How life policy provisions, nonforfeiture options, dividend and settlement options and riders work in general is covered in the national Life Policy Provisions, Options and Riders guide. North Carolina writes its required provisions into G.S. 58-58-22. It regulates life sales through the Life Insurance Disclosure Act (58-60-1 and following) and the replacement rules in 11 NCAC 12 .0601 and following. Several North Carolina figures differ from other states, so learn them exactly.

Required provisions (58-58-22)

Other rules

• Contesting a reinstated policy. A reinstated policy can be contested for fraud or misrepresentation in the reinstatement application only for the same period the policy allows after original issue (58-58-170).
• Policy loans. For policies issued on or after September 1, 1981, the loan rate is either a fixed rate of no more than 8% or an adjustable maximum (58-61-10).
• Interest on death claims. Proceeds unpaid more than 30 days after proof of death earn interest from the date of death (58-58-110).
• Lapse notices. Where 58-58-120 applies, a policy can't be forfeited until 30 days after a premium-due notice is mailed. It doesn't apply to monthly-premium, group or one-year term contracts.

Ownership, interest and creditors

• Minors aged 15 and older may buy life insurance or annuities and exercise all ownership rights as if they were 18 (58-58-100).
• Insurable interest:
  • A 501(c)(3) charity has insurable interest when the insured consents (58-58-86).
  • Partners may insure each other (58-58-80).
  • An employer may insure an employee for its own benefit only after the employee gets written notice (58-58-75).
• Creditor protection. A policy a person takes out on their own life for the sole benefit of a spouse or children pays them free of the insured's creditors (58-58-95).
• Who the agent represents. In a dispute, the person who solicited the application is the insurer's agent, not the insured's (58-58-30).

Life Insurance Disclosure Act (58-60-1 and following)

Before the presentation

• The producer must say they're acting as a life insurance agent and give the insurer's full name (58-60-20(b)).
• Titles like "financial planner" can't suggest fee-based advice unless that's true.

Buyer's Guide and Policy Summary

• They're given before the initial premium is accepted.
• If the policy has an unconditional refund provision of at least 10 days, they may come with or before policy delivery instead (58-60-15).
• Using the NAIC Buyer's Guide complies with the law (58-60-25).
• Failing to provide them is a misrepresenting omission and an unfair practice (58-60-30).

Presentation rules (58-60-20)

• Any mention of dividends must say they're not guaranteed.
• Guaranteed and nonguaranteed values may be combined only if they're also shown separately.
• Cost methods that ignore the time value of money, such as traditional net cost, can't be used to compare costs.
• Cost indexes are useful only to compare similar policies.

Other disclosures

• Small face amount policies of $15,000 or less must disclose when cumulative premiums could exceed the face amount (58-60-95).
• A policy funding a preneed funeral prearrangement requires disclosure of that fact before the initial premium (58-60-35).

Replacement (11 NCAC 12 .0601 to .0612)

What counts as a replacement (.0602)

• An existing policy is lapsed, surrendered, converted to reduced paid-up or extended term, reduced in value, or used in a financed purchase.
• Using an existing policy's values to buy a new one from the same insurer through misrepresentation is churning.

Exempt (.0604): credit life, certain group coverage, and existing non-convertible term that expires in five years or less and can't be renewed.

Producer's duties (.0605)

1. Submit a statement signed by the applicant and producer on existing coverage. If the answer is no, the producer's duties are done.
2. If it's a replacement, present and read the replacement notice, unless the applicant declines, no later than when the application is taken. Both sign it.
3. Leave copies of all sales material when the application is completed. Printed copies of electronic material are due by policy delivery.

Replacing insurer's duties (.0612)

• Notify each existing insurer within five business days.
• Tell the owner of the right to return the new policy within 30 days of delivery for an unconditional full refund. For variable contracts, the refund is cash value plus fees and charges.
• In an internal replacement (same or affiliated insurer), give credit for time already elapsed under the old policy's incontestability and suicide periods, up to the old face amount.

Violations and penalties (.0609)

• Telling an applicant to answer "no" to the replacement question is a listed violation.
• Penalties include license action, fines and forfeiture of commissions on the transaction.
• Misrepresenting facts to induce a lapse or surrender is separately prohibited (58-58-40).

Common exam traps

• The North Carolina life grace period is 31 days.
• Reinstatement is available for 5 years, not the 3 years common elsewhere.
• Suicide: 2 years, refunding at least premiums paid.
• Incontestability: 2 years, with only nonpayment excepted. There's no fraud exception.
• The replacement refund period is 30 days.
• Minors can own a policy at age 15.