                                       AUUTXN     ~,.TICXAS
JdBN     BEN   SX$RPPEMD
       Ar-roxaNmY
               "~rmrr,.                October     11,      1954
                 .’
        Hon. Garland A. Smith, Chairman
        Board of Insurance  Commissioners
        Internat ional Life Building
        Austin,  Texas
                                   Opinion          Nob S-143
                                        Re:      Legality   and rffaot    of various
                                                 provlslanr   In a tarm lift3 in-
                                                 surance policy     lesued under the
                                                 whole sale plan.
        Dear Mr. Smith:
                       The pertinent    parts     of your request         for our opin-
        ion read      as follows:
                      “From time to time life       insurance    cdmp~les
               submit policy    forms to this Department for fll-
               ing which are to be issued under what is known as
               the Wholesale    Life Insurance     Plan (sometimes
               called   Employee Life Insuranoe Plan) e This plan
               has been In use in Texas for some years and wa.6,.
               evolved   to extend administrative        expense   savingg,               .
               possible    in group coverage,     to individual     poli-
               cies issued under individual         underwriting    stand-
               ards to groups of employees        too small to be ellgi-
               ble for group coverage     under Code Article        3.500.

                       “In our review of such wholesale        life    insur-
               ance forms submitted       to this department       for filing,
               certain    questions   have .arisen    that need to be re-
               solved,    and we respectfully      request  that you give
               us your opinion      on these questions     which ‘are set
               forth as follows:
                      “lo    Must an individual    term life  insurance
               policy    provide  coverage for .a definite    time period
               by specifying     a number of years,    months    weeks or
               days, or may the term of the insurance         b e geared to
               and measured by the term of the insured’s          employ-
               ment with a specified      employer?
                       “2 . If an Individual            term life    insurance    pol-
               icy    may provide coverage        for      an indefinite,    term’
                                                                                      -




Hon. Garland      A. Smith,   page   2    (S-143)


      conditioned     upon cessation     of employment,
      should such a policy       provide    that the insured’s
      coverage    will terminate     at the next premium
      due date subsequent      to termination      of employ-
      ment, or may such a policy         provide   that cover-
      age will cease immediately         upon termination     of
      employment?
             "3 * If an individual       term life    insurance
      policy    is issued    on the one year renewable
       term plan,    or on the one month renewable          term
      plan,   may it provide      that it is renewable        only
       at the option     of the insurance     company, or must
       it be renewable      during a specified     period of
       time following     its date of issue at the option
      .of the insured     only?
             "4.    May an individual    term life   insurance
      policy    be issued  that provides     for the payment
      of premiums only by the employer          or some other
      specified     person or firm,   or must the policy
      provide    for payment, of premiums without       specl-
      fying the person or firm that will make the pay-
      ments.
             II
                c  0~  ‘   Obviously    our concern    in this mat-
      ter grows out of our understanding               of Article
      3.50 of the Texas Insurance              Code which was con-
      sidered      by the Court in Board of Insurance             Com-
      missioners:~~         Great Southern Life Insurance
      Company, 239 S,W.2d 803,~ There has been no es-
      tablished       ,departmental     practice   with respect     to
      the inquiries         enumerated     above, but it does seem
      that, the intent         of Article     3‘50 would be substan-
      tially      defeated     if all the elements       of group
      insurance        can be embodied in individual         policies’
      sold under a @whole sale plan. rll
            In answering   the four specific   questions    above 9 we
are assuming you are dealing      with a “Wholesale    Life Insurance
Plan” which Is not in violation       of any of the provisions     of
the Texas Insurance     Code.
              Individual      life  insurance     policies   are required      to
contain    certain     specific    provisions     enumerated    in Article     3.44
of the Insurance        Code, and are also required          to exclude     certain
provisions     enumerated       in Article     3>45 of the Code,     Group life
insurance     policies     are required      to conform to certain       standards
Hon. Garland        A. Smith,    ,page 3    (S-143)


outlined      in Article   3.50.      Individual     contracts    of life
insurance      may contain    provisions      and conditions      agreed
upon between the parties         to the contract       and which are not
in conflict      with the law.       Hatch v. Ta              145 Tax. 17,
192 S;W.2d 668 (1946);                     v . Metrooo itan Life m-
au e omwax          77 S.W.2d            !ex%i;.App.
       cticut    Eeneral   Li      Insurance      omuu
 Tex%iv.App.        1936, eri&      ref .I.
            Our answers to your questions           in the four propo-             1
sitions  above are not in conflice        with Articles      3.44 and
3.45, supra      and it is our opinion        therefore,   that   insofar
as an indivjdual     life   insurance  po i icy Is concerned     under a
valid “Wholesale     Plan”,    the answers are:
                 1.    Ordinarily      an individual   life   insurance
          policy    provides      coverage   for a definite    time
          period by specifying           a number of years,    months,
          weeks or days, but it may provide             a term of in-
          surance geared to and measured by the term of the
          insured’s     employment with a specif led employer.
                  2.  If an individual      term life    insurance    pol-
          icy provides     coverage    for an indefinite       term con-
          ditioned    upon cessation      of employment,     such policy
          may provide    either    that coverage     will terminate      at
          the next premium due date subsequent            to termination
          of employment,      z,   that coverage     wi.11 cease imme-
          diately    upon termination      of employment.

                 3.   An individual    term life   Insurance     policy
          issued    on a one year or on a one month renewable
          term plan may provide      either   that it is renewable
          only at the opt ion of the insurance         company      Q&
          that it is renewable      during a specified       per 1 od of
          time following     its date of issue at the option           of
          the insured    only.
                4.   An individual     term life      insurance   policy
          may be issued that provides          for the payment of
          premiums’.only   by the employer        or some other specl-
          fied person or f lrm, or it may provide             for payment
          of premiums without      specifying,     the person or firm
          that will make the payments.
                                                                tde,  is titled:
                                                                   and provides:
       Hon. Garland        Aa Smith,     page 4      (S-143)


                        “Except as may be provided     in this  kticle,.
                 it shall    be m          to make a contract   of life
                 insurance    covering   a group in this State-     . * .@I               ;    .
                 (Emphasis    supplied.)
                    It is apparent    that the Legislature     direoted   its                 1-r<
       prohibitions      against any plan,   scheme or system of life
       insurance    which covers    a group of persons     in any manner WI-
       der policy     provisions  not in harmony with Article        3a5Q9 as
       amended o supra o
                     Paragraph     (3) of Section     1, Article    3.50’ subchap-                   ’
        ter I?, of Senate Bill No. 236, Chapter           491, Acts 0% the 52nd
        Legislature      R. S      19513 was amended by Acts .53rd Legisla-
        ture;,. R,S, f953, EL, 345, p., 853, and this            amendment reduced
        the ‘number of insureds       necessary   to be eligible       for the
       ‘“group plan” from a minimum of 25 to a minimum of 15 and it
        also allowed     incorporated     cities,   towns or villages      4 o par-
        ticipate    in a “group plan.”
                       In determining whether or not a Wholesale   Life In-
       surance      Plan” is not in fact a “Group Plan” as defined    in



        characteristic       of group insurance     is the willingnessof      the
       insurance       company to waive its right      to select   who shall    be
        insured     for a “spread     of risk” which it receives      through   a’
“..,    guarantee      that a certain    percentage   of one class    of persons
        would be covered,
                                                                        ,




             4           Individual     life   insurance     p’olicias    may
             “-,,provide for a term of insurance              to end either
                 at a specified        date    or at termination         of
             ’ specified        employmen$ or at due date of next
              +~premium subsequent           to termination       of such em-
              .&.iloyment , etc 0, and an individual              one year            ;
              ‘”,term life      policy    may provide     for renewal .at           “’
                 option     of the insurer,       and such policy        may
                 specify     who is to pay the premiumso               In deter-’
                 mining whether        OP not a Wholesale          Life Insup-
                 ance Plan” is not in fact a “Group Plan” as,
        ..
,


       Hon. Garland A. Smfth, page 5   (S-143)


            set out In Article 3.50, as amended you may
*. .
            ge guided by the opIni;;einBoard oh rp;iur- .
                          ners ve    at Sou-
           :Insurance Cornoat& 150 Tex. ~58~ 239 S&2d
           ;.803(1951.1.
       APPRbvq:                        Yours very truly,
       Phillip Robinson                 JOHN BFiNSRFiPPEBD
       Reviewer
       J. C. Davis, Jr.
       Bevlewer
       Robert S. Trotti
       First Assistant
       BGR:wb
