Title 3 . Commerce, Community, and Economic Development

Chapter 28 . Miscellaneous

Section 820. Standards for basic illustrations

3 AAC 28.820. Standards for basic illustrations

(a) Format. A basic illustration must conform with the following requirements:

(1) the terms used in an illustration must be consistent with the terms used in the policy that is being illustrated;

(2) an illustration must be labeled with the date on which it was prepared;

(3) each page, including any explanatory notes or pages, must be numbered to show its relationship to the total number of pages in the illustration (for example, 1 of 5 pages, 2 of 5 pages, etc.);

(4) the assumed dates that payment will be received and benefits will be paid within a policy year must be clearly identified;

(5) if the age of the proposed insured is shown as a component of the tabular detail required under (e) of this section, it must be the issue age plus the number of years the policy is assumed to have been in force;

(6) the assumed payments upon which the illustrated benefits and values are based must be identified as contract premium, if a specific contract premium is required; otherwise the assumed payments must be identified as premium outlay;

(7) if guaranteed death benefits and values are available upon surrender for the illustrated premium outlay or contract premium, they must be shown and clearly identified as guaranteed;

(8) if an illustration shows a non-guaranteed element, the non-guaranteed element may not be based on a scale more favorable to the policy owner than the insurer's illustrated scale at any time during the term of the policy, and the elements must be clearly identified as non-guaranteed;

(9) guaranteed elements, if any, must be shown before corresponding non-guaranteed elements and must be referenced on any page of an illustration that shows or describes only the non-guaranteed elements (for example, "see page one for guaranteed elements");

(10) the account or accumulation value of a policy, if shown, must be identified by the name the value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender;

(11) the value available upon surrender must be identified by the name the value is given in the policy being illustrated and must be the amount that will be available to the policy owner in a lump sum after deduction of any surrender charges, policy loans, or policy loan interest; if the policy does not specify a maximum policy loan interest rate, the illustration must use the greater of the maximum rate permitted by AS 21 or federal law to compute guaranteed values;

(12) an illustration may show policy benefits and values in graphic or chart form in addition to tabular form;

(13) any illustration of non-guaranteed elements must be accompanied by a statement disclosing that

(A) the benefits and values are not guaranteed;

(B) the assumptions upon which the benefits and values are based are subject to change by the insurer; and

(C) actual results of the benefits and values may be more or less favorable than the illustration;

(14) if an illustration shows that the premium payer may choose to pay policy charges using non-guaranteed values,

(A) the illustration must clearly disclose that a policy charge continues to be required and, depending on actual results, the premium payer may need to continue or resume premium outlays;

(B) a disclosure must be made for a premium outlay of lesser amounts or shorter durations than the contract premium; and

(C) if a contract premium is due, the premium outlay display may not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up; and

(15) if an applicant expresses an intent to use dividends or policy values, whether guaranteed or non-guaranteed, to pay any portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect the applicant's intent and the effect on future policy benefits and values of using dividends or policy values as the applicant intends.

(b) Narrative summary. A basic illustration must include the following:

(1) a brief description of the policy being illustrated, including a statement that it is a life insurance policy;

(2) a brief description of the premium outlay or contract premium, as applicable, for the policy; if a policy does not require payment of a specific contract premium, the illustration must show the premium outlay that must be paid to guarantee coverage for the term of the contract or to a limiting age consistent with the tabular detail in the case of contracts without maturity dates, subject to maximum premiums allowable to qualify as a life insurance policy under the United States Internal Revenue Code;

(3) a brief description of any policy features, riders, or options, whether guaranteed or non-guaranteed, shown in the basic illustration, and the effect each feature, rider, or option may have on the benefits and value of the policy;

(4) identification and a brief definition of column headings and key terms used in the illustration; and

(5) a statement that is substantially similar to the following: "This illustration assumes that the currently illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown."

(c) Numeric summary. After the narrative summary, a basic illustration must include a numeric summary of the death benefits, values, and premium outlay or contract premium, as applicable, subject to the following:

(1) the summary must be shown on the following three bases:

(A) policy guarantees;

(B) insurer's illustrated scale; and

(C) the insurer's illustrated scale with the following adjustments to the non-guaranteed elements:

(i) dividends reduced to 50 percent of the dividends contained in the insurer's illustrated scale;

(ii) non-guaranteed credited interest at a rate that is the average of the guaranteed rates and the rates contained in the insurer's illustrated scale; and

(iii) non-guaranteed charges, including term insurance, mortality, and expense charges, at a rate that is the average of the guaranteed rates and the rates contained in the insurer's illustrated scale;

(2) for multiple lives policies, the numeric summary must be shown at least for policy years 5, 10, 20, and 30 and for all other policies at least for policy years 5, 10, and 20 and at age 70, if applicable;

(3) for a policy that provides for a contract premium, the guaranteed death benefits and values must be based on the contract premium; and

(4) if coverage would cease prior to policy maturity or age 100, the year in which coverage will cease must be identified for each of the bases identified in (1) of this subsection.

(d) Statements. Following the numeric summary on the same page, a basic illustration must include:

(1) a statement, in substantially the following form, to be signed and dated by the applicant or by the policy owner in the case of an illustration provided at time of delivery of the policy: "I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower. The person soliciting the policy has told me these elements are not guaranteed"; and

(2) a statement, in substantially the following form, to be signed and dated by the person soliciting the policy: "I certify that this illustration has been presented to the applicant or policyholder and that I have explained that any non-guaranteed elements illustrated are subject to change. I have made no statements that are inconsistent with the illustration."

(e) Tabular detail. A basic illustration must include in tabular form all of the following that apply to the policy being illustrated:

(1) for at least each policy year from 1 to 10 and every subsequent fifth policy year until age 100, policy maturity, or final expiration and, except for term insurance beyond the 20th year, for any year in which the premium outlay or contract premium is to change:

(A) the premium outlay and mode the applicant plans to pay and the contract premium, as applicable and consistent with the numeric summary;

(B) the corresponding guaranteed death benefit, as provided in the policy; and

(C) the corresponding guaranteed value available upon surrender, as provided in the policy;

(2) if a policy provides for a contract premium, the guaranteed death benefit and value available upon surrender must be those that will be provided if the contract premium is paid; and

(3) non-guaranteed elements may be shown if described in the contract, subject to the following rules:

(A) an insurer may show terminal dividends it intends to credit on the policy illustrated if its current practice is to pay terminal dividends;

(B) any non-guaranteed elements must be shown at the same durations as the corresponding guaranteed elements; and

(C) if a guaranteed benefit or value is not available at a duration for which a non-guaranteed benefit or value is shown, a zero must be displayed in the guaranteed column.

History: Eff. 9/1/98, Register 147

Authority: AS 21.06.090

AS 21.36.020

AS 21.36.030

AS 21.36.150

AS 21.42.120

AS 21.42.130