Use honest advertising and required disclosures

Introduction

An insurance ad or sales presentation shapes what a buyer thinks they are getting. Nevada has two separate sets of rules that keep that picture accurate.

• Health advertising rules decide what an ad for accident and sickness coverage may say, and what qualifications must appear beside the claim.
• Life insurance disclosure rules decide which documents a life insurance buyer must receive, when they must receive them, and how cost and benefit numbers must be presented.

This lesson teaches you to tell which rule set applies, check an ad claim against the qualifications that must sit near it, and read life insurance comparison numbers without treating estimates as promises.

What you will be able to do

By the end of this lesson, you should be able to:

• Decide whether Nevada's health advertising rules or its life disclosure rules apply to a situation, and recognize what each one excludes.
• Check an advertising claim and say whether the required qualification is present, accurate and close enough to the claim.
• Tell a buyer's guide from a policy summary, and apply the delivery-timing rule and its exceptions.
• Read an equivalent level death benefit, a cost index and an equivalent level annual dividend, and explain why nonguaranteed figures are not promises.

Before you start

This lesson builds on several earlier ones:

• Recognize prohibited conduct and handle client money covers misrepresentation in general.
• Use cash values without confusing the choices explains what a cash surrender value is.
• Handle credit and group life contexts covers credit and group coverage.

You should also know that a dividend on a participating policy is a nonguaranteed amount the insurer may pay.

One more idea is needed later: the time value of money. A dollar you pay today counts for more than a dollar you pay ten years from now, because the earlier dollar could have earned interest in the meantime. The life cost rules build that idea into their numbers.

All people, companies, ads and amounts in this lesson are fictional. Every amount is stipulated, meaning it is given to you for practice. None of them comes from a real policy.

Two rule sets answer two different questions

Start by asking which rule set you are in. The two sets do different jobs.

• Health advertising rules (Nevada Administrative Code, or NAC, chapter 689A, sections .010 to .270) ask: Is this ad for accident or sickness coverage truthful, and does it show the conditions the buyer needs to see?
• Life disclosure rules (NAC 686A.410 to .455) ask: Did this life insurance buyer receive the required documents, at the right time, with cost and benefit figures shown honestly?

A common mistake is to assume that every advertising rule applies the same way to every product. It does not. The health ad rules use a defined term, "policy." That term covers only certain coverage. The life disclosure rules have their own scope and their own exclusions.

Health advertising rules: what counts and what is covered

What counts as an advertisement

Under these rules, "advertisement" is broad. It is not limited to TV commercials. It includes three kinds of material:

• Printed and published material, such as newspaper and magazine content, radio and TV scripts, and billboards.
• Sales aids an insurer issues for the public, such as leaflets, booklets, illustrations and form letters.
• Prepared sales talks and presentations written for agents and brokers, plus what those agents and brokers say when following them.

Plain-English takeaway: a script an agent reads aloud is an advertisement just as much as a billboard is.

The word "insurer" is also broad in these rules. It covers any entity engaged in advertising a policy, and it names fraternal benefit societies among others.

What "policy" covers, and what it leaves out

For these rules, a policy is coverage that provides accident or sickness benefits, or medical, surgical or hospital expense benefits. The benefits can be paid as cash, as reimbursement or as services.

The definition then leaves out two things:

• Such benefits issued in connection with another kind of insurance, other than life.
• Disability and double indemnity benefits included in life insurance and annuity contracts.

Example: A fictional whole life policy includes a double indemnity benefit that doubles the death benefit for an accidental death. That benefit sits inside a life contract, so it is not a "policy" under these health ad rules.

Qualification: This does not mean ads for life insurance may mislead. These particular rules simply are not a blanket rulebook for life insurance. General rules against misrepresentation still apply.

Three words for the fine print

The rules name three kinds of policy terms an ad may need to disclose:

• An exception removes coverage for a specified hazard entirely, or states a risk the insurer does not take on. Plain English: this is not covered at all.
• A reduction lowers the amount paid, so the payment for a loss is less than it would otherwise be. Plain English: this is covered, but for less.
• A limitation is any other provision that restricts coverage. Plain English: this is covered, but with a restriction.

Check: A fictional ad for a stand-alone hospital indemnity plan appears on a bus shelter. Separately, an agent describes the accidental death benefit built into a client's life policy. Which situation falls under the health advertising rules?

Answer: Explanation

The bus-shelter ad for the hospital indemnity plan falls under them. It provides hospital benefits, and a bus-shelter display is printed advertising.

The accidental death benefit is a double indemnity benefit included in a life contract, and the definition of "policy" excludes it. That does not make a misleading description acceptable. It only means this particular rule set is not the one that governs it.

Check a claim: the headline and the qualification beside it

The core health ad rule is simple. Advertisements must be truthful and not misleading, either in fact or by implication. An ad also may not use a word whose meaning is clear only to someone familiar with insurance terms.

Worked example: a dollar headline

A fictional ad from Sagebrush Mutual says:

"Pays $3,000 for your hospital stay!"

The fictional policy actually pays $150 per day, for up to 20 days. Since $150 × 20 = $3,000, the headline number is arithmetically true. Is the ad still a problem?

It is. The rules say a statement like "this policy pays $X for hospital room and board" may not be used unless the ad also shows the maximum daily benefit and the maximum time limit.

A reader who sees only "$3,000" might expect $3,000 for a two-day stay. That reader would actually receive $150 × 2 = $300. The daily amount and the 20-day limit are what make the headline honest.

Change one fact. Suppose the headline instead says "Pays $150 a day, up to 20 days." Now the daily maximum and the time limit are in the claim itself, so this particular problem is gone. Other required disclosures, covered below, may still apply.

Change the stay. A covered 5-day stay pays $150 × 5 = $750, not $3,000. The daily figure is what lets a buyer predict an actual payment.

Words like "full," "up to," and "unlimited"

The rules list terms such as "all," "full," "complete," "comprehensive," "unlimited," "up to" and "as high as." They also list phrases such as "this policy will pay your hospital and surgical bills" and "this policy will replace your income."

These words are not banned. They may not be used to exaggerate a benefit beyond what the policy provides. They may be used only in a way that fairly describes the benefit.

Example: "Up to $150 a day" fairly describes a benefit with a $150 daily maximum. "Full hospital coverage" is a problem when the plan pays a fixed daily amount that may be far below the bill.

Disclosures an ad must include

Some claims require extra disclosure:

• Money, time or a specific benefit. When an ad mentions a dollar amount, a benefit period, the cost, a specific benefit or a covered loss, it must also disclose the exceptions, reductions and limitations without which the ad would tend to mislead.
• Conditional benefits. If benefits are paid only under certain conditions, or in different amounts for the same loss under different conditions, the ad must disclose those conditions.
• Specified diseases. A policy covering only one disease, or a list of diseases, may not be advertised as if it covers more. The ad also may not use synonyms that suggest broader coverage.
• Waiting periods. If there is a gap between the policy's effective date and the start of coverage, or between a loss and the start of benefits, the ad must say those periods exist.
• Preexisting conditions. The ad must disclose how far losses traced to a condition that existed before the policy took effect are not covered. If such losses are excluded, the ad may not suggest that health history will not matter for issuing the policy or paying claims. This limits phrases like "no medical examination required."
• Renewal, age and continuation. An ad that mentions renewability, cancellation or termination, refers to a policy benefit, or uses time or age in connection with eligibility or continuation must disclose the renewal, cancellation and termination provisions. It must also disclose any change in benefits or premiums because of age or other reasons.

Placement matters, not just presence

Required information must be conspicuous. It must sit either in close conjunction with the statement it qualifies, or under captions prominent enough that it is not minimized, obscured, made ambiguous or buried.

The tempting mistake: "A footnote saying conditions apply takes care of it." It does not. A vague footnote far from the claim does not say what the conditions are, and it is not close to the statement it qualifies.

Check: A fictional mailer headline reads "Guaranteed acceptance, no medical exam!" The plan excludes losses from conditions that existed before coverage began. On the back page, in small gray type, it says "Some limits may apply." Find two problems.

Answer: Explanation

First, because the plan excludes preexisting-condition losses, the ad may not suggest that health history will not affect claims. "No medical exam" can create exactly that impression. The ad must disclose how far those losses are not covered.

Second, "Some limits may apply" in small type on another page is neither specific nor conspicuous, and it is not close to the claim. A disclosure has to be present, specific and placed where the reader will connect it to the headline.

Testimonials, statistics and refund offers

Testimonials

A testimonial used in an ad must meet four conditions:

• It is genuine.
• It reflects the author's current opinion.
• It applies to the policy being advertised.
• It is accurately reproduced.

The key point is that the insurer, by using a testimonial, makes every statement in it the insurer's own.

Example: A fictional insurer runs a customer quote from several years ago praising a different plan the insurer no longer sells. The quote may have been genuine when given. It is still not current, and it does not apply to the advertised policy. The defense "the customer said it, not us" fails, because the insurer adopted the statement when it used it.

Statistics

Figures such as claims paid or number of people insured must reflect all relevant facts. An ad also may not suggest that the statistics come from the advertised policy unless they do.

Refund and inspection offers

An offer to let buyers inspect the policy, or to refund premiums, does not cure a misleading statement in the ad. A buyer who relies on a false headline has already been misled, and the chance to get money back later does not make the headline true.

Check: A fictional ad reads "Our members collected $40 million in claims last year!" and adds "Not satisfied? Full refund anytime." The $40 million figure covers all of the insurer's product lines, not the plan being advertised. Does the refund offer fix the problem?

Answer: Explanation

No. The statistic suggests it comes from the advertised plan when it does not. The rules forbid that unless it is true. A refund offer is not a cure for a misleading statement.

Other claims an ad must get right

Each of these rules has the same structure: the statement must be true or fairly presented. None of them bans accurate statements.

• Plan choices. If an ad mentions a choice of benefit amounts, it must disclose that benefits depend on the plan selected and that the premium varies with the benefit amount.
• Combined policies. If the benefits described come from two or more policies, the ad must say so. Group master policies are the exception.
• Comparisons. An ad may not make unfair or incomplete comparisons, or falsely disparage competitors or their policies, services or business methods.
• Licensing. An ad meant to be seen beyond the states where the insurer is licensed may not suggest it is licensed beyond them. Direct mail insurers must state the states where they are not licensed, with wording such as "This Company is not licensed in State B."
• Identity. The insurer's identity must be clear. A trade name, slogan or symbol may not mislead people about who the insurer really is.
• Group privileges. An ad may not suggest that buyers become members of a group with special rates or underwriting privileges, unless buying the insurance actually makes them members of a group.
• Special offers. An ad may not call something an introductory, initial or special offer with advantages unless that is true.
• Approval and endorsement. An ad may not suggest that a government agency approved the insurer or policy, or examined the insurer's finances and found them satisfactory, unless true. The same applies to claimed endorsements by any person or organization.
• Claims payment. An ad may not make untrue statements about how fast claims are paid, or suggest claims will be settled more generously than the policy terms allow.
• Insurer facts. Statements about the insurer's assets, structure, financial standing, age or relative position in the industry may not be untrue or misleading.

Recordkeeping. Each accident and health insurer must keep a file at its home or principal office containing:

• Every printed, published or prepared ad for individual policies.
• Typical ads for blanket, franchise and group policies.

This applies to ads used in Nevada or any other state, whether or not the insurer is licensed there. Each ad needs a note showing how and how widely it was distributed, and the form number of any policy advertised. The Division may inspect the file, and the ads must be kept for at least 3 years.

Life sales: who the disclosure rules reach

Now switch to the life disclosure rules. Their stated purpose is to give life insurance buyers information that improves three things:

• Their ability to choose the plan that fits their needs.
• Their understanding of the policy's basic features.
• Their ability to compare the relative costs of similar plans.

What the rules cover and exclude

These rules apply to any solicitation, negotiation or procurement of life insurance that happens in Nevada. They apply to any issuer of life insurance contracts, including fraternal benefit societies, and to solicitations that began on or after January 1, 1979.

Unless a product is specifically included, the rules do not apply to:

• Annuities.
• Credit life insurance.
• Group life insurance.
• Life policies issued in connection with pension and welfare plans subject to the federal Employee Retirement Income Security Act (ERISA).
• Variable life insurance whose death benefits and cash values vary with the unit values of investments held in a separate account.

Being outside these disclosure rules only means these specific document rules do not apply. It does not permit misrepresentation.

Rules for the sales conversation itself

• Identify yourself first. Before starting a life insurance sales presentation, the agent must tell the prospective buyer two things: that they are acting as a life insurance agent, and the full name of the insurer they represent. If no agent is involved, the insurer must state its own full name.
• Titles. Terms such as "financial planner," "investment adviser," "financial consultant" or "financial counseling" may not be used to suggest the agent runs an advisory business paid separately from sales, unless that is actually true.
• Records. Each insurer must keep one copy of every document it authorized for use under these rules at its home or principal office. Each copy must be kept for 3 years after the document's last authorized use, not 3 years after it was created.

The buyer's guide and the policy summary

These two documents are easy to confuse. They answer different questions.

The buyer's guide

A buyer's guide contains only the language in the regulation's appendix, or language the Commissioner has approved. Plain English: it is standard explanatory text about shopping for life insurance. What qualifies a document is its content: ordinary brochure language from a company or agent does not count unless it is the appendix language or Commissioner-approved language.

The tempting mistake: "Our agency's brochure explains life insurance, so it's our buyer's guide." It is not. A brochure an agent or company wrote does not become a buyer's guide by explaining insurance. The content must be the appendix language or Commissioner-approved language.

The policy summary

A policy summary is a separate document about this specific policy. It shows the policy's premiums, benefits, values and cost figures. Its title must read: Statement of Policy Cost and Benefit Information.

The difference in one line: the buyer's guide explains how to shop for life insurance in general, and the policy summary shows the numbers for the policy being considered.

When they must be delivered

The basic rule is that the insurer must give the applicant both documents before accepting the initial premium or premium deposit.

The exception applies when the policy summary or the policy contains an unconditional refund provision of at least 12 days. In that case, both documents may be delivered with the policy, or before the policy is delivered.

The rule also has these additional parts:

• On request. The insurer must give both documents to any prospective purchaser who asks.
• Small policies. If the policy's equivalent level death benefit (explained below) is $5,000 or less, a shorter written statement satisfies the policy summary requirement. It must still include specific items: the agent or inquiry information, the insurer's name and address, the generic names, the premiums and guaranteed death benefits, the loan rate, the cost indexes, the statement near the indexes, and the date prepared.
• Illustration exception. If an illustration that complies with Nevada's illustration rules is provided, the policy summary is not required. This exception covers only the summary. The buyer's guide is still required.

Failure to deliver. If an insurer fails to provide either document when the rules require it, that failure counts as an omission that misrepresents the policy's benefits, advantages, conditions or terms.

Check: A fictional policy lets the owner return it within 10 days for an unconditional refund. The insurer takes the first premium at application and plans to send the buyer's guide and summary with the policy. Is that allowed?

Answer: Explanation

No. The delayed-delivery exception requires an unconditional refund of at least 12 days. A 10-day refund right does not qualify, so the buyer's guide and summary must be provided before the insurer accepts the initial premium.

Do not mix this 12-day threshold up with a free-look period. They are separate ideas. The free look is covered in Replace a policy responsibly and use the free look.

What a policy summary must show

Identifying information

• The title Statement of Policy Cost and Benefit Information, placed prominently.
• The agent's name and address. If no agent is involved, the procedure for getting answers to questions about the summary.
• The insurer's full name and its home office or administrative office address.
• The generic name of the basic policy and of each rider. A generic name is a short title that describes the premium and benefit pattern, such as a plain description of the plan type rather than a marketing name.
• The date the summary was prepared.

Year-by-year amounts

These amounts are shown where applicable. They must cover the first 5 policy years and representative later years. Those later years must include the years for which cost indexes are shown, and at least one age from 60 through 65 or maturity, whichever is earlier.

• The annual premium for the basic policy.
• The annual premium for each optional rider.
• The guaranteed death benefit at the beginning of each year, for the basic policy and each rider shown separately. This is the amount payable regardless of cause of death, other than suicide or other specifically listed exclusions.
• The total guaranteed cash surrender values at year end, shown separately for the basic policy and each rider.
• Cash dividends payable at year end, shown separately. These need not be shown past the 20th policy year. A cash dividend here means the current illustrated dividend that can be applied toward the gross premium.
• Any guaranteed endowment amounts not already included in the cash surrender values.

Other required items

• Policy loan rate. If the policy has a loan provision, the summary must show the effective annual loan interest rate and whether it is applied in advance or in arrears. If the rate is variable, it must show the maximum rate.
• Cost indexes. The summary must show cost indexes for 10 and 20 years, but not beyond the premium-paying period. Separate indexes are required for the basic policy and for each optional term rider.
• Indexes are not required for riders limited to benefits such as accidental death, waiver of premium for disability, preliminary term coverage under 12 months, or guaranteed insurability.
• Indexes are also not required for policies or riders covering more than one life.
• Equivalent level annual dividend. Participating policies and participating term riders must show it at the same durations as the indexes.
• Dividend statements. If dividends appear, the summary must state that they are based on the company's scale and are not guaranteed. A required sentence must also appear near the equivalent level annual dividend, pointing to the buyer's guide for an explanation of its intended use.
• Index statement. A required sentence must appear near the cost indexes, pointing to the buyer's guide for an explanation of their intended use.

Display rules

• The summary must be a separate document, and nothing in it may be minimized or obscured.
• An amount that stays the same for 2 or more years may be shown as a single number, as long as it is clear which years it applies to.
• Year-by-year amounts must be shown in total, not per $1,000 or per unit.
• If one policy or rider covers more than one insured, guaranteed death benefits must be shown separately for each insured, or for each class of insureds whose benefits are the same.
• Zero must be shown as "0," never as a blank space. A blank could mean "not applicable" or "we left it out." A zero tells the buyer there is no value.

Check: A fictional draft summary leaves the guaranteed cash value for years 1 and 2 blank, because the value is $0. It also lists the death benefit as "$25 per $1,000." Name two problems.

Answer: Explanation

First, the zero cash values must be printed as 0, not left blank. Second, the year-by-year amounts must be shown in total, such as $250,000, not on a per-thousand basis.

Keep guaranteed and nonguaranteed figures apart

Several presentation rules exist to stop buyers from treating estimates as promises:

• Dividends. Any mention of policy dividends must include a statement that dividends are not guaranteed.
• Combined totals. A presentation may not show guaranteed and nonguaranteed benefits as one combined sum unless each part is also shown separately, close to that sum.
• Example: A fictional presentation shows "$102,000 total death benefit." That $102,000 is $100,000 guaranteed plus $2,000 from nonguaranteed dividend additions. It is acceptable only if the $100,000 and $2,000 are each shown nearby. Even then, the combined total is not a guarantee of $102,000.
• Changeable premiums. If the company reserves the right to change a premium, the annual premium used under these rules must be the maximum premium.
• Indexes reflecting dividends. A cost index that reflects dividends, or an equivalent level annual dividend, must be accompanied by a statement that it is based on the company's current dividend scale and is not guaranteed.
• Index purpose. Any statement about using cost indexes must explain that they are useful only for comparing the relative costs of two or more similar policies.

Cost comparisons must account for time value

A system or presentation that does not recognize the time value of money, through appropriate interest adjustments, may not be used to compare the cost of two or more life policies.

The same rule has a second sentence with unusual wording. As written, it says such a system may not be used to demonstrate a policy's cash-flow pattern if the presentation comes with a statement disclosing that it does not recognize that, because of inflation, a future dollar may be worth less.

Read that sentence exactly as written. It does not say that adding an inflation statement makes an unadjusted presentation acceptable. Do not treat a disclaimer as a permission slip.

Reading the comparison numbers

All three measures below use the same two tools:

• Accumulate at 5% interest compounded annually. This turns a series of yearly amounts into a single value at the end of year 10 or year 20. Money paid earlier grows more, so it counts for more. This is how the time value of money gets built in.
• Divide by an interest factor. This turns that end-of-period value back into one level yearly amount, paid at the start of each year, that would grow to the same total. The regulation sets the factors: 13.207 for 10 years and 34.719 for 20 years.

Equivalent level death benefit (ELDB)

This answers the question: What single, level death benefit is this policy's guaranteed death benefit pattern equivalent to?

To calculate it, accumulate the guaranteed death benefit at the start of each policy year at 5% to the end of year 10 or year 20. Then divide by the factor.

Worked example (stipulated): A fictional policy has a level $100,000 guaranteed death benefit. Its 10-year accumulation is given as $1,320,700.

$1,320,700 ÷ 13.207 = $100,000

For the next steps, express this in thousands: 100.

This makes sense. A death benefit that is already level should come out as itself. The ELDB matters more when death benefits change from year to year. It is also the number that decides the $5,000 small-policy rule covered above.

Surrender cost index

This answers the question: Per $1,000 of coverage, what is the yearly cost if the policy is surrendered at year 10 or 20, after counting what comes back?

The steps are:

1. Take the guaranteed cash surrender value at the end of year 10 or 20.
2. For a participating policy, add any terminal dividend payable on surrender, plus the annual cash dividends accumulated at 5%.
3. Divide that total by the factor. This gives the level yearly value of what comes back.
4. Accumulate the annual premiums at 5% and divide by the same factor. This gives the equivalent level premium.
5. Subtract: equivalent level premium minus the level value of what comes back.
6. Divide by the number of thousands of the ELDB.

Worked example (stipulated, 10 years, nonparticipating):

Net payment cost index

This answers the question: Per $1,000 of coverage, what is the yearly cost if the policy is kept in force rather than surrendered?

It is calculated the same way, except the cash surrender value and any terminal dividend are set to zero. Annual dividends are not set to zero. They still count.

Using the same nonparticipating policy: ($1,000 − $0) ÷ 100 = 10.00.

Why the two indexes differ: The surrender index gives credit for cash you would receive by surrendering. The net payment index assumes you keep the policy, so it gives no credit for the surrender value.

Equivalent level annual dividend

The steps are:

1. Accumulate the annual cash dividends at 5%.
2. Divide by the factor.
3. Divide by the thousands of the ELDB.

Example (stipulated): Dividends accumulated over 10 years equal $1,320.70.

$1,320.70 ÷ 13.207 = $100, and $100 ÷ 100 = 1.00 per $1,000

This figure is based on the current dividend scale and is not guaranteed.

What these numbers do not mean

• They are not a savings promise. The 5% rate is a fixed standard the regulation uses to account for time value. It is not a return the policy promises.
• They are not a guarantee when dividends are included. Any index that reflects dividends rests on a current, nonguaranteed scale.
• They do not compare every pair of plans. The indexes are useful only for comparing the relative cost of similar policies. Placing one plan's index beside a very different plan's index does not show which plan is better for a buyer.

Check (transfer): A fictional participating policy has these stipulated 10-year figures: equivalent level premium $1,000; guaranteed cash value at year 10 $1,320.70; accumulated annual dividends $1,320.70; terminal dividend $0; ELDB 100 thousand. Find the surrender cost index and the net payment cost index.

Answer: Explanation

Surrender cost index: What comes back is $1,320.70 + $1,320.70 + $0 = $2,641.40. Dividing by 13.207 gives $200. Then ($1,000 − $200) ÷ 100 = 8.00.

Net payment cost index: Set the cash value and terminal dividend to zero, but keep the accumulated annual dividends. That leaves $1,320.70, and $1,320.70 ÷ 13.207 = $100. Then ($1,000 − $100) ÷ 100 = 9.00.

A common mistake is to zero out the dividends too, which gives 10.00. Only the cash value and the terminal dividend are set to zero.

Both indexes here rely on dividends, so both must be labeled as based on the current dividend scale and not guaranteed.

Practice on your own

1. A fictional radio script for a cancer-only policy says it provides "complete protection against serious illness." What is wrong?

Answer: Explanation

The policy covers only one disease, so it may not be advertised as if coverage goes further. "Complete protection against serious illness" suggests broader coverage, and "complete" exaggerates the benefit beyond the policy's terms.

2. A fictional agent opens a meeting with "I'm your family's financial consultant." The agent is paid only by commission on insurance sales and does not say which insurer they represent. Identify two issues.

Answer: Explanation

First, before a life sales presentation begins, the agent must say they are acting as a life insurance agent and give the insurer's full name. Second, "financial consultant" may not be used to suggest an advisory business paid separately from sales, and here that is not true.

3. A buyer receives a fully compliant life illustration, but no policy summary and no buyer's guide. The policy's refund provision is 5 days. Which document is still missing, and when was it due?

Answer: Explanation

The compliant illustration replaces only the policy summary. The buyer's guide is still required. Because the refund period is shorter than 12 days, the guide was due before the insurer accepted the initial premium. Failing to provide it counts as an omission that misrepresents the policy.

4. A fictional presentation places two unadjusted totals side by side: "Plan A: $30,000 in premiums. Plan B: $28,000 in premiums. Plan B is cheaper." What rule does it break, and what is a second weakness?

Answer: Explanation

It compares the cost of two policies without interest adjustments for the time value of money, which is not allowed. A second weakness: even with interest-adjusted indexes, a comparison is meaningful only between similar policies. A low total says nothing if the plans are very different.

5. A fictional ad uses the slogan "The Silver State Plan" in a way that leads readers to think a state agency offers it. Which rules does this raise?

Answer: Explanation

The insurer's identity must be clear, and a trade name or slogan may not mislead about who the insurer really is. If the ad suggests government approval or sponsorship, that is also prohibited unless it is true.

Recap

• Identify the rule set first. The health ad rules govern ads for accident, sickness, medical, surgical and hospital benefits. They exclude disability and double indemnity benefits inside life and annuity contracts. The life disclosure rules exclude annuities, credit life, group life, ERISA-plan policies and separate-account variable life, unless specifically included. Being outside a rule set is never permission to mislead.
• Check every claim against its qualification. Dollar amounts need their limits. Hospital amounts need a daily maximum and a time limit. Waiting periods, preexisting-condition limits and renewal terms must be disclosed conspicuously and close to the claim.
• The advertiser owns what it uses. Testimonials become the insurer's own statements. Statistics must be accurate and correctly sourced. Refund and inspection offers do not cure a misleading ad.
• Buyer's guide versus policy summary. The guide is standard approved language, and the summary is this policy's numbers. Both are due before the initial premium is accepted. They may come with or before the policy only if there is an unconditional refund of at least 12 days. A compliant illustration replaces only the summary. Policies with an ELDB of $5,000 or less may use a shorter statement.
• Summary display rules. Show amounts in total, never per thousand. Print zero as 0, never blank. Show riders and multiple insureds separately.
• Comparison numbers. Accumulate at 5%, then divide by 13.207 for 10 years or 34.719 for 20 years. The surrender index credits cash value and dividends. The net payment index sets the cash value and terminal dividend to zero but keeps annual dividends. Indexes compare only similar policies, and anything based on dividends is not guaranteed.

Next, practice: Write a short ad headline for a fictional hospital plan and list every disclosure it would need nearby. Then calculate both cost indexes for a policy you invent, using stipulated round numbers.

Review: Identify the life sales role and separate promises from illustrations

• Life sales: who the disclosure rules reach
• Keep guaranteed and nonguaranteed figures apart