# COMAR Title 31 — Maryland Insurance Administration ## Subtitle 15 — Unfair Trade Practices ### Chapter 01 — Special Policies and Misleading Advertising **Authority:** Insurance Article, §§2-109, 8-467, 8-468, 12-203, 12-204, 12-205, 16-112, and 27-202, Annotated Code of Maryland **Administrative History:** Effective date: September 1, 1970 **Administrative History:** Chapter recodified from COMAR 09.30.25 to COMAR 31.15.01 effective September 7, 1998 (25:18 Md. R. 1439) #### Regulation .01 Authority. *COMAR 31.15.01.01* This chapter is deemed necessary for the effectuation of Insurance Article, Title 27, Annotated Code of Maryland (as amended to date); Insurance Article, §§8-467 and 8-468, Annotated Code of Maryland, which concern prohibited practices regarding the sale of insurance in fraternal benefit societies, which practices are hereby defined to be unfair methods of competition and unfair or deceptive acts or practices prohibited under Title 27; Insurance Article, §16-112, Annotated Code of Maryland, regarding prohibited policy plans; and Insurance Article, §§12-203, 12-204, and 12-205, Annotated Code of Maryland, concerning the filing and approval of policy forms and grounds for disapproval of these forms. #### Regulation .02 Purpose. *COMAR 31.15.01.02* The purpose of this chapter is to assure fair disclosure of relevant facts in the sale of life insurance and annuity contracts. This chapter is also designed to protect citizens of Maryland as purchasers and prospective purchasers of life insurance policies or annuity contracts against the use of sales methods which are misleading because of: A. The omission of facts fairly describing the subject matter as a life insurance policy or annuity contract and the benefits obtainable thereunder; B. An undue emphasis upon facts which, however true, are not relevant to the sale of life insurance or annuities; or C. An undue emphasis upon features which are of incidental or secondary importance to the life insurance aspects of a policy. #### Regulation .03 Applicability. *COMAR 31.15.01.03* This chapter is applicable to all insurers, including fraternal benefit societies, doing a life insurance business in this State and to all persons licensed to sell life insurance under Insurance Article, Title 10, Subtitle 1, Annotated Code of Maryland, and to persons licensed under Insurance Article, §§8-449(a) and 8-455, Annotated Code of Maryland. #### Regulation .04 Guaranteed Annual Endowments. *COMAR 31.15.01.04* A. Because of the inherently confusing nature of a guaranteed annual endowment type of policy, a life insurance policy or annuity contract containing a series of guaranteed annual endowments evidenced by coupons, passbooks, or similar devices generally identified with investment or banking operations may not be approved for use, and any such policy or contract heretofore approved may not be issued or delivered in this State on or after September 1, 1970. B. No other life insurance policy or annuity contract containing a series of guaranteed annual endowments may be approved for use and no such policy or contract heretofore approved may be issued or delivered in this State on or after September 1, 1970, unless the following requirements are satisfied: (1) The gross premium for the guaranteed annual endowment benefit shall be shown prominently and separately in the policy, distinct from the gross premium for the life insurance benefit; (2) The insured shall be entitled to withdraw the guaranteed annual endowments not less frequently than at the end of the second policy year and at the end of each policy year thereafter, the amount of the endowments available for withdrawal not to be less than the aggregate premium paid for the endowments less any prior withdrawals; (3) Payment of any guaranteed annual endowment may not be made contingent upon the payment of premiums falling due on or after the time the guaranteed annual endowment benefit has matured; (4) The separately stated gross premium for the series of guaranteed annual endowments shall be based on reasonable assumptions and shall be consistent with the basic policy form as to interest, mortality, and expense; (5) The amount of each of the guaranteed annual endowments shall be expressed in dollars, both in the policy and in any sales or advertising material relating to the policy, and not as a percentage of any premium or benefit; (6) A guaranteed annual endowment may not be described, either in the policy or in any sales or advertising material, as anything other than a guaranteed benefit for which a premium is being paid by the policyholder; and (7) At the time the policy form is filed with the Insurance Administration for approval, it shall be accompanied by the materials, including any sales presentation kit, which the insurer proposes to use in connection with the policy. C. Nothing in this regulation applies to any policy in which the amount of any endowment or periodic benefit or benefits payable during any policy year is greater than the total annual premium for that year. #### Regulation .05 Charter or Founders' Policies. *COMAR 31.15.01.05* A. A charter policy or founders' policy is that form of life insurance policy or annuity contract usually issued by a newly organized insurer, which is sold on the basis that its availability will be limited to a specific predetermined number of units of a fixed dollar amount and which generally provides that the policyholder shall participate in the earnings resulting from either the participating policies or the nonparticipating policies sold by the insurer, or perhaps both. The prospective purchaser may be led to believe that he will receive a special advantage in any future distribution of earnings, profits, or dividends not available to those persons holding other types of policies issued by the insurer. B. The sale of charter policies and founders' policies represents an unfair method of competition. They purport to offer certain benefits which are not authorized by statute and are without reasonable expectation of achievement. These policies misrepresent the responsibility and obligation of an insurer for equitable distribution of dividends. Therefore, a charter policy or founders' policy may not be approved for use and a charter policy or founders' policy heretofore approved may not be issued or delivered in this State on or after September 1, 1970. #### Regulation .06 Profit-Sharing Policies. *COMAR 31.15.01.06* A. A profit-sharing policy is that form of life insurance policy or annuity contract which contains provisions representing or tending to create the understanding that the policyholder will be eligible to participate in any future distribution of general corporate profits, with special advantages not available to persons holding other types of policies issued by the insurer to individuals of the same class and equal expectation of life. B. Profit-sharing policies are not permitted by Insurance Article, §§16-112 and 27-207, Annotated Code of Maryland, and, therefore, a profit-sharing policy may not be approved for use, and a profit-sharing policy heretofore approved may not be issued or delivered in this State on or after September 1, 1970. C. Nothing contained in this regulation is intended to prohibit the sale of variable annuity contracts or variable life insurance policies to the extent that these contracts or policies may otherwise be permitted under the laws of this State. #### Regulation .07 Participating Policies. *COMAR 31.15.01.07* No illustration of projected dividends under a participating individual life insurance policy or annuity contract may be used in conjunction with the sale or solicitation of the policy or contract in this State unless the projected dividend scale or the basis of the formula for determining the projected dividend scale has been filed with the Insurance Administration, either in the insurer's annual statement or otherwise, and unless the filing is based upon a reasonable classification of risks which is not unfairly discriminatory. #### Regulation .08 Policy Names or Titles. *COMAR 31.15.01.08* A. An insurer, agent, or broker, may not deliver within this State, or issue for delivery within this State, any policy of life insurance or annuity contract without the use of the words “life insurance” or “annuity contract” in its name or title or the use of other language clearly indicating that the policy is a policy of life insurance or an annuity contract. B. The use of the terms “investment”, “investment plan”, “expansion plan”, “profit”, “profits”, “profit-sharing”, and other similar terms in connection with a policy of life insurance or an annuity contract in a context or under such circumstances or conditions as to have the capacity or tendency to mislead a purchaser or prospective purchaser of the policy or contract to believe that he will receive, or that it is possible that he will receive, something other than a life insurance policy or annuity contract or some benefit not provided in the policy or contract or some benefit not available to other persons of the same class and equal expectation of life is unlawful and is prohibited. #### Regulation .09 Misleading Sales Practices. *COMAR 31.15.01.09* A. An insurer, agent, or broker may not within this State: (1) Make any statement or reference relating to the growth of the life insurance industry or to the tax status of life insurers in connection with any solicitation of an application for life insurance or annuity contract in a context which could reasonably be understood to interest a prospect in the purchase of shares of stock in an insurer rather than in the purchase of a life insurance policy or annuity contract; (2) Make any statement which reasonably gives rise to the inference that an insured or a prospective insured, by virtue of purchasing a policy of life insurance or an annuity contract, will enjoy a status common to a stockholder or will acquire a stock ownership interest in the insurer (nothing in this section is intended to prohibit the practice of pointing out those aspects in which the status of a policyholder in a mutual life insurer is similar to that of a stockholder in a stock life insurer); (3) Make any reference to or statement concerning an insurer's “investment department”, “insured investment department”, or similar terminology in such a manner as to imply that the policy was sold or issued by the investment department of the life insurer; (4) Make any statement or reference which would reasonably tend to imply that by purchasing a policy, the purchaser or prospective purchaser will become a member of a limited group of persons who may receive special advantages, or favored treatment in the payment of dividends unless the benefits are specifically provided in the insurance contract (this clause has no relation or applicability to policies under which insured persons of one class of risk may receive dividends at a higher rate than persons of another class of risk); (5) State or imply that a particular kind of policy is available for only a limited time or that only a limited number of a particular kind of policy will be offered for sale or that only a limited number of persons, or a limited class of persons, will be eligible to buy a particular kind of policy, unless the limitation is related to recognized underwriting practices and can be verified by the underwriting practices of the insurer; (6) State or imply that policyholders who are said to act as centers of influence or as an advisory board for an insurer will share, because of so acting, in the insurer's surplus earnings in some manner not available to other policyholders who are otherwise in the same class; (7) Describe or refer to premium payments in language which states that the payment is a deposit unless: (a) The payment establishes a debtor-creditor relationship between the life insurer and the policyholder and a showing is made as to when and how the deposit may be withdrawn, (b) The term is used in conjunction with the word premium in such a manner as to indicate clearly the true character of the payment, or (c) The term is used in connection with pension trust or deposit administration plans; (8) Provide any illustration or projection of future dividends on a policy unless the illustration or projection: (a) Is based upon the experience currently used by the insurer for dividends or upon a scale adopted by the insurer, and (b) Clearly indicates that the dividends shown are not guaranteed; (9) Use the words “dividends”, “cash dividends”, “surplus”, or similar phrases in such a manner as to state or imply that the payment of dividends is guaranteed or certain to occur; (10) State or imply that a purchaser of a policy will share in a stated percentage or portion of the earnings of the insurer (nothing in this section is intended to prohibit a representation that a holder of a participating life insurance policy or annuity contract will participate in the share of the divisible surplus, if any, apportioned to the policy or contract by the insurer); (11) Make any statement or implication that projected dividends under a participating policy will be or can be sufficient at any time to assure the receipt of benefits, such as a paid-up policy, without the further payment of premiums, unless the statement is accompanied by an adequate explanation as to: (a) What benefits or coverage would be provided at that time, and (b) The conditions under which this would occur; (12) State that the insured is guaranteed certain benefits if the policy is allowed to lapse without making an adequate explanation of the nonforfeiture benefits; (13) Describe a life insurance policy or annuity contract or premium payments therefore in terms of “units of participation” unless accompanied by other language clearly indicating the reference to a life insurance policy or annuity contract or to premium payments, as the case may be; (14) Include in sales kits and prepared sales presentations proposed answers, to be used in response to a prospect's questions as to whether life insurance policies or annuity contracts are being sold, which are designed to avoid a clear and unequivocal statement that life insurance or annuities are the subject matter of the solicitation; (15) In connection with the proposed sale of a life insurance policy or annuity contract or guaranteed endowment benefits, display in any manner to a prospective policyholder any sales material which includes monetary illustrations showing dollar amounts unless the material clearly identifies the source and nature of the dollar amounts illustrated and the subject to which the amounts pertain; (16) Make any general statement that insurers make a profit as a result of policy lapses or surrenders; (17) Make unfair or misleading comparisons to the past experience of other life insurers as a means of projecting possible experience of the soliciting insurer when those comparisons are designed to enhance the characteristics of the policy being sold by confining the comparisons to insurers having favorable experience with that type of policy without a fair disclosure of other insurers which have had unfavorable experience with that type of policy; (18) Represent guaranteed annual endowment benefits as earnings on premiums invested, or represent that a guaranteed annual endowment benefit in a policy is anything other than a guaranteed benefit for which a premium is being paid by the policyholder; (19) State that a policy contains certain features which are not found in other life insurance policies or annuity contracts, unless that is true; (20) Represent an option to purchase insurance in the future in such a manner that the policyholder might reasonably infer that he is purchasing term insurance or some other form of life insurance that would result in a payment to the beneficiary in the event of the death of the policyholder; or (21) Make any reference to a policy of life insurance or an annuity contract in such a manner as to misrepresent the true nature of the policy or contract. B. The above listing of proscribed acts is not intended to be exhaustive. Other acts, not listed above but otherwise unlawful, will not be condoned. #### Regulation .10 Existing Policies and Contracts. *COMAR 31.15.01.10* This chapter does not affect the validity of any life insurance policy or annuity contract in force on the effective date of this chapter. However, the previous approval by this Division of any form of life insurance policy or annuity contract prohibited by this chapter is hereby withdrawn effective September 1, 1970, and no such policy or contract may be sold after that date.