KRS 304.12-030: Replacement life insurance -- "Twisting" prohibited.

(1) As used in this section:

(a) "Replacement" means any transaction in which a new life insurance policy or

annuity contract is to be purchased and it is known or should be known to the

proposing producer, or to the proposing insurer if there is no producer, that by

reason of the transaction, an existing life insurance policy or annuity contract

has been or is to be:

1. Lapsed, forfeited, surrendered or partially surrendered, assigned to the

replacing insurer, or otherwise terminated;

2. Converted to reduced p aid-up insurance, continued as extended term

insurance, or otherwise reduced in value by the use of nonforfeiture

benefits or other policy values;

3. Amended so as to effect either a reduction in benefits or in the term for

which coverage would otherwise r emain in force or for which benefits

would be paid;

4. Reissued with any reduction in cash value; or

5. Used in a financed purchase;

(b) "Existing insurer" means the insurance company whose existing life insurance

policy or annuity contract is or will be c hanged or affected in a manner

described within the definition of replacement transaction;

(c) "Replacing insurer" means the insurance company that issues or proposes to

issue a new life insurance policy or annuity contract that replaces an existing

policy or contract or is a financed purchase;

(d) "Existing life insurance policy or annuity contract" means any individual life

insurance policy or annuity in force, including a life insurance policy under a

binding or conditional receipt or a life insurance po licy or annuity contract

that is within an unconditional refund period;

(e) "Financed purchase" means the purchase of a new policy involving the actual

or intended use of funds obtained by the withdrawal or surrender of, or by

borrowing from values of, an existing policy to pay all or part of any premium

due on the new policy. If a withdrawal, surrender, or borrowing involving the

policy values of an existing policy is used to pay premiums on a new policy

owned by the same policyholder and issued by the sam e company within four

(4) months before or thirteen (13) months after the effective date of the new

policy, it is prima facie evidence of the policyholder's intent to finance the

purchase of the new policy with existing policy values. This prima facie

standard does not affect the monitoring obligations of the existing insurer; and

(f) "Direct-response solicitation" means a solicitation through a sponsoring or

endorsing entity or individual solely through mails, telephone, the Internet. or

mass communication media.

(2) No replacing insurer shall issue any life insurance policy or annuity contract in a

replacement transaction to replace an existing life insurance policy or annuity

contract unless the replacing insurer shall agree in writing with the insured that:

(a) The new life insurance policy or annuity contract issued by the replacing

insurer will not be contestable by it in the event of such insured's death to any

greater extent than the existing life insurance policy or annuity contract would

have been contestable by the existing insurer had such replacement not taken

place provided, however, that this paragraph shall not apply to that amount of

insurance written and issued which exceeds the amount of the existing life

insurance; and

(b) The policy or contract owner shall have the right to return the policy or

contract within thirty (30) days of the delivery of the policy or contract and

receive an unconditional full refund of all premiums or considerations paid on

it, including any policy fees or charges, or in the case of a variable or market

adjustment policy or contract, a payment of the cash surrender value provided

under the policy or contract plus the fees and other charges deducted fro m the

gross premiums or considerations or imposed under such policy or contract.

(3) Unless otherwise specifically included, subsection (2) of this section shall not apply

to:

(a) Credit life insurance;

(b) Group life insurance or group annuities where the re is no direct solicitation of

individuals by an insurance producer. Direct solicitation shall not include any

group meeting held by an insurance producer solely for the purpose of

educating or enrolling individuals or, when initiated by an individual mem ber

of the group, assisting with the selection of investment options offered by a

single annuity provider in connection with enrolling that individual. The

commissioner shall promulgate administrative regulations for group life

insurance or group annuity c ertificates marketed through direct response

solicitation;

(c) Group life insurance and annuities used to fund prearranged funeral contracts;

(d) An application to the existing insurer that issued the existing policy or

contract when a contractual policy c hange or conversion privilege is being

exercised, or when the existing policy or contract is being replaced by the

same insurer pursuant to a program filed with and approved by the

commissioner;

(e) Existing life insurance that is a nonconvertible term lif e insurance policy

which will expire in five (5) years or less and cannot be renewed; or

(f) Proposed life insurance that is to replace life insurance under a binding or

conditional receipt issued by the same company;

(g) Policies or contracts used to fund:

1. An employee pension or welfare benefit plan that is covered by the

Employee Retirement and Income Security Act (ERISA);

2. A plan described by Sections 402(a), 401(k) or 403(b) of the Internal

Revenue Code, where the plan, for purposes of ERISA, is es tablished or

maintained by an employer;

3. A governmental or church plan defined in Section 414 of the Internal

Revenue Code, a governmental or church welfare benefit plan, or a

deferred compensation plan of a state or local government or tax exempt

organization under Section 457 of the Internal Revenue Code; or

4. A nonqualified deferred compensation arrangement established or

maintained by an employer or plan sponsor.

Notwithstanding the provisions of this paragraph, subsection (2) of this

section shall apply to policies or contracts used to fund any plan or

arrangement that is funded solely by contributions an employee elects to

make, whether on a pre -tax or after-tax basis, and where the insurer has been

notified that plan participants may choose from a mong two (2) or more

insurers and there is a direct solicitation of an individual employee by an

insurance producer for the purchase of a contract or policy. As used in this

paragraph, direct solicitation shall not include any group meeting held by an

insurance producer solely for the purpose of educating individuals about the

plan or arrangement or enrolling individuals in the plan or arrangement or,

when initiated by an individual employee, assisting with the selection of

investment options offered by a s ingle insurer in connection with enrolling

that individual employee;

(h) Where new coverage is provided under a life insurance policy or contract and

the cost is borne wholly by the insured's employer or by an association of

which the insured is a member;

(i) Immediate annuities that are purchased with proceeds from an existing

contract. Immediate annuities purchased with proceeds from an existing

policy are not exempted from the requirements of this section; or

(j) Structured settlements.

(4) No person sha ll make or issue, or cause to be made or issued, any written or oral

statement of a material fact which is untrue or omit to state a material fact necessary

in order to make the statements made, in the light of circumstances under which

they were made, not misleading with respect to comparisons as to the terms,

conditions, or benefits contained in any policy for the purpose of inducing or

attempting or tending to induce the policyholder to lapse, forfeit, borrow against,

surrender, retain, exchange, modify, convert, or otherwise affect or dispose of any

insurance policy.