A life insurance illustration shows policy values based on interest rates higher than the insurer's current rate. How must the illustration be presented to the applicant?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
California Insurance Code Sections 10509.950 through 10509.965 regulate policy illustrations. An illustration that shows nonguaranteed values, such as dividends, current interest rates, or expense charges, must clearly identify those elements as nonguaranteed and must not mislead the applicant into believing they are guaranteed. The illustration must be signed by the applicant and the agent, and it must state that values are based on current assumptions that are not guaranteed. Misleading illustrations are an unfair practice under California law. The rule exists to prevent inflated projections from being presented as reliable promises, a concern regulators treat seriously.
Why the other options are wrong
- B) An insurer cannot guarantee values that depend on future interest rates or dividends; nonguaranteed projections remain nonguaranteed no matter how the illustration is presented. Guaranteeing them would defeat the very purpose of the disclosure, which is to warn the consumer of uncertainty.
- C) There is no waiver that relieves the insurer from illustration misrepresentation; the signature requirements exist to document disclosure, not to waive liability. No statutory waiver exists for illustration misrepresentation, and none can be obtained by any form.
- D) Illustrations must be written documents that the applicant signs; presenting nonguaranteed values only orally violates the disclosure rules. An oral-only presentation cannot satisfy the signature and labeling requirements of the code.
Memory hook
If it glows from a high rate, the label must say: not guaranteed, spelled out loud.