senate Bill S4039

Amended

Relates to life insurance policies that credit additional amounts in accordance with an equity index

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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actions

  • 15 / Mar / 2011
    • REFERRED TO INSURANCE
  • 01 / Jun / 2011
    • 1ST REPORT CAL.896
  • 02 / Jun / 2011
    • 2ND REPORT CAL.
  • 06 / Jun / 2011
    • ADVANCED TO THIRD READING
  • 13 / Jun / 2011
    • PASSED SENATE
  • 13 / Jun / 2011
    • DELIVERED TO ASSEMBLY
  • 13 / Jun / 2011
    • REFERRED TO INSURANCE
  • 04 / Jan / 2012
    • DIED IN ASSEMBLY
  • 04 / Jan / 2012
    • RETURNED TO SENATE
  • 04 / Jan / 2012
    • REFERRED TO INSURANCE
  • 31 / May / 2012
    • AMEND AND RECOMMIT TO INSURANCE
  • 31 / May / 2012
    • PRINT NUMBER 4039A
  • 04 / Jun / 2012
    • 1ST REPORT CAL.993
  • 05 / Jun / 2012
    • 2ND REPORT CAL.
  • 06 / Jun / 2012
    • ADVANCED TO THIRD READING
  • 19 / Jun / 2012
    • PASSED SENATE
  • 19 / Jun / 2012
    • DELIVERED TO ASSEMBLY
  • 19 / Jun / 2012
    • REFERRED TO INSURANCE

Summary

Relates to life insurance policies that credit additional amounts in accordance with an equity index; imposes additional requirements on such policies including notice provisions.

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Bill Details

See Assembly Version of this Bill:
A7708
Versions:
S4039
S4039A
Legislative Cycle:
2011-2012
Current Committee:
Assembly Insurance
Law Section:
Insurance Law
Laws Affected:
Amd §3203, 3209 & 4221, Ins L

Sponsor Memo

BILL NUMBER:S4039

TITLE OF BILL:
An act
to amend the insurance law, in relation to life insurance policies that
credit additional amounts in accordance with an equity index

PURPOSE:
The purpose of the bill is to permit indexed universal life
insurance policies to credit additional amounts no less frequently
than every five years.

SUMMARY OF PROVISIONS:
Amends § 3203(a)(14) of the insurance law to
permit any policy that credits additional amounts in accordance with
an equity index to do so more frequently than annually, provided that
the policy shall state that the additional amounts will be credited
no less frequently that every five years.

EXISTING LAW:
Current law requires that all policies crediting
additional amounts must credit such additional amounts no less
frequently than annually. This annual crediting requirement places
severe limitations on product design for equity indexed universal
lite insurance and limits the products available to New York consumers.

JUSTIFICATION:
A universal life policy provides flexibility to the
purchaser of the policy. Unlike traditional "fixed" premium whole
life policies, universal life policies allow for flexible premium
payments both as to the timing and amount of premiums paid by the
policy owner. A policy owner may make scheduled or unscheduled
premium payments. Universal life policies credit premium payments to
a cash value account. Each month, the insurer deducts insurance and
administrative charges from the cash value account and credits the
cash value account with an interest credit. Universal life policies
must also comply with the usual guarantee requirements associated
with such policies. Amounts credited in excess of guaranteed amounts
are referred to as "additional amounts" and such policies are known
as excess interest policies.

Universal life policies typically credit interest on a monthly basis
based upon the insurer's declared interest rate.
Indexed universal life insurance policies are typical universal life
insurance policies except that they utilize a crediting method linked
to the performance of an external market index, e.g., the S&P 500,
rather than the insurer's declared interest rate. Since 2003, the New
York State Insurance Department has recognized equity indexed
universal life insurance as a type of excess interest product. Since
2007, guidance from the Department confirmed that index credits on an
equity index policy must occur no more frequently than annually.

This legislation offers New York consumers the opportunity to purchase
indexed universal life insurance policies without the one year
crediting limitation. The legislation allows consumers in New York to
purchase universal life policies with index credits based upon an


equity index that credits additional amounts over a period greater
than one year but not more than five years. By allowing interest
crediting periods to exceed one year, insurers can offer
greater values to policy holders since their hedging costs associated
with promised interest credits are reduced as the
crediting period is extended beyond one year.

Several insurance companies currently offer equity indexed universal
life policies using two, three and five year crediting periods to
consumers outside of New York. A policy may use a single index in
calculating excess interest or may offer more than one index chosen
by the policy owner. Other policies may rely upon a combination of
indexes and use a weighted formula to determine index credits. Such
multiple index products allowing for even greater diversification
than that achieved through the equity index in the calculation of
index credits. Equity
indexed policies typically all include a traditional declared or fixed
rate option for determining interest rates along side the index
equity option. In this way, the policy owner may choose to allocate
premium payments between the fixed rate and the equity index formula
to achieve even greater diversification.

Equity indexed policies provide many advantages over traditional
universal life policies that rely upon an insurer's declared rate to
credit policy interest. With a "declared" interest rate, the policy
owner must rely upon the insurer's discretion in determining a
declared rate, usually based upon the insurer's expected return on its
general account.
By contrast, an insurer relinquishes discretion with an equity index
policy and must credit interest strictly on the basis of the
performance of the index subject only to a declared participation
rate or cap on the amount of index credits offered. Once established,
however, the insurer exercises no discretion in the amount of index
credits and must strictly apply the formula applied to the policy
equity index set forth in the policy.

What sets indexed universal life apart from more traditional universal
life is the opportunity for cash value accumulation through index
crediting potential based, in part, on the performance of a stock
market index or indexes. Plus, interest is guaranteed to be credited
to the policy's cash value through a guaranteed minimum interest rate
as required by law, regardless of whether index credits are applied
to the policy. Through this combination of guarantees and index
credits, a policy owner is afforded the potential of upside index
accumulation should the equity index rise during the crediting
period. Likewise, should the index decline during the index crediting
period, the policy owner is protected through the guaranteed minimum
interest rate. In this way, the policy owner gains exposure to equity
markets without any risk of loss should markets decline.

In addition to the foregoing advantages of equity indexed universal
life, policies that use index periods greater than one year have a
historical advantage over one year indexed strategies. Higher indexed
credits can be expected where the index crediting period exceeds one
year. In sum, the annual crediting requirement places severe
limitations on product design for equity indexed universal life
insurance and limits the products available to New York consumers..


This legislation removes those limitations and provides New York
consumers with greater product choice and the potential for higher
returns on cash accumulations without risk of loss associated with
market downturns.

LEGISLATIVE HISTORY:
New bill.

FISCAL IMPLICATIONS:
None to State.

EFFECTIVE DATE:
Immediately.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  4039

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                             March 15, 2011
                               ___________

Introduced  by  Sen.  SEWARD -- read twice and ordered printed, and when
  printed to be committed to the Committee on Insurance

AN ACT to amend the insurance law, in relation to life  insurance  poli-
  cies that credit additional amounts in accordance with an equity index

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Paragraph 14 of subsection  (a)  of  section  3203  of  the
insurance law is amended to read as follows:
  (14)  in any policy under which additional amounts may be credited for
any period pursuant to subsection  (b)  of  section  four  thousand  two
hundred  thirty-two  of this chapter, that states that the insurer shall
credit any such amount no less  frequently  than  annually  during  such
period,  PROVIDED  THAT  ANY  POLICY  THAT CREDITS ADDITIONAL AMOUNTS IN
ACCORDANCE WITH AN EQUITY INDEX SHALL STATE THAT THE INSURER SHALL CRED-
IT ANY SUCH AMOUNT NO LESS FREQUENTLY THAN EVERY FIVE YEARS.
  S 2. This act shall take effect immediately.






 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD10037-01-1

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