Pennsylvania Life Laws and Rules

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Authorized (Admitted) Insurer - An insurance company that has been issued a through this chapter, it is essential that you understand the following key terms:

Alien Insurer - An insurance company incorporated or organized under the laws of any jurisdiction outside of the United States.

Appointment - A written agreement between an insurance producer and an insurance entity under which the insurance producer may sell, solicit or negotiate contracts of insurance issued by the insurance entity for compensation.

Assumed Names - An insurance producer doing business under any name other than the producer's legal name shall notify the Commissioner before using the assumed Certificate of Authority by the commissioner authorizing the company to transact insurance business in this state.

Cease and Desist - The Commissioner may issue a cease-and-desist order to any person found to have committed an unfair or deceptive act or has violated a state insurance law.

Certificate of Authority - A license granted by the Commissioner to an insurance company authorizing them to transact insurance in this state.

Commingling - A producer who has combined premiums collected with personal funds has engaged in commingling.

Commission - The amount paid by an insurer to a producer for transacting insurance.

Continuing Education - Continuing Education is biannual education required for a producer to maintain their insurance license.

Controlled Business - Controlled business can be defined as policies written on people that the licensed agent has direct influence over: including family, employers/employees, and/or any company to which the agent has stock control.

Defamation - This is an unfair practice where a producer or insurer makes false and maliciously critical statements regarding the financial condition of a competing insurer.

Direct Response - Direct response solicitation means any offer by an insurance company to persons in this state (either directly or through a third party) to effect life or health insurance coverage which enables the individual to apply for the insurance on the basis of the offer.

Domestic Insurer - An insurance company incorporated or organized under the laws of this State.

Exclusive General Agent – An Exclusive General Agent is a licensee: (1) which has been granted sole authority to act directly or indirectly as an insurance producer for a domestic insurer with respect to a specific portion of the insurer's business or within a specific territory; (2) which has the authority to bind coverage on behalf of the insurer;  and (3) either separately or together with affiliates or subproducers directly or indirectly produces and underwrites in any one year an amount of gross direct written premium equal to or more than 25% of the surplus as regards policyholders as reported in the last annual statement of the insurer.

Fair Credit Reporting Act - The Fair Credit Reporting Act (FCRA) is a federal law that regulates the use and disclosure of consumer credit information.

Federal Estate Tax - A tax cost typically associated with death is the Federal estate tax.

Fiduciary Responsibility - Producers possess this responsibility since they handle the monies of the public. A producer must account for all premiums collected, or they have failed to uphold this duty. Anyone who possesses this duty must act with a high degree of trust.

Foreign Insurer - An insurance company incorporated or organized under the laws of the United States or any jurisdiction within the United States.

Fraternal Benefit Society - Fraternal Benefit Societies are a corporation, society, or order that have a representative form of government and are organized through a lodge system. Fraternal benefit societies solicit insurance only among its members and exist for the benefit of its members and their beneficiaries.

Fraud - Fraud is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party. Fraud is grounds for voiding an insurance contract.

Fraud and False Statements - The Fraud and False Statements federal law makes it illegal to lie, falsify, or conceal information (orally or in writing) from a federal official.

Guaranty Association - The Insurance Guaranty Association or Fund protects policy owners against the insolvency of an insurer by providing a mechanism for the payment of covered claims under certain insurance policies and surety bonds.

Home state - The District of Columbia or a state or territory of the United States in which an insurance producer maintains the producer's principal place of residence or principal place of business and is licensed to act as a resident insurance producer.

Insurance Commissioner - The commissioner is the chief officer of the state insurance department.

Insurance Counselor - A life and health insurance counselor is any person who, for a fee or commission, offers insurance advice. This can also include someone who has completed a recognized insurance course and is designated as a certified financial planner, chartered life underwriter (CLU), chartered financial consultant, or general insurance agent.

Insurance Producer – An insurance producer is any person who sells, solicits, or negotiates insurance contracts for compensation on behalf of an insurer. This broad term includes agents, brokers, field underwriter, etc.

Larceny - An unfair trade practice involving the commingling or misappropriation of premiums by a producer.

Manager – Pennsylvania defines a manager as a person that negotiates and binds ceding reinsurance contracts on behalf of a domestic insurer or manages all or part of the insurance business of an insurer and does not act as an agent for such insurer.

Mutual Insurance Company - A mutual insurance company as an insurance company owned and controlled by its policyholders. Mutual insurance companies issue participating policies that may pay dividends to policyholders.

Negotiate – Negotiate means to confer directly with or to offer advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells insurance or obtains insurance from insurers for purchasers.

Policy Summary - The policy summary contains specific information on the provisions, benefits, and coverage of the policy applied for.

Postnatal Care - According to Pennsylvania law, postnatal care must be delivered within 48 hours of discharge.

Principal - One of the parties in an agency relationship. The other is the agent who acts on behalf of the principal. This relationship describes the insurance business where a producer (i.e., agent) represents the insurer (i.e., the principal).

Rebating - Paying, offering or giving anything of value not specified in the policy to any person as an inducement to apply for or renew an insurance policy. Rebating is illegal in most States.

Reserve - The combined funds required by law that are set aside by an insurer to assure the payment of future claims.

Sell – Sell means to exchange a contract of insurance by any means for money or its equivalent on behalf of an insurance entity.

Small Employer - A small employer is defined as one that employs between 2-50 employees.

Solicit – Solicit means to attempt to sell insurance or ask or urge a person to apply for a particular kind of insurance from a particular insurance entity.

Stock Insurance Company - An insurance company owned and controlled by its stockholders who share in its divisible surplus. Generally, stock insurance companies issue non-participating life insurance. However, some of them also issue participating life insurance.

Surplus - The amount by which the assets of an insurer exceed its liabilities.

Temporary License – A license issued to an applicant who is being considered for appointment as an agent by another license holder, an insurer, or a health maintenance organization.

Twisting - Making a misrepresentation for the purpose of inducing or tending to induce the lapse, forfeiture, exchange, conversion, or surrender of an insurance policy with the intention of writing the insurance with another insurer.

Unauthorized (Non-admitted) - An insurance company that has been denied or not yet applied for a Certificate of Authority and may not sell or solicit insurance in this state.

Unfair Trade Practices - All States have regulations prohibiting these activities. Also called unfair marketing practices, such activities are illegal and subject the individual engaging in these activities to monetary fines and/or imprisonment. These unfair acts include but are not limited to: rebating, twisting, misrepresentation, defamation, coercion and boycott, larceny and perjury.

INTRODUCTION

This chapter identifies and describes the Pennsylvania insurance laws and regulations upon which State examinations are based. The typical law and regulatory material found in the Pennsylvania Insurance laws includes but is not limited to: the powers and duties of the Commissioner; relevant insurance definitions; insurance licensing requirements; unfair sales and marketing practices; producer duties and responsibilities; laws pertaining to life insurance only; and laws pertaining to accident and health insurance only.

The Pennsylvania insurance licensure exams integrate state law and general principles together. Please remember that state law supersedes the general content in the event of a conflict.

The chapter is broken into the following sections:

• Laws, Rules, and Regulations Common to All Lines of Insurance

• Laws, Rules, and Regulations Common to Life and Health Insurance

• Laws, Rules, and Regulations Pertinent to Life Insurance

• Laws, Rules, and Regulations Pertinent to Accident and Health Insurance

Reviewing this chapter will enable a person to:

• Understand the State’s purpose and process for regulating the insurance industry.

• Understand the powers and duties of the Commissioner of Insurance.

• Describe how the commissioner assumes office.

• Explain state-specific definitions related to insurance.

• Differentiate between the various types of licenses within the insurance industry.

• Understand the licensing process, and the requirements for obtaining and maintaining a license.

• Differentiate between the responsibilities of an insurance producer and an insurance company.

• Understand the marketing, trade, and claim practices required for the insurance industry.

• Identify privacy and disclosure requirements when transacting insurance.

• Describer the purpose and responsibilities of the Insurance Guaranty Association

• Recognize the regulations related to the replacement of insurance policies.

• Identify the regulations required for group and individual policies.

LICENSING PROCESS AND TYPES

Numerous regulations exist under Pennsylvania law with regard to insurance licensing. The purpose of requiring an insurance license is to protect the insurance buying public by ensuring that all producers (agents and brokers) and consultants are properly qualified, versed, and competent to transact insurance. Several types of insurance licenses may be secured by an individual according to Pennsylvania insurance law including but not limited to resident or nonresident, temporary, manager and exclusive general agents.

PRODUCER LICENSING REQUIREMENTS (40 P.S. § 310.1, 310.3-310.14)

Pennsylvania defines an insurance producer as a person that sells, solicits, or negotiates contracts of insurance. Anyone who solicits, negotiates, or sells insurance contracts must be licensed. Insurance producers are appointed by an insurer to represent the company and present policies on its behalf. Producers are usually the major personal contact with the insured and can receive commissions from the insurer.

When an applicant for a producer's license has a principal place of residence or business location in Pennsylvania, for licensing purposes, the State of Pennsylvania is known as the home state.

Any individual, firm, corporation, or partnership may secure a resident producer license as long as all State requirements are satisfied. The licensing process requires that a candidate for this license satisfy several requirements including:

• Must be a Pennsylvania resident and maintain a business or legal address in Pennsylvania.

• Must be at least 18 years old.

• Must complete a 24-hour prelicensing course in the pertinent line of authority.

• Must pass the Pennsylvania state licensing exam.

RESIDENT/NONRESIDENT PRODUCER LICENSING (40 P.S. § 310.3–310.5, 310.10)

Anyone whose home state is Pennsylvania is considered a resident and may apply for a resident producer’s license.

A nonresident has neither a business address nor a legal residence in the Commonwealth of Pennsylvania. Therefore, a nonresident producer is an insurance producer whose home state is a state or territory other than Pennsylvania. Insurance producers who hold a resident license in a different state may apply for a nonresident license in Pennsylvania, as long as both states have a reciprocal agreement. To apply, nonresidents must submit an application form, including proof of a similar resident license from their home state, and pay the appropriate fees. Nonresident license candidates are not required to pass the state examination if they hold a similar license in another state that is reciprocal.

TEMPORARY PRODUCER LICENSE (40 P.S. § 310.9)

A temporary license may be issued in cases where a producer has become disabled or dies, requiring a suitable replacement to service the producer’s business. A temporary producer can also be appointed when the producer is called into active military duty. This license provides all normal rights to continue the agent’s business and does not require passing the state examination. People eligible for a temporary license include the producer’s surviving spouse, court-appointed personal representative, or the business owner/partner/employee. A temporary license is valid for a maximum of 180 days. The Commissioner may renew this license for additional terms of 60 days each but not to exceed an aggregate of 8 months. No new insurance may be solicited by a person holding a temporary license. However, the temporary license allows the holder to continue commissions paid on previously sold business.

MANAGERS AND EXCLUSIVE GENERAL AGENTS (40 P.S. § 310.1, 310.31)

An Exclusive General Agent is a licensee:

• which has been granted sole authority to act directly or indirectly as an insurance producer for a domestic insurer with respect to a specific portion of the insurer's business or within a specific territory;

• which has the authority to bind coverage on behalf of the insurer;  and

• either separately or together with affiliates or sub producers directly or indirectly produces and underwrites in any one year an amount of gross direct written premium equal to or more than 25% of the surplus as regards policyholders as reported in the last annual statement of the insurer.

A Manager is a person that negotiates and binds ceding reinsurance contracts on behalf of a domestic insurer or manages all or part of the insurance business of an insurer and does not act as an agent for the insurer.

A Managing general agent (MGA) is any person, firm, association, or corporation who negotiates and binds ceding reinsurance contracts on behalf of an insurer or manages all or part of the insurance business of an insurer, including the management of a separate division, department or underwriting office, and acts as an agent for such insurer whether known as a managing general agent or another similar term who, with or without the authority either separately or together with affiliates, produces, directly or indirectly, and underwrites an amount of gross direct written premium equal to or more than 5% of the policyholder surplus as reported in the last annual statement of the insurer in any one quarter or year together with one or more of the following:

• adjusts or pays claims in excess of an amount determined by the Insurance Department; or

• negotiates reinsurance on behalf of the insurer.

A person cannot engage in any activities requiring a manager or exclusive general agent license without being licensed as a manager or exclusive general agent by the department. A person violating this regulation has committed a third-degree misdemeanor and, upon conviction, can be sentenced to pay a fine up to $1,000 for each day of operation without a license.

The following persons are exempt from this regulation:

• A licensee whose authority is limited primarily to the production of insurance business with limited underwriting authority.

• A manager or exclusive general agent operating under a management contract or exclusive general agency agreement entered into prior to December 22, 1965.

• A person subject to regulation as a managing general agent.

CHANGE OF NAME OR ADDRESS (40 P.S. § 310.11(19))

Whenever a licensed individual or business entity changes their name or address (residence, business, email), the Department of Insurance must be notified of the change within 30 days. If a producer is moving to another State, he or she must inform the applicable Department of Insurance in writing within 30 days. If a non-resident producer is moving to Pennsylvania, he or she has 90 days to notify the Department, cancel the current home State license and apply for a license in this State. This person will also need a letter of clearance or certification letter from the Insurance Department of the current home State to verify that the license is being relinquished. Any agency that changes its name or an active partner must notify the Insurance Department within 30 days of the change. 

DUTY TO REPORT ADMINISTRATIVE OR CRIMINAL ACTIONS (40 P.S. § 310.78)

State law describes the reporting of actions against any producer by another Commissioner or jurisdiction. A producer must report to the Pennsylvania Commissioner any administrative action against him or her by another State or governmental agency within 30 days of a final disposition of the matter (this includes convictions or if criminal charges, within 30 days of the pre-trial hearing). This report shall include a copy of the order, consent to order and any other relevant documents as required by the Commissioner.

ASSUMED NAMES (40 P.S. § 310.7)

State law also indicates that no individual or business entity is permitted to advertise or conduct insurance transactions under a name that is not file with Department of Insurance unless permission is granted by the Commissioner prior to using the assumed name. Any party engaging in such activity will be deemed to be operating under an assumed name. Any party must notify the Department of any name under which he, she or it is doing business (i.e., D.B.A.).  Any individual making an application to use a fictitious or assumed name must file a certificate with the Department of State and attach this certificate to the license application.

RENEWAL (40 P.S. § 310.8)

Producer licenses are valid for two years, and, unless previously terminated or revoked, may be renewed biennially. To have a license renewed the producer must complete any required continuing education, pay the appropriate fees, and submit a renewal application. A resident licensee that has not previously submitted fingerprints to the department must also submit their fingerprints and the appropriate fee in order to permit the department to receive national criminal history records information from the Federal Bureau of Investigation Criminal Justice Information Services Division.

Licenses will expire on the last day of the holder’s birth month, every two years (i.e., biennially). If the appropriate license renewal fee is paid, the license will renew the next day.

For instance, Jack’s birthday is August 24th. His license will expire on August 31st every two years and if he pays the appropriate fee in a timely fashion, and completes his CE requirement, the license will renew on September 1st.

If a producer fails to renew their license by their renewal date, they will have 60 days to complete their C.E. and renew their license with no lapse in licensor (i.e., grace period). The producer’s license will lapse if it is not renewed within 60 days. The producer will have up to one year from the date of his or her license renewal to complete their C.E. and renew their lapsed license. Lapsed license renewals pay a higher renewal fee. Those who fail to renew their license after one year must complete 24 hours of pre-licensing education, pass the appropriate state examination and reapply as a new producer license candidate.

CONTINUING EDUCATION (40 P.S. § 310.8(B), 310.6(A), 31 PA. CODE CH. 39A)

Producers must complete 24 hours of continuing education biennially (every two years) in order to renew their licenses. 3 of the 24 hours must be in ethics coursework. These requirements must be met on or before the expiration date on the producer’s current license. If this requirement is not satisfied, the license will be terminated on its expiration date. In Pennsylvania, the Commissioner is responsible for continuing education (CE) course content approval.

A licensee may carry forward excess continuing education credit hours up to a maximum of 24 credit hours from one licensing period to the next licensing period. A producer may complete any continuing education courses approved by the Pennsylvania insurance commissioner to satisfy their CE requirement, regardless of the producer’s line of authority. The same course may not be taken more than once in the same renewal period but may be repeated in different license renewal periods. No CE credit will be provided for courses completed prior to the issuance of the producer license or for pre-licensing study courses taken to prepare for a State licensing examination. An instructor may receive double credit for teaching an approved CE course. However, credit is only provided once in the same renewal period, regardless of how many times the course is taught.

The only licenses that require continuing education are insurance producers and title agents. The following licensees are exempt from the requirements of continuing education:

• A licensee who was licensed as an agent or broker for a line of authority prior to January 1, 1971, and who has been continuously licensed as an agent, broker or producer for the line of authority since that time.

  • Producers who have been continuously licensed for the same line of authority before 1/1/71, and are now adding a new line of authority to their license will lose the CE exemption and will now be subject to the CE requirement.

  • A business entity (firm, institution, partnership, corporation, or association) licensee.

  • A licensee who has only a limited line of authority (i.e., baggage insurance or credit insurance).

  • A licensee who has a line of authority restricted to domestic mutual fire insurance or fraternal.

  • Motor vehicle physical damage appraisers.

  • Public adjusters

  • Surplus lines agents/members

  • Reinsurance intermediary brokers/managers

  • Exclusive general agents and managers.

  • Those who exclusively countersign policies.

  • A nonresident licensee who has satisfied the continuing education requirements of their homestate if that state recognizes the satisfaction of its continuing education requirements by a Pennsylvania resident licensee satisfying the requirements of this state.

    • If the licensee's home state has continuing education requirements and the nonresident licensee fails to satisfy the home state's continuing education requirements, the licensee shall be subject to continuing education requirements of this act.

    • Anyone who receives permission from the Commissioner.

  • INACTIVITY DUE TO MILITARY OR EXTENUATING CIRCUMSTANCES (40 P.S. § 310.8)

    A licensee who is unable to timely comply with the license renewal requirements due to military service or other extenuating circumstances may request the department to waive the continuing education requirements for the period in which the license had lapsed and payment of the lapsed license fee.

    The request shall be in writing and include sufficient detail and supporting documentation to determine the necessity of the waiver. If the Department determines that there is good cause for noncompliance, it shall grant the waiver and permit the licensee to request renewal of the license in accordance with Pennsylvania law. 

• DISCIPLINARY ACTIONS

  The Commissioner possesses the power to suspend, revoke or non-renew an insurance license after a hearing. If the license is suspended or revoked by the Commissioner, the insurer appointing the agent must be notified. The Commissioner may permanently revoke an insurance license for intentional violations. The Commissioner may also assess a monetary penalty of not more than $1,000 (and prison for up to 6 months, or both), for each violation by a licensee. In addition, the violator will be charged with a misdemeanor. Disciplinary actions may be taken by the Commissioner for any of the following unfair acts: (1) acting as an agent or broker without a license; (2) selling for fictitious companies; (3) larceny (i.e., premiums); (4) rebating or misrepresentation; (5) advertising on behalf of unauthorized insurers; or (6) transacting business with an unlicensed agent or broker.

LICENSE DENIAL, NONRENEWAL, SUSPENSION, OR REVOCATION (40 P.S. § 310.91, 310.11)

The Commissioner possesses the power to suspend or revoke an insurance license after a hearing for a violation of State insurance laws. The Commissioner will determine the length of time for which a license will be suspended. When a license has been suspended or revoked by the Commissioner notice of such action must be provided in writing to the license holder and the sponsoring insurer, if any. Violating any of the following is a misdemeanor and may be punishable by a monetary fine of up to $5,000 per violation. Any suspension or revocation of a license may be appealed by the holder.

The Insurance Commissioner may place on probation, suspend, revoke, refuse to renew, or deny a license to any person who has:

• Provided incorrect, misleading, incomplete or untrue information in the license application.

• Violated any insurance laws, regulations, subpoena, or orders from the Insurance Commissioner.

• Obtained or attempted to obtain a license through fraud or misrepresentation.

• Intentionally misrepresented the terms of an insurance contract or application.

• Been convicted of a felony.

• Use fraudulent, coercive or dishonest practices or demonstrate incompetence, untrustworthiness or financial irresponsibility in the conduct of doing business.

• Improperly withholding, misappropriating or converting any moneys or properties received in the course of doing insurance business (i.e., violating fiduciary responsibilities or larceny).

• Admit to or been found to have committed any unfair insurance practice or fraud.

• Have an insurance producer license or other financial services license, or its equivalent, denied, suspended or revoked by a governmental entity.

• Knowingly accepting insurance business from an individual who is not licensed.

• Failing to comply with an administrative or court order imposing a child support obligation.

• Failing to pay State income tax or comply with any administrative or court order directing payment of State income tax.

• Commit a misdemeanor that involves the misuse or theft of money or property belonging to another person.

• Cheat on an examination for an insurance producer license.

• Forge another person’s name on an application for insurance or on any document related to an insurance or financial service transaction.

• Commit fraud, forgery, dishonest acts or an act involving a breach of fiduciary duty.

• Transfer insurance coverage to an insurer other than the insurer expressly chosen by the insured without the consent of the insured.

• Fail to notify the Department of a change of address within 30 days.

• Demonstrate a lack of general fitness, competence or reliability sufficient to satisfy the department that the licensee is worthy of licensure.

PENALTIES AND FINES OR VIOLATIONS (40 P.S. §§ 310.12, 310.41A, 310.91, 1171.11)

In addition to possible actions taken against a person's license, any person who commits an unfair method of competition, act, or practice in violation of insurance laws, and knew or should have known that such act was a violation, will be subject to a penalty up to $5,000 per violation, but no more than $50,000 total over a 6-month period. If the person did not know or reasonably should not have known, the penalty is up to $1,000 per violation, but no more than $10,000 in a 6-month period. Any person who violates a cease and desist order, or other order issued by the Commissioner, will be subject to a penalty up to $10,000.

A licensee who fails to provide a written response to the Department within 30 days of receipt of a written inquiry from the Department or who fails to remit valid payment for all fees due and owing to the Department shall, after notice from the Department specifying the violation and advising of corrective action to be taken, correct the violation within 15 days of receipt of the notice.  If a licensee fails to correct the violation within 15 days of receiving notice, the Department may assess an administrative fine of no more than $100 per day per violation.

Any insurance entity or licensee accepting applications or orders for insurance from any person or securing any insurance business that was sold, solicited or negotiated by any person acting without an insurance producer license shall be subject to civil penalty of no more than $5,000 per violation.  This shall not prohibit an insurer from accepting an insurance application directly from a consumer or prohibit the payment or receipt of referral fees in accordance with State law.  A person that violates this section of Pennsylvania law commits a misdemeanor of the third degree.

Upon evidence of a violation of State law, the Department shall notify the person of the alleged violation.  The notice shall specify the nature of the alleged violation and fix a time and place, at least ten (10) days thereafter, when a hearing on the matter shall be held.  No person shall be excused from testifying or from producing any books, papers, contracts, agreements or documents at any hearing held by the Commissioner on the ground that the testimony or evidence may tend to incriminate that person.  After the hearing or upon failure of the person to appear at the hearing, if a violation is found, the Commissioner may, in addition to any penalty which may be imposed by a court, impose any combination of the following deemed appropriate; (1) denial, suspension, refusal to renew or revocation of the license, if any, of the person ; (2) a civil penalty not to exceed $5,000 for each violation; (3) an order to cease and desist; or (4) any other penalty as the Commissioner deems appropriate.

CEASE AND DESIST ORDER (40 P.S. §§ 310.91, 1171.9)

When the Commissioner believes a producer or entity has broken an insurance law, the Commissioner has the authority to issue a cease and desist order. This prevents the licensee from continuing to transact insurance, or specific insurance activities, until after a hearing is held. Depending upon what portions of Pennsylvania law is violated, civil or criminal action may be taken against a producer or any other party who violates a cease and desist order.

Anyone who violates a cease and desist order issued by the Commissioner or commits an unfair sales practice will be required to appear in court where the following fines or monetary penalties may be imposed: (1) up to $5,000 for each act which the person knew or should have known was an unfair insurance practice, not to exceed $50,000 for a six-month period (up to $1,000 per act and not more than $10,000 total for unknowing violations); or (2) $10,000 for each violation of the cease and desist order. Producers are still allowed to receive commissions on previously placed business if they receive a cease and desist order.

Any person or entity found to be in violation of an insurance law will be notified by the Insurance Department. The notice will specify the nature of the violation and a hearing date at least 10 days later. The Commissioner will impose the following penalties on a person found to be in violation after the hearing, or failure of person to appear at the hearing:

• Deny, suspend, refuse to renew, or revoke the person’s producer license

• Assess a civil penalty up to $5,000 for each violation

• Issue a cease and desist order.

CONSENT AGREEMENT

Pennsylvania law allows a prosecuting authority to enter into a written agreement (i.e., consent agreement) with an accused party in which that person does not admit or deny the charges but consents to payment of a civil penalty. A consent agreement may not be used in a subsequent civil or criminal proceeding, but notification must be made to the licensing authority (i.e., the Commissioner) so that the licensing authority may take appropriate administrative action (e.g., license suspension).

ACTS CONSTITUTING INSURANCE TRANSACTIONS (40 P.S. §§ 310.1, 310.3, 310.8, 310.11)

No person or entity may negotiate, sell or solicit insurance policies in this State unless he or she has secured a valid insurance license.

• Negotiate means to confer directly with or to offer advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells insurance or obtains insurance from insurers for purchasers.

• Sell means to exchange a contract of insurance by any means for money or its equivalent on behalf of an insurance entity.

• Solicit means to attempt to sell insurance or ask or urge a person to apply for a particular kind of insurance from a particular insurance entity.

The following persons are exempt from licensing requirements

• An insurer.

• An employee of an insurer or a rating organization employed by an insurer:

  • who is not engaged in the sale, solicitation or negotiation of insurance contracts;  and

  • who:

    • inspects, rates or classifies risks;  or

    • supervises the training of insurance producers.

    • An officer, director or employee of an insurer or of an insurance producer if the officer, director or employee does not receive a commission on policies written or sold and:

      • the officer, director or employee's activities are executive, administrative, managerial, clerical and are only indirectly related to the sale, solicitation or negotiation of insurance.

      • the officer, director or employee's function relates to underwriting, loss control, inspection or the processing, adjusting, investigating or settling of a claim on a contract of insurance;  or

      • the officer, director or employee is acting in the capacity of assisting insurance producers where the person's activities are limited to providing technical advice and assistance to licensed insurance producers and do not include the sale, solicitation or negotiation of insurance.

      • A person that does any of the following, provided no commission is paid for the services:

        • Secures and furnishes written information for the purpose of group or blanket insurance.

        • Performs administrative services related to the enrollment of individuals under plans.

        • Issues certificates under plans or otherwise assists in administering plans.

        • Performs administrative services related to mass marketed property and casualty insurance.

        • Provides risk management services to a business entity.

        • Performs administrative functions, provides clerical support or enrolls renters on behalf of the rental company which offers insurance coverages in connection with and incidental to the rental of motor vehicles.

        • A person engaged in the advertising of insurance:

          • the person does not sell, solicit or negotiate insurance for risks residing, located or to be performed in Pennsylvania; and

          • the advertising is distributed to persons residing both within and outside the Commonwealth through the use of printed publications or other forms of electronic mass media.

          • A salaried full-time employee who counsels or advises the employee's employer on the employer's insurance issues and does not sell or solicit insurance or receive a commission.

COMMISSIONER’S GENERAL DUTIES AND POWERS (40 P.S. §§ 310.2, 1171.7)

The primary duty of the Insurance Commissioner is to see that laws are properly executed and enforced. The Commissioner is appointed by the governor to a four-year term. Mid-term vacancies are filled for the unexpired term. The Commissioner possesses regulation making authority and policy approval authority. However, they do not make laws, pass laws or propose legislation. These tasks are handled by the state legislature. The Commissioner may not be employed by an insurer while actively working as Commissioner.  However, they may continue to receive retirement benefits if they were already being paid.

Some of the Commissioner’s general powers and duties include but are not limited to:

• Regulates insurers and licensees.

• Regulate and approve insurance premium rates and forms.

• Appoints deputies or examiners to examine insurers and producers for compliance.

• Must examine domestic insurers at least once every five years.

• May examine records of any insurer or licensee at any time by providing notice. All expenses for examinations (audits) are paid for by the insurer.

• Investigates reports of unfair and deceptive practices.

• Conducts hearings to determine whether or not to suspend or revoke an insurance license.

• May subpoena witnesses and examine persons under oath.

• Issues cease and desist orders to insurers, adjusters, and producers.

• Issues, revokes, or suspends licenses and assess fines after a hearing.

• Report illegal activities to the attorney general who prosecutes producers who break insurance laws.

COMPANY REGULATION

Pennsylvania law and regulations apply to insurers and agencies. The following are some additional regulations with regard to insurers who are authorized to sell, solicit and market life, health, property or casualty insurance in this State.

CERTIFICATE OF AUTHORITY (40 P.S. §§ 47, 47A, 420)

All insurers negotiating, selling or soliciting insurance products in this State may only do so if they have secured a certificate of authority to transact insurance. Any entity granted a certificate of authority must notify the Commissioner within five (5) business days of any material change. No insurance company may conduct any business of insurance in this state without a Certificate of Authority issued by the Department of Insurance.

The Commissioner may pursue any of the following courses of action upon receiving evidence that an insurance company has violated this requirement: (1) suspend or revoke the certificate of authority of such offending company; (2) refuse for a period not to exceed one year thereafter, to issue a new certificate of authority to such offending company; or (3) impose a penalty of not less than five thousand dollars ($5,000) nor more than twenty-five thousand dollars ($25,000) for each action in violation.

SOLVENCY (40 P.S. §§ 72, 112)

The Insurance Department regulates all insurers for solvency (i.e., financial soundness and stability). If an insurer cannot meet the reserve requirements established by the Department of Insurance, it will not be issued a license. An insurance company is financially impaired (insolvent) if does not have the minimum reserves, referred to as “net value,” plus 50% company capital on hand. When this happens, the company is prohibited from issuing new policies until funds equal liabilities.

POLICY FORMS AND RATES (40 P.S. §§ 510, 776.1–776.7, 1181–1199, 1221–1238)

The regulation of policy forms protects the public against the possibility of unfair provisions in the insurance contract. It is illegal to use policy forms unless they have been submitted to, and formally approved by, the Commissioner. Once submitted, the Commissioner has 30 days to approve or disapprove the policy forms. Forms will be deemed approved 30 days after filing, unless they are approved or disapproved by the Commissioner before that time. The Commissioner may extend the period for approval or disapproval for an additional 30 days upon written notice to the insurer. If a form is not approved, the Commissioner will notify the insurer in writing. The reason for disapproval must be included in the notice.

Anyone issuing a policy contrary to this section is guilty of a misdemeanor and will be fined up to $500. Anyone violating this section is subject to: (1) license suspension or revocation; (2) refusal of license renewal for up to one year; and (3) a fine of up to $1,000.

Insurers must file their rates with the Insurance Department. A rate filing is subject to a 30-day waiting period before it becomes effective. Insurance companies are required by law to charge premium rates that are not excessive, inadequate, or unfairly discriminatory. Rates may vary between insurers to reflect different methods of operation. Rates are not unfairly discriminatory as long as they reflect differences in expected losses and expenses. Race, religion or national origin may never be used as rating factors.

In making rates, the following must be considered:

• Past and prospective loss experience inside and outside of this State

• Physical hazards

• Safety and loss prevention factors

• Underwriting practice and judgment

• Reasonable profit

• Unforeseen contingencies

• Dividends and other returns of premium

• Expenses incurred

UNFAIR CLAIMS SETTLEMENT PRACTICES (40 P.S. § 1171.5(A)(10); 31 PA. CODE CH. 146)

State law describes various illustrations of unfair clam practices. Any insurer who commits an unfair claims settlement practice is in violation of the insurance laws, and subject to penalties. Any employees of the insurer who are responsible for unfair clam practices may be disciplined as well.

Some of the more common unfair claims settlement practices include:

• Misrepresenting pertinent facts, policy provisions, or benefits about a policy and provided coverages.

• Refusing to pay claims without conducting an equitable and fair investigation based on all available information.

• Failing to effectuate a prompt, fair, and equitable settlement of claims in which liability has become reasonably clear.

• Failing to adopt and implement reasonable standards for the prompt investigation of covered claims or failing to affirm or deny coverage for a claim within a reasonable time after a proof of loss has been submitted to the insurer.    

• Failing to acknowledge and act reasonably and promptly upon communications with respect to claims.   

• Failing to respond to claims, provide claim/loss forms, or begin an investigation within the required amount of time

  • Every insurer, upon receiving notification of a claim, must acknowledge receipt of the notice within 10 days

  • Seeking to pay insurance claims for less than face amount.       

  • Forcing insureds to file a lawsuit, or settle through arbitration when such action would result in a significantly lower benefit than that provided by the insurance policy

  • Failing to settle claims promptly after relevant information has been collected by the insurer and it is clear that the insurer is liable to fulfill its contractual promise.

  • Failing to promptly provide a reasonable response to an insured or beneficiary with relation to the facts (i.e., referencing a section on the policy) or applicable law regarding denial of a claim.

  • Attempting to delay investigation or claims payment unnecessarily

  • Failing to maintain complaint records of all written complaints over the prior four years including the total number of complaints, classification by line of insurance, nature and disposition. 

PRODUCER REGULATION

Pennsylvania law and regulations govern producers and their insurance activities. A producer is required to act in a fiduciary capacity with regard to insurance transactions and may not engage in any unfair sales or marketing practices. The following are areas that are regulated by the Department of Insurance including but not limited to:

FIDUCIARY RESPONSIBILITY (40 P.S. § 310.96; 31 PA. CODE CH. § 37.81)

Producers have a fiduciary responsibility (to the client and company) for all funds collected from clients and must remit collect premiums to insurers on a timely bases. All premiums collected by a producer must be accounted for or such producer violates his or her fiduciary responsibility. Producers must use reasonable accounting methods to record funds received in their fiduciary capacity including the receipt and distribution of all premiums due to each of his or her insurers. A premium trust account must be used for business funds collected (i.e., premiums). However, producers are not required by law to open a separate bank account for each insurer.

Premiums collected may not be misappropriated, commingled with personal funds or used for the licensee’s own use. In addition, they cannot be used for collateral. A producer that spends insurance premiums received from the consumer for his own personal use, has committed embezzlement. Embezzlement or willful misapplying of company funds will be considered to be a class A felony.

EXAMINATION OF BOOKS AND RECORDS (40 P.S. § 323.3-4)

Licensed individuals must keep a record of all insurance transactions on file for a period of at least four years. The Commissioner is permitted to view these records at his or her discretion. Further, the Commissioner may examine the business affairs, books, records, documents, and computer files of any producer to determine the producer’s financial condition and whether the insurer is abiding by insurance laws.

The refusal of any company by its officers, directors, employees or agents to submit to examination or to comply with any reasonable written request of the examiners is grounds for suspension, refusal of, or nonrenewal of any insurance license or authority held by the company subject to the Department's jurisdiction. 

The Commissioner or any of his examiners have the power to issue subpoenas, administer oaths, and examine under oath any person as to any matter pertinent to the examination. The Department may petition a court to enter an order compelling the witness to appear and testify or produce documentary evidence if they do not obey a subpoena. Failure to obey the court order shall be punishable as contempt of court.

The Commissioner must conduct a financial examination of each insurer prior to issuing a certificate of authority and at least once every five years thereafter.

An insurance producer acting on behalf of or representing an insurance consumer must execute a written agreement with the insurance consumer prior to representing or acting on their behalf that:

• Describes the services to be provided

• Provides full disclosure of the fee to be paid to the insurance producer by the insurance consumer.

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  COMMISSIONS AND FEES (40 P.S. §§ 310.72–310.74)

  Insurers may pay commissions to producers. Unlicensed persons may not receive commissions, with the following exceptions: renewal or deferred commissions to retired producers, and referrals. A producer may charge a fee to consumers as long as the fee is disclosed in advance in writing. However, producers cannot charge a fee for an application for insurance.

  An insurance licensed person is permitted to share commissions with any other producer, company or corporation as long as such entities are licensed in the same line of insurance as the business being solicited. No commissions may legally be shared with an unlicensed person.

PROHIBITED ACTS (40 P.S. § 310.11)

There are many unethical and illegal actions that will cause a producer to face disciplinary action. Some of these include violating an insurance law, committing a felony, having been convicted of or plead guilty to a felony, using dishonest practices, cheating on a state licensing exam, failing to pay state income tax or court-ordered child support, being designated as beneficiary under a policy sold to a non-relative, failing to communicate with the Insurance Department when required, embezzling money, or committing fraud or forgery. Producers are not permitted to engage in any unfair sales or marketing practices. Such prohibited acts will result in license suspension or revocation, a monetary penalty, or prison.

APPOINTMENT PROCEDURES

The insurer will terminate the producer’s appointment if they no longer authorize the producer to represent their products. The Commissioner does not terminate an appointment. However, they may terminate an insurance license for cause. Whenever an insurer terminates an agreement with an independent agency, the agency is entitled to collect renewals for a stipulated period of time.

APPOINTMENT OF PRODUCERS (40 P.S. § 310.71, 31 PA CODE 37.61)

An appointment is a contractual relationship between an insurance producer and an insurer giving the producer permission to represent (i.e., act “as an agent of”) the insurer in the transacting of insurance. The effective date of the appointment and contract are the same. Only producers appointed by the insurer may act on behalf of or as a representative of the insurer. The appointment indicates that the insurer is stipulating that a candidate is a suitable person, has acted in good faith, and will function in a fiduciary capacity. Therefore, insurers must be able to demonstrate that a reasonable inquiry was made into the agent’s eligibility and background before appointing. An insurer that appoints an insurance producer must file a written notice of appointment with the Commissioner of Insurance.

An appointment form must contain at least the following:

• The effective date of the appointment.

• The lines of authority included in the appointment.

• The name of the appointee and any fictitious names used,

• The address of the appointee, and previous residences.

• The appointee’s certificate/agent number.

• The names and certificate numbers of qualifying active partners or officers.

• The appointee’s Social Security or tax identification number.

A producer must secure an appointment with an insurer before soliciting insurance applications for that insurer. A producer's authority to bind an insurer to an insurance contract may be granted in the producer’s appointment with the insurance company. A producer representing an insurer must always disclose the name of the insurer to a consumer when transacting or attempting to transact insurance. Producers are not required to be appointed as an insurer’s representative if they function as brokers.

An insurance producer not acting as a representative of an insurer is not required to be appointed. This (independent) producer represents the insured. This producer negotiates insurance contracts for a person other than himself/herself (i.e., for the client). Formerly called a broker license, this license allows the holder to place business with a variety of insurers. A producer acting in this capacity is not appointed by one insurer and must demonstrate to the Department of Insurance that he or she is competent and trustworthy. An insurance producer acting on behalf of or representing an insurance consumer must execute a written agreement with the insurance consumer prior to representing or acting on their behalf that describes the services to be provided and provides full and complete disclosure of the fee to be paid to the insurance producer by the insurance consumer.

APPOINTMENT TERMINATION (40 P.S. § 310.71A)

An insurance producer’s appointment remains valid until the insurer terminates the appointment in writing to the insurance producer or until the insurance producer's license is suspended, revoked, or otherwise terminated. An entity must terminate an appointment when the agent ceases performing the activities of an agent for the entity. Therefore, the insurer will terminate the producer’s appointment if they no longer authorize the producer to represent their products. The Commissioner does not terminate appointments. However, they may terminate an insurance license for cause.

Terminations must be in writing and sent to the agent prior to notification of termination to the Department. If an entity has entered into a contract with the agent, the termination date of the appointment and the contract are the same.

The termination notice to the agent must contain at least the following:

• The reason for the termination.

• The name of the entity for which the agent is being terminated.

• The effective date of termination.

• The lines of authority terminated.

• The name and address of terminated appointee, including fictitious names used.

• The certificate number of the terminated appointee.

• The Social Security or tax identification number of the terminated appointee.

• The names of qualifying active partners or officers.

Pennsylvania law requires that an insurer must notify the Commissioner of a producer appointment termination (including terminations initiated by an appointee) within 30 days of the end of the month being reported. When a termination of an appointee is for cause, the entity shall document its reasons for termination to the attention of Chief, Bureau of Enforcement, Insurance Department, Harrisburg, Pennsylvania 17120.

An insurer or licensee that fails to report as required or that is found to have falsely reported information to the Department may, after notice and hearing, have its license or certificate of authority suspended or revoked and be assessed a civil penalty not to exceed $5,000 for each violation.

Once an appointment has been terminated on the records of the Department, it may not be reinstated. The company must issue a new appointment with a new effective date in the standard appointment format to appoint the agent again.

Appointment records, including eligibility and background checks, must be made available for Department inspection upon demand. Both the entity and appointee must maintain records of the appointment during the appointment period and for 5 years following expiration or termination of the appointment. Termination records must be maintained for 5 years after termination is effective. 

UNFAIR INSURANCE PRACTICES (40 P.S. §§ 1171.1-1171.5)

The following are types of unfair sales practices or prohibited acts that licensees are not permitted to engage in. A person violating this section of State law commits a misdemeanor of the third degree. If the Commissioner finds that licensees engage in these activities, they may suspend or revoke their insurance license, assess a monetary fine or impose a prison sentence after a hearing. Community service is generally not part of the penalty for engaging in an unfair sales or marketing practice.

REBATES AND INDUCEMENTS (40 P.S. §§ 310.45, 310.46, 1171.5(A)(8))

An agent or broker offering something of value to an applicant for insurance as an inducement to purchase such insurance is known as rebating and is illegal.  The agent making the offer is known as the offer or.  The applicant who accepts the offer is known as the offered.  If done knowingly, both parties are guilty of rebating. It is illegal to offer a premium rebate or a special advantage of any kind to consumers as an inducement to purchase a contract of insurance. It is an illegal practice to offer anything of value (e.g. stocks, bonds, securities, property, dividends, profits, money), other than as explicitly stated in the policy, as an inducement to purchase a contract of insurance. Any illegal inducement made by a licensee may result in a license suspension or revocation.

MISREPRESENTATIONS (40 P.S. §§ 310.47–.48, 1171.5(A)(1),(2))

It is an illegal practice to mislead or misrepresent any fact about an insurance policy- such as policy terms, benefits, value, cost, effective date, or existence of a contract of insurance. A licensee who guarantees dividends will be paid on a policy or makes any false statements in order to persuade the applicant to buy the policy has engaged in misrepresentation.

TWISTING (40 P.S. §§ 473)

Twisting involves the deceptive act of inducing a policyowner to lapse, forfeit, or surrender an insurance policy for the purpose of replacing it with another policy with a different company. This action is usually not in the insured’s best interest, but done in order to secure a new commission for the producer. In other words, an unfair or illegal comparison of policies by a producer in order to illegally induce the applicant to surrender or lapse his current policy and buy a new one that the producer is selling is known as twisting. Whenever a policy is replaced legally a “Notice Regarding Replacement” must be provided.

FALSE ADVERTISING (40 P.S. § 1171.5; 31 PA. CODE CH. 51)

An insurer or licensee who makes false statements in the advertising of insurance products has engaged in an unfair practice. Advertisements include prepared sales talks, audio visual aids used in a sales presentation, radio and television advertisements, billboards, newspapers and magazine ads. All of these fall under State insurance advertising guidelines. Advertising regulations are designed to protect the public and provide information to them as well.

DEFAMATION (40 P.S. § 1171.5(A)(3); 31 PA. CODE CH. 51)

Any licensee or insurer who makes false or maliciously critical statements with regard to the financial condition of an insurer will be deemed to be defamation and is illegal. In other words, any false or derogatory remarks concerning the financial condition of an insurer which are intended to injure any person or insurer will be considered to be defamation. 

BOYCOTT, COERCION, OR INTIMIDATION (40 P.S. § 1171.5(A)(4))

It is an illegal practice to commit or coordinate any act or boycott, coercion, or intimidation in order to restrain or monopolize the business of insurance.

MISAPPROPRIATION OF FUNDS (40 P.S. §§ 310.11(4), 310.42)

It is an illegal practice to improperly withhold, misappropriate, or convert money or property received in the course of doing insurance business. Producers who transact insurance in order to convert premiums for their own use are guilty of theft and subject to punishment. This is also known as conversion.

UNFAIR DISCRIMINATION (40 P.S. § 1171.5; 31 PA. CODE § 145.4

No insurer may assess premium rates or policy fees that unfairly discriminatory to any particular group of people. Refusing to write insurance solely because of race, color, creed, marital status or geographical area (i.e., redlining) are examples of unfair discrimination. Insurance premium rates must be fair, not excessive and not unfairly discriminatory.

PRIVACY OF CONSUMER FINANCIAL INFORMATION (40 P.S. § 310.77(A); 31 PA. CODE §§ 146A.1–.44)

A producer who sells insurance on the premises of a financial institution, such as a bank, must provide the following disclosures at or before a consumer submits an application for insurance:

• The contract is not a deposit.

• The contract is not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency or instrumentality of the Federal Government.

• The contract is not guaranteed by the financial institution or an affiliated insured depository institution.

• The contract is subject to investment risk, including potential loss of principal, when appropriate.

• PERSONALLY IDENTIFIABLE INFORMATION

  Personally identifiable information is a term that includes any of the following:

  • information from a consumer report

  • account balance information and payment history

  • information a consumer provides to a licensee in an insurance application

  • information the licensee collects through an Internet cookie (an information-collecting device from a web server)

  Personally identifiable financial information does NOT include:

  • information such as blind data that does not include names and addresses

  • a list of names and addresses of customers of an entity that is not a financial institution

  • health information.

• INSURANCE FRAUD REGULATION (40 P.S. §§ 325.1–325.62; 18 PA. C.S. § 4117)

  It is illegal to commit an act of insurance fraud, which is defined as any intentional act occurring in the course of insurance business that attempts to deceive or misrepresent a material fact. Any person who, in the absence of fraud or bad faith, reports information regarding an act of insurance fraud will be given immunity.

FRAUD AND FALSE STATEMENTS (18 USC SECTIONS 1033 AND 1034)

The Fraud and False Statements federal law makes it illegal to lie, falsify, or conceal information (orally or in writing) from a federal official. As it applies to insurance, any person engaged in interstate insurance business who engages in intentional unfair or deceptive insurance practices or overvalues an insurance product in a financial report or document presented to a regulatory official, will be in violation of federal law. Other violations include but are not limited to embezzling money from an insurance company, misappropriating insurance premiums, and writing threatening letters to insurance offices.

The punishment for violation is a fine up to $50,000, imprisonment up to 15 years, and/or license revocation. An individual convicted of a felony involving dishonesty may engage in the business of insurance ONLY after receiving written consent from the state insurance regulatory agency and a 1033 waiver.

PRIVACY (GRAMM-LEACH BLILEY)

Also known as the Financial Services Modernization Act of 1999, this federal law repealed part of the Glass-Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. The law allowed commercial banks, investment banks, securities firms, and insurance companies to consolidate. The Act includes a Financial Privacy Rule which requires financial institutions to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter. The privacy notice must explain the information collected about the consumer, where that information is shared, how that information is used, and how that information is protected. The customer has a right to opt-out.

NATIONAL DO NOT CALL LIST

Federal law outlaws offensive practices such as the use of recorded messages for solicitations (i.e., automated dialing). The Federal Trade Commission (FTC) manages the National Do Not Call Registry which allows consumers to register their phones numbers. Telemarketers then have 31 days to search their call lists and remove that number. Consumers must register as no third parties are permitted to register for them. Phone numbers stay on the registry for five years from the date they are registered. If a phone number is changed or disconnected and reconnected the number must be registered. Each time a number is registered, telemarketers have 31 days to take it off their call list.

REPLACEMENT (40 P.S. § 625, 31 PA CODE CH. 81)

Policy replacement is a transaction in which a new policy or contract is to be purchased and the producer is aware that an existing policy or contract has been, or will be:

• Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated

• 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

• Modified to cause a reduction in benefits or length of policy term

• Reissued with a reduction in cash value

• Refusing to pay a claim when it is clear that the insurer is liable to fulfill its contractual promise

• Used in a financed purchase

The purpose of replacement rules is to ensure that an existing policy owner has enough information to make an informed decision by providing both the advantages and disadvantages of replacing existing coverage. Replacement rules also minimize or eliminate the chances for misrepresentation and create penalties for non-compliance. State rules also allow the insurer whose policy may be replaced the opportunity to conserve the business. This is called conservation. Such rules also provide policy owner with all sales proposals, marketing literature and required disclosure forms to ensure full disclosure. The replacement of an existing insurance policy is a legal insurance transaction, as long as the producer and insurer adhere to all disclosure.

DUTY OF REPLACING PRODUCER

Producers have several duties if a replacement of an insurance policy is involved. These include:

• Determine if transaction will involve the replacement of existing insurance

• Obtaining a signed statement from applicant verifying that the applicant understands a replacement is taking place

• Secure a list of all existing policies being replaced

• Provide to applicant a Notice Regarding Replacement of Insurance signed by both producer and applicant

• Provide comparison forms when requested by applicant

• Leave copies of all sales proposals.

• DUTY OF REPLACING INSURER

  Insurers are required to inform all producers soliciting insurance on their behalf of the duties of a producer in regards to replacement. These include:

  • Require its producers collect a signed statement by the applicant that he/she realizes a replacement is taking place

  • Require its producers provide a Notice to the Applicant when replacement is involved

  • An insurer will provide Comparative Information Forms when necessary and must notify existing insurer about the proposed replacement

  • Insurers must maintain files of client records and policy replacement for three years after the relationship has terminated

  • Insurer must give new policyowner a free-look period of 20 days after delivery

• EXEMPTIONS

  Replacement rules shall not apply to transactions involving:

  • credit life, accident, or disability insurance;

  • group life, accident, or disability insurance or group annuities where there is no direct solicitation of individuals by an insurance producer (direct solicitation shall not include any group meeting held by an insurance 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);

  • a nonrenewable or nonconvertible term policy with a coverage period of five (5) years or less;

  • 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;

  • an internal policy change of proposed life insurance that is to replace life insurance issued by the same insurer; or

  • mass marketed and bank issued life insurance and annuity products.

• ADVERTISING (31 PA. CODE CH. 51.1–.36, .42)

  The purpose of advertising regulations is to assure full and truthful disclosures to the public.

  • All advertisements for insurance must clearly identify the name of the insurer.

  • Insurance companies are responsible for the accuracy of testimonials.

  • Statistics relating to dollar amounts of claims paid, the number of persons insured, or similar statistical information relating to an insurer or policy may not be used in an advertisement unless it is accurate and relevant.

  • No advertisement shall contain descriptions of a policy limitation, exception, or reduction, worded in a positive manner to imply that it is a benefit, such as describing a waiting period as a “benefit builder” or stating “even preexisting conditions are covered after two years.” Words and phrases used in an advertisement to describe such policy limitations, exceptions and reductions shall fairly and accurately describe the negative features of such limitations, exceptions and reductions of the policy offered. 

• DELIVERY RECEIPT REQUIREMENT (40 P.S. § 625.4)

  The issuing of a receipt is subject to individual company rules. Most require that the agent collect an initial premium and most usually grant some level of limited coverage, under special conditions, before issuance of the policy. Without a valid receipt, no coverage is in force until the policy is issued, delivered, and accepted (initial premium paid).

  When an individual policy or annuity is delivered to the policyowner by hand, a delivery receipt must be used. This receipt must be signed by both policyowner, and producer and a copy given to the policyowner and insurer. This is when the free look period would begin.

MEDICAL EXAMINATIONS AND LAB TESTS INCLUDING HIV

For underwriting an individual policy, insurers may require proposed insureds to undergo an HIV test, but only in conjunction with other medical tests. The basis for requiring an HIV test cannot be the proposed insured’s sexual orientation. The insurer must obtain written consent from the proposed insured in order to conduct the HIV test.

GENETIC SCREENING INFORMATION

It is illegal for insurers to use the results of a proposed insured’s genetic screening to: underwrite a policy; determine whether to issue an insurance policy or to cancel; refuse to issue or renew, or limit benefits of a policy.

PENNSYLVANIA LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATION (40 P.S. § 991.1717)

The Life and Health Guaranty Association is used to rehabilitate insolvent (financially incapacitated) insurers. The Life and Health Guaranty Association is funded by insurance companies through assessments. For any one person, the Guaranty Association will provide:

• $300,000 in life insurance death benefits

• $100,000 in cash surrender value

• $300,000 in health insurance claims

• $300,000 in present value annuity benefits

In addition, insurers and producers are prohibited from including information in an advertisement mentioning that the Guaranty Fund will protect a consumer’s interest in a life insurance policy. In other words, no advertisement may include information or language that uses the existence of the Guaranty Fund for the purpose of sales, solicitations or inducement to purchase any form of insurance applicable under Pennsylvania law. Such information may unfairly influence a consumer in the purchase of life insurance products.

OUTLINE OF COVERAGE (40 P.S. § 991.1111; 31 PA. CODE CH.88.181)

An outline of coverage must be provided to the consumer describing the benefits, coverages, limitations and exclusion contained in the policy. Generally the outline of coverage must be provided at the time of application but no later than at the time of policy delivery. 

CRITICAL ILLNESS/DREAD DISEASE (31 PA. CODE CH. 88.169,.193)

A limited policy that only provides coverage for a specific illness. A cancer only plan is the primary type of dread disease policy in existence. In Pennsylvania, a Specified disease accident and health plan must provide a minimum benefit in the amount of $5,000.

PENNSYLVANIA REPLACEMENT REQUIREMENTS (31 PA. CODE CH. 88.101–.103)

When replacing an individual health policy, the required replacement notice to the applicant must include a notice that pre-existing conditions may not be covered. Application forms must contain a question to elicit information as to whether the insurance to be issued is to replace any other accident and health insurance presently in force.

COMMON EXCLUSIONS FROM COVERAGE (31 PA. CODE CH.88.84)

Pre-existing conditions (31 Pa. Code Ch. 88.51)

The policy must clearly disclose the intent of the insurer as to the applicability or nonapplicability of coverage relating to preexisting conditions. If coverage of the policy is not to be applicable to preexisting conditions, the policy shall specify that coverage pertains solely to accidental bodily injuries resulting from accidents occurring after the effective date of coverage, and that sickness is limited to that which is diagnosed or treated subsequent to the effective date of coverage or expiration of the probationary period, if any.

INTENTIONALLY SELF-INFLICTED INJURIES (1)(II)

Health insurance plans generally exclude injuries that are self-inflicted by an insured. If the injury was an accident or unintentional, there would be coverage.

WAR OR ACT OF WAR (1)(I)

Loss due to war or any act of war including invasion, insurrection or rebellion is excluded.

ELECTIVE COSMETIC SURGERY (1)(VII)

Elective cosmetic surgery is not covered by health insurance plans. If corrective cosmetic surgery is necessary due to an accident, the policy would provide coverage.

CONDITIONS COVERED BY WORKERS COMPENSATION (1)(III)

Over-insurance is a challenge that may exist in group and individual health insurance policies. Insurance companies attempt to control over-insurance by including a coordination of benefits (COB) provision in such policies. This provision states that benefits will not be paid for medical expense amounts reimbursed by other policies. An insured is not permitted to collect in claim benefits more than 100% of total covered medical expenses, no matter how many policies he owns. In addition, it also designates the order by which the policies will pay (i.e., which policy pays first or is primary).

Worker’s Compensation insurance is a casualty or liability type of insurance that is purchased by an employer who provides benefits to employees who are injured arising out of the scope of their employment. In other words, it protects employees who are injured “on the job.” It covers “at-work injuries and occupational illnesses.” The benefits it includes: (1) unlimited medical expenses; (2) rehabilitation expenses; (3) funeral expenses if incurred; (4) dependent benefits and (5) disability income or loss of wages. As mentioned, benefits paid by Workers’ Compensation are coordinated with benefits provided by medical plans, group disability and Medicare. Therefore, if an employee is injured on the job the medical benefits provided by the Workers’ Compensation policy are primary. 

COMMISSION OF OR ATTEMPT TO COMMIT A FELONY

Most health insurance plans exclude illness or accident when an insured is in the course of committing a felony or other criminal activity.

TIME LIMIT ON CERTAIN DEFENSES (2)

EXCEPT for fraud, the time after issuance of a policy during which an insurance company may contest a health insurance claim due to the statements on an application is 3 years. This is similar to the contestable period found in life insurance policies.

GRACE PERIOD (3)

The grace period for health policies is no less than 7 days for weekly premium policies; 10 days for monthly premium policies; and 31 days for all others.

REINSTATEMENT (4)

If a health policy is reinstated after it had lapsed for nonpayment, there is a waiting period of 10 days before a claim covering sickness will be covered. Injuries sustained from an accident, however, will be covered immediately.

CLAIM FORMS (6)

An insurance company will send forms for filing proof of loss to a claimant within 15 days after company receives notice of a claim.

PROOF OF LOSS (7)

Written proof of any loss must be given to the insurance company within 90 days after the insured's date of loss.

TIME OF PAYMENT OF CLAIMS (8)

This provision requires that a claim be paid by the insurer once it receives the completed claim form. In the case of a disability income claim, policy benefits must be paid on a monthly basis within thirty days of receipt of the written proof.

PHYSICAL EXAMINATIONS AND AUTOPSY (10)

The insurer has the right to examine the insured during the claim process and to make an autopsy when death is involved and where it is not forbidden by law. When determining the exact cause of death from an accident, an autopsy takes precedence.

LEGAL ACTIONS (11)

There is a waiting period of 60 days to file a lawsuit after a claim for loss has been filed by the insured. No lawsuit may be filed after 3 years has passed from when the claim was submitted.

ENTIRE CONTRACT (1)

A provision that the policy, application, and all attachments shall constitute the entire contract between the parties..

PAYMENT OF CLAIMS (9)

This provision states that health insurance benefits must be payable to the insured. It also allows payment of benefits directly to a hospital or provider of medical services. If a death benefit is provided under a health insurance policy (i.e., accidental death benefit), this provision provides for payment of benefits to a named beneficiary. No payments will be made to a creditor of the insured.

CHANGE OF BENEFICIARY (12)

The policy owner may change a revocable beneficiary at any time at his or her discretion. However, if the beneficiary is irrevocable, the policy owner cannot change it without the permission of such beneficiary.

NOTICE OF CLAIM (5)

Written notice of a claim must be given within 20 days after a covered loss starts, or as soon as reasonably possible.

CHANGE OF OCCUPATION (1)

This provision allows for some type of reduction when an insured changes his job. For example, if the insured changes to a more hazardous occupation (i.e., clerical worker to a hand-gliding instructor), the policy premium will remain the same but the monthly income benefit will be reduced. If the insured changes to a less risky occupation (i.e., police officer becomes a librarian), the benefit provided will remain constant and the premium will be reduced.

MISSTATEMENT OF AGE/SEX (2)

If an insured misstates his or her age (i.e., whether overstated or understated) on the health insurance application, the insurer will adjust benefits accordingly under the policy to the amount that should have been provided had the correct age been stated. In other words, the insurer will pro-rate the claim and pay what the premium would have purchased at the correct age.

OTHER INSURANCE IN THIS INSURER (3)

This provision states that if the insured is already covered by a policy with one insurer but is also covered by another plan with the same company, only the maximum benefit is payable. The purpose of this provision is to prevent an insured from profiting if he or she is covered by two policies with the same insurer.

INSURANCE WITH OTHER INSURERS

Expense-incurred benefits (4)

If the policy owner possesses duplicate coverage with another insurer on “an ex­pense incurred basis” and does not notify the primary in­surer of the other policy, the liability of the insurer is limited to its proportionate share of the expenses incurred. For example, assume that this optional provision appears in a medical expense plan. If an insurer returns premium to an insured on a pro-rated basis and only pays a portion of medical expenses incurred, it is generally because the insurer has discovered that the insured has duplicate coverage of some sort. 

OTHER BENEFITS (5)

This provision is rarely included in policies today. It is identical to the previous provision except that it applies to benefits provided on an “other than expense incurred basis.”

UNPAID PREMIUM (7)

Upon the payment of a claim under this policy, any premium then due and unpaid or covered by any note or written order may be deducted from such payment.

CANCELLATION (8)

This provision provides the insurer the right to terminate or cancel the contract at any time with at least 5 days written notice to the insured. All claims originating prior to the cancellation will be paid. This clause generally appears in cancelable contracts. Other renewability provisions included in a policy may supersede this clause.

CONFORMITY WITH STATE STATUTES (9)

Any provision of this policy which, on the date of issue, is in conflict with the statutes of the state in which the insured resides at the date of issue is understood to be amended to conform to such statutes.

ILLEGAL OCCUPATION (10)

The insurer shall not be liable for any loss to which a contributing cause was the insured's commission of or attempt to commit a felony or to which a contributing cause was the insured's being engaged in an illegal occupation.

NTOXICANTS, NARCOTICS, OR OTHER CONTROLLED SUBSTANCES (11)

The insurer shall not be liable for any loss sustained or contracted in consequence of the insured's being intoxicated or under the influence of narcotics unless administered on the advice of a physician.

RIGHT TO EXAMINE/FREE LOOK (40 P.S. § 752(A)(10); 31 PA. CODE CH. 89.73)

After purchasing an individual health insurance contract, policyowners have 10 days from the date of receiving the policy to return it for a full refund for any reason.

QUALIFICATIONS OF DISABILITY

Partial (31 Pa. Code Ch. 88.138)

Someone who is unable to perform one or some but not all of his or her duties is partially disabled. If a person is partially disabled and has added a partial disability benefit rider to his or her plan, he will collect 50% of the monthly income benefit while partially disabled. Partial disability benefits are payable for a maximum of six months.

RESIDUAL (31 PA. CODE CH. 88.139)

Like partial disability, this involves a person who is ­able to perform some but not all of his or her duties. The benefit provided by a residual disability rider is paid if the loss of income is a residual ef­fect of the disability. This type of disability rider pays a percentage of lost income which usually exceeds the flat 50% paid by partial disability.

Partial and residual disability riders may not be added to the same policy. Again, residual disability will reimburse an insured based on his or her percentage of lost income due to a covered disability. If the insured is residually disabled and is losing 65% of his income per month, the rider will pay him 65% of his monthly total disability benefit.

Sometimes these benefits are referred to as “at-work” benefits. Both of these riders provide an “at-work” type of disability benefit since the insured is able to perform some but not all his or her duties. This means that the insured is still able to continue working in some capacity but is also able to receive partial or residual benefits from the disability policy. 

INABILITY TO PERFORM DUTIES (31 PA. CODE CH. 88.137)

In Pennsylvania, the definition of total disability changes from one's "own occupation" to "any occupation" by reason of one's education, training, and experience after 24 months.

INDIVIDUAL DISABILITY INSURANCE

Relation of earnings to insurance (40 P.S. § 753(B)(6))

This provision ap­pears in disability income policies. It prevents over-insurance since it protects an insurer against an insured purchasing more monthly benefit in rela­tion to his or her monthly income. Normally it is only in­cluded in non-cancelable or guaranteed renewable policies. This provision protects against moral hazards (i.e., filing a false claim). An individual whose disability income benefits are greater than his income does not possess much incentive to return to work.

PENNSYLVANIA MINIMUM BENEFIT STANDARDS (31 PA. CODE CH.88.167)

A policy of Disability Income Protection Coverage provides for periodic payments, weekly or monthly, for a specified period during the continuance of disability resulting from either sickness or injury or a combination of both.

Disability Income Protection Coverage is required by the State to:

(1) provide that periodic payments which are payable at ages after 62 and reduced solely on the basis of age are at least 50% of the amounts payable prior to 62;

(2) contain an elimination period no greater than:(i) 90 days in the case of a coverage providing a benefit of 1 year or less.(ii) 180 days in the case of coverage providing a benefit of more than one year but not greater than 2 years.(iii) 365 days in all other cases during the continuance of disability resulting from sickness or injury; and

(3) have a maximum period of time for which it is payable during disability of at least 6 months.

The coverage shall not require a loss from accidental injury to commence within less than 30 days after the date of an accident, nor may any such accident policy which the insurer may cancel or refuse to renew require that it be in force at the time the loss commences, if the accident occurred while the policy was in force.

Benefits for specific injury due to accident shall not be in lieu of sickness benefits, unless the specific benefit exceeds the sickness benefit.

No policy which contains a disability income benefit or a similar type benefit may require an insured person to be confined to his residence due to sickness or injury as a condition for any such benefit, any change in the amount of such benefit or any change in duration of coverage of such benefit.

No policy of accident and health insurance will be approved which contains a provision that the disability period shall be considered to commence with the date on which written notice is actually received by the company.

This section of Pennsylvania law does not apply to those policies providing business buyout coverage.

GROUP DISABILITY INSURANCE

Coordination of Benefits (Workers' Compensation Benefits and Social Insurance) (77 P.S. § 511 et seq)

Workers’ Compensation benefits are primary and will reduce other benefits normally payable by social insurance or group disability plans. 

POSTPARTUM COVERAGE (40 P.S. § 1583)

All policies that provide maternity benefits issued in this State shall provide for at least one home health care visit within 48 hours after discharge when discharge occurs prior to the times previously mentioned (48 hours for normal delivery and 96 hours for caesarean). Such visits shall be made by a licensed health care provider whose scope of practice includes postpartum care. Home health care visits shall include: (1) parent education; (2) assistance and training in breast and bottle feeding; (3) infant screening and clinical tests; and (4) the performance of any necessary maternal and neonatal physical assessments. At the mother’s sole discretion, any visits may occur at the facility of the provider. The health insurance policy shall not include any copayment, coinsurance or deductible amount for any postpartum home health care visits.

MINIMUM MATERNITY BENEFITS

For mothers and newborn infants following a normal delivery, a medical expense plan must allow a hospital stay of at least 48 hours and a minimum of 96 hours of inpatient care after a cesarean section for a mother and her newly born child.

POSTNATAL CARE

According to Pennsylvania law, postnatal care must be delivered within 48 hours of discharge.

ROUTINE PAP SMEARS AND ANNUAL GYNECOLOGICAL EXAMINATIONS (40 P.S. § 1574(1)(2))

Individual and group medical plans issued in this State must include expenses incurred for periodic health maintenance including: (1) routine pap smears (cervical cancer testing); and (2) an annual gynecological examination including a pelvic examination and clinical breast examination. 

TREATMENT FOR ALCOHOL ABUSE AND DEPENDENCY (40 P.S. §§ 908-1–908-8)

All policies (including HMOs and any group subscriber contracts) providing medical expense benefits, such as medical and surgical coverage, shall include benefits for alcohol or other drug abuse and dependency. Covered benefits may be subject to policy copayments and deductibles.

Inpatient detoxification services shall be provided either in a hospital or in an inpatient non-hospital facility. The following are covered under inpatient detoxification: (1) lodging and dietary services; (2) physician, psychologist, nurse, certified addictions counselor and trained staff services; (3) diagnostic x-rays; (4) psychiatric, psychological and medical laboratory testing; and (5) drugs, medicines, equipment use and supplies.

Treatment may be subject to a lifetime limit, for any covered individual, of four admissions for detoxification and reimbursement per admission may be limited to seven (7) days of treatment or an equivalent amount. The aforementioned benefits are also provided for a non-hospital residential alcohol or drug stay, except that treatment shall be covered for a minimum of thirty (30) days per year for residential care. Treatment may be subject to a lifetime limit, for any individual, of ninety (90) days.

Outpatient alcohol and other drug treatment services shall also be provided including: (1) physician, psychologist, nurse, certified addictions counselor and trained staff services; (2) rehabilitation therapy and counseling; (3) family counseling and intervention; (4) psychiatric, psychological and medical laboratory tests; and (5) drugs, medicines, equipment use and supplies. Treatment is provided for a minimum of thirty outpatient full session visits or equivalent partial visits per year. Treatment may be subject to a lifetime limit, for any covered individual, of 120 outpatient visits (full session visits or equivalent partial visits).

SERIOUS MENTAL ILLNESS (40 P.S. § 764G)

All individual or group medical plans (insuring 50 or more employees), or HMOs must include benefits for a serious mental illness. Serious mental illness means any of the following: (1) schizophrenia; (2) bipolar disorder; (3) obsessive compulsive disorder; (4) major depressive disorder; (5) panic disorder; (5) anorexia nervosa; (6) bulimia nervosa; (7) schizoaffective disorder; and (8) delusional disorder. Applicable policies issued in this State must provide coverage for at least thirty (30) inpatient and sixty (60) outpatient days annually. A person covered under such policies shall be able to convert coverage of inpatient days to outpatient days on a one-for-two basis. There shall be no difference in either the annual or lifetime dollar limits in coverage for serious mental illnesses and any other illnesses. Cost sharing arrangements, including but not limited to, deductibles and copayments for coverage of serious mental illnesses, shall not prohibit access to care.

CANCER THERAPY (40 P.S. § 764B)

Any policy issued in this State that provides benefits for hospital, medical or surgical services must include benefits for cancer chemotherapy and cancer hormone treatments whether performed in a physician’s office, in an outpatient department of a hospital, in a hospital as a hospital inpatient, or in any other medically approved appropriate treatment setting.

MAMMOGRAPHY COVERAGE (40 P.S. § 764C)

Any insurer offering insurance in Pennsylvania must provide coverage for breast cancer screening mammography. Coverage is as follows:

• One baseline mammogram per year for women 40 and older

• Mammogram for those under the age of 40 as recommended by physician.

CHILDHOOD IMMUNIZATIONS (40 P.S. § 3503)

All health insurance plans issued in this State must include benefits for child immunizations. Such policies shall provide for coverage for medically necessary booster doses of all immunizing agents used in child immunizations.

DEPENDENT CHILD AGE LIMIT (31 PA. CODE CH. 88.32)

According to 31 PA. 88.32, eligible family members for accident and health insurance may include the insured, the insured’s spouse, children of the insured, or the insured’s spouse, under a specified age not to exceed 19 (unless a dependency test is specified), and any other person dependent upon the insured.

However, in Pennsylvania, a child up to age 30 (i.e., age 29 or younger) may retain coverage through a parent’s healthcare plan (or HMO) if certain eligibility requirements are met. To be eligible for coverage, the dependent must be age 29 or younger and must meet the following requirements: (1) is unmarried; (2) has no dependents; (3) is a resident of Pennsylvania or is enrolled as a full-time student at an accredited institution of higher education; (4) is not covered under another group health plan or individual health insurance plan; or (5) is not enrolled in or entitled to benefits under any government health care benefits program. Only medical expense coverage is covered according to this law. Accident, income/indemnity, dental, and vision-only benefits are excluded, and self-funded plans are exempt from the requirements of this law. This state law is broader than and in turn, supersedes the Patient Protection Affordable Care Act (also known as PPACA, or ACA), which is age 26.

Exam Tip:

Watch out for tricky questions regarding dependent coverage. Read the question and all options carefully before answering a question about age limits.

• The maximum age a dependent can be covered under their parent’s medical plan in Pennsylvania is 29 (or until age 30).

• The maximum age for dependents covered under an accident and health plan (not specifying medical) in Pennsylvania is 18 (or until age 19).

• According to the Affordable Care Act, the maximum age for a dependent to be covered under a parent’s medical plan is 26.

• Individual health insurance policies must cover mentally and physically handicapped dependent children until they become self-supportive, regardless of age.

However, Pennsylvania law provides for a more liberal provision, PA law (in real life) is primary (age 30 as you mentioned). 

As far as the exam is concerned, the feedback I have goes back to early 2020 before all the lockdown BS and plandemic.  I spoke with a handful of people from PA that said they saw a question concerning medical plans and there were no choices that listed 26 but there was one for age 30.  So that is self explanatory.  In addition, a couple of students mentioned that they saw a question and the choices were 18   19   21   23 but it did not mention medical plans in the stem.  It just referred to the policy as an "accident and health plan".  This could have been an accident policy, some sort of sickness income plan, school insurance etc.  So 23 was the max age here.

I know in CT before they switched vendors from Prometic to PearsonVUE the question there on dependents was 26 for MED PLANS.  And some saw a general A&H question, in my opinion, looking for age 23.

In PA, I would stick with age 30 if a MED PLAN until we receive feedback from more people that age 30 is not one of the choices.  And to also look out fro a non MED PLAN max age which still 23.

Does that help?

The code also references P.L. 157 and 40 P.S. 771-774, which states that health insurance policies providing coverage on an expense incurred basis and service or indemnity type contracts issued by a nonprofit corporation must provide health insurance benefits or applicable health services for a newborn child of the insured or subscriber the moment of birth. The coverage for newborn children includes injury, sickness, treatment of medically diagnosed congenital defects, birth abnormalities, prematurity, and routine nursery care, but is not required to include routine well-baby care, immunizations and medical examinations or tests not necessary for the treatment of a covered injury, illness, defect, deformity or disease except to the extent that such coverages are provided the insured or for dependent children under the same class of coverage. Further, if payment of a specific premium or subscription fee is required to provide coverage for a child, the policy or contract may require that notification of birth of a newborn child and payment of the required premium or fees must be furnished to the insurer or nonprofit service or indemnity corporation within 31 days after the date of birth in order to have the coverage continue beyond such 31-day period. The newborn child coverage requirements apply to all insurance policies, subscriber contracts and group insurance certificates issued under any group master policy. 

To be covered dependents under an accident and health insurance policy, children of the insured must be unmarried and aged 19 or under or if a full-time student until age 23.

Dependent  Child  Age  Limit — Until recently, coverage for dependents was provided under medical expense policies until age 19 or if a full-time student until age 23. This provision states that coverage under such plans will continue for any dependent who remains chiefly dependent upon the policyholder (or certificate holder) because they are physically or mentally handicapped. Proof of the incapacity must be provided to the insurer within 31 days of coverage normally ceasing because of the dependents age. All normal conversion rights shall still be present in this policy.

In June 2009 the State of Pennsylvania enacted a law (effective 12/09) requiring continued health insurance coverage for dependent children in Pennsylvania until they reach age thirty (30). This regulatory change is broader than the Patient Protection Affordable Health Care Act (i.e., Obamacare, which is age 26). A child age 29 or younger may retain coverage through a parent’s group health care plan (or HMO) if certain eligibility requirements are met. To be eligible for coverage, the dependent must be age 29 or younger and must meet the following requirements: (1) is unmarried; (2) has no dependents; (3) is a resident of Pennsylvania or is enrolled as a full-time student at an accredited institution of higher education; (4) is not covered under another group health plan or individual health insurance plan; or (5) is not enrolled in or entitled to benefits under any government health care benefits program. Only medical expense coverage is covered according to this new law. Dental and vision only benefits are excluded. Self-funded plans are subject to ERISA are exempt from the requirements of this law.

COVERAGE OF ADOPTED CHILDREN (40 P.S. § 775.1)

All individual and group health plans must provide coverage to the insured’s adopted children on the same basis as other dependents.

NEWBORN CHILD COVERAGE (40 P.S. §§ 771–775.2; 31 PA. CODE CH. 89.201–.209)

All individual and group health plans which provide coverage to family members of the insured must provide coverage for the insured’s newborn child at the moment of birth. If a premium is required to continue the newborn’s coverage, it must be paid within the first 31 days to continue coverage. Coverage includes injury and sickness, including medical care for diagnosed congenital defects and birth abnormalities.

PHYSICALLY HANDICAPPED/MENTALLY RETARDED CHILDREN (40 P.S. § 752(A)(9))

Dependents incapable of self-sustaining employment by reason of mental retardation or physical handicap and who are so incapable prior to attainment of age nineteen and who are chiefly dependent upon such policyholder for support and maintenance shall not have coverage terminated at age 19. The policyholder must, within thirty-one days of such dependent's attainment of the limiting age, submit proof of such dependent's incapacity.  Annual proof of sustained incapacity must be provided to the insurer by policyholder.

Individual health insurance policies must cover mentally and physically handicapped dependent children until they become self-supportive, regardless of age. Dependents who are incapable of self-sustaining employment by reason of mental retardation or physical handicap and who became incapable prior to reaching age 19 must be allowed to remain on a parent's health insurance coverage if they are chiefly dependent upon such policy holder for support and maintenance. <u>The policyholder must, within thirty-one days of such dependent's attainment of the limiting age, submit proof of such dependent's incapacity.</u> Annual proof of sustained incapacity must be provided to the insurer by policyholder.

MEDICAL FOODS (40 P.S. § 3901-3909)

Pennsylvania insurance law states that health insurance plans issued in this State must include coverage for nutritional supplements and other amino acid based medical formulas for certain medically rare and hereditary conditions. For conditions such as Phenylketonuria (PKU), ketonuria, galactosemia and homocystinuria, the only form of treatment available is restricting food intake in order to remove the problematic amino acids, which are necessary in the diet, and then replenishing them in carefully controlled measured amounts of a nutritional food substitute. For instance PKU involves the bodies inability to break down certain proteins which causes a build-up in the bloodstream and can lead to brain damage.

The intent of this law is not to require insurance coverage for normal food products used in dietary management of these disorders, but to provide for such coverage of formulas that are equivalent to a prescription drug medically necessary for the therapeutic treatment of such rare hereditary genetic metabolic disorders and administered under the direction of a physician.

Therefore, since such formulas are medically necessary and critical to the well-being of individuals afflicted with rare hereditary genetic metabolic disorders, it shall be required that health insurance policies issued in this Commonwealth shall include such coverage.

ORALLY ADMINISTERED CHEMOTHERAPY MEDICATION (ACT 73 OF 2016)

Chemotherapy medication means a medication prescribed by a treating health care practitioner that is necessary to kill or slow the growth of cancerous cells.

Whenever a health insurance policy provides coverage that includes coverage for intravenously administered or injected chemotherapy medications which have been approved by the FDA for general use in the treatment of cancer, the policy shall not provide coverage or impose cost sharing for a prescribed, orally administered chemotherapy medication on a less favorable basis than it provides for intravenously administered or injected chemotherapy medications.

A health insurer may increase cost sharing for chemotherapy medications if an increase is applied generally to other medical or pharmaceutical benefits administered in a similar health care setting under the contract. This law does not preclude a health insurance policy from requiring an enrollee to obtain prior authorization before orally administered chemotherapy medication is dispensed to the enrollee.

This section of Pennsylvania law shall apply to a high deductible health plan. 

MENTAL HEALTH PARITY AND ADDICTION EQUITY (40 P.S. § 908-11-908-16)

The Mental Health Parity and Addiction Equity Act of 2008 requires health insurance carriers to achieve coverage parity between Mental Health / Substance Use Disorders (MH/SUD) and medical/surgical benefits, especially with regard to financial requirements and treatment limitations. The Act originally applied to group health plans and group health insurance coverage, and was amended by the Affordable Care Act (ACA) to also apply to individual health insurance coverage.

Important provisions of this Act:

(1) If a group health plan or health insurance coverage includes both medical/surgical and MH/SUD benefits, the financial requirements (e.g., deductibles and co-payments) and treatment limitations (e.g., number of visits or days of coverage) that apply to MH/SUD benefits must be no more restrictive than the predominant financial requirements or treatment limitations that apply to substantially all medical/surgical benefits;

(2) MH/SUD benefits may not be subject to any separate cost-sharing requirements or treatment limitations that only apply to such benefits;

(3) If a group health plan or health insurance coverage includes medical/surgical and MH/SUD benefits, and the plan or coverage provides for out-of-network medical/surgical benefits, it must provide the same access for out-of-network MH/SUD benefits; and

(4) Standards for medical necessity determinations and reasons for any denial of benefits relating to MH/SUD benefits must be disclosed upon request.

ELIGIBILITY OF EMPLOYEES

An eligible employee is one who works a normal work week of 25 or more hours. The following are not eligible employees for employer-sponsored small group health insurance: temporary or substitute employees, and seasonal employees.

GROUP HEALTH CERTIFICATES

A group health certificate must contain a summary of policy features and benefits.

SPECIAL ENROLLMENT

In general, a Special Enrollment Period ends 60 days after the qualifying life event (such as marriage) if it involves a change in family status.

PRE-EXISTING CONDITIONS (31 PA. CODE CH. 89.402–.406)

Pre-existing conditions are health issues that existed, were treated, or diagnosed within 6 months prior to employment. An enrollee for a health benefit plan may be excluded for up to 12 months (18 months for late enrollees). Coverage had with a previous employer may be creditable toward the pre-existing conditions exclusion period with the new employer’s health plan. A late enrollee is considered an individual who elects coverage after the initial eligibility period.

CONVERSION OF COVERAGE (40 P.S. §§ 756.2, 981-9)

Upon the death or divorce of an insured, the remaining covered family members can continue or convert the coverage so long as premiums are continued to be paid. The insurance company needs to be contacted and paid the appropriate premium within 31 days following the termination of the current policy.

DEFINITION OF SMALL EMPLOYER

A small employer is defined as one that employs between 2-50 employees.

OPEN ENROLLMENT (31 PA. CODE CH 89.778)

An insurer may not deny or condition the issuance of a Medicare Supplement policy, nor discriminate in the pricing of a policy because of the health status, claims experience, receipt of health care or medical condition of an applicant in the case of an application for a policy that is submitted prior to or during the six-month period beginning with the first day of the first month in which either of the following occurs: (1) an individual enrolled for benefits under Medicare Part B; or (2) an applicant who is retroactively enrolled in Medicare Part B due to a retroactive eligibility decision made by the Social Security Administration received notice of retroactive eligibility to enroll.

PENNSYLVANIA REGULATIONS AND REQUIRED PROVISIONS

Standards for marketing (31 Pa. Code Ch. 89.786)

An insurer issuing Medicare Supplement policies shall: (1) establish marketing procedures to assure that comparison of policies by its producers will be fair and accurate; (2) establish marketing procedures to assure excessive insurance is not sold or issued; (3) display prominently by type, stamp or other appropriate means, on the first page of the policy the following: "Notice to buyer: This policy may not cover all of your medical expenses"; (4) inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee for Medicare Supplement insurance already has accident and sickness insurance and the types and amounts of this insurance; and (5) establish auditable procedures for verifying compliance with State law.

ADVERTISING (31 PA. CODE CH. 89.785)

An insurer shall provide a copy of any Medicare Supplement advertisement intended for use in this Commonwealth whether through written, radio or television medium to the Commissioner for review or approval by the Commissioner to the extent it may be required under State law.

APPROPRIATENESS OF RECOMMENDED PURCHASE AND EXCESSIVE COVERAGE (31 PA. CODE CH. 89.787)

In recommending the purchase or replacement of a Medicare Supplement policy, a producer shall make reasonable efforts to determine the appropriateness of a recommended purchase or replacement. A sale of Medicare Supplement coverage that will provide an individual more than one Medicare Supplement policy is prohibited. An insurer may not issue a Medicare Supplement policy to an individual enrolled in Medicare Part C unless the effective date of the coverage is after the termination date of the individual's Part C coverage.

REPLACEMENT (40 P.S. § 3108; 31 PA. CODE CH. 89.784, .789)

In cases where replacement of a Medicare Supplement policy is involved, a notice regarding replacement must be provided to an insured advising him or her of any reduction of benefits that might arise if the policy is replaced. When replacement occurs, an insured must be wary of any loss of benefits, increase in cost and insurability questions (i.e., can I qualify?). A Medigap policy may only be sold to a person when “combined” with the applicant’s or insured’s health coverage already in force, and it would insure no more than 100% of the applicant’s or insured’s actual medical expenses covered under the combined policies. Producers are required to ask specific questions when speaking with a consumer. In other words, a producer must ascertain if the consumer is purchasing a new policy in order to replace an existing one. 

MINIMUM BENEFIT STANDARDS (40 P.S. § 3105)

Medicare Supplement plans issued in this State must satisfy specific minimum standards. A Medicare Supplement policy shall not be advertised, solicited, delivered, issued or renewed unless the policy meets the requirements that have been mentioned previously including but not limited to: (1) the policy shall not indemnify against losses resulting from sickness on a different basis than losses resulting from accidents; (2) any Medicare Supplement policy shall provide that benefits designed to cover cost sharing amounts under Medicare will be changed automatically to coincide with any changes in the applicable Medicare deductible amount and copayment percentage factors; (3) no Medicare Supplement policy shall contain benefits that duplicate benefits provided by Medicare; (4) no Medicare Supplement policy shall contain any waiting period or pre-existing condition limitation or exclusion; (5) no Medicare Supplement policy shall provide for termination of coverage of a spouse solely because of the occurrence of an event specified for termination of coverage of the insured, other than the nonpayment of premium; (6) each Medicare Supplement policy shall be guaranteed renewable; and (7) no Medicare Supplement policy which provides coverage for prescription drugs, shall exclude coverage of any such drug for the treatment of cancer or HIV/AIDS on the ground that the off-label use of the drug has not been approved by the United States FDA for that indication.

REQUIRED DISCLOSURE PROVISIONS (40 P.S. § 3107; 31 PA. CODE CH. 89.783)

An insurer must disclose several very important provisions to the purchaser of a Medicare Supplement plan. These plans must generally be guaranteed renewable for life and usually include a 30 day free-look period. Insurers marketing these plans offer open enrollment periods as well. These plans may exclude the following: foot care (i.e. flat feet), mental disorders, alcoholism and drug addiction, loss due to war, elective cosmetic surgery, treatment in a government hospital, dental care, long-term care, or expenses connected with eyeglasses or hearing aids. Additional provisions and standards that must be disclosed to the consumer include:

• Minimum benefit standards.

• A pre-existing condition limitation of not more than 6 months.

• Provides coverage for accidents or illnesses.

• A notice of benefit changes when applicable.

• They must not duplicate benefits covered by Medicare Part A or B.

• Must include a coordination of benefits provision.

• A ten-day written notice of cancellation is required where applicable.

PERMITTED COMPENSATION ARRANGEMENTS (31 PA. CODE CH. 89.782)

An insurer or other entity may provide commissions or other compensation to a producer for the sale of a Medicare Supplement policy only if the first year commission or other first year compensation is no more than 200% of the commission or other compensation paid for selling or servicing the Policy in the second year or period.

The commission or other compensation provided in subsequent (renewal) years must be the same as that provided in the second year or period and must be provided for no fewer than five renewal years. No entity shall provide compensation to its producers and no producer shall receive compensation greater than the renewal compensation payable by the replacing issuer on renewal policies if an existing policy is replaced. 

GUARANTEED ISSUE (31 PA. CODE CH. 89.790)

Policies sold to eligible persons must be guaranteed issue. With respect to eligible persons, an issuer may not: (1) deny or condition the issuance or effectiveness of a Medicare Supplement policy that is offered and is available for issuance to new enrollees by the issuer; (2) discriminate in the pricing of such a Medicare Supplement policy because of health status, claims experience, receipt of health care or medical condition; or (3) impose an exclusion of benefits based on a preexisting condition under such a Medicare Supplement policy.

OUTLINE OF COVERAGE (40 P.S. § 991.1111; 31 PA. CODE CH.89A.107, 126)

An outline of coverage must be provided to the consumer describing the benefits, coverages, limitations and exclusion contained in the policy. In addition, the licensee must also provide the consumer with required disclosure provisions with regard to coverages, benefit and limitations.

RIGHT TO EXAMINE (FREE LOOK) (40 P.S. § 991.1110)

A 30 day free look period is required for long-term care policies.

PRE-EXISTING CONDITIONS (40 P.S. §§ 991.1105(C), 1107)

Pre-existing conditions are those for which medical advice or treatment was recommended by or received from a health provider within six months preceding the effective date of an individual long-term care policy.

In Pennsylvania, all Long-Term Care insurance policies purchased after July 17, 2007 are comprehensive policies. This means they must include:

SKILLED NURSING CARE

Skilled nursing care includes daily nursing and rehabilitative care that can be performed only by, or under the supervision of, skilled medical personnel. The care received must be based on a doctor’s orders.

INTERMEDIATE CARE 

Intermediate care includes occasional nursing and rehabilitative care that must be based on a doctor’s orders and can only be performed by, or under the supervision of, skilled medical personnel.

CUSTODIAL CARE

Custodial Care includes care to help individuals meet personal needs such as bathing, dressing, and eating. Someone without professional training may provide this service.

HOME HEALTH CARE

Home health care ervices include, but are not limited to: part-time skilled nursing care; speech, physical, or occupational therapy; homemaker services; home health aide; assistance with activities of daily living; adult day care; personal care; hospice services and respite care.

OTHER CARE

Policies must cover care for Alzheimer’s disease and other organic cognitive disabilities diagnosed after the insurance policy is in force.

Long term care services may include the medical, social, housekeeping, or rehabilitation services a person needs over months or years in order to improve or maintain function or health. Such services are provided not only in patients’ homes, but also in nursing homes or community-based settings, such as assisted-living facilities. This is known as community care.

CONTINUATION AND CONVERSION (31 PA. CODE CH. 89A.105)

Group long-term care insurance issued in this Commonwealth shall provide covered individuals with a basis for continuation or conversion of coverage.

A basis for continuation of coverage means a policy provision that maintains coverage under the existing group policy when the coverage would otherwise terminate and which is subject only to the continued timely payment of premium when due. Group policies that restrict provision of benefits and services to, or contain incentives to use certain providers or facilities may provide continuation benefits that are substantially equivalent to the benefits of the existing group policy.

A basis for conversion of coverage also means a policy provision that an individual whose coverage under the group policy would otherwise terminate or has been terminated for a reason, including discontinuance of the group policy in its entirety or with respect to an insured class, and who has been continuously insured under the group policy (and a group policy which it replaced), for at least six months immediately prior to termination, will be entitled to the issuance of a converted policy by the insurer under whose group policy the individual is covered, without evidence of insurability.

Converted policy means an individual policy providing benefits identical to or benefits determined by the Commissioner to be substantially equivalent to those provided under the group policy from which conversion is made.

Written application for the converted policy shall be made and the first premium due, if applicable, shall be paid as directed by the insurer not later than 31 days after termination of coverage under the group policy. The converted policy shall be issued effective on the day following the termination of coverage under the group policy, and shall be renewable annually.

UNINTENTIONAL LAPSE (31 PA. CODE CH. 89A.106)

As a protection against unintentional lapse, each issuer offering long-term care insurance must comply with all of the following:

NOTICE BEFORE LAPSE OR TERMINATION

No individual long-term care policy or certificate may be issued until the issuer has received from the applicant either a written designation of at least one person in addition to the applicant who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium, or a written waiver dated and signed by the applicant electing not to designate additional persons to receive notice.

The applicant has the right to designate at least one person who is to receive the notice of termination, in addition to the insured. Designation does not constitute acceptance of any liability on the third party for services provided to the insured. The form used for the written designation must provide space clearly designated for listing at least one person. The designation must include each person’s full name and home address. If the applicant elects not to designate an additional person, the waiver must state:

“Protection against unintended lapse. I understand that I have the right to designate at least one person other than myself to receive notice of lapse or termination of this long-term care insurance policy for nonpayment of premium. I understand that notice will not be given until thirty days after a premium is due and unpaid. I elect NOT to designate a person to receive this notice.”

No less frequently than once every two years the issuer must notify the insured of the right to change this written designation.

LAPSE OR TERMINATION FOR NONPAYMENT OF PREMIUM

No individual long-term care policy or certificate shall lapse or be terminated for nonpayment of premium unless the issuer, at least thirty days before the effective date of the lapse or termination, has given notice to the insured and to those persons designated at the address provided by the insured for purposes of receiving notice of lapse or termination. Notice must be given by first class United States mail, postage prepaid, and notice may not be given until thirty days after a premium is due and unpaid. Notice is deemed to have been given as of five days after the date of mailing.

REQUIRED DISCLOSURE PROVISIONS (31 PA. CODE CH. 89A.107)

A “notice to buyer” must be on the first page of each long-term care policy delivered in. It explains that some long-term care costs may not be covered.

INFLATION PROTECTION (31 PA. CODE CH. 89A.112)

A Long-Term Care plan must make a 5% inflation protection rider available for purchase at the request of the insured.

In other words, an insurer must offer policyowners inflation protection and the option of buying a contract providing for benefits to increase to keep pace with anticipated increases in the cost of long-term care (i.e., cost of living provision). The policy shall provide for an annual increase of no less than 5% or the policy owner shall be provided with the right to increase benefits at least 5%. 

NONFORFEITURE BENEFIT (31 PA. CODE CH. 89A.123)

Insurers are required to offer non-forfeiture benefits as part of the policy. This results in a policy with a higher premium than a plan that does not include such benefits. These benefits will allow the insured to receive some value from the plan if the policy lapses for nonpayment of premium. This option is normally available in one of three different forms. First, after paying premiums for a specified number of years, if the insured ceases payment, a reduced paid-up policy would result. Second, after paying premiums for a specified number of years, if the insured stops paying premiums, the same benefit would apply for a shortened period of time. Third, following the payment of premiums for a specified minimum number of years, if premiums cease, a specified dollar amount will be refunded to the insured (this is the most expensive form). LTC policies may not be issued unless non-forfeiture benefits have been offered. The offer is usually made at the time of application or prior to the issuance of the policy. There is no age requirement or limit that such an offer must be made before or at a specific age.

BENEFIT TRIGGERS (31 PA. CODE CH. 89A.124, 125)

Long-term care insurance promises to pay expenses incurred if the insured is unable to engage safely in various activities of daily living. LTC policies promise to pay benefits if the insured is unable to perform basic daily activities without assistance. Most policies require that a functional assessment of the insured be made and benefits will be triggered if an insured is unable to perform at least two or more activities of daily living for at least ninety days. These activities of daily living include: bathing, dressing, eating, transferring or moving about the home, continence, toileting and taking medication. It is also conceivable that a senior may be able to perform these activities but cannot live alone safely. Therefore, LTC plans include a provision describing that the policy will pay benefits if the insured is suffering from a cognitive impairment. This impairment includes a senior suffering from Alzheimer’s disease, a stroke or another type of brain damage or senile dementia.

REPLACEMENT (31 PA. CODE CH. 89A.113, 122)

Whenever a long-term care policy is replaced, any pre-existing condition limitation in the new policy will be waived. To prevent against an unintentional lapse, the insurer issuing this type of policy must receive from the applicant a written designation of at least one person, in addition to the applicant, who is to receive notice of lapse or termination of the policy due to nonpayment of premium (or a written waiver stating that the applicant does not desire to designate another to receive notice).

STANDARDS FOR MARKETING (31 PA. CODE CH. 89A.120)

All insurers must satisfy State required standards for marketing when selling these plans including whether or not such plans are suitable for the consumer contemplating purchase.

These standards commonly involve: (1) the delivery of a buyer’s guide and outline of coverage; (2) adherence to replacement regulations (a “notice regarding replacement”); (3) must disclose the appropriateness of the policy being solicited (i.e., does the elderly person need it? and that it is not providing excessive and unnecessary coverage); (4) the insurer must report whether multiple policies have been purchased; (5) they must identify the permitted compensation arrangements; (6) advertising for such plans may not be misleading and conform with State insurance law; and (7) policies must be guaranteed issue.

SUITABILITY OF RECOMMENDED PURCHASE (31 PA. CODE CH.89A.121)

Producers selling these policies are principally responsible for determining the suitability of such plans for the applicant. Insurers are not generally permitted to offer producers additional incentives to sell such plans since they are primarily purchased by senior citizens.

SHOPPER'S GUIDE (31 PA. CODE CH. 89A.127)

A buyer’s or shopper’s guide must be provided to all prospective insureds at the time of application.

PERMITTED COMPENSATION ARRANGEMENTS (31 PA. CODE CH. 89A.129)

An insurer or other entity may provide commission or other compensation to a producer for the sale of a long-term care insurance policy or certificate only if the first year commission or other compensation is not greater than 50% of the first year premium. The commission or other compensation provided for a minimum of 5 subsequent (renewal) years may not exceed 10% of the renewal premium.

When there is a replacement of an existing policy or duplication of coverage, an entity may not provide compensation to its producers and a producer may not receive compensation greater than the renewal compensation payable by the replacing or duplicative insurer. “Compensation” includes pecuniary or nonpecuniary remuneration relating to the sale or renewal of the policy or certificate, including bonuses, gifts, prizes, awards and finders fees.

PENALTIES (31 PA. CODE CH. 89A.128)

Any person or entity violating Pennsylvania insurance law with regard to long-term care insurance will be subject to license suspension or revocation, a possible prison sentence, a monetary fine, or all of the aforementioned penalties.

PENNSYLVANIA LONG-TERM CARE PARTNERSHIP PROGRAM

The Long-Term Care Partnership Program is a Federally-supported, State-operated initiative that allows individuals who purchase a qualified long term care insurance policy or coverage to protect a portion of their assets that they would typically need to spend down prior to qualifying for Medicaid coverage.

A Long-Term Care Partnership Policy is a long-term care insurance product that pays for some or all of the expenses associated with a spectrum of personal-care services, ranging from home care to skilled nursing facility care. These new polices are part of a nationwide effort that consists of private/public partnerships that encourage people to purchase long-term care insurance by allowing them to keep their assets if they ever exhaust their insurance and have to turn to Medical Assistance. Protected assets are not considered in determining eligibility for Medical Assistance (Medicaid) or estate recovery.

In the event a person would need to apply for long-term care benefits under Pennsylvania’s Medical Assistance program, a long-term care partnership policy provides a way to protect one’s assets, dollar-for-dollar, in the amount of policy benefits paid out on their behalf. Additionally, a Long-Term Care Partnership Policy has beneficial tax treatment and requires inflation protection features that protect younger purchasers from an increase in expenses caused by inflation.

Long-term care Partnership Policies are “tax-qualified”, meaning if you itemize your taxes and your total medical and dental expenses exceeds 7.5% of your adjusted gross income, you may be able to claim a portion of your premium as a medical deduction. Also, benefits received from a Partnership program are NOT considered taxable income.

If a long-term care policy was purchased AFTER February 8th, 2006, you can exchange it for a Partnership Policy. Also, any Partnership Policies purchased in a different state will be honored with the same benefits as a Pennsylvania Long-Term Care Partnership Policy, if the benefits are used in Pennsylvania.

No Long-Term Care policy may exclude pre-existing conditions for a period of more than 6 months.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPPA) (40 P.S. § 981-1)

This legislation has expanded health insurance coverage regulation. The specific regulation is called the Health Insurance Portability and Accountability Act. The primary purpose of the Act was to help ensure that individuals would not lose medical coverage or be subject to a new pre-existing condition period if they changed or lost their job. In other words, the Act hopes to increase access and portability of health care insurance and to reduce or eliminate pre-existing condition exclusions or waiting periods when coverage is sought under a new plan. Many of the important provisions of HIPAA involve but are not limited to: (1) increased availability of medical expense coverage by placing limitations on what can be included in pre-existing conditions; (2) increased portability of medical expense coverage; (3) expansion of eligibility for COBRA benefits; and (4) favorable tax treatment with regard to certain health insurance plans (i.e., LTC insurance). HIPAA applies to groups of two or more. It does not govern disability insurance.

LIGIBILITY REQUIREMENTS

State law prohibits a group health policy from establishing eligibility for enrollment or coverage based upon a person’s individual health status, physical or mental medical condition or history, genetic background, claim history (i.e., experiences), evidence of insurability, disability or whether the person has received health care in the past.

TERMS

In Pennsylvania, HIPAA laws require that an individual's prior creditable coverage may reduce the maximum preexisting condition exclusion period that a new group health plan can apply. This rule is applicable as long as there has been no gap in creditable coverage for a period greater than 63 days.

PRIVACY

HIPAA also states that individuals must be given a “Notice of Privacy Practices” statement by the facility providing medical services. The notice states how the health care providers may use the private information from a patient’s medical file and when and to whom they can give such information. The information protected includes office visits, tests and procedures, diagnosis and other such medical care provided. Only persons directly involved in a patient’s care have access to private information including but not limited to: doctors, nurses, billing office personnel, secretarial persons and other medical personnel.

PORTABILITY

Provisions in HIPAA regarding portability do not allow employees to take specific insurance from one job to another. It places limitations on pre-existing condition exclusions and allows employees to use evidence of prior insurance coverage to reduce or eliminate the length of any preexisting condition exclusion when employees become covered by another medical expense plan. The portability provision applies to almost all group health plans that have at least two participants (i.e., employees) on the first day of the plan year. This regulation does not apply to disability insurance. A creditable coverage certificate must be issued to qualified employees by employers upon request.

If an individual (and/or family) was covered by another group plan previously, with no break or gap in coverage of 63 days or more (i.e., cannot be more than 62 days), he or she is qualified to receive a certificate (assuming they are attempting to receive coverage under a new plan). In other words, if an employee has been without coverage for at least 63 days between jobs, the full pre-existing condition period applies. The purpose of this certificate is to prove creditable coverage and also to reduce a preexisting waiting period. In other words, an employee who has one month of creditable coverage may apply this toward the satisfaction of one month (i.e., month to month) of “pre-existing waiting period.”

AFFORDABLE CARE ACT

Health Insurance Exchanges

"Exchanges" are created by the Affordable Care Act (ACA) health reform bill to help individuals and small businesses purchase health insurance coverage. The purposes of the exchange include:

• Reduce the number of uninsured in the state

• Facilitate the purchase and sale of qualified health plans in the individual market

• Assist qualified employers in the state in enrolling their employees in qualified health plans

• Assists individuals in accessing public programs, premium tax credits, and cost-sharing reductions

Under the Affordable Care Act (ACA), the health insurance exchange will perform all of the following roles:

• Certify health plans as qualified, based on pre-determined criteria

• Utilize individual, unique formats for presenting health benefit plan options

• Verify and resolve inconsistent information provided to the exchange by applicants.

MARKETPLACE

The Act provides for immediate reforms to be implemented within six months, including but not limited to:

• creating a temporary high-risk pool with subsidized premiums for certain people with pre-existing conditions;

• ending health insurance rescission abuse;

• banning coverage exclusions of pre-existing health conditions for children;

• requiring public disclosure of overhead/benefit spending by health insurance issuers;

• providing coverage of certain preventive health services without cost sharing;

• eliminating lifetime limits on benefits and restrictions on annual limits on benefits;

• requiring insurers that offer dependent coverage to allow children to be covered on their parent’s insurance policy up to age 26; and

• developing uniform explanation of coverage documents for enrollees.

ELIGIBILITY

The PPACA requires insurance companies to cover all applicants within new minimum standards, and offer the same rates regardless of pre-existing conditions or gender. Additional reforms aim to improve healthcare outcomes and streamline the delivery of health care. A shared responsibility requirement, commonly called an individual mandate, requires all individuals not covered by an employer sponsored health plan, Medicaid, Medicare or other public insurance programs, to secure an approved private insurance policy or pay a penalty, unless the applicable individual is a member of a recognized religious sect exempted by the IRS, or waived in cases of financial hardship. Low-income individuals and families above 100% and up to 400% of the federal poverty level will receive federal subsidies on a sliding scale if they choose to purchase insurance from an exchange.

PREEXISTING CONDITIONS

Health plans cannot limit or deny benefits or deny coverage for a child younger than age 19 because of preexisting conditions. This applies to both group and individual policies.

ESSENTIAL HEALTH BENEFITS

Beginning January 1, 2014, the exchange shall allow any qualified plans that meet the minimum standards established by the exchange to be offered in the exchange. All plans must include the following:

1.    Ambulatory Patient Services — This is care an insured receives without being admitted to a hospital. For example, visiting a walk-in clinic, physician’s office or same-day surgery center.

2.    Emergency Services — This is care for conditions which, if not immediately treated, could lead to serious disability or death.

3.    Hospitalization Coverage — This benefit involves care one receives as an inpatient in a hospital, such as room and board, nursing care, physician’s expenses, diagnostic testing and drugs administered during the hospital stay.

4.    Maternity and Newborn Care — This involves benefits and care provided to women during pregnancy and during and after labor. It also provides care for newly born children

5.    Mental Health and Substance Use Disorder Services — These are benefits for behavioral health treatment and care to evaluate, diagnose and treat mental health and substance abuse issues.

6.    Prescription Drugs — This benefit covers drugs prescribed by a doctor to treat an acute illness, like an infection, or an ongoing condition such as high blood pressure.

7.    Rehabilitative and Habilitative Services and Devices — Services and devices to help people with injuries, disabilities or chronic conditions gain or recover mental and physical skills.

8.    Laboratory Services — Testing blood, tissues, etc. from a patient to help a doctor diagnose a medical condition and monitor the effectiveness of treatment.

9.    Preventive and Wellness Services and Chronic Disease Management — Preventive or wellness services include routine physicals, screening, and immunizations. Chronic disease management is an integrated approach to manage an ongoing condition, like asthma or diabetes. A group health plan and a health insurance issuer offering group or individual health insurance coverage shall, at a minimum provide coverage for and shall not impose any cost sharing requirements for preventive care services.

10.  Pediatric Services — These benefits are provided for children. Treatment by a participating physician who specializes in pediatrics as the child’s primary care health care professional is available including oral (dental) and vision care. Since “vision” is not defined in statute, the American Academy of Pediatrics (AAP) and American Association for Pediatric Ophthalmology developed an evidence based recommendation that the essential children’s vision benefit begin with regular eye screenings within the medical home, and cover a comprehensive eye exam, including refraction, for children or adolescents who fail a screening, have an unfavorable risk assessment, report a visual problem or cannot complete a screening.

Minimum essential benefits does not include certain specialized coverage, such as coverage only for vision care or dental care, Workers’ Compensation, or coverage only for a specific disease or condition. Under the law, minimum essential coverage also includes any additional types of coverage that are designated by the Department of Health and Human Services (HHS) or, as detailed by the proposed regulation, when the sponsor of the coverage follows a process outlined in the regulations to be recognized as minimum essential coverage.

PREVENTATIVE SERVICES

Most preventative services are now 100% covered, with no cost-sharing requirements, such as out-of-pocket co-pays, deductibles and co-insurance. These include annual breast and cervical cancer screenings, mammograms every one to two years over age 40, HPV screenings every three years over age 30, and Pap Smears every three to five years over age 21. Other preventive services covered include but are not limited to:

• Pre- and post-natal services are fully covered, including such things as folic acid vitamin supplements, screening for gestational diabetes, breast feeding support and equipment, and certain immunizations.

• All FDA approved methods of contraception, along with related counseling and education, are considered a preventative service that now will be fully covered with no cost sharing.

• Domestic violence screening and counseling are now fully covered with no cost sharing, as is HIV screening.

• Genetic testing for breast cancer genes is now covered for women at high risk (e.g., those with a family history of breast or ovarian cancer, etc.) with no cost sharing. Approved clinical trials also are covered.

• Women can choose any OBGYN or provider in their network, where they previously needed a referral.

• Insurance providers can no longer charge women more than men for the same coverage.

• No consumer can be denied coverage or dropped due to a pre-existing condition.

• Plans can no longer enforce a lifetime cap or dollar limit on benefits for certain treatment and follow-up care.

METAL LEVELS

There are four tiers of "qualifying health plans" you or your employer can purchase on the exchange. They range from lower quality, but more affordable "Bronze plans", to "Silver plans" to a more expensive plan with better coverage called a "Gold plan". There is also a "Platinum plan" which is the highest quality and cost plan. Lower premium plans will have higher deductibles, less benefits and larger out of pocket costs. The actuarial level is calculated as the percentage of total average cost for covered benefits that a plan will cover.

• Bronze Plans: 60% actuarial level of coverage provided

• Silver Plans: 70% actuarial level of coverage provided

• Gold Plans: 80% actuarial level of coverage provided

• Platinum Plans: 90% actuarial level of coverage provided.

LIFETIME AND ANNUAL LIMITS

The ACA prohibits health plans from putting lifetime dollar limits on most benefits that are received by an insured.

• For plans starting on or after September 23, 2012, but not before January 1, 2014, the annual dollar limit is $2 million. After January 1, 2014, there are no annual dollar limits

• Plans are allowed to put an annual dollar limit on health care services that are not considered essential.

GRANDFATHERED PLANS

Grandfathered plans are plans that were purchased before March 23, 2010. These plans do not have to follow the ACA’s rules and regulations or offer the same benefits, rights and protections as new plans.

An exception to this is that a grandfathered plan cannot impose lifetime limits on how much health care coverage people may receive.

Grandfathered health plans may lose their grandfathered status if the insurer significantly raises co-insurance charges, deductibles, or co-payment charges.

OTHER ACA REQUIREMENTS

• As defined by the Affordable Care Act, the MAXIMUM amount an individual can contribute to a Flexible Savings Account is $2,750

• Beginning January 1, 2014, the Patient Protection and Affordable Care Act (ACA) will require adjusted community rating in the small group market. Small group health plans will be allowed to vary rates only based on whether the policy covers an individual or family, geographic area, age, and tobacco use

• If an insurer fails to adhere to the Affordable Care Act requirements related to internal appeals, the internal appeal may be deemed exhausted for purposes of submitting an external review

• According to the Affordable Care Act, if a large employer does NOT provide health insurance and owes an employer mandate penalty, the annual penalty is calculated by multiplying $2,000 by the number of full time employees minus 30

• On or after January 1, 2014, employers with no more than 25 full time equivalent (FTE's) with average annual wages of less than $50,000 may be eligible for a tax credit of up to 50% of the premiums paid by the employer

• You may qualify for employer health care tax credits through SHOP if you have fewer than 25 full-time employees making an average of about $50,000 a year or less.

INSURABLE INTEREST (40 P.S. § 512)

Insurable interest means the person acquiring the contract (the applicant) must be subject to loss upon the death, disability, or illness of the insured. Insurable interest must occur at the time the application is taken, but not required afterwards.

Employers have insurable interest in the lives of their employees. An employer may insure the life of an employee as long as the proposed insured provides prior written consent. The employer must disclose that it may keep the policy in force after the employee retires and during the period he or she receives employer-sponsored retirement benefits.

A married person has insurable interest in the life of his or her spouse. An insurable interest in each other's lives may exist in absence of an economic interest when the individuals are married.

LIFE INSURANCE DISCLOSURE STATEMENT (31 PA. CODE CH. 83)

Producers must not present an insurance policy as an investment tool or profit-sharing plan, or dividends as anything other than the equitable distribution of the insurer’s surplus or return of overpaid premium. Producers must not state that dividends are guaranteed.

Producers must provide applicants and prospects with the approved NAIC Buyer’s Guide. Producers must also provide a Policy Summary to applicants.

HePOLICY SUMMARYader

The policy summary contains specific information on the provisions, benefits, and coverage of the policy applied for.

BUYER'S GUIDE

The buyer’s guide enables applicants to compare different insurance policies and help them choose which policy is best for their needs. Buyer's Guides are not considered forms of advertisement for insurance.

ILLUSTRATIONS (40 P.S. § 625.7–625.8)

Illustrations are charts, graphs, and numerical data that depict the non-guaranteed elements of a policy over time. Nonguaranteed elements are premiums, benefits, values, credits, or charges under a policy of life insurance that are not guaranteed or not determined when the policy is issued. A life insurance illustration showing future premiums being paid out of nonguaranteed values must disclose that the policyowner may need to resume premium payments depending on actual results.

LIFE INSURANCE SURRENDER COMPARISON INDEX DISCLOSURE (31 PA. CODE CH. 83.51–.57)

When applications are solicited by producers and when contracts are issued, insurers are required to provide policy owners with cost comparison information in order to compare the suitability of life insurance products. The index numbers are designed to give the consumer a means of comparing the cost of policies of the same generic type. Due to the increasing complexity of life insurance policy structures, premium payment methods, benefits, and dividend configurations, the average consumer would be unable to make cost comparisons without these index figures. Each insurer and its producers must use the same computation formulas to arrive at the index numbers, or the purpose would be defeated. This regulation gives the precise mathematical formulas which must be used for computation.

This regulation defines “cost” as the difference between what one pays and what one receives back. If one pays a premium for life insurance and receives nothing back, the cost for the death protection is the premium. If one pays a premium and receives something in return, such as a dividend or cash value, your true cost is less than the premiums paid. In order to evaluate the cost of the policies against this standard, the indexes are designed to give information on these three items: (1) premiums; (2) cash value; and (3) dividends. These are three variables that must be considered in evaluating cost, and they are the basis for the three life insurance policy cost comparison methods. The cost indexes include the following:

• Life Insurance Surrender Cost Index ─ This index is important to the consumer who places a high priority upon the growth of cash value in the policy. It aids in cost comparisons if the policy owner plans to surrender the policy for its cash value in ten or twenty years.

• Life Insurance Net Payment Cost Index ─ This index is most useful for policy owners whose main concern is death protection and are not as concerned with the build-up of cash value. It helps the consumer compare costs of death protection between policies that will be held for ten or twenty years.

• Equivalent Level Annual Dividend Net Payment Cost Index ─ This index is useful if the client is comparing one participating policy to another or one nonparticipating policy to another. However, if the consumer is comparing a participating policy with a nonparticipating policy, it could be helpful to recognize the impact made by dividends on the costs of the participating policy. Since participating policies normally pay dividends of higher amounts each year, this index computes an average over a ten- or twenty-year period to make it a more valuable tool in evaluation.

SELECTION CRITERIA AND UNFAIR DISCRIMINATION (40 P.S. §477A)

Life insurers have established basic requirements or “average risk profiles” to obtain a desired type of life insurance business. Ideally, insurers desire risks that are standard in order to realize a profit. Most applicants for life insurance are in this category. Those in “perfect” health may be considered a preferred” risk and receive an even lower premium rate than the standard risk. A third classification of risks for life insurance is substandard. These applicants are generally declined because of poor health.

No insurer may assess premium rates or policy fees that unfairly discriminatory to any particular group of people. Refusing to write insurance solely because of race, color, creed, marital status or geographical area (i.e., redlining) are examples of unfair discrimination. Insurance premium rates must be fair, not excessive and not unfairly discriminatory.

CONVERSION TO INDIVIDUAL POLICY (40 P.S. § 532.7)

In the event of employment termination, a person covered by a group policy also has the right to convert such coverage to an individual policy within the conversion period (31 days) without proving insurability. If this right is exercised, the employee is responsible for the payment of premium.

The employee must be provided with written notice of the availability of such coverage at least 15 days prior to the expiration of the conversion period. The written notice may be presented to the employee by the employer or mailed to his or her last known address and shall constitute sufficient notice. 

POLICY LOANS

The maximum fixed interest rate charged by insurers is 8% in Pennsylvania. A policyowner cannot borrow against the cash value unless policy has been in force for 3 full years. If policyowner fails to repay loan, the policy will not be voided. The company has the right to deduct from the death benefit any outstanding loan balances when an insured dies.

EXEMPTION FROM CREDITORS

Proceeds from a life insurance policy are protected from any claims by a creditor of the insured as long as there is a named beneficiary.

VIATICAL AND LIFE SETTLEMENTS

A viatical settlement allows someone with a chronic or terminal illness to sell their existing life insurance policy to a third party for a percentage of the face value. The policyowner selling the policy is known as the viator. The viatical settlement firm purchasing the contract is called the viatee. The new owner (viatee) continues to make the premium payments and will eventually collect the entire death benefit since they name themselves as the primary beneficiary. Proceeds of the viatical settlement contract could be subject to the claims of creditors.

DISCLOSURE TO CONSUMERS (40 P.S. § 626.7)

Viatical settlement contracts must also include additional disclosure provisions such as: (1)information regarding the ill policy owner’s right or availability of benefits in the existing policy; (2) the fact that the sum received may be taxable or subject to creditor’s claims; (3) the equivalent of a 7-day free-look period to change their mind and receive the policy back (this 7- day period will be extended to the next business day if it falls on a weekend). In addition, the ill person must also be informed that receipt of a sum of money may affect benefits for which he or she are entitled under government sponsored programs such as Medicaid.

GENERAL RULES (40 P.S. § 626.8)

• Two witnesses must be present when the agreement is signed by the provider and the viator.

• Once the 7-day period expires, the provider must remit the agreed upon sum to the viator in care of an escrow or other type of account until the policy is assigned absolutely. Once this is accomplished, the funds in escrow will be remitted to the viator.

• A viatical settlement broker can advertise the availability of viatical settlements, introduce viators to settlement providers, and charge a fee for their services.

• Viatical settlement brokers need to be licensed before conducting any viatical transactions

• Factors a buyer or broker will use include the value of the policy and payout, premium payments requirements, prognosis of viator (policyowner), chances of viator living longer than expected, and any special payout terms.

DEFINITIONS (40 P.S. § 626.2)

• Viator is the original policy owner

• Viatical or Viatee is the new third party owner

• A Viaticated policy is a life insurance policy or certificate that has been acquired by a viatical settlement provider (viatee) pursuant to a viatical settlement contract.

• Stranger-originated life insurance (STOLI) is an agreement to initiate a life insurance policy by a third-party investor who, at the time of policy origination, has no insurable interest in the insured. Stranger or Investor Originated Life Insurance contracts are illegal as they violate insurable interest requirements.

Viatical settlements are being replaced by life settlements in many States. A life settlement is an agreement between a policy owner and life settlement firm where the owner sells the policy for any reason to the firm for a percentage of the face amount. Life settlements are different than a viatical settlement where the insured must be suffering from a chronic or terminal illness in order to qualify to be able to sell and transfer the policy.

LIFE SETTLEMENTS

A life settlement provider is a legal entity (e.g., person, partnership, corporation, LLC, trust, etc.) that enters into a life settlement contract with the owner of a life insurance policy (or a certificate holder covered by group life insurance). In Pennsylvania, a life settlement involves the sale, transfer, assignment or bequest of the death benefit or ownership of a life insurance policy by the owner where an insured may or may not have a catastrophic or life threatening (i.e., terminal) illness. This is where it is different from a viatical settlement which is only used when a person is chronically or terminally ill.

The life settlement provider pays compensation to the owner of the policy in an amount less than the expected death benefit in return for the owner’s assignment or transfer of the policy (to the provider). As in a viatical settlement, the new owner now possesses all the rights of ownership and changes the beneficiary to the firm so that when the insured dies, the life insurance settlement or policy proceeds are paid to the firm. Upon the transfer of ownership, the business entity is now responsible for paying the premium and usually experiences a profit when the insured party dies. The former policy owner receives a lump-sum amount in return for “selling” the contract to the life settlement firm. Life settlements usually involve the sale of life insurance policies by owners that are senior citizens or where the insured may have a medical condition that will likely result in a shortened life expectancy. 

GENERAL ACCOUNT VERSUS SEPARATE ACCOUNT (40 P.S. § 506.2; 31 PA. CODE CH. 82.41-.51)

A general account is designated for an insurer who deposits premiums from policies it underwrites and from which it funds day-to-day operations of the business. The general account does not dedicate collateral to a specific policy and instead treats all funds in aggregate.

A separate account is a privately managed investment account owned by an investor seeking to manage a pool of individual assets. Separate accounts are typically opened through a brokerage or financial advisor. They may also be held at a bank or opened with an insurance company. Separate accounts are typically used for variable life or variable annuity products.

REGULATION OF VARIABLE LIFE INSURANCE (31 PA. CODE CH. 82.1, .14, .81)

Definitions

The following definitions apply to PS 31 Chapter 82.

Assumed investment rate—The rate of investment return which would be required to be credited to a variable life insurance policy, after deduction of charges for taxes, investment expenses, and mortality and expense guarantees, to maintain the variable death benefit equal at all times to the amount of death benefit other than incidental insurance benefits, which would be payable under the plan of insurance if the death benefit did not vary according to the investment experience of the separate account.

Benefit base—The amount to which the net investment return is applied.

Flexible premium policy—A variable life insurance policy which permits the policyholder to vary, independently of each other, the amount or timing of one or more premium payments.

General account—The assets of the insurer other than assets in separate accounts.

Incidental insurance benefit—The insurance benefits in a variable life insurance policy, other than the variable death benefit and the minimum death benefit, including but not limited to accidental death and dismemberment benefits, disability benefits, guaranteed insurability options, family income and term riders.

Minimum death benefit—The amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life insurance policy regardless of the investment performance of the separate account.

Net investment return—The rate of investment return in a separate account to be applied to the benefit base.

Person—Individual, corporation, partnership, association trust or fund.

Policy processing day—The day on which charges authorized in the policy are deducted from the policy’s cash value.

Scheduled premium policy—A variable life insurance policy other than a flexible premium policy.

Separate account—An account for the investment of policy holder funds which is separate from the insurer’s general account.

Variable death benefit—The amount of the death benefit, other than incidental insurance benefits, payable under a variable life insurance policy dependent on the investment performance of the separate account which the insurer would have to pay in the absence of any minimum death benefit.

Variable life insurance policy—An individual policy which provides for life insurance, the amount or duration of which varies according to the investment experience of separate accounts established and maintained by the insurer as to the policy.

STANDARDS OF SUITABILITY.

An insurer seeking approval to enter into the variable life insurance business in this Commonwealth shall establish, maintain and file, at the discretion of the Commissioner, a written statement specifying the standards of suitability to be used by the insurer.

The standards of suitability shall specify that no recommendation shall be made to an applicant to purchase a variable life insurance policy and that no variable life insurance policy shall be issued in the absence of reasonable grounds to believe that the purchase of the policy is suitable for the applicant on the basis of information furnished after reasonable inquiry of the applicant concerning the applicant’s insurance and investment objectives, financial situation and needs and other information known to the insurer or to the agent making the recommendation.

QUALIFICATIONS TO SELL VARIABLE LIFE INSURANCE

No person may sell or offer for sale in this Commonwealth a variable life insurance policy unless the person is an agent and has filed with the Commissioner, in a form satisfactory to the Commissioner, evidence that the person holds a license or authorization which may be required for the solicitation or sale of variable life insurance.

An examination administered by the Department for the purpose of determining the eligibility of a person for licensing as an agent will, after the effective date of this chapter, include questions concerning the history, purpose, regulation and sale of variable life insurance as the Commissioner deems appropriate

OWNERSHIP

The life insurance contract includes an ownership provision. This provision states that the policy owner possesses all rights contained in the policy. These include: (1) the right to name or change the beneficiary; (2) borrow against the cash value if a whole life policy; (3) the right to receive dividends if any; (4) select the mode of premium payment; and (5) transfer or assign policy right to another.

ASSIGNMENT

The assignment provision basically reiterates one of the policy owner’s rights as stated in the contract. It enables the policy owner to convey any or all of his or her policy rights to someone else. In other words, the owner possesses all the rights listed in the policy. If he or she transfers all policy rights, an absolute assignment has been effected. In this case, the entire contract has been transferred to another party. Absolute assignment involves a complete transfer of the policy to another.

If the owner assigns one or some of the rights to another, but not all, he or she has engaged in a collateral or conditional assignment. This is a partial and temporary transfer of policy rights to another. In a conditional assignment, the policy owner or assignor transfers a policy right to an assignee.

ASSIGNMENT

The assignment provision basically reiterates one of the policy owner’s rights as stated in the contract. It enables the policy owner to convey any or all of his or her policy rights to someone else. In other words, the owner possesses all the rights listed in the policy. If he or she transfers all policy rights, an absolute assignment has been effected. In this case, the entire contract has been transferred to another party. Absolute assignment involves a complete transfer of the policy to another.

If the owner assigns one or some of the rights to another, but not all, he or she has engaged in a collateral or conditional assignment. This is a partial and temporary transfer of policy rights to another. In a conditional assignment, the policy owner or assignor transfers a policy right to an assignee. 

RIGHT TO EXAMINE (FREE LOOK) (40 P.S. § 510C (A), (2), (3),(B1))

Life insurance policies must provide a minimum free-look period of 10 days upon policy delivery. This allows the policyowner time to decide whether or not to keep it. If the policyowner decides not to keep the policy within the 10 days allowed, a full refund will be given.

For example, if a policy is delivered to the new owner on January 25th, the ten-day free-look period begins on the 25th. It will end ten days later. This means that it would end on February 4th. To arrive at the correct answer you should count day 1 as the 26th and so on.

PAYMENT OF PREMIUMS (A)

A provision stating premiums are to be paid in advance.

GRACE PERIOD (B)

The time, usually 30 days, during which a policy remains in force after the premium is due but not paid. The policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 30 days or the insured dies during the grace period.

MISSTATEMENT OF AGE/SEX (E)

If an insured misstates their age (i.e., whether overstated or understated) on the health insurance application, the insurer will adjust benefits accordingly under the policy to the amount that should have been provided had the correct age been stated. In other words, the insurer will pro-rate the claim and pay what the premium would have purchased at the correct age. This same principle applies to an inaccurate sex listed on the application.

INCONTESTABILITY (C)

A provision that the policy terms shall be incontestable after it has been in force for a period of two years from its date of issue (unless the purpose for taking out the coverage was fraud).

REINSTATEMENT (K)

A life insurance policy issued in Pennsylvania may be reinstated for up to three years following the first default premium payment. 

ENTIRE CONTRACT (D)

A provision that the policy and the application shall constitute the entire contract between the parties.

PAYMENT OF CLAIMS (L)

The policy states that an insurer shall pay legitimate claims to the policy owner.

PROHIBITED PROVISIONS INCLUDING BACKDATING (40 P.S. § 511)

Policies cannot be backdated more than 6 months from the date of issue. The point of backdating a policy is to make it effective at an earlier date to preserve a slightly lower premium at that reduced age.

EFFECTS OF DIVORCE ON DESIGNATION OF BENEFICIARIES (20 PA C.S.A.§ 6111.2)

This section is applicable if an individual: (1) is domiciled in this Commonwealth; (2) designates the individual’s spouse as beneficiary of the individual’s life insurance policy, annuity contract, pension or profit-sharing plan or other contractual arrangement providing for payments to the spouse; and (3) either, at the time of the individual’s death is divorced from the spouse; or dies during the course of divorce proceedings, no decree of divorce has been entered.

Any designation in favor of the individual’s spouse or former spouse that was revocable by the individual at the individual’s death shall become ineffective for all purposes and shall be construed as if the spouse or former spouse had predeceased the individual, unless it appears the designation was intended to survive the divorce based on: (1) the wording of the designation; (2) a court order; (3) a written contract between the individual and the spouse or former spouse; or (4) a designation of a former spouse as a beneficiary after the divorce decree has been issued.

Unless restrained by court order, no insurance company, pension or profit-sharing plan trustee or other obligor shall be liable for making payments to a spouse or former spouse which would have been proper in the absence of this section of Pennsylvania law. Any spouse or former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment.

ACCELERATED (LIVING) BENEFIT PROVISION RIDER

Accelerated benefit provisions allow someone that a physician certifies as terminally ill to access the death benefit. The amount of benefit received will be tax free.

CONDITIONS FOR PAYMENT (31 PA. CODE CH. 90F.3)

In Pennsylvania, payment on an Accelerated Death Benefit may not be less than 25% of the total death benefit.CONDITIONS FOR PAYMENT (31 PA. CODE CH. 90F.3)

In Pennsylvania, payment on an Accelerated Death Benefit may not be less than 25% of the total death benefit.

EFFECT ON DEATH BENEFIT (31 PA. CODE CH. 90F.3)

The death benefit will be reduced by any payments made to the policyowner by the insurerEFFECT ON DEATH BENEFIT (31 PA. CODE CH. 90F.3)

The death benefit will be reduced by any payments made to the policyowner by the insurer.

EXCLUSIONS AND RESTRICTIONS (31 PA. CODE CH. 90F.4)

Exclusions and restrictions contained in this type of policy rider are the same as found in the policy (i.e., war, commission of felony, etc.,)

RIGHT TO EXAMINE (40 P.S. § 510D)

The right to examine or free-look period for annuity contracts is ten days.

VARIABLE ANNUITIES

Assets in a separate account (31 Pa. Code Ch. 85.21– .27)

The investments and operation of any separate account established in connection with any variable annuity contract or a variable accumulation annuity contract shall be examined periodically by the Department in accordance with the applicable laws of the Commonwealth.

No sale, exchange or other transfer of assets may be made by a company between any of its separate accounts or between any other investment account and one or more of its separate accounts, except when: (1) establishing a separate account; (2) conducting the business of a separate account in accordance with the provisions of a variable annuity contract; (3) making necessary adjustments for mortality experience or expense costs; or (4) transferring to the general account any amounts in excess of the reserve liability held in the separate account.

No transfer of funds shall be made unless the Department approves the transfer. Each life insurance company shall, at the time of its annual statement, submit a separate annual statement for the business of its separate accounts.

REGULATION OF VARIABLE ANNUITIES (SEC, FINRA AND PENNSYLVANIA) (31 PA. CODE CH. 85.1–.4)

A variable annuity contract is any policy or contract which provides for deferred or immediate annuity payments, the amount of which, after such payments have commenced, varies according to the investment experience of a separate account maintained by the insurer for the purpose of funding this contract.

The Commissioner is authorized to frequently review insurers marketing such contracts with guaranteed benefits to determine compliance.

REGULATION OF VARIABLE ANNUITIES (SEC, FINRA AND PENNSYLVANIA) (31 PA. CODE CH. 85.1–.4)

A variable annuity contract is any policy or contract which provides for deferred or immediate annuity payments, the amount of which, after such payments have commenced, varies according to the investment experience of a separate account maintained by the insurer for the purpose of funding this contract.

The Commissioner is authorized to frequently review insurers marketing such contracts with guaranteed benefits to determine compliance.

SUITABILITY OF ANNUITIES (ACT 48 OF 2018)

Standards and procedures are in existence to ensure that anyone looking to purchase, exchange, or replace an annuity is properly informed and the recommendations given to them are in their best interests. The intended goal of this regulation is a consumer who has had their insurance needs and financial objectives properly addressed. The following list is information that should be taken into consideration when making suitable recommendations concerning the purchase, exchange, or replacement of an annuity:

• Age

• Annual income

• Financial situation and needs

• Financial experience

• Financial objectives

• Intended use of the annuity

• Financial time horizon

• Existing assets

• Liquidity needs

• Liquid net worth

• Risk tolerance

• Tax status

REVIEW NOTES: PENNSYLVANIA INSURANCE LAWS, RULES, AND REGULATIONS

Pennsylvania Laws, Rules, and Regulations Common to All Lines of Insurance

Licensing

• A producer is an individual appointed by an insurance company that represents the company and presents policies on its behalf is called a producer.

  • An insurance producer in Pennsylvania is authorized to solicit, receive and forward applications to the insurer, and receive commission from the insurer.

  • Anyone who solicits, negotiates, or sells contracts of insurance must be licensed.

  • Pennsylvania residents desiring any type of insurance license must:

    • Be at least 18 years old

    • Complete a 24 hour prelicensing course in the pertinent line of authority

    • Pass the Pennsylvania state licensing exam. After passing, a license application must be submitted to the Insurance Department within 1 year

    • Not have committed any act that is ground for denial, suspension, or revocation of a license

    • Submit appropriate forms, application, fingerprints, and fees.

    • Anyone whose home state is Pennsylvania is considered a resident and may apply for a resident producers license.

    • A producer who holds a resident license in a different state may apply for a nonresident license in Pennsylvania without fulfilling the prelicensing education and licensing exam requirements as long as both states have a reciprocal agreement.

      • To apply, nonresidents must submit an application form, proof of resident license from their home state, and fees.

      • A temporary license may be issued in cases where a producer has become disabled or dies, requiring a replacement to service the producer’s business. A temporary producer can also be appointed when the producer is called into active military duty. People eligible for a temporary license include the producer’s surviving spouse, court-appointed personal representative, or the business owner/partner/employee. A temporary license is valid for a maximum of 180 days.

      • Managers and Exclusive General Agents are licensees who are granted sole authority to act directly or indirectly as an insurance producer for a domestic insurer. Managers and exclusive general agents produce and underwrite insurance business.

License Maintenance and Duration

• Licensees must report a change of address to the Insurance Department within 30 days.

• Licenses are valid for two years, and may be renewed every two years with fee, renewal application, and proof of completing continuing education credits during the two-year period.

  • A lapsed license may be reinstated within 12 months of the renewal date.

  • Producers must complete 24 hours of continuing education every two years in order to renew their licenses. Out of the 24 hours, 3 must be in ethics coursework.

  • A licensee who is unable to timely comply with the renewal requirements of this section due to military service or other extenuating circumstance may request the department to waive the requirements of having to complete continuing education for the period in which the license had lapsed and payment of the lapsed license fee.

  • Producers must report any bankruptcy, felony conviction, or any other administrative action that occurs in Pennsylvania or another jurisdiction to the Insurance Department within 30 days.

  • A producer must report to the Commissioner if he/she will be conducting business under an assumed name.

Disciplinary Actions

• The Insurance Commissioner may place on probation, suspend, revoke, refuse to renew, or deny a license to any person who has:

  • Provided incorrect, misleading, incomplete or untrue information in the license application.

  • Violated any insurance laws, regulations, subpoena, or orders from the Insurance Commissioner.

  • Obtained or attempted to obtain a license through fraud or misrepresentation.

  • Intentionally misrepresented the terms of an insurance contract.

  • Been convicted of a felony.

  • In addition to possible actions taken against a person's license, any person who commits an unfair method of competition, act, or practice in violation of insurance laws, and knew or should have known that such act was a violation, will be subject to a penalty up to $5,000 per violation, but no more than $50,000 total over a 6-month period. If the person did not know or reasonably should not have known, the penalty is up to $1,000 per violation, but no more than $10,000 in a 6-month period. Any person who violates a cease and desist order, or other order issued by the Commissioner, will be subject to a penalty up to $10,000.

  • When the Commissioner believes a producer or entity has broken an insurance law, the Commissioner has the authority to issue a cease and desist order. Any person or entity found to be in violation of an insurance law will be notified by the Insurance Department. The notice will specify the nature of the violation and a hearing date at least 10 days later. The Commissioner will impose the following penalties on a person found to be in violation after the hearing, or failure of person to appear at the hearing:

    • Deny, suspend, refuse to renew, or revoke the person’s producer license

    • Assess a civil penalty up to $5,000 for each violation

    • Issue a cease and desist order

    • The prosecuting authority and the person accused of violating this section may enter into a written agreement (i.e., consent agreement) in which that person does not admit or deny the charges but consents to payment of the civil penalty. A consent agreement may not be used in a subsequent civil or criminal proceeding, but notification shall be made to the licensing authority (i.e., the Commissioner) so that the licensing authority may take appropriate administrative action (e.g., license suspension).

Commissioner (40 P.S. §§ 310.2, 1171.7)

• The primary duty of the Insurance Commissioner is to see that laws are properly executed and enforced. The Commissioner is appointed by the governor to a four-year term.

• The following powers are held by the Commissioner:

  • Investigates reports of unfair and deceptive practices

  • Issues, revokes, or suspends licenses and collects fees

  • Regulates insurers for solvency, approves policy forms, and regulates premium rates

  • Appoints examiners to examine insurers and producers for compliance

  • Issues cease and desist orders to insurers, adjusters, and producers

  • Conducts hearings

  • Reports illegal activities to the attorney general

  • The Commissioner must conduct a financial examination of each insurer prior to issuing a certificate of authority and at least once every five years thereafter.

  • The Commissioner may examine the business affairs, books, records, documents, and computer files of any producer to determine the producer’s financial condition and whether the insurer is abiding by insurance laws.

Company Regulation

• No insurance company shall conduct any business of insurance in this state without a Certificate of Authority issued by the Department of Insurance.

• An insurance company is financially impaired (insolvent) if does not have the minimum reserves, referred to as “net value,” plus 50% company capital on hand. When this happens, the company is prohibited from issuing new policies until funds equal liabilities.

• The regulation of policy forms protects the public against the possibility of unfair provisions in the insurance contract.

  • It is illegal to use policy forms unless they have been submitted to, and formally approved by, the Commissioner. Forms will be deemed approved 30 days after filing, unless they are approved or disapproved by the Commissioner before that time.

  • Anyone issuing a policy contrary to this section is guilty of a misdemeanor and will be fined up to $500. Anyone violating this section is subject to: (1) license suspension or revocation; (2) refusal of license renewal for up to one year; and (3) a fine of up to $1,000.

  • Insurance companies are required by law to charge premium rates that are not excessive, inadequate, or unfairly discriminatory. Insurers must file their rates with the Insurance Department. A rate filing is subject to a 30-day waiting period before it becomes effective.

    • Rates may vary between insurers to reflect different methods of operation. Rates are not unfairly discriminatory as long as they reflect differences in expected losses and expenses. Race, religion or national origin may never be used as rating factors.

    • Any insurer who commits an unfair claims settlement practice is in violation of the insurance laws, and subject to penalties. Unfair claims settlement practices include:

      • Intentionally misrepresenting pertinent policy provisions or benefits about a policy to claimants

      • Denying a claim without referencing the portion of the policy that references why the submitted claim is not covered by the policy

      • Failing to respond to claims or provide claim forms within the required amount of time

      • Failing to begin investigation into a claim within the required number of days of receiving notice of claim

      • Refusing to pay a claim when it is clear that the insurer is liable to fulfill its contractual promise

      • Persuading insureds to file a lawsuit, or settle through arbitration when such action would result in a significantly lower benefit than that provided by the insurance policy

      • Attempting to delay investigation or claims payment unnecessarily

      • Every insurer, upon receiving notification of a claim, must acknowledge receipt of the notice within 10 days

Producer Regulation

• Producers have a fiduciary responsibility for all funds collected from clients. Producers must not mingle these funds with their own personal funds. However, producers are not required by law to open a separate bank account for such funds.

  • A producer must remit collected premiums to insurers on a timely basis.

  • A producer shall use reasonable accounting methods to record funds received in his or her fiduciary capacity including the receipt and distribution of all premiums due to each of his or her insurers.

  • A producer that spends insurance premiums received from the consumer for his own personal use, has committed embezzlement.

  • Commissions and Fees (40 P.S. §§ 310.72–310.74)

    • Insurers may pay commissions to producers.

    • Unlicensed persons may not receive commissions, with the following exceptions: renewal or deferred commissions to retired producers, and referrals.

    • A producer may charge a fee to consumers as long as the fee is disclosed in advance in writing. However, producers cannot charge a fee for an application for insurance.

    • An insurance licensed person is permitted to share commissions with any other producer, company or corporation as long as such entities are licensed in the same line of insurance as the business being solicited. No commissions may legally be shared with an unlicensed person.

    • There are many unethical and illegal actions that will cause a producer to face disciplinary action. Some of these include violating an insurance law, committing a felony, having been convicted of or plead guilty to a felony, using dishonest practices, cheating on a state licensing exam, failing to pay state income tax or court-ordered child support, being designated as beneficiary under a policy sold to a non-relative, failing to communicate with the Insurance Department when required, embezzling money, or committing fraud or forgery. Producers are not permitted to engage in any unfair sales or marketing practices. Such prohibited acts will result in license suspension or revocation, a monetary penalty, or prison.

Appointment Procedures

• Only producers appointed by the insurer may act on behalf of the insurer.

• A producer's authority to bind an insurer to an insurance contract may be granted in the producer’s appointment with the insurance company.

  • If a producer is terminated by an insurer, the appointment will be canceled by the appointing insurer. An insurer must notify the Commissioner of a producer appointment termination within 30 days of termination.

  • All appointments held by a producer become void when the producer’s license is surrendered, revoked, suspended, canceled, or inactivated by request.

  • Producers are not required to be appointed as an insurer’s representative if they function as brokers.

    • A broker represents himself or herself and the consumer. Therefore, this (independent) producer represents the insured. This license allows the holder to place business with a variety of insurers.

Unfair Insurance Practices (40 P.S. §§ 1171.1-1171.5)

• The following are types of unfair sales practices or prohibited acts that licensees are not permitted to engage in.

  • Rebates and Inducements: it is illegal to offer a premium rebate, anything of value (e.g. stocks, bonds, securities, property, dividends, profits, money), or any special advantage other than as explicitly stated in the policy, to consumers as an inducement to purchase a contract of insurance.

    • Any illegal inducement made by a licensee may result in a license suspension or revocation. A person that violates this section of State law commits a misdemeanor of the third degree.

• Misrepresentations: It is an illegal practice to mislead or misrepresent any fact about an insurance policy- such as policy terms, benefits, value, cost, effective date, or existence of a contract of insurance. A licensee who guarantees dividends will be paid on a policy or makes any false statements in order to persuade the applicant to buy the policy has engaged in misrepresentation.

• Twisting: Twisting involves the deceptive act of inducing a policyowner to lapse, forfeit, or surrender an insurance policy for the purpose of replacing it with another policy with a different company. This action is usually not in the insured’s best interest, but done in order to secure a new commission for the producer.

• False Advertising: An insurer or licensee who makes false statements in the advertising of insurance products has engaged in an unfair practice. Advertisements include prepared sales talks, audio visual aids used in a sales presentation, radio and television advertisements, billboards, newspapers and magazine ads. All of these fall under State insurance advertising guidelines. Advertising regulations are designed to protect the public and provide information to them as well.

• Defamation: Any licensee or insurer who makes false or maliciously critical statements with regard to the financial condition of an insurer will be deemed to be defamation and is illegal.

• Boycott, Coercion, or Intimidation: It is an illegal practice to commit or coordinate any act or boycott, coercion, or intimidation in order to restrain or monopolize the business of insurance.

• Misappropriation of Funds: It is an illegal practice to improperly withhold, misappropriate, or convert money or property received in the course of doing insurance business. Producers who transact insurance in order to convert contracts for their own use are guilty of theft and subject to punishment.

• Unfair Discrimination: No insurer may assess premium rates or policy fees that unfairly discriminatory to any particular group of people. Refusing to write insurance solely because of race, color, creed, marital status or geographical area (i.e., redlining) are examples of unfair discrimination. Insurance premium rates must be fair, not excessive and not unfairly discriminatory.

• If the Commissioner finds that licensees engage in these activities, he or she may suspend or revoke their insurance license, assess a monetary fine or impose a prison sentence after a hearing. Community service is generally not part of the penalty for engaging in an unfair sales or marketing practice.

• It is illegal to commit an act of insurance fraud, which is defined as any intentional act occurring in the course of insurance business that attempts to deceive or misrepresent a material fact. Any person who, in the absence of fraud or bad faith, reports information regarding an act of insurance fraud will be given immunity.

Privacy of Consumer Financial Information

• A producer who sells insurance on the premises of a financial institution, such as a bank, must provide the following disclosures at or before a consumer submits an application for insurance:

  • The contract is not a deposit.

  • The contract is not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency or instrumentality of the Federal Government.

  • The contract is not guaranteed by the financial institution or an affiliated insured depository institution.

  • The contract is subject to investment risk, including potential loss of principal, when appropriate.

  • Personally identifiable information is a term that includes any of the following:

    • information from a consumer report

    • account balance information and payment history

    • information a consumer provides to a licensee in an insurance application

    • information the licensee collects through an Internet cookie (an information-collecting device from a web server)

    • Personally identifiable financial information does NOT include:

      • information such as blind data that does not include names and addresses

      • a list of names and addresses of customers of an entity that is not a financial institution

      • health information

Federal Regulation Pertinent to Insurance

• The Fair Credit Reporting Act (FCRA) is a federal law that regulates the use and disclosure of consumer credit information. The primary purpose of the Fair Credit and Reporting Act is to protect consumers with guidelines regarding credit reporting and distribution. The fair credit reporting act requires insurers to notify applicants if information from their credit report will be used and again if information from their credit report had an adverse effect to their application for insurance.

• The Fraud and False Statements (18 USC sections 1033 and 1034)federal law makes it illegal to lie, falsify, or conceal information (orally or in writing) from a federal official. As it applies to insurance, any person engaged in interstate insurance business who engages in intentional unfair or deceptive insurance practices or overvalues an insurance product in a financial report or document presented to a regulatory official, will be in violation of federal law. Other violations include but are not limited to embezzling money from an insurance company, misappropriating insurance premiums, and writing threatening letters to insurance offices.

  • An individual convicted of a felony involving dishonesty may engage in the business of insurance ONLY after receiving written consent from the state insurance regulatory agency and a 1033 waiver.

  • The punishment for violation is a fine up to $50,000, imprisonment up to 15 years, and/or license revocation.

  • The Gramm-Leach Bliley Act also known as the Financial Services Modernization Act of 1999, removed barriers in the insurance market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. The Act includes a Financial Privacy Rule which requires financial institutions (including insurers) to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter. The privacy notice must explain the information collected about the consumer, where that information is shared, how that information is used, and how that information is protected. The customer has a right to opt-out of information sharing.

  • Federal law outlaws offensive practices such as the use of recorded messages for solicitations (i.e., automated dialing). The Federal Trade Commission (FTC) manages the National Do Not Call Registry which allows consumers to register their phones numbers. Insurance marketers (i.e., producers) are not except from National Do Not Call laws.

Pennsylvania Laws, Rules, and Regulations Common to Life and Health Insurance

Replacement

• The purpose of replacement rules is to ensure that an existing policy owner has enough information to make an informed decision by providing both the advantages and disadvantages of replacing existing coverage.

  • Policy replacementis a transaction in which a new policy or contract is to be purchased and the producer is aware that an existing policy or contract has been, or will be:

    • Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer or otherwise terminated

    • 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

    • Modified to cause a reduction in benefits or length of policy term

    • Reissued with a reduction in cash value

    • Refusing to pay a claim when it is clear that the insurer is liable to fulfill its contractual promise

    • Used in a financed purchase

• Replacement rules provide policy owner with all sales proposals, marketing literature and required disclosure forms to ensure full disclosure.

• The replacement of an existing insurance policy is a legal insurance transaction, as long as the producer and insurer adhere to all disclosure.

• Producers have several duties if a replacement of an insurance policy is involved. These include:

  • Determine if transaction will involve the replacement of existing insurance

  • Obtaining a signed statement from applicant verifying that the applicant understands a replacement is taking place

  • Secure a list of all existing policies being replaced

  • Provide to applicant a Notice Regarding Replacement of Insurance signed by both producer and applicant

  • Provide comparison forms when requested by applicant

  • Leave copies of all sales proposals

• Insurers are required to inform all producers soliciting insurance on their behalf of the duties of a producer in regards to replacement. These include:

  • Require its producers collect a signed statement by the applicant that he/she realizes a replacement is taking place

  • Require its producers provide a Notice to the Applicant when replacement is involved

  • An insurer will provide Comparative Information Forms when necessary and must notify existing insurer about the proposed replacement

  • Insurers must maintain files of client records and policy replacement for three years after the relationship has terminated

  • Insurer must give new policyowner a free-look period of 20 days after delivery

• Replacement rules do not apply to transactions involving:

  • credit life, accident, or disability insurance;

  • group life, accident, or disability insurance or group annuities where there is no direct solicitation of individuals by an insurance producer (direct solicitation shall not include any group meeting held by an insurance 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);

  • a nonrenewable or nonconvertible term policy with a coverage period of five (5) years or less;

  • 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;

  • an internal policy change of proposed life insurance that is to replace life insurance issued by the same insurer; or

  • mass marketed and bank issued life insurance and annuity products.

Advertising

• The purpose of advertising regulations is to assure full and truthful disclosures to the public.

  • All advertisements for insurance must clearly identify the name of the insurer.

  • Insurance companies are responsible for the accuracy of testimonials.

  • Statistics relating to dollar amounts of claims paid, the number of persons insured, or similar statistical information relating to an insurer or policy may not be used in an advertisement unless it is accurate and relevant.

Receipts

• Without a valid receipt, no coverage is in force until the policy is issued, delivered, and accepted (initial premium paid).

• When an individual policy or annuity is delivered to the policyowner by hand, a delivery receipt must be used. This receipt must be signed by both policyowner and producer and a copy given to the policyowner and insurer. This is when the free look period would begin.

Medical examinations and lab tests including HIV

• For underwriting an individual policy, insurers may require proposed insureds to undergo an HIV test, but only in conjunction with other medical tests. The basis for requiring an HIV test cannot be the proposed insured’s sexual orientation. The insurer must obtain written consent from the proposed insured in order to conduct the HIV test.

Genetic screening information

• It is illegal for insurers to use the results of a proposed insured’s genetic screening to: underwrite a policy; determine whether to issue an insurance policy or to cancel; refuse to issue or renew, or limit benefits of a policy.

Pennsylvania Life and Health Insurance Guaranty Association (40 P.S. § 991.1717)

• The Life and Health Guaranty Association is used to rehabilitate insolvent (financially incapacitated) insurers. The Life and Health Guaranty Association is funded by insurance companies through assessments.

• For any one person, the Guaranty Association will provide:

  • $300,000 in life insurance death benefits

  • $100,000 in cash surrender value

  • $300,000 in health insurance claims

  • $300,000 in present value annuity benefits

  • In addition, insurers and producers are prohibited from including information in an advertisement mentioning that the Guaranty Fund will protect a consumer’s interest in a life insurance policy. In other words, no advertisement may include information or language that uses the existence of the Guaranty Fund for the purpose of sales, solicitations or inducement to purchase any form of insurance applicable under Pennsylvania law. Such information may unfairly influence a consumer in the purchase of life insurance products.

Pennsylvania Laws, Rules, and Regulations Pertinent to Life Insurance

Insurable Interest

• Insurable interest means the person acquiring the contract (the applicant) must be subject to loss (economic or emotional) upon the death, disability, or illness of the insured. Insurable interest must occur at the time the application is taken, but not required afterwards.

• Employers have limited insurable interest in the lives of their key employees.

  • An employer may insure the life of an employee as long as the proposed insured provides prior written consent.

  • The employer must disclose that it may keep the policy in force after the employee retires and during the period he or she receives employer-sponsored retirement benefits.

  • A married person has insurable interest in the life of his or her spouse.

  • A person has unlimited insurable interest in themselves.

Life insurance disclosures

• Producers must not present an insurance policy as an investment tool or profit-sharing plan, or dividends as anything other than the equitable distribution of the insurer’s surplus or return of overpaid premium.

• Producers must not state that dividends are guaranteed.

• Producers must provide applicants and prospects with the approved NAIC Buyer’s Guide and a Policy Summary.

  • The policy summary contains specific information on the provisions, benefits, and coverage of the policy applied for.

  • The buyer’s guide enables applicants to compare different insurance policies and help them choose which policy is best for their needs.

  • Policy Summaries and Buyer's Guides are not considered forms of advertisement for insurance.

  • Illustrations are charts, graphs, and numerical data that depict the non-guaranteed elements of a policy over time.

    • Nonguaranteed elements are premiums, benefits, values, credits, or charges under a policy of life insurance that are not guaranteed or not determined when the policy is issued.

    • A life insurance illustration showing future premiums being paid out of nonguaranteed values must disclose that the policyowner may need to resume premium payments depending on actual results.

    • Life insurance surrender comparison index

      • When applications are solicited by producers and when contracts are issued, insurers are required to provide policy owners with cost comparison information in order to compare the suitability of life insurance products. The index numbers are designed to give the consumer a means of comparing the cost of policies of the same generic type.

        • Each insurer and its producers must use the same computation formulas to arrive at the index numbers, or the purpose would be defeated.

        • This regulation defines “cost” as the difference between what one pays and what one receives back.

          • If one pays a premium for life insurance and receives nothing back, the cost for the death protection is the premium. If one pays a premium and receives something in return, such as a dividend or cash value, your true cost is less than the premiums paid.

          • In order to evaluate the cost of the policies against this standard, the indexes are designed to give information on these three variables: (1) premiums; (2) cash value; and (3) dividends.

• The cost indexes include the following:

  • Life Insurance Surrender Cost Index ─ This index is important to the consumer who places a high priority upon the growth of cash value in the policy. It aids in cost comparisons if the policy owner plans to surrender the policy for its cash value in ten or twenty years.

  • Life Insurance Net Payment Cost Index ─ This index is most useful for policy owners whose main concern is death protection and are not as concerned with the build-up of cash value. It helps the consumer compare costs of death protection between policies that will be held for ten or twenty years.

  • Equivalent Level Annual Dividend Net Payment Cost Index ─ This index is useful if the client is comparing one participating policy to another or one nonparticipating policy to another. However, if the consumer is comparing a participating policy with a nonparticipating policy, it could be helpful to recognize the impact made by dividends on the costs of the participating policy. Since participating policies normally pay dividends of higher amounts each year, this index computes an average over a ten- or twenty-year period to make it a more valuable tool in evaluation.

Selection criteria and unfair discrimination

• Insurers have established basic requirements or “risk profiles” to obtain insurance.

• Insurers desire risks that are “standard” (average) in order to realize a profit.

  • Applicants in “perfect” health may be considered a “preferred risk” and receive an even lower premium rate than the standard risk.

  • Applicants of “substandard risk” are generally forced to pay a higher premium or declined because of poor health.

  • No insurer may assess premium rates or policy fees that unfairly discriminatory to any particular group of people.

    • Refusing to write insurance solely because of race, color, creed, marital status or geographical area (i.e., redlining) are examples of unfair discrimination.

    • Insurance premium rates must be fair, not excessive and not unfairly discriminatory.

Viatical and life settlements

• Viator is the original policy owner

• Viatical or Viatee is the new third party owner

• A viatical settlement allows someone with a terminal illness to sell their existing life insurance policy to a third party for a percentage of the face value.

• The new owner continues to make the premium payments and will eventually collect the entire death benefit.

• Proceeds of the viatical settlement contract could be subject to the claims of creditors.

• Viatical settlement contracts must include additional disclosure provisions such as:

  • information regarding the ill policy owner’s right or availability of benefits in the existing policy;

  • the fact that the sum received may be taxable or subject to creditor’s claims;

  • the equivalent of a 7-day free-look period to change their mind and receive the policy back (this 7- day period will be extended to the next business day if it falls on a weekend); and

  • Viatical settlements may affect an insured’s entitlement to government sponsored programs such as Medicaid.

  • Viatical settlement brokers need to be licensed before conducting any viatical transactions

  • Stranger-originated life insurance (STOLI) is an agreement to initiate a life insurance policy by a third-party investor who, at the time of policy origination, has no insurable interest in the insured. Stranger or Investor Originated Life Insurance contracts are illegal as they violate insurable interest requirements.

  • A life settlement is an agreement between a policy owner and life settlement firm where the owner sells the policy for any reason to the firm for a percentage of the face amount. Life settlements are different than a viatical settlement where the insured must be suffering from a chronic or terminal illness in order to qualify to be able to sell and transfer the policy.

Fixed versus variable life insurance

• A general account is designated for an insurer who deposits premiums from policies it underwrites and from which it funds day-to-day operations of the business. The general account does not dedicate collateral to a specific policy and instead treats all funds in aggregate.

• A separate account is a privately managed investment account owned by an investor seeking to manage a pool of individual assets. Separate accounts are typically opened through a brokerage or financial advisor. They may also be held at a bank or opened with an insurance company. Separate accounts are typically used for variable life or variable annuity products.

Regulation of variable life insurance

• Assumed investment rate—The rate of investment return which would be required to be credited to a variable life insurance policy, after deduction of charges for taxes, investment expenses, and mortality and expense guarantees, to maintain the variable death benefit equal at all times to the amount of death benefit other than incidental insurance benefits, which would be payable under the plan of insurance if the death benefit did not vary according to the investment experience of the separate account.

• Benefit base—The amount to which the net investment return is applied.

• Flexible premium policy—A variable life insurance policy which permits the policyholder to vary, independently of each other, the amount or timing of one or more premium payments.

• General account—The assets of the insurer other than assets in separate accounts.

• Incidental insurance benefit—The insurance benefits in a variable life insurance policy, other than the variable death benefit and the minimum death benefit, including but not limited to accidental death and dismemberment benefits, disability benefits, guaranteed insurability options, family income and term riders.

• Minimum death benefit—The amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life insurance policy regardless of the investment performance of the separate account.

• Net investment return—The rate of investment return in a separate account to be applied to the benefit base.

• Person—Individual, corporation, partnership, association trust or fund.

• Policy processing day—The day on which charges authorized in the policy are deducted from the policy’s cash value.

• Scheduled premium policy—A variable life insurance policy other than a flexible premium policy.

• Separate account—An account for the investment of policy holder funds which is separate from the insurer’s general account.

• Variable death benefit—The amount of the death benefit, other than incidental insurance benefits, payable under a variable life insurance policy dependent on the investment performance of the separate account which the insurer would have to pay in the absence of any minimum death benefit.

• Variable life insurance policy—An individual policy which provides for life insurance, the amount or duration of which varies according to the investment experience of separate accounts established and maintained by the insurer as to the policy.

• No recommendation should be made to an applicant to purchase a variable life insurance policy without reasonable grounds to believe that the purchase of the policy is suitable for the applicant on the basis of information furnished after reasonable inquiry of the applicant concerning the applicant’s insurance and investment objectives, financial situation and needs and other information known to the insurer or to the agent making the recommendation.

• No person may sell or offer for sale in this Commonwealth a variable life insurance policy unless the person is an agent and has filed with the Commissioner, in a form satisfactory to the Commissioner, evidence that the person holds a license or authorization which may be required for the solicitation or sale of variable life insurance.

Standard Life Insurance Provisions

• Right to Examine (Free Look): Life insurance policies must provide a minimum free-look period of 10 days upon policy delivery. This allows the policyowner time to decide whether or not to keep it. If the policyowner decides not to keep the policy within the 10 days allowed, a full refund will be given.

• Payment of Premiums: A provision stating premiums are to be paid in advance.

• Grace Period: The time, usually 30 days, during which a policy remains in force after the premium is due but not paid. The policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 30 days or the insured dies during the grace period.

• Reinstatement: A life insurance policy issued in Pennsylvania may be reinstated for up to three years following the first default premium payment.

• Incontestability A provision that the policy terms shall be incontestable after it has been in force for a period of two years from its date of issue (unless the purpose for taking out the coverage was fraud).

• Entire Contract: A provision that the policy and the application shall constitute the entire contract between the parties.

• Prohibited provisions including backdating: Policies cannot be backdated more than 6 months from the date of issue. The point of backdating a policy is to make it effective at an earlier date to preserve a slightly lower premium at that reduced age.

• Conversion to individual policy: In the event of employment termination, a person covered by a group policy also has the right to convert such coverage to an individual policy within the conversion period (31 days) without proving insurability. If this right is exercised, the employee is responsible for the payment of premium.

• Policy Loans: The maximum fixed interest rate charged by insurers is 8% in Pennsylvania. A policyowner cannot borrow against the cash value unless policy has been in force for 3 full years. If policyowner fails to repay loan, the policy will not be voided. The company has the right to deduct from the death benefit any outstanding loan balances when an insured dies.

• Exemption from creditors: Proceeds from a life insurance policy are protected from any claims by a creditor of the insured as long as there is a named beneficiary.

Effects of Divorce on Designation of Beneficiaries

• This section is applicable if an individual:

  • is domiciled in this Commonwealth;

  • designates the individual’s spouse as beneficiary of the individual’s life insurance policy, annuity contract, pension or profit-sharing plan or other contractual arrangement providing for payments to the spouse; and

  • either, at the time of the individual’s death is divorced from the spouse; or dies during the course of divorce proceedings, no decree of divorce has been entered.

  • Any designation in favor of the individual’s spouse or former spouse that was revocable by the individual at the individual’s death shall become ineffective for all purposes and shall be construed as if the spouse or former spouse had predeceased the individual, unless it appears the designation was intended to survive the divorce based on:

    • the wording of the designation;

    • a court order;

    • a written contract between the individual and the spouse or former spouse; or

    • a designation of a former spouse as a beneficiary after the divorce decree has been issued.

    • Unless restrained by court order, no insurance company, pension or profit-sharing plan trustee or other obligor shall be liable for making payments to a spouse or former spouse which would have been proper in the absence of this section of Pennsylvania law. Any spouse or former spouse to whom payment is made shall be answerable to anyone prejudiced by the payment.

Accelerated (Living) Benefit Provision Rider

• Accelerated benefit provisions allow someone that a physician certifies as terminally ill to access the death benefit. The amount of benefit received will be tax free.

• In Pennsylvania, payment on an Accelerated Death Benefit may not be less than 25% of the total death benefit.

Suitability of annuities

• Standards and procedures are in existence to ensure that anyone looking to purchase, exchange, or replace an annuity is properly informed and the recommendations given to them are in their best interests.

• The following list is information that should be taken into consideration when making suitable recommendations concerning the purchase, exchange, or replacement of an annuity:

  • Age

  • Annual income

  • Financial situation and needs

  • Financial experience

  • Financial objectives

  • Intended use of the annuity

  • Financial time horizon

  • Existing assets

  • Liquidity needs

  • Liquid net worth

  • Risk tolerance

  • Tax status

Pennsylvania Laws, Rules, and Regulations Pertinent to Accident and Health Insurance

Accident and Health Insurance Basics

• Outline of coverage: An outline of coverage must be provided to the consumer describing the benefits, coverages, limitations and exclusion contained in the policy. Generally the outline of coverage must be provided at time of application but nonetheless at the time of policy delivery.

• Critical Illness/Dread Disease: A limited policy that only provides coverage for a specific illness. A cancer only plan is the primary type of dread disease policy in existence. In Pennsylvania, a Specified disease accident and health plan must provide a minimum benefit in the amount of $5,000.

• Pennsylvania replacement requirements: When replacing an individual health policy, the required replacement notice to the applicant must include a notice that pre-existing conditions may not be covered. Application forms must contain a question to elicit information as to whether the insurance to be issued is to replace any other accident and health insurance presently in force.

Common exclusions from coverage

• Pre-existing conditions

• Intentionally self-inflicted injuries

• War or act of war

• Elective cosmetic surgery

• Conditions covered by workers compensation: Over-insurance is a challenge that may exist in group and individual health insurance policies. Insurance companies attempt to control over-insurance by including a coordination of benefits (COB) provision in such policies. This provision states that benefits will not be paid for medical expense amounts reimbursed by other policies. An insured is not permitted to collect in claim benefits more than 100% of total covered medical expenses, no matter how many policies he owns. In addition, it also designates the order by which the policies will pay (i.e., which policy pays first or is primary).

• Commission of or attempt to commit a felony

Required Provisions (40 P.S. § 753(A))

• Time Limit on Certain Defenses: EXCEPT for fraud, the time after issuance of a policy during which an insurance company may contest a health insurance claim due to the statements on an application is 3 years. This is similar to the contestable period found in life insurance policies.

• Grace Period: The grace period for health policies is no less than 7 days for weekly premium policies; 10 days for monthly premium policies; and 31 days for all others.

• Reinstatement: If a health policy is reinstated after it had lapsed for nonpayment, there is a waiting period of 10 days before a claim covering sickness will be covered. Injuries sustained from an accident, however, will be covered immediately.

• Claim Forms: An insurance company will send forms for filing proof of loss to a claimant within 15 days after company receives notice of a claim.

• Proof of Loss: Written proof of any loss must be given to the insurance company within 90 days after the insured's date of loss.

• Physical Examinations and Autopsy: The insurer has the right to examine the insured during the claim process and to make an autopsy when death is involved and where it is not forbidden by law. When determining the exact cause of death from an accident, an autopsy takes precedence.

• Legal Actions: There is a waiting period of 60 days to file a lawsuit after a claim for loss has been filed by the insured. No lawsuit may be filed after 3 years has passed from when the claim was submitted.

• Entire Contract: A provision that the policy, application, and all attachments shall constitute the entire contract between the parties.

• Notice of Claim: Written notice of a claim must be given within 20 days after a covered loss starts, or as soon as reasonably possible.

General Policy Provisions (40 P.S. § 753(B))

• Unpaid premium: Upon the payment of a claim under this policy, any premium then due and unpaid or covered by any note or written order may be deducted from such payment.

• Conformity with state statutes: Any provision of this policy which, on the date of issue, is in conflict with the statutes of the state in which the insured resides at the date of issue is understood to be amended to conform to such statutes.

• Illegal Occupation: The insurer shall not be liable for any loss to which a contributing cause was the insured's commission of or attempt to commit a felony or to which a contributing cause was the insured's being engaged in an illegal occupation.

• Intoxicants, Narcotics, or Other Controlled Substances: The insurer shall not be liable for any loss sustained or contracted in consequence of the insured's being intoxicated or under the influence of narcotics unless administered on the advice of a physician.

• Right to Examine/Free Look: After purchasing an individual health insurance contract, policyowners have 10 days from the date of receiving the policy to return it for a full refund for any reason.

Disability Income and Related Insurance

• Inability to Perform Duties: In Pennsylvania, the definition of total disability changes from one's "own occupation" to "any occupation" by reason of one's education, training, and experience after 24 months.

Pennsylvania mandated benefits (individual and group)

• Postpartum coverage: All policies that provide maternity benefits must provide for at least one home health care visit within 48 hours after discharge when discharge occurs prior to the times previously mentioned (48 hours for normal delivery and 96 hours for caesarean). The health insurance policy may not include any copayment, coinsurance or deductible amount for any postpartum home health care visits.

• Minimum Maternity Benefits: For mothers and newborn infants following a normal delivery, a medical expense plan must allow a hospital stay of at least 48 hours and a minimum of 96 hours of inpatient care after a cesarean section for a mother and her newly born child.

• Postnatal care: According to Pennsylvania law, postnatal care must be delivered within 48 hours of discharge.

• Routine pap smears and Annual gynecological examinations: Individual and group medical plans issued in this State must include expenses incurred for periodic health maintenance including: (1) routine pap smears (cervical cancer testing); and (2) an annual gynecological examination including a pelvic examination and clinical breast examination.

• Treatment for alcohol abuse and dependency: All policies (including HMOs and any group subscriber contracts) providing medical expense benefits, such as medical and surgical coverage, shall include benefits for alcohol or other drug abuse and dependency. Covered benefits may be subject to policy copayments and deductibles.

  • Inpatient detoxification services shall be provided either in a hospital or in an inpatient non-hospital facility. The following are covered under inpatient detoxification: (1) lodging and dietary services; (2) physician, psychologist, nurse, certified addictions counselor and trained staff services; (3) diagnostic x-rays; (4) psychiatric, psychological and medical laboratory testing; and (5) drugs, medicines, equipment use and supplies.

  • Treatment may be subject to a lifetime limit, for any covered individual, of four admissions for detoxification and reimbursement per admission may be limited to seven (7) days of treatment or an equivalent amount. The aforementioned benefits are also provided for a non-hospital residential alcohol or drug stay, except that treatment shall be covered for a minimum of thirty (30) days per year for residential care. Treatment may be subject to a lifetime limit, for any individual, of ninety (90) days.

  • Outpatient alcohol and other drug treatment services shall also be provided including: (1) physician, psychologist, nurse, certified addictions counselor and trained staff services; (2) rehabilitation therapy and counseling; (3) family counseling and intervention; (4) psychiatric, psychological and medical laboratory tests; and (5) drugs, medicines, equipment use and supplies. Treatment is provided for a minimum of thirty outpatient full session visits or equivalent partial visits per year. Treatment may be subject to a lifetime limit, for any covered individual, of 120 outpatient visits (full session visits or equivalent partial visits).

  • Serious mental illness: All individual or group medical plans (insuring 50 or more employees), or HMOs must include benefits for a serious mental illness. Serious mental illness means any of the following: (1) schizophrenia; (2) bipolar disorder; (3) obsessive compulsive disorder; (4) major depressive disorder; (5) panic disorder; (5) anorexia nervosa; (6) bulimia nervosa; (7) schizoaffective disorder; and (8) delusional disorder. Applicable policies issued in this State must provide coverage for at least thirty (30) inpatient and sixty (60) outpatient days annually.

    • A person covered under such policies shall be able to convert coverage of inpatient days to outpatient days on a one-for-two basis.

    • There shall be no difference in either the annual or lifetime dollar limits in coverage for serious mental illnesses and any other illnesses.

    • Cancer therapy: Any policy issued in this State that provides benefits for hospital, medical or surgical services must include benefits for cancer chemotherapy and cancer hormone treatments whether performed in a physician’s office, in an outpatient department of a hospital, in a hospital as a hospital inpatient, or in any other medically approved appropriate treatment setting.

    • Mammography coverage: Any insurer offering insurance in Pennsylvania must provide coverage for breast cancer screening mammography. Coverage is as follows:

      • One baseline mammogram per year for women 40 and older

      • Mammogram for those under the age of 40 as recommended by physician

      • Childhood immunizations: All health insurance plans issued in this State must include benefits for child immunizations. Such policies shall provide for coverage for medically necessary booster doses of all immunizing agents used in child immunizations.

      • Dependent child age limit: To be covered dependents under an accident and health insurance policy, children of the insured must be unmarried and aged 19 or under or if a full-time student until age 23.

      • Coverage of adopted children: All individual and group health plans must provide coverage to the insured’s adopted children on the same basis as other dependents.

      • Newborn child coverage: All individual and group health plans which provide coverage to family members of the insured must provide coverage for the insured’s newborn child at the moment of birth. If a premium is required to continue the newborn’s coverage, it must be paid within the first 31 days to continue coverage. Coverage includes injury and sickness, including medical care for diagnosed congenital defects and birth abnormalities.

      • Physically handicapped/mentally retarded children: Individual health insurance policies must cover mentally and physically handicapped dependent children until they become self-supportive, regardless of age.

Employer Group Health Insurance

• An eligible employee is one who works a normal work week of 25 or more hours. The following are not eligible employees for employer-sponsored small group health insurance: temporary or substitute employees, and seasonal employees.

• A group health certificate must contain a summary of policy features and benefits.

• In general, a Special Enrollment Period ends 60 days after the qualifying life event (such as marriage) if it involves a change in family status.

• Pre-existing conditions are health issues that existed, were treated, or diagnosed within 6 months prior to employment. An enrollee for a health benefit plan may be excluded for up to 12 months (18 months for late enrollees). Coverage had with a previous employer may be creditable toward the pre-existing conditions exclusion period with the new employer’s health plan. A late enrollee is considered an individual who elects coverage after the initial eligibility period.

• Upon the death or divorce of an insured, the remaining covered family members can continue or convert the coverage so long as premiums are continued to be paid. The insurance company needs to be contacted and paid the appropriate premium within 31 days following the termination of the current policy.

• A small employer is defined as one that employs between 2-50 employees.

Medicare Supplement Insurance

• These plans must generally be guaranteed renewable for life and usually include a 30 day free-look period.

• Insurers marketing these plans offer open enrollment periods as well.

• These plans may exclude the following: foot care (i.e. flat feet), mental disorders, alcoholism and drug addiction, loss due to war, elective cosmetic surgery, treatment in a government hospital, dental care, long-term care, or expenses connected with eyeglasses or hearing aids.

• Additional provisions and standards that must be disclosed to the consumer include:

  • Minimum benefit standards.

  • A pre-existing condition limitation of not more than 6 months.

  • Provides coverage for accidents or illnesses.

  • A notice of benefit changes when applicable.

  • They must not duplicate benefits covered by Medicare Part A or B.

  • Must include a coordination of benefits provision.

  • A ten-day written notice of cancellation is required where applicable.

Long-Term Care Pennsylvania regulations and required provisions

• An outline of coverage must be provided to the consumer describing the benefits, coverages, limitations and exclusion contained in the policy. In addition, the licensee must also provide the consumer with required disclosure provisions with regard to coverages, benefit and limitations.

• A 30 day free look period is required for long-term care policies.

• Pre-existing conditions are those for which medical advice or treatment was recommended by or received from a health provider within six months preceding the effective date of an individual long-term care policy.

• In Pennsylvania, all Long-Term Care insurance policies purchased after July 17, 2007 are comprehensive policies. This means they must include:

  • Skilled nursing care includes daily nursing and rehabilitative care that can be performed only by, or under the supervision of, skilled medical personnel. The care received must be based on a doctor’s orders.

  • Intermediate care includes occasional nursing and rehabilitative care that must be based on a doctor’s orders and can only be performed by, or under the supervision of, skilled medical personnel.

  • Custodial Care includes care to help individuals meet personal needs such as bathing, dressing, and eating. Someone without professional training may provide this service.

  • Home health care services include, but are not limited to: part-time skilled nursing care; speech, physical, or occupational therapy; homemaker services; home health aide; assistance with activities of daily living; adult day care; personal care; hospice services and respite care.

  • Policies must cover care for Alzheimer’s disease and other organic cognitive disabilities diagnosed after the insurance policy is in force.

  • Long term care services may include the medical, social, housekeeping, or rehabilitation services a person needs over months or years in order to improve or maintain function or health. Such services are provided not only in patients’ homes, but also in nursing homes or community-based settings, such as assisted-living facilities. This is known as community care.

  • As a protection against unintentional lapse, each issuer offering long-term care insurance must comply with all of the following:

    • No individual long-term care policy or certificate may be issued until the issuer has received from the applicant either a written designation of at least one person in addition to the applicant who is to receive notice of lapse or termination of the policy or certificate for nonpayment of premium, or a written waiver dated and signed by the applicant electing not to designate additional persons to receive notice.

    • The applicant has the right to designate at least one person who is to receive the notice of termination, in addition to the insured. Designation does not constitute acceptance of any liability on the third party for services provided to the insured. The form used for the written designation must provide space clearly designated for listing at least one person. The designation must include each person’s full name and home address. If the applicant elects not to designate an additional person, the waiver must state:

      • “Protection against unintended lapse. I understand that I have the right to designate at least one person other than myself to receive notice of lapse or termination of this long-term care insurance policy for nonpayment of premium. I understand that notice will not be given until thirty days after a premium is due and unpaid. I elect NOT to designate a person to receive this notice.”

• No less frequently than once every two years the issuer must notify the insured of the right to change this written designation.

• No individual long-term care policy or certificate shall lapse or be terminated for nonpayment of premium unless the issuer, at least thirty days before the effective date of the lapse or termination, has given notice to the insured and to those persons designated at the address provided by the insured for purposes of receiving notice of lapse or termination. Notice must be given by first class United States mail, postage prepaid, and notice may not be given until thirty days after a premium is due and unpaid. Notice is deemed to have been given as of five days after the date of mailing.

• A “notice to buyer” must be on the first page of each long-term care policy delivered in. It explains that some long-term care costs may not be covered.

• A Long-Term Care plan must make a 5% inflation protection rider available for purchase at the request of the insured.

• Insurers are required to offer non-forfeiture benefits as part of the policy.

  • This results in a policy with a higher premium than a plan that does not include such benefits.

  • These benefits will allow the insured to receive some value from the plan if the policy lapses for nonpayment of premium.

  • This option is normally available in one of three different forms.

    • First, after paying premiums for a specified number of years, if the insured ceases payment, a reduced paid-up policy would result.

    • Second, after paying premiums for a specified number of years, if the insured stops paying premiums, the same benefit would apply for a shortened period of time.

    • Third, following the payment of premiums for a specified minimum number of years, if premiums cease, a specified dollar amount will be refunded to the insured (this is the most expensive form).

    • Benefit triggers: Long-term care insurance promises to pay expenses incurred if the insured is unable to engage safely in various activities of daily living.

      • These activities of daily living include: bathing, dressing, eating, transferring or moving about the home, continence, toileting and taking medication.

      • LTC plans also include a provision describing that the policy will pay benefits if the insured is suffering from a cognitive impairment. This impairment includes a senior suffering from Alzheimer’s disease, a stroke or another type of brain damage or senile dementia.

      • Whenever a long-term care policy is replaced, any pre-existing condition limitation in the new policy will be waived. To prevent against an unintentional lapse, the insurer issuing this type of policy must receive from the applicant a written designation of at least one person, in addition to the applicant, who is to receive notice of lapse or termination of the policy due to nonpayment of premium (or a written waiver stating that the applicant does not desire to designate another to receive notice).

      • Producers selling these policies are principally responsible for determining the suitability of such plans for the applicant. Insurers are not generally permitted to offer producers additional incentives to sell such plans since they are primarily purchased by senior citizens.

      • A buyer’s or shopper’s guide must be provided to all prospective insureds at the time of application.

      • An insurer or other entity may provide commission or other compensation to a producer for the sale of a long-term care insurance policy or certificate only if the first year commission or other compensation is not greater than 50% of the first year premium. The commission or other compensation provided for a minimum of 5 subsequent (renewal) years may not exceed 10% of the renewal premium.

        • When there is a replacement of an existing policy or duplication of coverage, an entity may not provide compensation to its producers and a producer may not receive compensation greater than the renewal compensation payable by the replacing or duplicative insurer. “Compensation” includes pecuniary or nonpecuniary remuneration relating to the sale or renewal of the policy or certificate, including bonuses, gifts, prizes, awards and finders fees.

        • Any person or entity violating Pennsylvania insurance law with regard to long-term care insurance will be subject to license suspension or revocation, a possible prison sentence, a monetary fine, or all of the aforementioned penalties.

        • The Pennsylvania Long-Term Care Partnership Program is a Federally-supported, State-operated initiative that allows individuals who purchase a qualified long term care insurance policy or coverage to protect a portion of their assets that they would typically need to spend down prior to qualifying for Medicaid coverage.

          • A Long-Term Care Partnership Policy is a long-term care insurance product that pays for some or all of the expenses associated with a spectrum of personal-care services, ranging from home care to skilled nursing facility care.

          • These new polices are part of a nationwide effort that consists of private/public partnerships that encourage people to purchase long-term care insurance by allowing them to keep their assets if they ever exhaust their insurance and have to turn to Medical Assistance. Protected assets are not considered in determining eligibility for Medical Assistance (Medicaid) or estate recovery.

          • In the event a person would need to apply for long-term care benefits under Pennsylvania’s Medical Assistance program, a long-term care partnership policy provides a way to protect one’s assets, dollar-for-dollar, in the amount of policy benefits paid out on their behalf. Additionally, a Long-Term Care Partnership Policy has beneficial tax treatment and requires inflation protection features that protect younger purchasers from an increase in expenses caused by inflation.

          • Long-term care Partnership Policies are “tax-qualified”, meaning if you itemize your taxes and your total medical and dental expenses exceeds 7.5% of your adjusted gross income, you may be able to claim a portion of your premium as a medical deduction. Also, benefits received from a Partnership program are NOT considered taxable income.

          • If a long-term care policy was purchased AFTER February 8th, 2006, you can exchange it for a Partnership Policy. Also, any Partnership Policies purchased in a different state will be honored with the same benefits as a Pennsylvania Long-Term Care Partnership Policy, if the benefits are used in Pennsylvania.

          • No Long-Term Care policy may exclude pre-existing conditions for a period of more than 6 months.

Federal Laws, Rules, and Regulations Pertinent to Health Insurance

• Health Insurance Portability and Accountability Act (HIPPA): The primary purpose of the Act was to help ensure that individuals would not lose medical coverage or be subject to a new pre-existing condition period if they changed or lost their job. In other words, the Act hopes to increase access and portability of health care insurance and to reduce or eliminate pre-existing condition exclusions or waiting periods when coverage is sought under a new plan.

• Many of the important provisions of HIPAA involve but are not limited to: (1) increased availability of medical expense coverage by placing limitations on what can be included in pre-existing conditions; (2) increased portability of medical expense coverage; (3) expansion of eligibility for COBRA benefits; and (4) favorable tax treatment with regard to certain health insurance plans (i.e., LTC insurance). HIPAA applies to groups of two or more. It does not govern disability insurance.

• Eligibility Requirements: State law prohibits a group health policy from establishing eligibility for enrollment or coverage based upon a person’s individual health status, physical or mental medical condition or history, genetic background, claim history (i.e., experiences), evidence of insurability, disability or whether the person has received health care in the past.

• Terms: In Pennsylvania, HIPAA laws require that an individual's prior creditable coverage may reduce the maximum preexisting condition exclusion period that a new group health plan can apply. This rule is applicable as long as there has been no gap in creditable coverage for a period greater than 63 days.

• Privacy: HIPAA also states that individuals must be given a “Notice of Privacy Practices” statement by the facility providing medical services. The notice states how the health care providers may use the private information from a patient’s medical file and when and to whom they can give such information. The information protected includes office visits, tests and procedures, diagnosis and other such medical care provided. Only persons directly involved in a patient’s care have access to private information including but not limited to: doctors, nurses, billing office personnel, secretarial persons and other medical personnel.

• Portability: Provisions in HIPAA regarding portability do not allow employees to take specific insurance from one job to another. It places limitations on pre-existing condition exclusions and allows employees to use evidence of prior insurance coverage to reduce or eliminate the length of any preexisting condition exclusion when employees become covered by another medical expense plan. The portability provision applies to almost all group health plans that have at least two participants (i.e., employees) on the first day of the plan year. This regulation does not apply to disability insurance. A creditable coverage certificate must be issued to qualified employees by employers upon request.

  • If an individual (and/or family) was covered by another group plan previously, with no break or gap in coverage of 63 days or more (i.e., cannot be more than 62 days), he or she is qualified to receive a certificate (assuming they are attempting to receive coverage under a new plan). In other words, if an employee has been without coverage for at least 63 days between jobs, the full pre-existing condition period applies. The purpose of this certificate is to prove creditable coverage and also to reduce a preexisting waiting period. In other words, an employee who has one month of creditable coverage may apply this toward the satisfaction of one month (i.e., month to month) of “pre-existing waiting period.”

  • Affordable Care Act

  • "Exchanges" are created by the Affordable Care Act (ACA) health reform bill to help individuals and small businesses purchase health insurance coverage. The purposes of the exchange include:

    • Reduce the number of uninsured in the state

    • Facilitate the purchase and sale of qualified health plans in the individual market

    • Assist qualified employers in the state in enrolling their employees in qualified health plans

    • Assists individuals in accessing public programs, premium tax credits, and cost-sharing reductions

    • Under the Affordable Care Act (ACA), the health insurance exchange will perform all of the following roles:

      • Certify health plans as qualified, based on pre-determined criteria

      • Utilize individual, unique formats for presenting health benefit plan options

      • Verify and resolve inconsistent information provided to the exchange by applicants

      • The Act provides for immediate reforms to be implemented within six months, including but not limited to:

        • creating a temporary high-risk pool with subsidized premiums for certain people with pre-existing conditions;

        • ending health insurance rescission abuse;

        • banning coverage exclusions of pre-existing health conditions for children;

        • requiring public disclosure of overhead/benefit spending by health insurance issuers;

        • providing coverage of certain preventive health services without cost sharing;

        • eliminating lifetime limits on benefits and restrictions on annual limits on benefits;

        • requiring insurers that offer dependent coverage to allow children to be covered on their parent’s insurance policy up to age 26; and

        • developing uniform explanation of coverage documents for enrollees.

        • The PPACA requires insurance companies to cover all applicants within new minimum standards, and offer the same rates regardless of pre-existing conditions or gender. Additional reforms aim to improve healthcare outcomes and streamline the delivery of health care.

        • Low-income individuals and families above 100% and up to 400% of the federal poverty level receive federal subsidies on a sliding scale if they choose to purchase insurance from an exchange.

        • Health plans cannot limit or deny benefits or deny coverage for a child younger than age 19 because of preexisting conditions. This applies to both group and individual policies

        • Beginning January 1, 2014, the exchange shall allow any qualified plans that meet the minimum standards established by the exchange to be offered in the exchange.

          • All plans must include the following:

            • Ambulatory Patient Services — This is care an insured receives without being admitted to a hospital.

            • Emergency Services — This is care for conditions which, if not immediately treated, could lead to serious disability or death.

            • Hospitalization Coverage — This benefit involves care one receives as an inpatient in a hospital, such as room and board, nursing care, physician’s expenses, diagnostic testing and drugs administered during the hospital stay.

            • Maternity and Newborn Care — This involves benefits and care provided to women during pregnancy and during and after labor. It also provides care for newly born children

            • Mental Health and Substance Use Disorder Services — These are benefits for behavioral health treatment and care to evaluate, diagnose and treat mental health and substance abuse issues.

            • Prescription Drugs — This benefit covers drugs prescribed by a doctor to treat an acute illness, like an infection, or an ongoing condition such as high blood pressure.

            • Rehabilitative and Habilitative Services and Devices — Services and devices to help people with injuries, disabilities or chronic conditions gain or recover mental and physical skills.

            • Laboratory Services — Testing blood, tissues, etc. from a patient to help a doctor diagnose a medical condition and monitor the effectiveness of treatment.

            • Preventive and Wellness Services and Chronic Disease Management— Preventive or wellness services include routine physicals, screening, and immunizations. Chronic disease management is an integrated approach to manage an ongoing condition, like asthma or diabetes.

              • A group health plan and a health insurance issuer offering group or individual health insurance coverage shall, at a minimum provide coverage for and shall not impose any cost sharing requirements for preventive care services.

  • Pediatric Services — These benefits are provided for children. Treatment by a participating physician who specializes in pediatrics as the child’s primary care health care professional is available including oral (dental) and vision care.

• Minimum essential benefits does not include certain specialized coverage, such as coverage only for vision care or dental care, Workers’ Compensation, or coverage only for a specific disease or condition.

• Preventative Services: Most preventative services are now 100% covered, with no cost-sharing requirements, such as out-of-pocket co-pays, deductibles and co-insurance.

  • These include annual breast and cervical cancer screenings, mammograms every one to two years over age 40, HPV screenings every three years over age 30, and Pap Smears every three to five years over age 21.

  • Other preventive services covered include but are not limited to:

    • Pre- and post-natal services are fully covered, including such things as folic acid vitamin supplements, screening for gestational diabetes, breast feeding support and equipment, and certain immunizations.

    • All FDA approved methods of contraception, along with related counseling and education, are considered a preventative service that now will be fully covered with no cost sharing.

    • Domestic violence screening and counseling are now fully covered with no cost sharing, as is HIV screening.

    • Genetic testing for breast cancer genes is now covered for women at high risk (e.g., those with a family history of breast or ovarian cancer, etc.) with no cost sharing. Approved clinical trials also are covered.

    • Women can choose any OBGYN or provider in their network, where they previously needed a referral.

    • Insurance providers can no longer charge women more than men for the same coverage.

    • No consumer can be denied coverage or dropped due to a pre-existing condition.

    • Plans can no longer enforce a lifetime cap or dollar limit on benefits for certain treatment and follow-up care.

    • There are four tiers of "qualifying health plans" ranging from lower quality, but more affordable "Bronze plans", to "Silver plans" to a more expensive plan with better coverage called a "Gold plan." There is also a "Platinum plan" which is the highest quality and cost plan.

      • Bronze Plans: 60% actuarial level of coverage provided

      • Silver Plans: 70% actuarial level of coverage provided

      • Gold Plans: 80% actuarial level of coverage provided

      • Platinum Plans: 90% actuarial level of coverage provided

      • The ACA prohibits health plans from putting lifetime dollar limits on most benefits that are received by an insured.

      • Plans are allowed to put an annual dollar limit on health care services that are not considered essential.

      • Grandfathered plans are plans that were purchased before March 23, 2010. These plans do not have to follow the ACA’s rules and regulations or offer the same benefits, rights and protections as new plans.

        • An exception to this is that a grandfathered plan cannot impose lifetime limits on how much health care coverage people may receive.

        • Grandfathered health plans may lose their grandfathered status if the insurer significantly raises co-insurance charges, deductibles, or co-payment charges.

        • Beginning January 1, 2014, the Patient Protection and Affordable Care Act (ACA) will require adjusted community rating in the small group market. Small group health plans will be allowed to vary rates only based on whether the policy covers an individual or family, geographic area, age, and tobacco use.