56-7-702 - Definitions Provisions required in all industrial life insurance policies.
56-7-702. Definitions Provisions required in all industrial life insurance policies.
(a) Definitions. As used in this section:
(1) Insurer means any person, firm, corporation, partnership, association, trust, or other entity of any type engaged as a principal in the business of insurance in this state;
(2) Policyowner, absent any policy provision to the contrary, means the person who, according to the insurer's records, has the right to change the beneficiary under the policy; provided, that nothing in this section shall be construed to limit the rights of any assignee of a small insurance policy to enforce any assignment pursuant to its terms, or to prohibit an insurer from recognizing the assignment according to its terms; and
(3) Small policy, small insurance policy, or small insurance means any life insurance policy issued after April 1, 1980, that meets the definition of industrial life insurance in § 56-7-701. For the purposes of this subdivision (a)(3), face amount does not include payments contingent upon:
(A) Time elapsing before the insured's death;
(B) Cause of the insured's death; or
(C) Circumstances of the insured's death.
(b) Small Insurance Policy Law of 1979. After April 1, 1980, except the provisions required by subdivision (b)(15), all industrial life insurance policies delivered or issued for delivery in this state shall contain provisions not less favorable to the policyowner than the following:
(1) A provision that the insured is entitled to a grace period of four (4) weeks within which the payment of any premium after the first may be made, except that in policies for which premiums are payable monthly, the period of grace shall be either one (1) month or thirty (30) days; during which period of grace the policy shall continue in full force; but in case the policy becomes a claim within the grace period before the overdue premiums are paid, the amount of the overdue premiums may be deducted in any settlement under the policy;
(2) A provision that the policy constitutes the entire contract between the parties, or a provision that the policy and the application for the policy constitute the entire contract between the parties; and in the latter case the policy must contain a provision that all statements made by the insured shall, in the absence of fraud, be deemed to be representations and not warranties. No statement in the application shall be used to avoid the policy unless a copy of the application has been attached to and made a part of the policy when issued;
(3) A provision that the policy shall be incontestable after it has been in force during the lifetime of the insured for a specified period, not more than two (2) years from its date except for nonpayment of premiums and except for violations of conditions of the policy relating to naval and military services in time of war;
(4) A provision that if it is found that the age of the person insured, or the age of any other person considered in determining the premium, has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium paid would have purchased at the correct age or ages;
(5) If a participating policy, a provision indicating the conditions under which the company shall periodically ascertain and apportion any divisible surplus accruing on the policy;
(6) A provision that will provide for a stipulated form of insurance in the event of default of premium payments after premiums have been paid for three (3) full years; and a provision that, in the event of default in premium payments after premiums have been paid for three (3) full years, there shall be a specified cash surrender value available in lieu of the stipulated form of insurance, and the amount of which stipulated cash value shall not be less than the reserve on the policy and any dividend additions thereto, if any, at the end of the last completed quarter of the policy year for which premiums have been paid, the policy to specify a mortality table, rate of interest and method of valuation adopted to compute such reserve, exclusive of any reserve on disability benefits and accidental death benefits, less a maximum percentage of not more than two and one half percent (2.5%) of the maximum cash amount insured by the policy and dividend addition thereto, if any, when the issue age is under ten (10) years, and less a maximum percentage of not more than two and one half percent (2.5%) of the current cash amount insured by the policy and dividend additions thereto, if any, if the issue age is ten (10) years or older, and less any existing indebtedness to the company on or secured by the policy;
(7) A provision, if the policy provides for more than one (1) stipulated form of insurance, for a period of not less than sixty (60) days from date of defaulted premium within which the insured shall be entitled to notify the company in writing of the insured's election of an option, it being expressly stated as to which option will automatically apply in the event of the insured's failure to notify the company of the selection within the stipulated period;
(8) A provision that the policy may be surrendered to the company at its home office within a period of not less than sixty (60) days after the due date of the defaulted premium for the specified cash value; provided, that the insurer may defer payment for not more than six (6) months after the application for the payment is made;
(9) A provision that if, in the event of default in premium payments, the value of the policy shall be applied to the purchase of other insurance; and if the insurance is in force and the original policy has not been surrendered to the company and cancelled, the policy may be reinstated within three (3) years from the default upon evidence of insurability satisfactory to the company and payment of arrears of premiums, with interest;
(10) A table showing in figures the nonforfeiture options and loan values available under the policy every year upon default in payment of premiums during at least the first twenty (20) years of the policy, the table to begin with the year in which the values become available, and a provision that the company will furnish upon request an extension of the table beyond the years shown in the policy;
(11) A provision that when a policy becomes a claim by the death of the insured, settlement shall be made upon receipt of due proof of death and not later than two (2) months after receipt of proof;
(12) A title on the face of the policy briefly describing its form;
(13) A provision that no agent shall have the power or authority to waive, change or alter any of the terms or conditions of any contract delivered or issued for delivery;
(14) A space on the front or back page of the policy for the name of the beneficiary designated, with a reservation of the right to designate or change the beneficiary after the issuance of the policy. The policy may also provide that no designation or change of beneficiary shall be binding on the insurer until endorsed on the policy by the insurer, and that the insurer may refuse to endorse the name of any proposed beneficiary who does not appear to the insurer to have an insurable interest in the life of the insured. The policy may also contain a provision that if the beneficiary designated in the policy does not surrender the policy with due proof of death within the period stated in the policy, which shall not be less than thirty (30) days after the death of the insured, or if the beneficiary is the estate of the insured or is a minor, or dies before the insured or is not legally competent to give valid release, then the insurer may make payment under the policy to the executor or administrator of the insured, or to any of the insured's relatives by blood or legal adoption or connection by marriage, or to any person appearing to the insurer to be equitably entitled to the payment by reason of having been named beneficiary, or by reason of having incurred expense for the maintenance, medical attention or burial of the insured;
(15) A provision in policies issued after July 1, 1980, that after three (3) full years' premiums have been paid the company at any time while the policy is in force will advance on proper assignment of the policy and on the sole security of the policy, at a specified rate of interest, a sum equal to, or, at the option of the policyowner, less than the amount required by § 56-7-2309 under the conditions specified by § 56-7-2309; and that the company will deduct from the loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year; provided, that nothing in this subdivision (b)(15) shall require a policy loan in an amount less than twenty-five dollars ($25.00). It shall be further stipulated in the policy that failure to repay the advance or to pay interest shall not void the policy unless the total indebtedness on the policy to the company equals or exceeds the loan value at the time of the failure, nor until one (1) month after written notice has been mailed or otherwise delivered by the company to the last known address of the policyowner and of the assignee, if any. No condition other than as provided in this subdivision (b)(15) or in § 56-7-2309 shall be exacted as a prerequisite to the advance. This provision shall not be required in term insurances;
(16) A provision that all premiums shall be payable in advance either at the home office of the company or to any agent of the company upon delivery of a receipt signed by one (1) or more of the officers who shall be named in the policy;
(17) A provision stating clearly, understandably and conspicuously in substance that the policyowner shall be permitted to return it within a period of not less than ten (10) days of its delivery to the policyowner and to have the premium paid by the policyowner refunded if the policyowner so elects. If the policyowner returns the policy to the insurer, the policy shall be void from the beginning, the parties shall be in the same position as if no policy had been issued and the insurer shall promptly refund any premiums collected in connection with the policy;
(18) (A) One (1) of the following provisions:
(i) That if the policyowner pays in one (1) sum premiums in advance of their due date by not fewer than fifty-two (52) weeks from the due date, the insurer shall provide a discount at a rate that the insurer shall determine not less frequently than annually; provided, that if the policyowner secures a refund of any portion of the premiums within the period in which they are prepaid, the insurer may set off against the refund an amount not in excess of the amount of the discount; or
(ii) That if the policyowner has paid in one (1) sum premiums in advance of the due date of the premiums for a period of at least fifty-two (52) weeks from the due date, the insurer shall provide a refund in cash or in premium credit, as the policyowner may elect, at the end of that period at a rate that the insurer shall determine not less frequently than annually, which rate the insurer shall make available to its policyowners upon request, if the premiums have not been withdrawn by the policyowner during the period of not fewer than fifty-two (52) weeks;
(B) One (1) of the following provisions:
(i) That if the policyowner pays in one (1) sum premiums in advance of the due date of the premiums by not fewer than twenty-six (26) weeks from the due date, the insurer shall provide a discount at a rate that the insurer shall determine not less frequently than annually; provided, that if the policyowner secures refund of any portion of the premiums within the period in which they are prepaid, the insurer may set off against the refund an amount not in excess of the amount of the discount; and provided, further, that nothing in this subsection (b) shall require the insurer to provide any discount in an amount of less than four dollars ($4.00); or
(ii) That if the policyowner has paid in one (1) sum premiums in advance of the due date of the premiums for a period of at least twenty-six (26) weeks from the due date, the insurer shall provide a refund in cash or in premium credit, as the policyowner may elect, at the end of that period at a rate that shall be determined by the insurer not less frequently than annually, which rate the insurer shall make available to its policyowners upon request, if the premiums have not been withdrawn by the policyowner during the period of not fewer than twenty-six (26) weeks; provided, that nothing in this subsection (b) shall require the insurer to provide any refund in an amount less than four dollars ($4.00).
(c) Requirements and Prohibitions.
(1) No insurer shall offer, sell, issue, or deliver within this state any small insurance policy unless and until there has been compliance as to the policy with each provision of this section and the regulations adopted pursuant to this section;
(2) (A) No small insurance policy shall contain any of the provisions prohibited by § 56-7-2308;
(B) No small insurance policy shall exclude or restrict the payment of the face amount by reason of the fact that the death of the insured occurred due to the act of another;
(3) Every small insurance policy shall be subject to the requirements of § 56-7-2311, and as a part of the approval, the insurer shall be required to sustain the burden of satisfying the commissioner that the policy complies with this section. The commissioner shall disapprove any form if it contains provisions that are misleading, deceptive or encourage misrepresentation of the coverage or are contrary to this title or of any rule or regulation promulgated under this title;
(4) Each of the optional benefits and charges provided under a small insurance policy shall be separately priced, and the prices shall be set forth in the policy in a clear, conspicuous and understandable manner;
(5) No small insurance policy shall be delivered or issued for delivery in this state, nor shall any endorsement, rider, or application be used in connection with the policy until a copy of the form and of the premium rates for the policy have been filed with the commissioner;
(6) No insurer shall deliver a small policy in this state unless the company has first taken the written application of the insured or proposed policyowner on an application form theretofore approved by the commissioner. The application shall contain an acknowledgment by the applicant that the applicant has reviewed the life insurance program, disclosures by the applicant of the total face amount of insurance and the number of policies on the life of the applicant and the proposed insured, if the proposed insured is a person other than the applicant, and an acknowledgment that the applicant is aware of the relationship of the cost of the insurance program to the applicant's total income.
(d) Enforcement.
(1) Any insurer who fails to comply with any requirement imposed under this section with respect to any person is liable to the person, in a private right of action, in an amount equal to the sum of:
(A) Any actual damage sustained by the person as a result of the failure; and
(B) The court may grant equitable and declaratory relief necessary to enforce the requirements of this section;
(2) In addition to other applicable provisions, compliance with this section shall also be enforced by the commissioner. A violation of this section shall be punishable by a civil penalty not to exceed five hundred dollars ($500) for each offense;
(3) The failure of an insurer to comply with this section shall not invalidate the policy, and the violation shall not provide a defense to the insurer as to any claim brought by the holder.
(e) Miscellaneous Provisions.
(1) Approvals heretofore granted all small insurance policies filed and approved under § 56-7-2311, or any predecessor, shall be withdrawn on April 1, 1980, and no policy form shall be issued after that date unless the policy has first been filed and approved in accordance with law;
(2) When any small insurance policy provides for weekly premium payments, there may be a provision that upon proper notice to the insurer, while premiums on the policy are not in default beyond the grace period, of the intention to pay future premiums directly to the insurer at its home office or any office designated by the insurer for the purpose, the insurer will, at the end of each period of a year from the due date of the first premium so paid, for which period the premiums are so paid continuously without default beyond the grace period, refund a stated percentage of the premiums in an amount that fairly represents the savings in collection expense.
[Acts 1945, ch. 27, § 2; mod. C. Supp. 1950, § 6447.2; Acts 1979, ch. 398, §§ 1-6; T.C.A. (orig. ed.), § 56-1129.]