Guides For The Mail Order Insurance Industry

16 CFR Part 234 · Guides · in the Code of Federal Regulations 1968-1995 (26 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 These rules and guides are historical: most were rescinded or replaced, so do not assume any is in force.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, 1995 CFR · Earliest edition: 1968 CFR

Text (1995 edition, OCR)

§ 233.4

every case act honestly and in good
faith in advertising a list price, and not
with the intention of establishing a
basis, or creating an instrumentality,
for a deceptive comparison in any local
or other trade area. For instance, a
manufacturer may not affix price tick-
ets containing inflated prices as an ac-
commodation to particular retailers
who intend to use such prices as the
basis for advertising fictitious price re-
ductions. (Guide TT)

§233.4 Bargain offers based upon the
purchase of other merchandise.

(a) Frequently, advertisers choose to
offer bargains in the form of additional
merchandise to be given a customer on
the condition that he purchase a par-
ticular article at the price usually of-

‘fered by the advertiser. The forms
which such offers may take are numer-
ous and varied, yet all have essentially
the same purpose and effect. Rep-
resentative of the language frequently
employed in such offers are ‘Free,’
“Buy One—Get One Free,’’ ‘‘2-For-1
Sale,” ‘‘Half Price Sale,” ‘‘1¢ Sale,”
“50% Off,” etc. Literally, of course, the
seller is not offering anything ‘‘free’’
(i.e., an unconditional gift), or % free,
or for only 1¢, when he makes such an
offer, since the purchaser is required to
purchase an article in order to receive
the ‘‘free’’ or ‘‘1¢’? item. It is impor-
tant, 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 de-
creases 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,’ ‘‘l¢ 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]

16 CFR Ch. | (1-1-95 Edition)

§233.5 Miscellaneous price
sons.

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 general
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 high-
er 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 mention, ad-
vertisers 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]

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
termination.

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 ‘‘Fam-
ily Group” policy.

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

compari-


Federal Trade Commission

234.13 Disparagement.
234.14 Misrepresentation concerning the in-
surer.

AUTHORITY: Secs. 5, 6, 38 Stat. 719, as
amended, 721; 15 U.S.C. 45, 46.

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 follow-
ing material when used in connection
with solicitation of the original pur-
chase of a policy, or renewal or rein-
statement thereof:

(1) Any printed or published mate-
rial, descriptive literature, statements
or depictions of an insurer used in
newspapers, 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,
booklets, depictions, illustrations,
form letters, and policy forms. .

(b) Policy for the purpose of this part,
shall include any policy, plan, certifi-
cate, contract, agreement, statement
of coverage, rider or endorsement
which provides insurance benefits 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 adver-
tised 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 decep-
tive because the meaning thereof is not
clear, or is clear only to persons famil-

157-051 O—85——2

23

§ 234.2

far with insurance terminology, shall
not be used. [Guide 1]

$284.2 Advertisement of benefits,
losses covered or premiums pay-
able.

(a) Disclosure as to exceptions, reduc-
tions and limitations. (1) No advertise-
ment shall refer to any loss covered or
benefit provided by an insurance pol-
icy, period of time for which any bene-
fit is payable, or the cost of a policy,
without clearly and conspicuously dis-
closing in close conjunction therewith
such exceptions, reductions and limita-
tions relating thereto as will fully re-
Heve 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,
benefits or premiums, and serve the
purpose 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-
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.

(iii) The term ‘limitation’? means
any provision which restricts the dura-
tion or extent of coverage, losses cov-
ered, or benefits payable under the pol-
icy other than an exception or a reduc-
tion.

(4) Waiting, elimination, probationary
or similar periods. When there is a time
period between the effective date of a
policy and the effective date of cov-
erage 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 con-
spicuously disclosed in close conjunc-
tion with any reference to such cov-


§ 234.2

erage or benefits made in any adver-
tisement.

(5) Benefits contingent on conditions.
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 accompanied by clear
and conspicuous disclosure of such dif-
ferent or limited conditions as are ap-
plicable.

(6) Preexisting conditions. If a policy
provides any limitations on the cov-
erage 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 coverage of
the loss made in any advertisement
must be closely accompanied by clear
and conspicuous disclosure of such lim-
itations. (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 misrepresent the ex-
tent of such coverage. Words such as
“all,’’ “full,” “complete,” “unlimited,”’
and words of similar import must not
be used to refer to any coverage which
under the terms of the policy is subject
to exceptions, reductions or limita-
tions. Other words, terms, or phrases
representing or implying broad insur-
ance coverage must not be used as de-
scriptive of losses covered or benefits
provided by a policy which are subject
to exceptions, reductions or limita-
tions without disclosure of the applica-
ble exceptions, reductions or limita-
tions as required by paragraph (a) of
this section.

(ii) 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

24

16 CFR Ch. | (1-1-95 Edition)

provides benefit payments up to such
amount in all cases for such losses or
expenses actually sustained by a pol-
icyholder, 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 disclo-
sure that benefits provided by the pol-
icy for losses or expenses of the kind
represented vary in amount depending
on the particular kind of loss or ex-
pense incurred, if such is the case, as
for example—‘‘Policy provides surgical
benefits which vary in amount depend-
ing on kind of operation performed.
For example, pays up to $150 for oper-
ation to remove a lung.”

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

(iv) An advertisement must not con-
tain representations such as “This pol-
icy pays $1,800 for hospital room and
board expenses”’ without clear and con- -
spicuous disclosure in close conjunc-
tion therewith of the maximum daily
benefit and the maximum time limit
for such hospital room and board ex-
pense.

(v) An advertisement must not rep-
resent the weekly, monthly, or other
periodic benefits payable under a pol-
icy without clearly and conspicuously
disclosing in close conjunction with
such representation the limitation of
time over which such benefits will be
paid or of the number of payments or
total amount thereof which will be
made if, by the terms of the policy,
payment of benefits for any loss or ag-
gregate of losses is limited to time,
number, or total amount.

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

(b) Deception as to coverage and addi-
tional benefits. (1) A policy covering
only one disease or certain specified
diseases must not be advertised in such
manner as to imply coverage beyond


Federal Trade Commission

the terms of the policy, either by use of
synonymous words or terms to refer to
any disease or physical conditions so as
to imply broader coverage, 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 in-
sured.

No advertisement shall be used which
represents or impHes—

(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 rep-
resented is or may be contingent on a
medical examination under any condi-
tion; or

(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
relating 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,

§ 234.7

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,
analyses.

No testimonial, appraisal or analysis
shall be used in any advertisement
which is not genuine, does not rep-
resent the current opinion of the au-
thor, 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 including 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
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 pol-
icy 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 plan or num-
ber 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

appraisals or


§ 234.8

than group master policies, without
clearly and conspicuously disclosing
that such benefits are provided only
through a combination of such policies.
(Guide 7]

§234.8 Deception as to introductory,
initial or special offers.

No representation shall be made in
an advertisement, directly or by 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
available at a later date, unless such is
the fact. (Guide 8]

§234.9 Misrepresentation as to licens-
ing, approval or endorsement of in-
surer, 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 rec-
ommended by any governmental agen-
cy or department, unless such is the
fact;

(b) That an insurer, or a policy or an
advertisement thereof, has been ap-
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 “group” or
“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, un-
less such is the fact. [Guide 10]

§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]

26

16 CFR Ch. | (1-1-95 Edition)

$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, cor-
porate structure, financial standing,
age, or relative position in the insur-
ance business, or in any other material
respect. [Guide 14]

PART 235—GUIDES AGAINST DE-
CEPTIVE LABELING AND ADVER-
TSING OF ADHESIVE COMPOSI-

m2
D
fe)

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).
Guarantees, warranties, etc.

Placing deceptive material in the
hands of others.

AUTHORITY: Secs. 5, 6, 38 Stat. 719, as
amended, 721; 15 U.S.C. 45, 46.

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 chem-
ical properties of metal, or of a par-

235.

’ ticular 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