Delaware, as are all other states, are concerned about the proper marketing of Long Term Care Insurance, if for no other reason than the primary constituency interested in such coverage are the senior citizens. LTCI is a complicated product to the average citizen and it follows that the elderly consumers must require specific attention and care. Therefore, specific marketing standard are established and strictly enforced.
F Delaware regulations state: “No agent is authorized to market, sell, solicit or otherwise contact any person for the purpose of marketing long-term care insurance unless the agent has demonstrated his or her knowledge of long-term care insurance and the appropriateness of such insurance by passing a test required by this state and maintaining appropriate licenses.”73
Every insurer, health care service plan or other entity marketing long-term care insurance coverage in this state, directly or through its producers, shall.74
Every insurer or entity marketing long-term care insurance must establish auditable procedures for verifying compliance with this section.75
If the state of Delaware is the state in which the policy or certificate is delivered or issued for delivery, the insurer must, at solicitation, provide written notice to the prospective policyholder or certificate holder that the Elderinfo Program, a senior counseling program approved by the Commissioner, is available and the name, address and telephone number of the Elderinfo Program.74A (302) 674-7364 or 1-800-336-9500— 841 Silver Lakes Blvd., Dover, DE 19904)
In addition to the practices prohibited in Unfair Trade Practices,76A the following acts and practices are prohibited76:
Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on or convert any insurance policy or to take out a policy of insurance with another insurer.
Employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance.
Making use directly or indirectly of any method of marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.
Prior to use, every insurer, health care service plan or other entity providing long-term care insurance in this State must provide a copy of any long-term care insurance advertisement intended for use in this State whether through written, radio or television medium to the Insurance Commissioner of the State Delaware for review and approval by the Commissioner.
Delaware regulations address direct response solicitations in their regulations as follows:
In the case of direct response solicitations, the Outline of Coverage must be presented in conjunction with any application or enrollment form.77
“At the time of policy delivery, a policy summary must be delivered for an individual life insurance policy which provides long-term care benefits within the policy or by rider. In the case of direct response solicitations, the insurer must deliver the policy summary upon the applicant's request, but regardless of request must make delivery no later than at the time of policy delivery.”78
Solicitations Other than Direct Response. Upon determining that a sale will involve replacement, an insurer; other than an insurer using direct response solicitation methods, or its agent; must furnish the applicant, prior to issuance or delivery of the individual long-term care insurance policy, a notice regarding replacement of accident and sickness or long-term care coverage.79
Insurers using direct response solicitation methods must deliver a notice regarding replacement of accident and sickness or long-term care coverage to the applicant upon issuance of the policy. The required notice shall be provided in the following manner80:
NOTICE TO APPLICANT REGARDING REPLACEMENT OF INDIVIDUAL ACCIDENT AND SICKNESS OR LONG-TERM CARE INSURANCE
According to [your application] [information you have furnished], you intend to lapse or otherwise terminate existing accident and sickness or long-term care insurance and replace it with the long-term care insurance policy delivered herewith issued by [company name] Insurance Company. Your new policy provides thirty (30) days within which you may decide, without cost, whether you desire to keep the policy. For your own information and protection, you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy.
You should review this new coverage carefully, comparing it with all accident and sickness or long-term care insurance coverage you now have, and terminate your present policy only if, after due consideration, you find that purchase of this long-term care coverage is a wise decision.
1. Health conditions which you may presently have (preexisting conditions), may not be immediately or fully covered under the new policy. This could result in denial or delay in payment of benefits under the new policy, whereas a similar claim might have been payable under your present policy.
2. State law provides that your replacement policy or certificate may not contain new pre-existing conditions or probationary periods.
3. If you are replacing existing long-term care insurance coverage, you may wish to secure the advice of your present insurer or its agent regarding the proposed replacement of your present policy. This is not only your right, but it is also in your best interest to make sure you understand all the relevant factors involved in replacing your present coverage.
4. [To be included only if the application is attached to the policy.] If, after due consideration, you still wish to terminate your present policy and replace it with new coverage, read the copy of the application attached to your new policy and be sure that all questions are answered fully and correctly. Omissions or misstatements in the application could cause an otherwise valid claim to be denied. Carefully check the application and write to [company name and address] within (30) thirty days if any information is not correct and complete, or if any past medical history has been left out of the application.
__________________________
(Company Name)
Where replacement is intended, the replacing insurer shall notify, in writing, the existing insurer of the proposed replacement. The existing policy must be identified by the name of the insurer, name of the insured and policy number or address including zip code. Such notice must be made within five (5) working days from the date the application is received by the insurer or the date the policy is issued, whichever is sooner.81
Life Insurance policies that accelerate benefits for long-term care must comply with this section if the policy being replaced is a long-term care insurance policy. If the policy being replaced is a life insurance policy, the insurer must comply with the replacement requirements of Regulation 1204. If a life insurance policy that accelerates benefits for long-term care is replaced by another such policy, the replacing insurer must comply with both the long-term care and the life insurance replacement requirements.82
An insurer or other entity may provide commission or other compensation to an agent or other representative for the sale of a long-term care insurance policy or certificate which must not exceed thirty-five percent (35%) of the total premium paid for that policy year.
No entity shall provide compensation to its agents or other producers and no agent or producer shall receive compensation greater than twenty-five percent (25%) of the total premium paid for that policy year for the sale of a replacement long-term care insurance policy or certificate.
For purposes of this section, "compensation" includes pecuniary or non-pecuniary remuneration or any kind relating to the sale or renewal of the policy or certificate including but not limited to bonuses, gifts, prizes, awards and finders fees.83
Every insurer must maintain records for each Delaware-licensed agent of that agent's amount of replacement sales as a percentage of the agent's total annual sales and the amount of lapses of long-term care insurance policies sold by the agent as a percent of the agent's total annual sales.
Each insurer must report annually by June 30 the ten percent (10%) of its Delaware-licensed agents with the greatest percentages of lapses and replacements as measured by appropriate regulations.
Reported replacement and lapse rates do not alone constitute a violation of insurance laws or necessarily imply wrongdoing. The reports are for the purpose of reviewing more closely agent activities regarding the sale of long-term care insurance.
Every entity providing long-term care insurance in this state must file annually as an attachment to its annual statement an exhibit that discloses the total number of long-term care insurance policies, by form number, in force in this state and the total number of policies, by form number, that have lapsed over the previous five years. Companies must provide in-force policy and lapsed policy information showing for each year the policy form has been sold, the number sold and the number lapsed in each of the following years.
Every insurer must report, annually by June 30 the number of replacement policies sold as a percentage of its total annual sales and as a percentage of its total number of policies in force as of the preceding calendar year.
For purposes of this section, "policy" shall mean only long-term care insurance and "report" shall mean on a statewide basis.84
In addition to any other penalties provided by the laws of this state, any insurer and any agent found to violate any requirement of this state relating to the regulation of long-term care insurance or the marketing of such insurance shall be subject to a fine of up to three (3) times the amount of any commissions paid for each policy involved in the violation or up to $10,000, whichever is greater.85
Note that this is a very severe penalty as basically it establishes a minimum penalty of $10,000. The intent of this Section was to authorize separate fines for both the insurer and the producer in these amounts.
The intention of this section of the regulation is to authorize separate fines for both the insurer and the producer in the amounts suggested above.
The following regulations do not apply to life insurance policies that accelerate benefits for long-term care.86 (Also see Suitability letter in APPENDIX B)
Every insurer, health care service plan or other entity marketing long-term care insurance (“insurer”) shall:
To determine whether the applicant meets the standards developed by the insurer, the agent and insurer must develop procedures that take the following into consideration:
The insurer, and where an agent is involved, the agent must make reasonable efforts to obtain the information required. The efforts must include presentation to the applicant, at or prior to application, the “Long-Term Care Insurance Personal Worksheet.” The personal worksheet used by the issuer must contain, at a minimum, the information in the format contained in Appendix B, in not less than twelve (12) point type. The insurer may request the applicant to provide additional information to comply with its suitability standards. A copy of the insurer’s personal worksheet must be filed with the Commissioner.
A completed personal worksheet must be returned to the insurer prior to the insurer’s consideration of the applicant for coverage, except the personal worksheet need not be returned for sales of employer group long-term care insurance to employees and their spouses.
The sale or dissemination outside the company or agency by the issuer or agent of information obtained through the personal worksheet in Appendix B is prohibited.
The insurer must use the suitability standards it has developed pursuant to this section in determining whether issuing long-term care insurance coverage to an applicant is appropriate.
Agents must use the suitability standards developed by the insurer in marketing long-term care insurance.
At the same time as the personal worksheet is provided to the applicant, the disclosure form entitled “Things You Should Know Before You Buy Long-Term Care Insurance” shall be provided. The form shall be in the format contained in Appendix C, in not less than twelve (12) point type.
If the issuer determines that the applicant does not meet its financial suitability standards, or if the applicant has declined to provide the information, the issuer may reject the application. In the alternative, the issuer shall send the applicant a letter similar to Appendix D. However, if the applicant has declined to provide financial information, the issuer may use some other method to verify the applicant’s intent. Either the applicant’s returned letter or a record of the alternative method of verification must be made part of the applicant’s file.
The insurer must report annually to the Commissioner the total number of applications received from residents of this state, the number of those who declined to provide information on the personal worksheet, the number of applicants who did not meet the suitability standards, and the number of those who chose to confirm after receiving a suitability letter.87
A long-term care insurance shopper's guide in the format developed by the National Association of Insurance Commissioners, or one developed or approved by the Commissioner, must be provided to all prospective applicants of a long-term care insurance policy or certificate.
In the case of agent solicitations, an agent must deliver the shopper's guide prior to the presentation of an application or enrollment form.
In the case of direct response solicitations, the shopper's guide must be presented in conjunction with any application or enrollment form.88
Life insurance policies or riders containing accelerated long-term care benefits are not required to furnish the above-referenced guide, but must furnish the policy summary required under Delaware regulation.
If a long-term care insurance policy or certificate replaces another long-term care insurance policy or certificate, the replacing insurer must waive any time periods applicable to pre-existing conditions and probationary periods in the new long-term care insurance policy or certificate to the extent that similar exclusions have been satisfied under the original policy.89
Life Insurance policies that accelerate benefits for long-term care shall comply with this section if the policy being replaced is a long-term care insurance policy. If the policy being replaced is a life insurance policy, the insurer shall comply with the replacement requirements (of Regulation 1204). If a life insurance policy that accelerates benefits for long-term care is replaced by another such policy, the replacing insurer shall comply with both the long-term care and the life insurance replacement requirements.90
Application forms must include the following questions designed to elicit information as to whether, as of the date of the application, the applicant has another long-term care insurance policy or certificate in force or whether a long-term care policy or certificate is intended to replace any accident and sickness or long-term care policy or certificate presently in force. A supplementary application or other form to be signed by the applicant and the agent, except where the coverage is sold without an agent, containing such questions may be used. With regard to a replacement policy issued to a group, the following questions may be modified only to the extent necessary to elicit information about health or long-term care insurance policies other than the group policy being replaced; provided, however, that the certificate holder has been notified of the replacement.91
Agents must list any other health insurance policies they have sold to the applicant.
Upon determining that a sale will involve replacement, an insurer; other than an insurer using direct response solicitation methods, or its agent; must furnish the applicant, prior to issuance or delivery of the individual long-term care insurance policy, a notice regarding replacement of accident and sickness or long-term care coverage. One copy of such notice must be retained by the applicant and an additional copy signed by the applicant must be retained by the insurer. The required notice must be provided in the following manner:
APPLICANT REGARDING REPLACEMENT OF INDIVIDUAL ACCIDENT AND SICKNESS OR LONG-TERM CARE INSURANCE
According to [your application] [information you have furnished], you intend to lapse or otherwise terminate existing accident and sickness or long-term care insurance and replace it with an individual long term care insurance policy to be issued by [company name] Insurance Company. Your new policy provides thirty (30) days within which you may decide, without cost, whether you desire to keep the policy. For your own information and protection, you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy.
You should review this new coverage carefully, comparing it with all accident and sickness or long-term care insurance coverage you now have, and terminate your present policy only if, after due consideration, you find that purchase of this long-term care insurance is a wise decision.
STATEMENT TO APPLICANT BY AGENT [BROKER OR OTHER REPRESENTATIVE]: (Use additional sheets, as necessary).
I have reviewed your current medical or health insurance coverage. I believe the replacement of insurance involved in this transaction materially improves your position. My conclusion has taken into account the following considerations, which I call to your attention:
1. Health conditions which you may presently have (preexisting conditions), may not be immediately or fully covered under the new policy. This could result in denial or delay in payment of benefits under the new policy, whereas a similar claim might have been payable under your present policy.
2. State law provides that your replacement policy or certificate may not contain new pre-existing conditions or probationary periods.
3. If you are replacing existing long-term care insurance coverage, you may wish to secure the advice of your present insurer or its agent regarding the proposed replacement of your present policy. This is not only your right, but it is also in your best interest to make sure you understand all the relevant factors involved in replacing your present coverage.
4. If, after due consideration, you still wish to terminate your present policy and replace it with new coverage, be certain to truthfully and completely answer all questions on the application concerning your medical health history. Failure to include all material medical information on an application may provide a basis for the company to deny and future claims and to refund your premium as though your policy had never been in force. After the application has been completed and before you sign it, reread it carefully to be certain that all information has been properly recorded.
Dated and signed by the Agent
Dated and signed by the Applicant
NOTE: For Direct Solicitation replacement, please refer to Section on Direct Solicitation.
Every insurer must maintain records for each Delaware-licensed agent of that agent's amount of replacement sales as a percentage of the agent's total annual sales and the amount of lapses of long-term care insurance policies sold by the agent as a percent of the agent's total annual sales.
Each insurer shall report annually by June 30 the ten percent (10%) of its Delaware-licensed agents with the greatest percentages of lapses and replacement.
Reported replacement and lapse rates do not alone constitute a violation of insurance laws or necessarily imply wrongdoing. The reports are for the purpose of reviewing more closely agent activities regarding the sale of long-term care insurance.
Every entity providing long-term care insurance in this state shall file annually as an attachment to its annual statement an exhibit that discloses the total number of long-term care insurance policies, by form number, in force in this state and the total number of policies, by form number, that have lapsed over the previous five years. Companies must provide in-force policy and lapsed policy information in a format that indicates the number sold and number lapsed for each year of sales for the period of time since that policy was introduced. Every insurer shall report, annually by June 30 the number of replacement policies sold as a percentage of its total annual sales and as a percentage of its total number of policies in force as of the preceding calendar year. And for purposes of these regulations, "policy" shall mean only long-term care insurance and "report" shall mean on a statewide basis.92
STUDY QUESTIONS
1. No agent is authorized to market, sell, solicit or otherwise contact any person for the purpose of marketing long-term care insurance unless the agent has demonstrated his or her knowledge of long-term care insurance and the appropriateness of such insurance
A. and posted a performance bond of $100,000.
B by passing a test required by this state and maintaining appropriate licenses.
C. as attested to by the President of the company which he represents.
D. and is a Chartered Life Underwriter (CLU) or comparative designation.
2. Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on or convert any insurance policy or to take out a policy of insurance with another insurer—this is called
A. legal replacement.
B. policy improvement.
C. twisting.
D. malfeasance.
3. Insurers using direct response solicitation methods must deliver a notice regarding replacement of accident and sickness or long-term care coverage to the applicant
A. upon issuance of the policy
B. prior to initial contact.
C. during the initial contact.
D. at time of claim.
4. Every insurer, health care service plan or other entity marketing long-term care insurance (“insurer”) shall:
A. develop and use suitability standards to determine whether the purchase or replacement of long-term care insurance is appropriate for the needs of the applicant
B. depend upon the character and integrity of the agent to determine if a plan is suitable for the applicant.
C. require all long-term care insurance agents to post a performance bond.
D. obtain a signed and notarized financial statement from an applicant prior to taking an application for long-term care insurance.
5. To determine whether the applicant meets the standards developed by the insurer, the agent and insurer must develop procedures that take the following into consideration:
A. the income of the application as shown on his last 3 income tax returns.
B. the ability to pay for the proposed coverage and other pertinent financial information related to the purchase of the coverage.
C. the audit results of the insurer-appointed auditor.
D. a warranty from a close relative that they would pay premiums if the insured should inadvertently lapse the policy.
6. If a long-term care insurance policy or certificate replaces another long-term care insurance policy or certificate, the replacing insurer must waive any time periods in the new long-term care insurance policy or certificate to the extent that similar exclusions have been satisfied under the original policy
A. in respect to suitability.
B. but is not required to waive any existing medical conditions.
C. applicable to pre-existing conditions and probationary periods.
D. but there shall be no commission paid on the replacement policy.
7. Requirements for replacement of an existing LTCI policy includes asking the applicant if
A. he has any long-term care insurance policies in force.
B. he agrees that the agent will not receive a commission on the new policy.
C. he understands that in most cases, he should keep the old policy and obtain a new policy as they have changed so much over the past few years.
D. he agrees to pay a rather substantial replacement fee in addition to the premium.
8. Each insurer shall report annually by June 30 the ten percent (10%) of its Delaware-licensed agents with the greatest percentages of lapses and replacement. These reports are for the purpose of
A. reviewing more closely agent activities regarding the sale of long-term care insurance.
B. policy taxes.
C. distributing to all insurers the names and address of those who have replaced their policies in order to encourage more sales.
D. alerting Medicaid of possible conflict of interests.
ANSWERS TO STUDY QUESTIONS
1B 2C 3A 4A 5B 6C 7A 8A