Guides For The Mail Order Insuirance Industry

16 CFR Part 234 · Guides · in the Code of Federal Regulations 1980-1980 (1 annual editions)

Scanned CFR pages, OCR text may contain errors; the linked Library of Congress PDF is the authority. Not legal advice; not affiliated with the FTC. These rules and guides are historical: most were rescinded or replaced, so do not assume any is in force.

Latest edition: Library of Congress, 1980 CFR · Earliest edition: 1980 CFR

Text (1980 edition, OCR)

§ 233.5

chaser is required to purchase an arti-
cle in order to receive the ‘free’ or
“1¢” item. It is important, therefore,
that where such a form of offer is
used, care be taken not to mislead the
consumer.

(b) Where the seller, in making such
an offer, increases his regular price of
the article required to be bought, or
decreases the quantity and quality of
that article, or otherwise attaches
strings (other than the basic condition
that the article be purchased in order
for the purchaser to be entitled to the
“free” or “1¢” additional merchandise)
to the offer, the consumer may be de-
ceived.

(c) Accordingly, whenever a “free,”
“2-for-1,” “half price sale,” “1¢ sale,”
“50% off” or similar type of offer is
made, all the terms and conditions of
the offer should be made clear at the
outset. [Guide IV]

§ 233.5 Miscellaneous price comparisons.

The practices covered in the provi-
sions set forth above represent the
most frequently employed forms of
bargain advertising. However, there
are many variations which appear
from time to time and which are, in
the main, controlled by the same gen-
eral principles. For example, retailers
should not advertise a retail price as a
“wholesale” price. They should not
represent that they are selling at “fac-
tory” prices when they are not selling
at the prices paid by those purchasing
directly from the manufacturer. They
should not offer seconds or imperfect
or irregular merchandise at a reduced
price without disclosing that the
higher comparative price refers to the
price of the merchandise if perfect.
They should not offer an advance sale
under circumstances where they do
not in good faith expect to increase
the price at a later date, or make a
“limited” offer which, in fact, is not
limited. In all of these situations, as
well as in others too numerous to men-
tion, advertisers should make certain
that the bargain offer is genuine and
truthful. Doing so will serve their own
interest as well as that of the public.
(Guide V] : :

Title 16—Commercial Practices

PART 234—GUIDES FOR THE MAIL
ORDER INSURANCE INDUSTRY

Sec.

234.0 Definitions.

234.1 Deception (general).

234.2 Advertisement of benefits, losses cov-
ered or premiums payable.

234.3 Health of the applicant or insured.

234.4 Disclosure of policy provisions relat-
ing to renewability, cancellability, or ter-
mination.

234.5 Testimonials, appraisals or analyses.

234.6 Deceptive use of statistics.

234.7 Identification of plan or number of
Policies.

234.8 Deception as to introductory, initial
or special offers.

234.9 Misrepresentation as to licensing, ap-
proval or endorsement of insurer, policy
or advertisement.

234.10 Deception as to ‘group’ or ‘“quasi-
group” policies.

234.11 Allocation of benefits under a
“Family Group” policy.

234.12 Deceptive use of trade names, serv-
ice marks, etc.

234.13 Disparagement.

234.14 Misrepresentation concerning the
insurer.

AvutHority: Secs. 5, 6, 38 Stat. 719, as
amended, 721; 15 U.S.C. 45, 46, unless other-
wise noted.

Source: 32 FR 15536, Nov. 8, 1967, unless
otherwise noted.

§ 234.0 Definitions.

(a) “Advertisement” for the purpose
of this part, shall mean any of the fol-
lowing material when used in connec-
tion with solicitation of the original
purchase ‘of a policy, or renewal or re-
instatement thereof:

(1) Any printed or published materi-
al, descriptive literature, statements or
depictions of an insurer used in news-
papers, magazines, radio and TV
scripts or presentations, billboards,
and similar displays, and

(2) Descriptive literature and sales
aids of all kinds issued or caused to be
issued by an insurer or by an insurer’s
agent or broker for presentation to
members of the public, including, but
not limited to, circulars, leaflets, book-
lets, depictions, illustrations, form let-
ters, and policy forms.

(b) “Policy” for the purpose of this
part, shall include any policy, plan,
certificate, contract, agreement, state-
ment of coverage, rider or endorse-

30


Chapter I—Federal Trade Commission

ment which provides insurance bene-
fits for any kind of loss or expense.

(c) “Insurer” for the purpose of this
part, shall include any individual, cor-
poration, association, partnership, re-
ciprocal exchange, inter-insurer,
Lloyds, fraternal benefit society, and
any other legal entity, engaged in the
advertisement and sale of a policy as
herein defined.

§ 234.1 Deception (general).

No advertisement shall be used
which because of words, phrases,
statements or illustrations therein or
information omitted therefrom has
the capacity and tendency to mislead
or deceive purchasers or prospective
purchasers, irrespective of whether a
policy advertised is made available to
an insured prior to the consummation
of the sale, or an offer is made of a
premium refund if a purchaser is not
satisfied. Words or phrases which are
misleading or deceptive because the
meaning thereof is not clear, or is
clear only to persons familiar with in-
surance terminology, shall not be
used. [Guide 1]

§ 234.2 Advertisement of benefits, losses
covered or premiums payable.

(a) Disclsoure as to exceptions, re-
ductions and limitations. (1) No ad-
vertisement shall refer to any loss cov-
ered or benefit provided by an insur-
ance policy, period of time for which
any benefit is payable, or the cost of a
policy, without clearly and conspicu-
ously disclosing in close conjunction
therewith such exceptions, reductions
and limitations relating thereto as will
fully relieve the advertisement of all
capacity to deceive.

(2) The disclosure requirements of
this section are not applicable to ad-
vertisements which mention only the
general kind of insurance (e.g., “Life,”
“Accident,” “Hospitalization’’), give no
information as to losses covered, bene-
fits or premiums, and serve the pur-
pose of merely inviting inquiries or a
show of interest on the part of the re-
cipients.

(3) As used in this section:

(i) The term “exception” means any
provision in a policy whereby coverage
for a specified hazard is entirely elimi-

31

§ 234.2

nated. It is a statement of risk not as-
sumed under the policy.

(ii) The term ‘‘reduction” shall mean
any provision which reduces. the
amount of the benefit; a risk of loss is
assumed but payment upon the occur-
rence of such loss is limited to some
amount or period less than would be
otherwise payable had such reduction
clause not been used.

diii) The term “limitation’’ means
any provision which restricts the dura-
tion or extent of coverage, losses cov-
ered, or benefits payable under the
policy other than an exception or a re-
duction.

(4) Waiting, elimination, probation-
ary or similar periods: When there is a
time period between the effective date
of a policy and the effective date of
coverage under the policy, or a time
period between the date a loss occurs
and the date benefits begin to accrue
for such loss, such fact must be clearly
and conspicuously disclosed in close
conjunction with any reference to
such coverage or benefits made in any
advertisement.

(5) Benefits contingent on condi-
tions: When a policy pays varying
amounts of benefits for the same loss
occurring under different conditions
or which pays benefits only when a
loss occurs under certain conditions,
any reference to such benefits in an
advertisement must be closely accom-
panied by clear and conspicuous dis-
closure of such different or limited
conditions as are applicable.

(6) Preexisting conditions: If a
policy provides any limitations on the
coverage of a loss if the cause of such
loss is traceable to a condition existing
prior to the effective date of the
policy, or prior to any other particular
time, any reference to the policy cov-
erage of the loss made in any adver-
tisement must be closely accompanied
by clear and conspicuous disclosure of
such limitations. (See also § 234.3 of
this part.)

(1) Deceptive words or phrases: (i)
No words, terms or phrases shall be
used as descriptive of the coverage
provided by a policy which misrepre-
sent the extent of such coverage.
Words such as “all,” “full,” “com-
plete,” “unlimited,” and words of simi-
lar import must not be used to refer to


§ 234.3

any coverage which under the terms
of the policy is subject to exceptions,
reductions or limitations. Other words,
terms, or phrases representing or im-
plying broad insurance coverage must
not be used as descriptive of losses cov-
ered or benefits provided by a policy
which are subject to exceptions, reduc-
tions or limitations without disclosure
of the applicable exceptions, reduc-
tions or limitations as required by this
paragraph (a).

dii) The terms “hospitalization,” ‘“‘ac-
cident,” or “life” must not be used as
descriptive of an insurance policy
which provides benefits for only un-
usual or unique sicknesses, accidents,
or causes of death unless in close con-
junction with such terms clear and
conspicuous disclosure is made of such
coverage (e.g. ‘Leukemia Hospitaliza-
tion,” ‘‘Death by Drowning”’).

iii) Words or phrases such as “up
to,” ‘‘as high as,’’ etc. shall not be used
as descriptive of the dollar amount
payable for any kind of represented
losses or expenses unless the. policy
provides benefit payments up to such
amount in all cases for such losses or
expenses actually sustained by a poli-
cyholder, or there is full and conspicu-
ous disclosure in close conjunction
with such words or phrases of either—

(a) The complete schedule of pay-
ments provided by the policy, or

(6) The specific loss or expense for
which the represented dollar amount
is provided by the policy; and also dis-
closure that benefits provided by the
policy for losses or expenses of the
kind represented vary in amount de-
pending on the particular kind of loss
or expense incurred, if such is the
case, as for example—‘‘Policy provides
surgical benefits which vary in
amount depending on kind of oper-
ation performed. For example, pays up
to $150 for operation to remove a
lung.”

and there is also disclosure of such
other exceptions, reductions or limita-
tions as required by this paragraph
(a).

(iv) An advertisement must not con-
tain representations such as “This
policy pays $1,800 for hospital room
and board expenses” without clear and
conspicuous disclosure in close con-
junction therewith of the maximum

Title 16—Commercial Practices

daily benefit and the maximum time
limit for such hospital room and board
expense.

(v) An advertisement must not rep-
resent the weekly, monthly, or other
periodic benefits payable under a
policy without clearly and conspicu-
ously disclosing in close conjunction
with such representation the limita-
tion of time over which such benefits
will be paid or of the number of pay-
ments or total amount thereof which
will be made if, by the terms of the
Policy, payment of benefits for any
loss or aggregate of losses is limited to
time, number, or total amount.

(8) Age limitation: Any reference in
an advertisement. to any insurance
coverage or benefits which by the
terms of the policy are limited to a
certain age group must be closely ac-
companied by clear and conspicuous
disclosure of such fact.

‘(b) Deception as to coverage and ad-
ditional benefits. (1) A policy covering
only one disease or certain specified
diseases must not be advertised in
such manner as to imply coverage
beyond the terms of the policy, either
by use of synonymous words or terms
to refer to any disease or physical con-
ditions so as to imply broader cover-
age, or by other means.

(2) An advertisement must not rep-
resent, directly or indirectly, that a
policy provides for the payment of cer-
tain benefits in addition to other bene-
fits when such is not the fact. [Guide
2)

§ 234.3 Health of the applicant or insured.

No advertisement shall be used
which represents or implies—

(a) That the condition of the appli-
cant’s or insured’s health prior to, or
at the time of issuance of a policy, or
thereafter, will not be considered by
the insurer in determining its liability
or benefits to be furnished for or in
the settlement of a claim when such is
not the fact (see also § 234.2(a)(6) of
this part); or

(b) That no medical examination is
required if the furnishing of benefits
by an insurer under a policy so repre-
sented is or may be contingent on a
medical examination under any condi-
tion; or

32


Chapter I—Federal Trade Commission

(c) That no medical examination is
required, even though such is the case,
without conspicuously disclosing in
close conjunction therewith all the
conditions pertaining to or involving
the insured’s health under which the
insurer is not liable for the furnishing
of benefits under a policy. [Guide 3]

§ 234.4 Disclosure of policy provisions re-
lating to renewability, cancellability, or
termination.

(a) No advertisement shall refer, di-
rectly or by implication, to renewabil-
ity, cancellability, or termination of a
policy or a policy benefit, or contain
any statement or illustration of time
or age in connection with any benefit
payable, loss, eligibility of applicants,
or continuation of a policy, unless in
close conjunction with such reference,
statement or illustration there is clear
and conspicuous disclosure of the ma-
terial provisions in the policy relating
thereto.

(b) No advertisement shall represent
or imply that an insurance policy may
be continued in effect indefinitely or
for any period of time, when, in fact,
said policy provides that it may not be
renewed or may be canceled by the in-
surer, or terminated under any cir-
cumstances over which insured has no
control, during the period of time rep-
resented. [Guide 4]

§ 234.5 Testimonials, appraisals or analy-
ses.

No testimonial, appraisal or analysis
shall be used in any advertisement
which is not genuine, does not repre-
sent the current opinion of the
author, does not accurately describe
the facts, does not correctly reflect the
present practices of an insurer, is not
applicable to the policy of insurer ad-
vertised or is not accurately repro-
duced.

NoTE: An insurer makes as his own all
statements contained in any testimonial
which he uses in his advertisement, and the
advertisement incliding such statements is
subject to all of the provisions of this part.

(Guide 5]

§ 234.6 Deceptive use of statistics.

(a) No advertisement shall be used in
which representations are made as to

§ 234.9

the time within which claims are paid,
the dollar amounts of claims paid, the
number of claims paid or the number
of persons insured under a particular
policy or otherwise, or which contains
other statistical information relating
to any insurer or policy, unless such
advertisement accurately reflects all
the relevant facts. The advertisement
shall not imply that the statistics are
derived from a policy advertised unless
such is the fact.

(b) No advertisement shall be used
which misrepresents that claim settle-
ments by an insurer are liberal or gen-
erous beyond the terms of a policy.
(Guide 6]

§ 234.7 Identification of pian or number
of policies.

(a) No advertisement shall offer a
choice of the amount of benefits with-
out clearly and conspicuously disclos-
ing that the amount of benefits pro-
vided depends upon the plan selected
and that the premium will vary with
the amount of benefits.

(b) No advertisement shall refer to
various benefits which may be con-
tained in two or more policies, other
than group master policies, without
clearly and conspicuously disclosing
that such benefits are provided only
through a combination of such poli-
cies. [Guide 7]

§ 234.8 Deception as to introductory, ini-
tial or special offers.

No representation shall be made in
an advertisement, directly or py impli-
cation, that a policy or combination of
policies is an introductory, initial, spe-
cial or limited offer and that appli-
cants will receive advantages not avail-
able at a later date, unless such is the
fact. (Guide 8)

§ 234.9 Misrepresentation as to licensing,
approval or endorsement of insurer,
policy or advertisement.

No advertisement shall represent di-
rectly or by implication—

(a) That an insurer, or any policy or
advertisement thereof, has been li-
censed, approved, endorsed or recom-
mended by any governmental agency
or department, unless such is the fact;

(b) That an insurer, or a policy or an
advertisement thereof, has been ap-

33


§ 234.10

proved, endorsed or recommended by
any individual, group of individuals,
society, association, or other organiza-
tion, unless such is the fact. [Guide 9}

§ 234.10 Deception as to
“quasi-group” policies.

No advertisement shall represent, di-
rectly or indirectly, that prospective
policyholders become group or quasi-
group members and as such enjoy spe-
cial rates or underwriting privileges or-
dinarily associated with group insur-
ance as recognized in the industry,
unless such is the fact. [Guide 10]

“ group” or

§ 234.11 Allocation of benefits under a
“Family Group” policy.

No advertisement shall refer to a
benefit payable under a “Family
Group” policy when the full amount
of such benefit is not payable upon
the death or disability, etc. of only one
member of the family unless clear and
conspicuous disclosure of such fact is
made in the advertisement. [Guide 11]

§ 234.12 Deceptive use of trade names,
service marks, etc.

There shall not be used in an adver-
tisement any trade name, service
mark, slogan, symbol, or other device
which has the capacity and tendency
to mislead or deceive prospective pur-
chasers as to the true identity of the
insurer or its relation with public or
private institutions. (Guide 12)

§ 234.13 Disparagement.

No advertisement shall be used
which, directly or indirectly, falsely
disparages competitors, their policies,
services, or business methods. (Guide
13]

§ 234.14 Misrepresentation concerning the
insurer.

No advertisement shall be used
which, directly or by implication, has
the capacity and tendency to mislead
or deceive prospective purchasers with
respect to an insurer’s assets, corpo-
rate structure, financial standing, age,
or relative position in the insurance
business, or in any other material re-
spect. [Guide 14]

Title 16—Commercial Practices

PART 235—GUIDES AGAINST DECEP-
TIVE LABELING AND ADVERTISING
OF ADHESIVE COMPOSITIONS

Sec.

235.1
235.2
235.3
235.4
235.5
235.6

Metal composition products.

Use of the term ‘‘solder”’ or “weld.”

Use of the word “porcelain.”

Epoxy adhesives.

Use of the word “rubber,” etc.

Misrepresentation (general).

235.7 Guarantees, warranties, etc.

235.8 Placing deceptive material in the
hands of others.

AvuTuHoritTy: Secs. 5, 6, 38 Stat. 719, as
amended, 721; 15 U.S.C. 45, 46, unless other-
wise noted.

Source: 32 FR 15538, Nov. 8, 1967, unless
otherwise noted.

§ 235.1 Metal composition products.

Products which do not, after applica-
tion, have the same physical and
chemical properties of metal, or of a
particular represented metal, shall not
be represented as metal or as having
the intrinsic characteristics of metal,
or of the particular metal indicated.
Thus, neither the term “metal” nor
the terms “iron,” “steel,” “aluminum”
or other names of metal shall be used
to designate in brand names or other-
wise any product of the kind herein
described. While this section does not
prohibit truthful representations in
advertising and labeling of the per-
centage of content of any metallic sub-
stances in such products (e.g., contains
20 percent powdered aluminum) it
does prohibit with respect thereto the
use of representations such as, but not
limited to, the following:

“Plastic Steel.”

“Dries to steel.”
“Hardens into metal.”
“Steel in paste form.”
“Liquid aluminum.”
“Instant aluminum.”
“Real metallic putty.”
“Fluid Steel.”

(Guide 1]

§ 235.2 Use of the term “solder” or “weld.”

Products which, when used, do not
form a metallic seal or bond, shall not
be represented as solders or as welding
products unless it is clearly disclosed
in connection therewith that they are
nonmetallic, as for example, ‘Plastic

34