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 Regulations of Connecticut State Agencies (Last Updated: June 14,2023)
 Title38a Insurance Department
 SubTitle38a-435-1_38a-435-8. Requirements for the Replacement of Life Insurance and Annuities

  SubTitle38a-435-1_38a-435-8. Requirements for the Replacement of Life Insurance and Annuities  

Sec. 38a-435-1. Purpose and Scope
Latest version.

(a) The purpose of sections 38a-435-1 to 38-435-8, inclusive, of the Regulations of Connecticut State Agencies is:

(1) To regulate the activities of insurers and producers with respect to the replacement of existing life insurance and annuities.

(2) To protect the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to be observed in replacement or financed purchase transactions, which will:

(A) Ensure that purchasers receive information with which a decision can be made in his or her own best interest; and

(B) Reduce the opportunity for misrepresentation and incomplete disclosure.

(b) Unless specifically included, sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies shall not apply to transactions involving:

(1) Credit life insurance;

(2) Group life insurance or group annuities where there is no direct solicitation of individuals by a producer. Direct solicitation shall not include any group meeting held by a producer solely for the purpose of educating or enrolling individuals or, when initiated by an individual member of the group, assisting with the selection of investment options offered by a single insurer in connection with enrolling that individual. Group life insurance or group annuity certificates marketed through direct response solicitation shall be subject to the provisions of section 38a-435-7 of the Regulations of Connecticut State Agencies;

(3) Group life insurance and annuities used to fund prearranged funeral service contracts;

(4) An application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or, when a term conversion privilege is being exercised among corporate affiliates;

(5) Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the same company;

(6) (A) Policies or contracts used to fund (i) an employee pension or welfare benefit plan that is covered by the Employee Retirement and Income Security Act (ERISA); (ii) a plan described by sections 401(a), 401(k) or 403(b) of the Internal Revenue Code, where the plan, for purposes of ERISA, is established or maintained by an employer; (iii) a governmental or church plan defined in section 414 of the Internal Revenue Code, a governmental or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax exempt organization under section 457 of the Internal Revenue Code; or (iv) a nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

(B) Notwithstanding subparagraph (A) of this subdivision, sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies shall apply to policies or contracts used to fund any plan or arrangement that is funded solely by contributions an employee elects to make, whether on a pre-tax or after-tax basis, and where the insurer has been notified that plan participants may choose from among two (2) or more insurers and there is a direct solicitation of an individual employee by an insurance producer for the purchase of a contract or policy. As used in this subsection, direct solicitation shall not include any group meeting held by a producer solely for the purpose of educating individuals about the plan or arrangement or enrolling individuals in the plan or arrangement or, when initiated by an individual employee, assisting with the selection of investment options offered by a single insurer in connection with enrolling that individual employee;

(7) Where new coverage is provided under a policy or contract and the cost is borne wholly by the insured’s employer or by an association of which the insured is a member;

(8) Existing life insurance that is a non-convertible term life insurance policy that will expire in no more than five (5) years and cannot be renewed;

(9) Immediate annuities that are purchased with proceeds from an existing contract. Immediate annuities purchased with proceeds from an existing policy are not exempted from the requirements of sections 38a-435-1 through 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies; or

(10) Structured settlements.

(c) Registered contracts shall be exempt from the requirements of section 38a-435-5(a)(2) and section 38a-435-6(2) of the Regulations of Connecticut State Agencies with respect to the provision of illustrations or policy summaries; however, premium or contract contribution amounts and identification of the appropriate prospectus or offering circular shall be required instead.

(Effective July 23, 2013)
Sec. 38a-435-2. Definitions
Latest version.

As used in section 38a-435-1 to section 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies:

(1) “Commissioner” means the Insurance Commissioner.

(2) “Contract” means an annuity contract.

(3) “Direct response solicitation” means a solicitation through a sponsoring or endorsing entity or individually solely through mail, telephone, the Internet or other mass communication media.

(4) “Existing insurer” means the insurance company whose existing policy or contract is or will be changed or affected in a manner described within the definition of “replacement”.

(5) “Existing policy or contract,” “existing policy,” or “existing contract” means an individual policy or contract , as applicable, in force, including a policy under a binding or conditional receipt or a policy or contract that is within an unconditional refund period.

(6) “Financed purchase” means the purchase of a new policy involving the actual or intended use of funds obtained by the withdrawal or surrender of, or by borrowing from values of an existing policy to pay all or part of any premium due on the new policy. For purposes of an individual transaction only, if a withdrawal, surrender or borrowing involving the policy values of an existing policy is used to pay premiums on a new policy owned by the same policy owner and issued by the same company no more than four (4) months before or no more than thirteen (13) months after the effective date of the new policy, it will be deemed prima facie evidence of the policy owner’s intent to finance the purchase of the new policy with existing policy values. This prima facie standard shall not affect the monitoring obligations contained in section 38a-435-4(a)(5) of the Regulations of Connecticut State Agencies.

(7) “Illustration” means a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years.

(8) “Policy” means a life insurance policy.

(9) “Policy summary”:

(A) For policies or contracts other than universal life policies, means a written statement regarding such policy or contract which shall contain to the extent applicable, but need not be limited to, the following information: current death benefit; annual contract premium; current cash surrender value; current dividend; application of current dividend; and amount of outstanding loan.

(B) For universal life policies, means a written statement that shall contain at least the following information: the beginning and end date of the current report period; the policy value at the end of the previous report period and at the end of the current report period; the total amounts that have been credited or debited to the policy value during the current report period, indentifying each by type (e.g., interest, mortality, expense and riders); the current death benefit at the end of the current report period on each life covered by the policy; the net cash surrender value of the policy as of the end of the current report period; and the amount of outstanding loans, if any, as of the end of the current report period.

(8) “Producer,” has the same meaning as provided in section 38a-702a of the Connecticut General Statutes.

(9) “Replacing insurer” means the insurance company that issues or proposes to issue a new policy or contract that replaces an existing policy or contract or is a financed purchase.

(10) “Registered contract” means a variable annuity contract or variable life insurance policy subject to the prospectus delivery requirements of the Securities Act of 1933.

(11) “Replacement” means a transaction in which a new policy or contract is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer if there is no producer, that by reason of the transaction, an existing policy or contract has been or is to be:

(b) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated;

(c) Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;

(d) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid;

(e) Reissued with any reduction in cash value; or

(f) Used in a financed purchase.

(12) “Sales material” means an illustration and any other written, printed or electronically presented information created, completed or provided by the insurance company or producer and used in the presentation to the policy or contract owner related to the policy or contract purchased.

(Effective July 23, 2013)
Sec. 38a-435-3. Duties of Producers
Latest version.

(a) A producer who initiates an application shall submit to the insurer, with or as part of the application, a statement signed by both the applicant and the producer as to whether the applicant has existing policies or contracts. If the answer is “no,” the producer’s duties with respect to replacement are complete.

(b) If the applicant answered “yes” to the question regarding existing coverage referred to in subsection (a) of this section, the producer shall present and read to the applicant, not later than at the time of taking the application unless such reading has been waived by the applicant, a notice regarding replacements in the form as described in Appendix A of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies or other substantially similar form approved by the commissioner. However, no approval shall be required when amendments to the notice are limited to the omission of references not applicable to the product being sold or replaced. The notice shall be signed by both the applicant and the producer attesting that the notice has been read aloud by the producer or that the applicant did not wish the notice to be read aloud, and a copy left with the applicant.

(c) The notice shall list all policies or contracts proposed to be replaced, identified by name of the existing insurer, name of the insured or annuitant, and policy or contract number if available; and shall include a statement as to whether each policy or contract will be replaced or whether a policy will be used as a source of financing for the new policy or contract. If a policy or contract number has not been issued by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.

(d) In connection with a replacement, the producer shall leave with the applicant at the time an application for a new policy or contract is completed, the original or a copy of all sales material. With respect to electronically presented sales material, it shall be provided to the policy or contract owner in printed form no later than at the time of policy or contract delivery.

(e) Except as provided in section 38a-435-5(c) of the Regulations of Connecticut State Agencies, in connection with a replacement, the producer shall submit to the insurer to which an application for a policy or contract is presented, a copy of each document required by this section, a statement identifying any preprinted or electronically presented company approved sales material used, and copies of any individualized sales material, including any illustrations related to the specific policy or contract purchased.

(Effective July 23, 2013)
Sec. 38a-435-4. Duties of Insurers that Use Producers
Latest version.

Each insurer that uses producers shall:

(a) Maintain a system of supervision and control to ensure compliance with the requirements of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies. Such system may include, but need not be limited to, systematic customer surveys, interviews, conformation letters or internal monitoring programs, and shall include at least the following:

(1) Informing its producers of the requirements of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies and incorporate the requirements of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies into all relevant producer training manuals prepared by the insurer;

(2) Providing to each producer a written statement of the company’s position with respect to the acceptability of replacements and providing guidance to its producer as to the appropriateness of these transactions;

(3) A system to review the appropriateness of each replacement that the producer does not indicate is in accord with subdivision (2) of this subsection;

(4) Procedures to confirm that the requirements of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies have been met; and

(5) Procedures to detect transactions that are replacements of existing policies or contracts by the existing insurer, but that have not been reported as such by the applicant or producer.

(b) Have the capacity to monitor each producer’s policy and contract replacements for that insurer, and shall produce, upon request, and make such records available to the commissioner. The capacity to monitor shall include the ability to produce records for each producer’s:

(1) Policy replacements, including financed purchases, as a percentage of the producer’s total annual sales for life insurance;

(2) Number of lapses of policies by the producer as a percentage of the producer’s total annual sales for life insurance;

(3) Contract replacements as a percentage of the producer’s total annual annuity contract sales;

(4) Number of transactions that are unreported replacements of existing policies or contracts by the existing insurer detected by the company’s monitoring system as required by subsection (a)(5) of this section; and

(5) Replacements, indexed by replacing producer and existing insurer;

(c) Require with or as a part of each application for life insurance or an annuity a signed statement by both the applicant and the producer as to whether the applicant has existing policies or contracts;

(d) Require with each application for life insurance or an annuity that indicates an existing policy or contract a completed notice regarding replacements as contained in Appendix A of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies;

(e) When the applicant has existing policies or contracts, be able to produce copies of any sales material required by section 38a-435-3(c) of the Regulations of Connecticut State Agencies, the basic illustration and any supplemental illustrations related to the specific policy or contract that is purchased, and the producer’s and applicant’s signed statements with respect to financing and replacement for at least five (5) years after the termination or expiration of the proposed policy or contract;

(f) Ascertain that the sales material and illustrations required by section 38a-435-3(e) of the Regulations of Connecticut State Agencies meet the requirements of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies and are complete and accurate for the proposed policy or contract;

(g) If an application does not meet the requirements of 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies, notify the producer and applicant and fulfill the outstanding requirements; and

(h) Maintain records in paper, photograph, microprocess, magnetic, mechanical or electronic media or by any process that accurately reproduces the actual document.

(Effective July 23, 2013)
Sec. 38a-435-5. Duties of Replacing Insurers that Use Producers
Latest version.

(a) Where a replacement is involved in the transaction, the replacing insurer shall:

(1) Verify that the required forms are received and are in compliance with sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies;

(2) Notify any existing insurer that may be affected by the proposed replacement not later than five (5) business days after receiving a completed application indicating replacement or when the replacement is identified if not indicated on the application. The replacing insurer shall mail a copy of the available illustration or policy summary for the proposed policy or available disclosure document for the proposed contract to the existing insurer or applicant not later than five (5) business days after receiving a request from an existing insurer;

(3) Be able to produce copies of the notification regarding replacement required in section 38a-435-3(b) of the Regulations of Connecticut State Agencies, indexed by producer, for at least five (5) years from the date of the replacement application or until the next regular examination by the insurance department of a company’s state of domicile, whichever is later; and

(4) Provide to the policy or contract owner notice of the right to return the policy or contract not later than ten (10) days after receiving the policy or contract and receive an unconditional full refund of all premiums or considerations paid on it, including any policy fees or charges or, in the case of a variable or market value adjustment policy or contract, a payment of the cash surrender value provided under the policy or contract plus the fees and other charges deducted from the gross premiums or considerations or imposed under such policy or contract. Such notice may be included in the notice described in Appendix A or C of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies.

(b) In transactions where the replacing insurer and the existing insurer are the same or subsidiaries or affiliates under common ownership or control, allow credit for the period of time that has elapsed under the replaced policy’s or contract’s incontestability and suicide period up to the face amount of the existing policy or contract. With regard to financed purchases, the credit may be limited to the amount the face amount of the existing policy is reduced by the use of existing policy values to fund the new policy or contract.

(c) If an insurer prohibits the use of sales material other than that approved by the company, as an alternative to the requirements of section 38a-435-3(e) of the Regulations of Connecticut State Agencies, the insurer may:

(1) Require with each application a statement signed by the producer that:

(A) Represents that the producer used only company-approved sales material; and

(B) States that copies of all sales material were left with the applicant in accordance with section 38a-435-3(d) of the Regulations of Connecticut State Agencies; and

(2) Not later than ten (10) days after the issuance of the policy or contract:

(A) Notify the applicant by sending a letter to the applicant from a person whose duties are separate from the marketing area of the insurer, that the producer has represented that copies of all sales material have been left with the applicant in accordance with section 38a-435-3(d) of the Regulations of Connecticut State Agencies;

(B) Provide the applicant with a toll free number to contact company personnel involved in the compliance function if such is not the case; and

(C) Stress the importance of retaining copies of the sales material for future reference; and

(3) Produce a copy of the letter set forth in subdivision (2)(A) of this subsection or other verification in the policy file for at least five (5) years after the termination or expiration of the policy or contract.

(Effective July 23, 2013)
Sec. 38a-435-6. Duties of the Existing Insurer
Latest version.

Where a replacement is involved in the transaction, the existing insurer shall:

(1) Retain and be able to produce all replacement notifications received, indexed by replacing insurer, for at least five (5) years from the date of the replacement application or until the conclusion of the next regular examination conducted by the Insurance Department of its state of domicile, whichever is later.

(2) Send a letter to the policy or contract owner of the right to receive information regarding the existing policy or contract values including, if available, an in force illustration, or if an in force illustration cannot be produced not later than five (5) business days after receiving a notice that an existing policy or contract is being replaced, a policy summary. The information shall be provided not later than five (5) business days after receiving the request from the policy or contract owner.

(3) Upon receipt of a request to borrow, surrender or withdraw any policy values, send a notice to the policy owner, advising the policy owner that the release of policy values may affect the guaranteed elements, non-guaranteed elements, face amount or surrender value of the policy from which the values are released. The notice shall be sent separate from the check if the check is sent to anyone other than the policy owner. In the case of consecutive automatic premium loans, the insurer is only required to send the notice at the time of the first loan.

(Effective July 23, 2013)
Sec. 38a-435-7. Duties of Insurers with Respect to Direct Response Solicitations
Latest version.

(a) In the case of an application that is initiated as a result of a direct response solicitation, the insurer shall require, with or as part of each completed application for a policy or contract, a statement asking whether the applicant, by applying for the proposed policy or contract, intends to replace, discontinue or change an existing policy or contract. If the applicant indicates a replacement or change is not intended or if the applicant fails to respond to the statement, the insurer shall send the applicant, with the policy or contract, a notice regarding replacement as described in Appendix B of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies, or other substantially similar form approved by the commissioner.

(b) If the insurer has proposed the replacement or if the applicant indicates a replacement is intended and the insurer continues with the replacement, the insurer shall:

(1) Provide to applicants or prospective applicants with the policy or contract a notice, as described in Appendix C of sections 38a-435-1 to 38a-435-8, inclusive, of the Regulations of Connecticut State Agencies, or other substantially similar form approved by the commissioner. In these instances the insurer may delete the references to the producer, including the producer’s signature, and references not applicable to the product being sold or replaced, without having to obtain approval of the form from the commissioner. The insurer shall make a reasonable effort to obtain the applicant’s signature on such notice. The insurer’s obligation to make a reasonable effort to obtain the applicant’s signature shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the notice referred to in this subdivision. The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed notice referred to in this section; and

(2) Comply with the requirements of section 38a-435-5(a)(2) of the Regulations of Connecticut State Agencies if the applicant furnishes the names of the existing insurers, and the requirements of sections 38a-435-5(a)(3), 38a-435-5(a)(4), and 38a-435-5(b) of the Regulations of Connecticut State Agencies.

(Effective July 23, 2013)
Sec. 38a-435-8. Severability
Latest version.

If any section or portion of a section of this regulation, or its applicability to any person or circumstances, is held invalid by a court, the remainder of this regulation, or the applicability of its provisions to other persons, shall not be affected.

(Effective July 23, 2013)
Appendix A.
Appendix B.
Appendix C.