Illinois General Laws

 Director of Insurance
The Director of Insurance enforces the insurance laws of Illinois. This executive position is appointed by
the Governor of Illinois (gubernatorial appointment). The Director may

 Make reasonable rules and regulations as necessary to implement the insurance code
 Conduct investigations
 Conduct examinations
 Institute actions deemed necessary for enforcing the state’s insurance laws and regulations
 Issue subpoenas

Examination of records

The Director may conduct a financial examination of any insurance company as often as deemed
appropriate.

 All persons involved in the examination must provide the Director with full access to books and
records
 Notice must be given to the person or organization at least 10 days prior to the hearing
 The cost of the examination is charged to the company or person being examined
 The Director may examine any insurance producer as well

Cease and desist order

The Director may issue a cease and desist order to any person found to have committed an unfair or
deceptive act.

 At the same time that the cease and desist order is issued, the Director will serve notice of a
hearing to review the situation
 The hearing will be between 20 and 30 days from the date of the hearing notice
 Violation of a cease and desist order can result of a fine up to $100 per day that the violation
continues, up to a maximum of $5,000
 The Director also has the power to revoke or suspend any license or certificate of authority for
such violation

Attorney General

The Attorney General may enforce an order of the Director of Insurance.

  Insurance Transactions
“Insurance Transaction” includes any of the following:

 Solicitation or inducement to purchase insurance

 Negotiations toward the sale of insurance
 Executing a contract of insurance
 Advising on coverages and claims

A licensee may not transact insurance business in Illinois until the licensee is appointed by an insurer.

 Licensing
Producer

An individual who in any manner sells, solicits, or negotiates insurance on behalf of insurance companies
for compensation is an insurance producer. A valid producer license must be held for the class of
insurance being transacted.

 The licensing of insurance producers is needed to protect the public

 In Illinois, an individual producer is considered to represent the insurance company

Process

An applicant for a resident producer license in Illinois must

 Be at least 18 years of age

 Not have committed any act that is grounds for denial, suspension, or revocation
 Completed a prelicensing course
 Have passed the state exam for the lines of authority in which licensure is sought
 Submit the application with fees

Exemptions

Certain individuals are allowed to charge a fee for offering advice about the benefits or advantages of
any insurance policy. These include:

 A licensed attorney who advises on insurance matters incidental to his/her position

 A licensed producer offering advice concerning insurance for which he/she is licensed to sell
 A trust officer of a bank
 An actuary or a certified public accountant engaged in a consulting capacity
 A licensed public adjuster acting within the scope of his/her license
Bond requirement

All applicants for a producer’s license must certify that they are bonded or that an insurance company
will take responsibility for funds received on its behalf by the producer.

 This bond must be executed by an authorized surety company and be payable to any party
insured under the terms of the bond
 The amount of the bond must be greater of $2,500 or 5% of premiums brokered, not to exceed
$50,000 total aggregate liability
 If an insurance producer maintains a bond, under Illinois Insurance Law, the bond must be
continuous in form

Nonresident producers

A producer who holds a resident license in a different state may apply for a nonresident license in
Illinois, as long as both states have a reciprocal agreement.

 To apply, nonresidents must submit an application form, proof of resident license in good
standing, and fees
 Nonresident producer applicants do not have to take the Illinois state licensing exam, but must
not have committed any act for which the license could be denied, suspended, or revoked

Business entities

Illinois requires that any business entity that will be acting as an insurance producer must obtain an
insurance producer license using the Uniform Business Entity Application.

 The business entity must designate a licensed producer responsible for compliance of the
insurance laws and rules of Illinois
 Business entities are subject to the same bond requirements as individual insurance producers

Temporary producer

The Director may issue a temporary license to an applicant for a MAXIMUM of 90 days and, at the
discretion of the Director, may renew the temporary producer license for an additional 90 days without
requiring an examination if the Director deems that the temporary license is necessary.

 The maximum number of temporary insurance producer licenses a person may hold in his/her
lifetime is 1

License fees

All licensing fees paid to and collected by the Director shall be deposited into a special fund in the State
Treasury known as the Insurance Producer Administration Fund.
Limited lines producer

Individuals who are at least 18 years of age, competent, trustworthy, and of a good business reputation
may obtain a limited lines producer license to transact insurance in one of the following lines:

 Baggage, trip cancellation, or limited travel health and accident insurance sold in connection
with a transportation carrier
 Industrial (home service) life or health and accident insurance
 Insurance issued by a company organized under the Farm Mutual Insurance companies
 Legal expense insurance
 Coverage written by local mutual district, county and township insurance companies
 HMO enrollments of public aid or Medicare recipients
 Limited health care plan issued by an organization authorized under the Limited Health Service
Organization Act

Continuing education

Resident producers must complete 24 hours of continuing education every 2 years to keep their license
active. 3 of those hours must be in ethics.

 Nonresident producers are not required to complete Illinois continuing education requirements
as long as their home state requirements are met.

Reinstatement and renewal

A producer who allows his or her license to lapse may, within 12 months from the renewal date,
reinstate the license without retaking the state licensing exam. However, a penalty of double the
unpaid renewal fee will be required.

Probation, suspension, revocation, refusal to issue or renew of licenses

The Director must give written notice to the producer before holding a hearing that may lead to the
suspension or revocation of the producer’s license. The Director may place on probation, suspend,
revoke, refuse to renew, or deny a license to any person who has:

 Provided incorrect, misleading, incomplete or untrue information in the license application

 Violating any insurance laws, regulations, subpoena, or orders from the Insurance Director
 Obtaining to obtain a license through fraud or misrepresentation
 Intentionally misrepresent the terms of an insurance contract
 Been convicted of a felony
 Committed any insurance unfair trade practice
 Using fraudulent, coercive, or dishonest practices or demonstrating incompetence,
untrustworthiness, or financial irresponsibility in this or any other state.
 Having an insurance license denied, suspended, or revoked by another state
  Forging a name to an insurance document or application
 Cheating on an insurance license examination
 Knowingly accepting insurance business from an unlicensed individual
 Failing to comply with a court order imposing child support
 Failing to pay state income tax

An insurance producer whose license has been revoked may NOT apply for any insurance license for a
minimum of 3 years

 Regulations
Address/name change

Producers/businesses must report a change in address or name to the Director within 30 days of the
change.

Reporting of actions

Producers must report a felony conviction to the Director within 30 days of the entry date of the
judgment.

 The producer must include a copy of the order or other relevant legal documents

Producer appointments

A producer cannot act as an agent for an insurer unless he or she is appointed to work for that insurer.
Insurers are responsible for submitting an appointment notice to the Director within 15 days of an
agent’s appointment or submission of first insurance application. The insurer is also responsible for
paying the agent’s appointment renewal fee.

Termination of producer appointment

An insurer that terminates an agent appointment must notify the Director within 30 days of the date of
termination. Within 15 days of such notice, the insurer must mail a copy of the notice to the terminated
agent, after which the agent will have 30 days to submit written comments to the Director.

Disclosure

The name of the soliciting insurance producer must appear on the application.

Commissions

No person shall pay or accept commissions to/from an unlicensed individual for the purpose of selling or
negotiating insurance business.
  When a policy is canceled within 90 days of the inception date, the producer MUST refund to
the consumer a prorated portion of any fee charged within 30 days of receiving notification of
cancellation

Controlled business

Controlled business can be defined as policies written on people that the licensed producer has direct
influence over: including family, employers, and/or any company to which the producer has stock
control.

 The total amount of premiums that a producer writes on controlled business may not exceed
the total amount written on all other business within a 12-month period

 Obtaining a license for the primary purpose of writing controlled business is prohibited.

Fiduciary responsibilities

Any money that an insurance licensee receives for soliciting, negotiating, effecting, procuring, renewing,
or binding policies of insurance will be held in a fiduciary capacity and will not be misappropriated,
converted, or improperly held.

 An insurance company that authorizes a producer to collect premiums on its behalf may hold
them no more than 90 days
 If an insurance producer knowingly misappropriates or converts to his/her own use fiduciary
monies amounting to $150 or less, a Class A misdemeanor has been committed
 If the amount of misappropriated funds is more than $150, the producer is guilty of a Class 3
felony
 If an insurance producer knowingly misappropriates fiduciary monies for the second or
subsequent conversions, he or she will be guilty of a Class 4 felony

Premium Fund Trust Account

Any funds from applicants or policyowners that will be held for 15 days or longer by the producer must
be deposited in a Premium Fund Trust Account (PFTA). The PFTA must be established and maintained
with an Illinois-based financial institution. The following disbursements may be lawfully withdrawn from
the PFTA:

 Interest that the producer is authorized to retain

 Net or gross premium remittances due to other licensees or insurers
 Return premiums due insureds
 Commissions due to the licensee

Service fees

A written disclosure specifying any service fees must be given to the contracting party prior to delivery
of the policy.
Return premiums

An insurance producer must pay return premiums due to an insured within a maximum of 15 days after
receiving them.

 Domestic, Foreign, and Alien Companies

Insurance companies are classified according to the location of its corporation. Regardless of where the
insurance company is incorporated, it still has to get a Certificate of Authority before transacting
insurance within a state.

The following definitions apply:

Domestic insurance company: A company that resides and is incorporated under the laws of the state
in which its home office is located.

A company domiciled in Illinois would be a domestic company in Illinois

Foreign insurance company: A company whose home office is located in another state. It is considered
to be a foreign company in all states except for its home office.

A company domiciled in Pennsylvania would be a foreign company in Illinois

Alien insurance company: A company that is chartered and organized in any country other than the
United States. It is considered an alien company in all states.

A company chartered in Canada would be an alien company in Illinois

 Authorized and Unauthorized Insurers

Authorized insurer: An insurance company that has qualified and received a Certificate of Authority
from the Insurance Department to sell insurance in this state.

 Also called an admitted insurance company

Unauthorized insurer: An insurance company that has been denied or not yet applied for a Certificate
of Authority and may not sell insurance in this state. Any producer that sells an insurance policy for an
unauthorized insurer runs the risk of being responsible for unpaid claims.

 Also called a non-admitted company

 Stock and Mutual Company

Stock Insurance Company: An insurance company that is owned and controlled by stockholders
(shareholders). The stockholders provide the capital and share in profits or losses.
  Stock insurance companies are considered nonparticipating because the policyowners do not
share in the profits of the company
 The objective is to produce profits for the owners, the stockholders
 Stock insurance companies that issues both participating and nonparticipating policies are
referred to as a company doing business on a mixed plan.

Mutual life insurance companies: An insurance company owned and controlled by its policyowners.
These policyholders elect a board of trustees or governing body to manage the firm. The profits of a
mutual insurance company are returned to the policyowners in the form of dividends or retained as
surplus to meet future obligations.

 Mutual insurance companies are considered participating because the policyowners do share in
the profits of the company
 The objective is to provide insurance to its owners, the policyowners, at the lowest net cost

 Unfair Trade Practices

Misrepresentation

It is an illegal practice to misrepresent any fact about an insurance policy, such as policy terms, benefits,
value, cost, effective date, or existence of a contract of insurance.

False advertising

It is an illegal practice to falsely advertise insurance products or publish misleading information about
its insurance coverage. This includes making false statements about the financial condition of an
insurer.

Defamation

It is an illegal practice to make any public statement or advertisement that contains false information or
unsubstantiated criticisms about an insurance company intended to harm or malign.

Boycott, coercion, and intimidation

It is an illegal practice to commit or coordinate any act or boycott, coercion, or intimidation in order to
restrain or monopolize the business of insurance.

False financial statements

It is illegal to publish any false financial statement regarding a person or entity.

Unfair discrimination

It is an illegal practice to unfairly discriminate against a person in any way on an insurance-related

matter. An example would be charging a different rate for someone in the same actuarial class.
  It is fair to discriminate in the amount of benefits for life and health policies between individuals
of different classes

Rebating

It is illegal to offer a prospective client something of value that is not specified in a contract to induce
the purchase of an insurance policy.

 Any company or person who illegally gives a rebate as an inducement for insurance may be
found guilty of a Class B misdemeanor

Twisting

Twisting involves the inducing a policyowner to lapse, forfeit, or surrender a life insurance policy for the
purpose of taking out another policy with another company.

Religious Freedom Protection and Civil Union Act

Establishes that two persons of the same or opposite sex may form a civil union and be accorded the
same benefits accorded to spouses in Illinois.

 Partners and children of such relationships must be provided with all the same policy benefits as
were previously accorded to married insureds and their family members

Qualified clinical cancer trials

An individual may not be denied coverage or renewal of coverage for accident health insurance because
of participation in a qualified clinical trial.

 Unfair Claims Practices

The following acts, omissions, or practices are defined as unfair and deceptive claim settlement
practices when knowingly committed or performed with such frequency as to indicate a general
business practice, and are prohibited:

 Misrepresenting to insured’s pertinent facts or policy provisions relating to coverage at issue

 Failing to acknowledge and act reasonably promptly upon communications with respect to an
insurance claim
 Failing to adopt and implement reasonable standards for prompt investigation and processing
of insured’s claims
 Failing to affirm or deny coverage of claims within a reasonable time after proof of loss
statements are completed and submitted by insured’s
 Failing to effectuate prompt, fair, and equitable settlements of claims
 Not attempting in good faith to effect prompt, fair and equitable settlements of claims on
which liability has become reasonably clear; Refusing or delaying a settlement solely because
there is other insurance available to partially or entirely satisfy the claim loss; the claimant
who has a right to recover from more than one insurer has the right to choose the coverage
from which to recover and the order in which payment is to be made
 Compelling insured’s to initiate suits to recover amounts due under an insurance policy by
offering substantially less than the amount ultimately recovered in those suits
 Attempting to settle claims on the basis of an application that was altered without the
consent of the insured
 Illinois Life Laws

 Producer Responsibilities

Solicitation and sales presentations

Producers must provide applicants and prospects with the approved NAIC Buyer’s Guide. Producers
must also provide a Policy Summary to applicants.

Policy summary

The policy summary contains specific information on the provisions, benefits, and coverage of the policy
applied for.

Buyer's guide

The buyer’s guide enables applicants to compare different life insurance policies and help them choose
which policy is best for their needs. A life insurance buyer’s guide normally includes information such as:

• Deciding on how much life insurance to buy

• Comparing life insurance policy rates
• Comparing life insurance policy requirements

Illustrations

An illustration is a presentation, graph, or chart that includes non-guaranteed elements of a policy of life
insurance over a period of years. Non-guaranteed elements are the premiums, benefits, values, credits
or charges under a policy of life insurance that are not guaranteed or not determined at issue.

Illustrations must be clearly labeled as such, and contain the following: name and address of the issuing
insurer; name, age, and sex of the proposed insured; generic name of the policy; initial death benefit;
and any non-guaranteed elements such as dividend options.

Words, phrases or illustrations may not be used in a manner that misleads or deceives.

If an illustration is used, a copy of it must be submitted with the application for insurance, and a copy
must be provided to the applicant.

Replacement

Notice of Replacement: under Illinois law the replacement of life insurance contracts with a new
contract requires the producer to give the applicant a written comparison and summary statement at
the request of the policyholder and to follow instructions regarding replacement as obtained from the
appointing insurer.
Replacement: means any transaction in which new life insurance or a new annuity is purchased and, as a
result, the existing life insurance or annuities will be any of the following:

• Lapsed, forfeited, surrendered, or otherwise terminated

• Reissued with any reduction in cash value
• Converted to reduced paid-up insurance, continued as extended term insurance or otherwise
reduced in value by the use of nonforfeiture benefits or other policy values
• Amended so as to affect either a reduction in benefits or in the term for which coverage would
otherwise remain in force or for which benefits would be paid
• Reissued with a reduction in cash value
• Used in a financed purchase

Duties of the producer

• Present to the applicant a Notice Regarding Replacement that is signed by both the applicant
and the producer. A copy must be left with the applicant.
• Obtain a list of all existing life insurance and/or annuity policies to be replaced including policy
numbers and the names of all companies being replaced.
• Leave the applicant with the original or a copy of written or printed communications used for
presentation to the applicant.
• Submit to the replacing insurance company a copy of the Replacement Notice with the
application.

Duties of the replacing insurance company

• Require from the producer a list of the applicant's life insurance or annuity contracts to be
replaced and a copy of the replacement notice provided to the applicant.
• Send each existing insurance company a written communication advising of the proposed
replacement within a specified period of time of the date that the application is received in the
replacing insurance company's home or regional office. A policy summary or ledger statement
containing policy data on the proposed life insurance or annuity must be included.
• The replacing insurer must allow the owner of the life insurance policy to return the policy
within 30 days after delivery for a full refund.

 Required Provisions

Right to examine (free-look)

Life insurance policies must provide a minimum free-look period of 10 days upon policy delivery. This
allows the policyowner time to decide whether or not to keep it. If the policyowner decides not to keep
the policy within the 10 days allowed, a full refund will be given.

• In the event of a policy replacement, a 20-day free-look period will be provided

Grace Period

The required grace period for life insurance policies in Illinois is 1 month (30 days). The grace period is a
time which a policy remains in force after the premium is due, but not paid. If the insured dies during
the grace period, the death proceeds will still be paid, minus the premium due.

Reinstatement

A lapsed policy may be reinstated within 3 years from the due date upon evidence of insurability and all
back premiums are paid with interest.

Incontestability Period

A provision that the policy terms shall be incontestable after it has been in force for a period of 2 years
from its date of issue (unless the purpose for taking out the coverage was fraud).

Entire contract

A provision that the policy and the application shall constitute the entire contract between the parties.
All statements made by the policyholder are considered representations.

Policy Loans

All cash value policies in force not less than three full years shall provide an option for a loan of up to
the full cash value of the policy at an interest rate in accordance with the insurance code.

Group Life Insurance

In the event of employment termination, a person covered by a group policy has the right to convert
such coverage to an individual policy within the conversion period (31 days) without proving
insurability. If this right is exercised, the employee is responsible for the payment of premium.

Nonforfeiture law

The request for a paid-up nonforfeiture option must be made to an insurer within 60 days after the due
date of a premium in default. Policies must provide that the specified paid-up nonforfeiture benefit is
effective unless the policyowner elects another available option within 60 days after the due date of the
premium in default

Settlement

When a policy becomes a claim on the death of the insured, settlement shall be made within two
months after receipt by the insurer of proof of death. Interest shall accrue at 10% per year on any
amounts retained by the insurer beyond 31 days.
Cash Surrender

The maximum length of time an insurer can defer payment of a cash surrender value of a life insurance
policy or annuity is 6 months.

Accelerated benefits

Allows someone that a physician certifies as terminally ill to access the death benefit. The amount of
benefit received will be tax free.

• A terminal illness is defined as a medical condition that, in a licensed physician’s opinion, would
result in the insured’s death within 24 months or any condition that requires continuous
confinement in an eligible institution if the insured is expected to remain until death

 Viatical Settlement (Life Settlements)

Allows someone with a terminal illness to sell their existing life insurance policy to a third party for a
percentage of the face value. The new owner continues to make the premium payments and will
eventually collect the entire death benefit. Viatical settlement brokers must be licensed before
conducting any viatical transactions. Proceeds of the viatical settlement contract could be subject to
the claims of creditors.

Note: the original policy owner is called the Viator and the new third party owner is called the Viatical or
sometimes called the Viatee. A viatical settlement broker can advertise the availability of viatical
settlements, introduce viators to viatical settlement providers, and charge a fee for their services.

 Illinois Life and Health Insurance Guaranty Association

The Life and Health Guaranty Association is used to rehabilitate insolvent (financially incapacitated)
insurers.

• Protects insureds against the failure in the contractual obligations of insurance policies and
annuities (up to certain limitations)
• Producers are prohibited from using the existence of the Illinois Guaranty Association for selling,
soliciting, or inducing purchase of an insurance policy