Life insurance: enhanced protection or supplemental insurance purchased by dividend

Issued and entered August 5, 1975 by Daniel J. Demlow, Commissioner of Insurance

The Michigan Insurance Bureau has become aware of problems and the lack of specific direction in the design and sale of policies integrating "enhanced protection" or "supplemental insurance purchased by dividends" with whole life insurance. These include policies that combine whole life or modified life policies with term and/or paid-up insurance purchased by dividends. In most cases, the permanent plus the supplemental insurance purchased by dividends is a level benefit.

In determining compliance with Sections 2064, 2236 and other applicable sections of the Michigan Insurance Code of 1956 as amended the Bureau will use the following guidelines:

1. These forms are considered new or unusual under the Exemption Order of September 1, 1968 and must be submitted for filing and approval prior to being used in Michigan. Any forms currently being sold that have not been submitted for approval must be submitted.

2. The contract may provide that term insurance or paid-up insurance, or both, may be purchased by dividends so that the original face amount remains level.

3. The policy specifications or cover page must indicate what amount is guaranteed permanent coverage and what amount is term and/or paid-up insurance purchased by anticipated dividends.

4. If level benefit insurance is contingent upon dividends providing term insurance and/or paid-up insurance, then the specifications page and the supplemental insurance provisions must disclose that insufficient or no dividends will either cause a reduction or elimination of supplemental coverage, or that additional premium will be required to keep the original death benefit amount in force.

5. The insured must be given the right in the dividend provision to receive the dividend in cash, as required by Section 4020 of the Michigan Insurance Code.

6. The policy may not, directly or indirectly, state or imply that dividends are guaranteed or that the amount of term and/or paid-up insurance to be paid for by dividends is guaranteed for a specific amount or duration.

7. Marketing material used in the sale of this product must be submitted to the Insurance Bureau and accepted by the Marketing Division prior to its use in Michigan.

Any policy submitted for approval will be expected to meet these requirements. Any forms currently in use that do not comply with these standards must be resubmitted for review.