration or both, subject to the following:
(i) A concept may be shown in a basic
				  illustration provided an extended numeric summary is used; or
(ii) If a basic illustration does not show a
				  concept, the concept may be shown in an extended numeric summary appended to a
				  basic illustration.
(iii) If a
				  concept is not illustrated in a basic illustration pursuant to clauses (i) or
				  (ii) of this subparagraph, it can only be shown in:
(I) a single supplemental illustration which
				  calculates values based upon both the illustrated and one of the alternative
				  scales set out in clause (iv) of this subparagraph; or
(II) a single supplemental illustration which
				  calculates values based upon the illustrated scale, provided an extended
				  numeric summary is attached which calculates values based upon both the
				  illustrated and one of the alternative scales set out in clause (iv) of this
				  subparagraph; or
(III) two
				  supplemental illustrations, one which calculates values based on the
				  illustrated scale, and the other which calculates values based upon one of the
				  alternative scales set out in clause (iv) of this subparagraph; or
(IV) a disclosure document explaining in
				  narrative form:
(-a-) that the depiction of
				  policy values to pay premiums does not mean that policy premium requirements
				  are canceled, forgiven or waived, that the operation of any plan to use policy
				  values to pay premium is contingent upon non-guaranteed factors remaining
				  unchanged, which may or may not occur; and/or
(-b-) that the use of policy cash flows for
				  other purposes is contingent upon the non-guaranteed factors remaining
				  unchanged, which may or may not occur; and
(-c-) such disclosure documents shall include
				  a brief description of the non-guaranteed factors impacting the use of policy
				  values to pay premiums or to generate cash flows and a hypothetical example for
				  issue age 50 showing the impact of reduction in the current non-guaranteed
				  factors of 25% and 50% on the concept.
(iv) Alternative scales include:
(I) mid-point and guaranteed scales;
				  or
(II) the dividend component of
				  the illustrated scale reduced by 50%; or
(III) the dividend and/or credited interest
				  component of the illustrated scale reduced by 50% of the interest component of
				  the illustrated scale in excess of policy guarantees.
(v) For purposes of this section, an extended
				  numeric summary is the numeric summary set out in §
												21.2207(3)
				  of this title (relating to Standards for Basic Illustrations) which also, under
				  the assumptions shown, identifies items and events as set out in subclauses
				  (I)-(III) of this clause, as follows:
(I)
				  Suspension of Premium: the first policy year for which out-of-pocket premium is
				  no longer required, and/or the number of policy years for which out-of-pocket
				  premium is no longer required, and/or the number of policy years for which
				  out-of-pocket premium is required.
(II) Cash Flow: the first policy year when
				  cash flow ceases, and/or the number of policy years for which cash flow
				  occurs.
(III) The assumed payments
				  on which the illustrated benefits and values are based may be identified as
				  premium outlay or contract premium, as applicable, or total outlay.
(vi) After January 1, 2001, a
				  concept may not be presented using the option set out in clause (iii)(IV) of
				  this subparagraph, nor may any alternative scale be used other than the
				  mid-point and guaranteed scales unless the option set out in clause (iii)(IV)
				  of this subparagraph and/or the alternative scales set out in clause (iv)(II)
				  and (III) of this subparagraph are extended by Order of the
				  Commissioner.
(vii) An illustration
				  for a proposed policy under which an employer pays all or part of the premium
				  or shares part of the benefits, such as a split dollar plan, or an illustration
				  of executive bonuses or deferred compensation, is exempt from the requirements
				  of this subsection.
(N)
				  The account or accumulation value of a policy, if shown, shall be identified by
				  the name this value is given in the policy being illustrated and shown in close
				  proximity to the corresponding value available upon surrender.
(O) The value available upon surrender shall
				  be identified by the name this value is given in the policy being illustrated
				  and shall be the amount available to the policy owner in a lump sum after
				  deduction of surrender charges, policy loans and policy loan interest, as
				  applicable.
(P) Illustrations may
				  show policy benefits and values in graphic or chart form in addition to the
				  tabular form.
(Q) A disclaimer
				  shall be set out conspicuously and in close conjunction to any depiction of
				  non-guaranteed elements over a period of years and shall:
(i) identify those benefits and values which
				  are not guaranteed;
(ii) identify
				  the assumptions upon which the illustration is based;
(iii) disclose that the assumptions are not
				  likely to continue unchanged for the years shown and that the assumptions are
				  subject to change by the insurer;
(iv) state that actual results may be more or
				  less favorable; and
(v) identify
				  generally the factors which may affect future policy performance, such as death
				  claims, investment earnings and overhead costs or make reference to the
				  narrative which identifies these factors.
(R) If the illustration shows that the
				  premium payer may have the option to allow policy charges to be paid using
				  non-guaranteed values, the illustration must clearly disclose that a charge
				  continues to be required and that, depending on actual results, the premium
				  payer may need to continue or resume premium outlays. Similar disclosure shall
				  be made for premium outlay of lesser amounts or shorter durations than the
				  contract premium. If a contract premium is due, the premium outlay display
				  shall not be left blank or show zero unless accompanied by an asterisk or
				  similar mark to draw attention to the fact that the policy is not paid
				  up.
(S) If the applicant plans to
				  use dividends or policy values, guaranteed or non-guaranteed, to pay all or a
				  portion of the contract premium or policy charges, or for any other purpose,
				  the illustration may reflect those plans and the impact on future policy
				  benefits and values.
(T) If policy
				  loans are illustrated on a guaranteed basis, interest charged must be
				  calculated in accordance with provisions of clause (i) or (ii) of this
				  subparagraph, as follows:
(i) at the highest
				  numerical rate permitted under the terms of the contract; or
(ii) to the extent that the loan interest
				  rate is guaranteed in the contract as a specific constant addition to the
				  actual interest crediting rate used in the determination of guaranteed cash
				  values, the interest charged may be determined by applying that constant
				  addition to the guaranteed minimum interest rate.