Date:September 11, 1997
To:All Insurers Authorized to Write Life Insurance in Wisconsin
From:Josephine W. Musser, Commissioner of Insurance
Subject:Chapter Ins 23, Wis. Adm. Code, Relating to Minimum Standards for Life Insurance Policies Sold to Fund Prearranged Funeral Plans

The purpose of this memorandum is to summarize s. Ins 23, Wis. Adm. Code, which becomes effective on October 1, 1997. The rule was created as a result of s. 632.41 (2) (b) 2, Wis. Stat., which requires the Commissioner to create minimum standards for life insurance policies that provide for the assignment of the proceeds to a funeral director or operator of a funeral establishment to fund prearranged funeral plans. The minimum standards address benefits, claims payments, marketing practices, compensation arrangements, and reporting practices relating to life insurance policies sold to fund prearranged funeral plans.

Scope

All life insurance or annuity policies sold by an insurance intermediary who is an authorized and appointed agent of a funeral director or funeral establishment according to s. 445.125 (3m), Wis. Stat., and rules promulgated by the Department of Regulation and Licensing, which are sold for the purpose of funding a prearranged funeral plan on or after October 1, 1997, must comply with these regulations.

Life insurance or annuity policies which are sold for the purpose of funding a prearranged funeral plan by an insurance intermediary who is not an authorized and appointed agent of a funeral director or funeral establishment are not subject to these regulations, only if the intermediary does not directly or indirectly receive referrals from a funeral director, a funeral establishment, or an agent of a funeral director or funeral establishment, or does not sell or participate in the sale of the prearranged funeral plan.

Important Definition

Section Ins 23.10 (6), Wis. Adm. Code, defines a funeral policy as a life insurance or annuity policy sold for the purpose of funding a prearranged funeral plan which is sold by an insurance intermediary who is the authorized and appointed agent of the funeral director or funeral establishment providing the prearranged funeral plan.

Funeral Policy Form Filing Requirements

Pursuant to s. Ins 23.30 (2), Wis. Adm. Code, insurers must include the following documents when submitting a funeral policy form filing to OCI under s. 631.20, Wis. Stat.:

  1. An application form with provisions for signature by the applicant and insurance intermediary which will be used to apply for the funeral policy.
  2. A consideration plan which describes the remuneration which may be provided to any person relating to the sale or renewal of a funeral policy, and to the funeral director or operator of the funeral establishment for endorsing the insurer’s product or direct or indirect assistance in marketing of the product. A consideration plan may not be structured in a manner which directly or indirectly promotes practices which violate these regulations. Any subsequent revisions to a consideration plan must also be filed with the Commissioner, as required by s. Ins 23.40 (1), Wis. Adm. Code.
  3. A specimen policy delivery receipt.
  4. A certification and supporting documentation prepared and signed by an actuary that the policy will meet the minimum benefit requirements of s. Ins 23.35, Wis. Adm. Code.

Funeral Policy Form Requirements

Pursuant to s. Ins 23.30 (1), Wis. Adm. Code, an insurer may not sell or issue a policy as a funeral policy unless the policy is an individual whole life or group whole life or an annuity policy

The premium amount for a funeral policy which is issued on a single pay basis cannot exceed the current costs of the prearranged funeral plan.

If issued on a multi-premium basis, the funeral policy must provide an unintentional lapse provision which requires written notification to the insured and to one person designated by the insured to receive notification if no premium is received by the insurer during a grace period of no less than 31 days.

Specific language in the policy is required to provide that death benefits which exceed the actual final costs billed by the funeral director or funeral establishment shall be paid to the insured’s beneficiary or, if no beneficiary is named, to the insured’s estate. Death benefits may not be paid to a funeral director or funeral establishment unless the prearranged funeral plan is in effect at the time of the insured’s death, pursuant to s. Ins 23.50, Wis. Adm. Code.

The funeral policy must provide the unrestricted right to return the policy or certificate within 30 days of the date it is received by the policyholder. Notice of the right to return must be conspicuously printed on the front page of the funeral policy or be conspicuously attached to the funeral policy. Premium refunds made under the free-look provision must be made directly to the policyholder by the insurer.

The funeral policy must include a statement that cancellation of the prearranged funeral plan does not automatically cancel the policy.

The funeral policy must contractually provide the minimum benefit requirements stated in s. Ins 23.35, Wis. Adm. Code.

An application used to apply for a funeral policy must contain the following specific disclosures, statements, and questions in print no less than l2 point type, as required by s. Ins 23.70(6), Wis. Adm. Code:

Disclosures

  1. The total price of the prearranged funeral plan.
  2. Whether the cost of the final expenses is or is not guaranteed.
  3. The minimum dollar amount of the death benefit payable under the funeral policy.
  4. The total amount of premium the applicant will pay for the funeral policy, including total premium to be paid for a multi-pay policy.

Statements

  1. You should not need more than one life insurance policy to fund a prearranged funeral plan.
  2. If you have an existing life insurance policy or annuity, you may be able to assign some or all of an existing policy’s benefits to fund the prearranged funeral plan rather than purchase an additional insurance policy.
  3. It may not be in your best interests to borrow on the cash value of an existing life insurance policy to pay the premium on a funeral policy that will be used to fund a prearranged funeral plan.
  4. The life insurance or annuity policy you are purchasing may not fully fund the cost of the funeral goods and services provided.

Questions

  1. Do you have another life insurance or annuity policy in force?
    1. If so, with which company?
    2. If so, do you intend to replace your current insurance policy with this policy?
  2. Do you presently have a prearranged funeral plan of any kind with a funeral home?
  3. If so, do you intend to replace the funding of your existing prearranged plan with this policy?

Pursuant to s. Ins 23.70 (5), Wis. Adm. Code, an insurer may not accept an application for a funeral policy that is not in compliance with these requirements.

Minimum Benefit Requirements

Pursuant to s. Ins 23.35, Wis. Adm. Code, an insurer may issue a funeral policy only if the policy’s death benefit will equal or exceed the cumulative premiums which may be required to be paid for the policy plus interest at the rate of 3% per annum compounded annually to the tenth anniversary of the effective date of coverage. Neither premiums nor death benefits shall be adjusted for maturity benefits, surrender benefits, or policy loans. Accidental death benefits and permanent disability benefits, or any benefit similar to such benefits, but not the premiums paid for any such benefits, shall be disregarded when determining the relationship between benefits and premiums.

Minimum benefit requirements do not apply to limited payment whole life insurance where the premiums are level at all times, if the least death benefit payable at any time equals or exceeds the total of all premiums which, in the absence of death, would have been paid over the entire limited payment period.

Requirements for Advertisements of Funeral Policies

Section Ins 23.60, Wis. Adm. Code, requires advertisements of funeral policies to comply with the following rules, as well as all other relevant statutes and rules, including, but not limited to, ch. Ins 2, Wis. Adm. Code.

An insurer or insurance intermediary placing or using or publishing an advertisement which may be utilized directly or indirectly in the solicitation or sale of a funeral policy shall disclose in the advertisement the following information in a clear and conspicuous manner:

  1. That a purpose of the advertisement is the solicitation of insurance.
  2. That an insurance intermediary may contact any person who responds to the advertisement.
  3. The identity of the insurer.

An insurer or insurance intermediary may not use a response from an advertisement of a prearranged funeral plan regardless of who placed or published the advertisement, unless the advertisement includes the above disclosures.

An insurer whose policy is advertised has the responsibility for the content, form and method of dissemination of all advertisements, regardless of who designed, created, wrote, printed, or utilized them. An insurer shall require its insurance intermediaries and all other persons or agencies acting on its behalf in preparing advertisements, to submit them to it for approval prior to use of the advertisements.

An insurer is required to maintain a copy of every advertisement and all correspondence for each advertisement which was submitted for approval to the insurer or that was used in Wisconsin, for three years after the advertisement was last used.

Required Marketing Procedures

Section Ins 23.70, Wis. Adm. Code, requires an insurer to establish, implement, and maintain written marketing procedures for funeral policies, to provide its intermediaries a copy of its written procedures, and to train and monitor its intermediary force to ensure compliance with solicitation, disclosure, and suitability requirements.

An insurance intermediary shall provide the insurer with the list of funeral goods and services contracted for in the prearranged funeral plan at the time the funeral policy application is submitted, pursuant to s. Ins 23.90 (5), Wis. Adm. Code. The insurer is required to maintain a copy of the list of funeral goods and services contracted for in the prearranged funeral plan at the time of the application.

Suitability Standards

Section Ins 23.80, Wis. Adm. Code, requires an insurer to establish written suitability standards to assure that inappropriate, unsuitable, or excessive insurance is not sold or issued to fund prearranged funeral plans. An insurer shall train and monitor its insurance intermediaries to ensure compliance with the suitability standards in their sales practices. An insurer or insurance intermediary shall take an application or issue a funeral policy only if the funeral policy is suitable for the applicant.

An insurer’s suitability standards shall include, but not be limited to, the appropriateness of using a funeral policy to fund a prearranged funeral plan, the appropriateness of using an existing insurance policy to fund the prearranged funeral plan, and the appropriateness of replacing any existing policy with a funeral policy.

Solicitation and Disclosure Requirements

Section Ins 23.90, Wis. Adm. Code requires any insurance intermediary who solicits funeral policies to comply with all applicable statutes and rules, including but not limited to s. 628.34 (1), Wis. Stat. and the home solicitation rule, ch. Ins 20, Wis. Adm. Code. Every insurance intermediary intending to solicit the sale of a funeral policy shall, at the time of the initial contact or communication with the prospective buyer, clearly and expressly disclose the following information:

  1. The name of the individual insurance intermediary who is soliciting the sale of the funeral policy.
  2. The name of the funeral home represented.
  3. A statement that insurance is being sold.
  4. The identity of the insurer.
  5. The type of insurance being solicited.

Section Ins 23.90(3), Wis. Adm. Code, prohibits an insurance intermediary from making any misleading representations, inducing the purchase of insurance through undue pressure, failing to disclose that a purpose of solicitation is the sale of insurance, and from using any advertisements in the solicitation of a funeral policy, or any responses from such advertisements, which have not been approved by the insurer.

An insurance intermediary shall not directly or indirectly attempt to dissuade or prevent any person from filing a complaint with the Commissioner, or from cooperating with an investigation or proceeding before the Commissioner.

An insurance intermediary shall promptly deliver a funeral policy to the policyholder, and must obtain a signed delivery receipt from the insured when the policy is given to the insured. The insurance intermediary must keep a copy of the signed policy delivery receipt for at least three years after termination of the policy, and must forward a copy of the signed policy delivery receipt to the insurer within seven days of delivery of the policy.

A copy of the rule may be obtained from Meg Gunderson in OCI’s Central Files Section at (608) 266-0110. If you have questions about the rule, contact John Kitslaar at (608) 267-7322.

Thank you for your cooperation.