Life insurance, like all financial service products, is governed by various federal regulations. These regulations apply to life insurance in all 50 U.S. states and the other federal territories. There are also state regulations, of varying depth and complexity from state to state.
The federal government does have some regulations concerning life insurance, but the majority of regulatory policy for life insurance policies is set by each state.
In order to buy the policy that’s best suited for you and your family, you should be aware of how state and federal life insurance regulations can impact your policy, both when you buy it and when it is time for benefits to be paid to your heirs.
Insurance companies have the stewardship of enormous sums of money, some in the range of hundreds of billions of dollars. Because the sums are so large, the financial health of insurers is a matter of public interest, therefore warranting the oversight of the federal government. Federal regulations largely work to ensure the insurer’s financial solvency so these companies can meet their obligations and guarantee fair competition and business practices among insurers.
State regulations handle the nuts and bolts of how policies operate and what rights and obligations insureds and beneficiaries have. For example, many states include a “free look” provision, which allows insureds to review their policy for 10 days after they’ve signed it, and if they find something they don’t like, they can cancel it without penalty. The time period for the “free look” provision varies from state to state. The “free look” provision is one of the most widespread consumer protections in the U.S.
Another common insurance regulation is a rule that gives policy holders a grace period of 30 days to make up a missed premium before their insurer can cancel their policy. Some states may have longer than 30 days.
Regulation of the release of medical or personal information by insurance companies to outside entities and insureds also can vary from state to state. For example, there are few regulations in Vermont preventing an insurer from releasing policyholder information to outside entities, but insurers are required to release all of a policyholder’s information to that policyholder on request. In Illinois, insurers are obligated to release medical information to a physician of the policyholder’s choice, but not to the individual policy holder.
States also often have regulations regarding how quickly a claim must be paid in the event of an insured’s death. For example, in Louisiana, claims must be paid within 60 days of an insured’s death or else interest begins to accrue that the insurer must pay over to the beneficiaries later.
States also regulate to protect insurers from fraud as well. Most states allow insurers to include a two-year contestability period in their life insurance polices, meaning that if an insured dies within two years of buying a policy, the insurer may challenge statements made by the insured on their application for coverage that may have been misleading concerning the insured’s health or lifestyle. This protects life insurance companies from individuals who lie about their health in order to secure benefits for their heirs. Preventing this is important in order to protect the integrity of insurance companies risk estimates, which set rates and approve or deny coverage based on the level of risk each potential insured poses to the company.
Understanding your policy and the regulations that govern it is important to picking the policy that’s best for you and allowing your heirs to garner the maximum benefit available from it. Unfortunately, the general public remains woefully uninformed concerning life insurance policies and regulation.
A recent survey conducted by the American Council of Life Insurers found that only about a third of Americans understood that most regulation of their insurance polices occurred at the state level. Almost one-fifth believed that the industry was not regulated at all.
Another disturbing trend found by the study was the fact that many state insurance regulatory agencies are underfunded, thus leaving them short-staffed and ill-resourced to handle the task of policing the industry.
These reasons should be more than enough to convince you to learn as much as possible about how your policy is regulated in order to safeguard the safeguard that is intended to protect your family.
One of the best ways to find out about individual states’ life insurance regulations, you should visit the state department of insurance’s Web site. Here’s links to all 50:
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming