senate Bill S5028

Requires disclosure of settlement options for life insurance policies

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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

  • 02 / May / 2011
    • REFERRED TO INSURANCE
  • 01 / Jun / 2011
    • 1ST REPORT CAL.899
  • 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

Summary

Relates to settlement options for life insurance policies, requires life insurers to provide certain explanations to beneficiaries of such policies.

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Bill Details

Versions:
S5028
Legislative Cycle:
2011-2012
Current Committee:
Senate Insurance
Law Section:
Insurance Law
Laws Affected:
Amd §3213, Ins L

Sponsor Memo

BILL NUMBER:S5028

TITLE OF BILL:

An act
to amend the insurance law, in relation to disclosure related to the
settlement options for life insurance

PURPOSE:

The purpose of this bill is to amend §3213 of the Insurance Law
to require life insurers to provide to
the beneficiary of a life insurance policy certain, specific
disclosure related options for the settlement of the
death benefit.

SUMMARY OF PROVISIONS:

This bill amends §3213 of the insurance law to add a new subsection
(b) which would require life insurers to provide disclosure related
to the settlement options available to the beneficiary of a life
insurance policy and to provide additional, detailed disclosure if
the benefit is to be provided through the use of a "retained asset
account". The term "retained asset account" is defined in the bill as
a "mechanism whereby the settlement of proceeds payable under a life
insurance policy is accomplished by the life insurer or an entity
acting on behalf of the life insurer placing the proceeds into an
account with check or draft writing privileges where those proceeds
are retained by the life insurer pursuant to a supplementary
contract". If an insurer settles the benefit through the use of a
"retained asset account," the insurer must provide the following
disclosures to the beneficiary before the account is established:

1) that payment of the full benefit amount is accomplished by delivery
of a draft or check book and that one draft or check may be written
to access the entire amount, including interest, of the retained
asset account at any time;

2) a statement identifying the account as either a checking account or
a draft account and an explanation of how the account works;

3) whether other available settlement options are preserved until the
entire balance is withdrawn;

4) information about the account services provided and contact
information where the beneficiary may request and obtain more details
about such services;

5) a description of fees charged for the account, if applicable;

6) information relating to the frequency of statements showing the
current account balance, the interest credited, drafts or checks
written, and any other account activity;

7) information regarding the minimum interest rate to be credited to the
account and how the actual interest rate will be determined;


8) a statement that the interest earned on the account may be taxable;

9) a statement that retained asset account funds are not insured by the
FDIC but are guaranteed by the state guaranty association; and

10) a description of the life insurer's policy regarding retained asset
accounts that become inactive.

JUSTIFICATION:

Currently, neither the insurance law nor regulation in New York
provides for specific disclosures that must be provided to the
beneficiary of a life insurance policy related to their options for
settling the payment of the death benefit when a loved one passes
away. Although life insurers do provide such information, the
substance of such disclosure is not uniform and may not always
provide all of the information necessary to ensure that a beneficiary
is fully aware of their options, including specific details related
to the use of a retained asset account to settle the benefit. Life
insurance contracts containing retained asset account provisions
permit death benefit proceeds to be paid into an interest-bearing,
draft or checking account to be held by the insurer. The interest
provided on the account is usually comparable to or better than that
which is provided for a liquid account in a savings institution.
Beneficiaries who have their death benefit paid into a retained asset
account have full and immediate access to their benefits and can
withdraw some or all of it at any time. In the unlikely event that an
insurer were to become insolvent while maintaining a death benefit in
a retained asset account, the account would be covered
by the New York Life Insurance Guaranty Corporation (LIGC). The
LIGC provides coverage of up to $500,000 per policy, which is more
than what would be provided to an insolvent bank account holder under
the FDIC. Retained asset accounts have existed since 1982 and are now
routinely used by many life insurers for all types of life insurance
policies.

Recent new reports related to the use of retained asset accounts by
life insurers have lead to an examination of their use. As a result,
both the National Association of Insurance Commissioners (NAIC) and
the National Conference of Insurance legislators (NCOIL) have
concluded that the use of retained asset accounts by life insurers is
appropriate, and may even be in the beneficiary's best interest, so
long as they are fully advised of all the settlement options
available to them, including the details related to benefits paid
into a retained asset account.
This bill requires life insurers to fully disclose all the details
related to their death benefit settlement options, including
settlement through the use of a retained asset account, and will lead
to a more transparent process.

LEGISLATIVE HISTORY:

New Bill.

FISCAL IMPLICATIONS:

None.


EFFECTIVE DATE:

This act will take effect on the 180th day after it shall have become
a law.

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

                                  5028

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                               May 2, 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 disclosure related  to
  the settlement options for life insurance

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

  Section 1. Section 3213 of the insurance law is  amended  to  read  as
follows:
  S  3213.  Payment  of  proceeds. (A) Where the proceeds of a policy of
life insurance delivered or issued for delivery in this state are  paya-
ble, according to its terms, to two or more beneficiaries without desig-
nation of their respective interests, the proceeds shall be paid to such
beneficiaries in equal portions.
  (B)  (1)  AT THE TIME A CLAIM IS MADE, A LIFE INSURER SHALL PROVIDE TO
THE BENEFICIARY OF  A  POLICY  OF  LIFE  INSURANCE  WRITTEN  INFORMATION
DESCRIBING  THE SETTLEMENT OPTIONS AVAILABLE UNDER THE POLICY AND HOW TO
OBTAIN SPECIFIC DETAILS RELEVANT TO THE OPTIONS.
  (2)(A) FOR THE PURPOSES OF THIS PARAGRAPH, THE  TERM  "RETAINED  ASSET
ACCOUNT"  MEANS ANY MECHANISM WHEREBY THE SETTLEMENT OF PROCEEDS PAYABLE
UNDER A LIFE INSURANCE POLICY IS ACCOMPLISHED BY THE LIFE INSURER OR  AN
ENTITY ACTING ON BEHALF OF THE LIFE INSURER PLACING THE PROCEEDS INTO AN
ACCOUNT  WITH CHECK OR DRAFT WRITING PRIVILEGES WHERE THOSE PROCEEDS ARE
RETAINED BY THE LIFE INSURER PURSUANT TO A  SUPPLEMENTARY  CONTRACT  NOT
INVOLVING ANNUITY BENEFITS.
  (B)  IF  THE  LIFE  INSURER  SETTLES BENEFITS THROUGH A RETAINED ASSET
ACCOUNT, SUCH INSURER SHALL PROVIDE THE BENEFICIARY WITH A  SUPPLEMENTAL
CONTRACT  THAT  CLEARLY  DESCRIBES THE RIGHTS OF THE BENEFICIARY AND THE
OBLIGATIONS OF THE LIFE INSURER  UNDER  THE  SUPPLEMENTAL  CONTRACT.  IN
ADDITION,  THE  FOLLOWING  WRITTEN  DISCLOSURES SHALL BE PROVIDED TO THE
BENEFICIARY BEFORE A RETAINED ASSET ACCOUNT IS ESTABLISHED:

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD10607-02-1

S. 5028                             2

  (I) A STATEMENT THAT PAYMENT OF THE  FULL  BENEFIT  AMOUNT  IS  ACCOM-
PLISHED BY DELIVERY OF A DRAFT BOOK OR CHECK BOOK;
  (II)  A STATEMENT THAT ONE DRAFT OR CHECK MAY BE WRITTEN TO ACCESS THE
ENTIRE AMOUNT, INCLUDING INTEREST, OF THE RETAINED ASSET ACCOUNT AT  ANY
TIME;
  (III)  WHETHER  OTHER AVAILABLE SETTLEMENT OPTIONS ARE PRESERVED UNTIL
THE ENTIRE BALANCE IS WITHDRAWN OR THE  BALANCE  DROPS  BELOW  THE  LIFE
INSURER'S MINIMUM BALANCE REQUIREMENTS;
  (IV)  A STATEMENT IDENTIFYING THE ACCOUNT AS EITHER A CHECKING ACCOUNT
OR A DRAFT ACCOUNT AND AN EXPLANATION OF HOW THE ACCOUNT WORKS;
  (V) INFORMATION ABOUT THE ACCOUNT SERVICES PROVIDED AND CONTACT INFOR-
MATION WHERE THE BENEFICIARY MAY REQUEST AND OBTAIN MORE  DETAILS  ABOUT
SUCH SERVICES;
  (VI) A DESCRIPTION OF FEES CHARGED, IF APPLICABLE;
  (VII)  INFORMATION RELATING TO THE FREQUENCY OF STATEMENTS SHOWING THE
CURRENT ACCOUNT BALANCE, THE INTEREST CREDITED, DRAFTS OR  CHECKS  WRIT-
TEN, AND ANY OTHER ACCOUNT ACTIVITY;
  (VIII)  INFORMATION REGARDING THE MINIMUM INTEREST RATE TO BE CREDITED
TO THE ACCOUNT AND HOW THE ACTUAL INTEREST RATE WILL BE DETERMINED;
  (IX) A STATEMENT THAT THE INTEREST EARNED ON THE ACCOUNT MAY BE  TAXA-
BLE;
  (X)  A  STATEMENT  THAT  RETAINED ASSET ACCOUNT FUNDS HELD BY THE LIFE
INSURER ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION BUT
ARE GUARANTEED BY THE STATE GUARANTY ASSOCIATION. THE BENEFICIARY SHOULD
BE ADVISED TO CONTACT THE  NATIONAL  ORGANIZATION  OF  LIFE  AND  HEALTH
INSURANCE GUARANTY ASSOCIATIONS TO LEARN MORE ABOUT THE COVERAGE LIMITA-
TIONS TO THE ACCOUNT UNDER A STATE GUARANTY ASSOCIATION; AND
  (XI)  A  DESCRIPTION  OF  THE LIFE INSURER'S POLICY REGARDING RETAINED
ASSET ACCOUNTS THAT BECOME INACTIVE.
  S 2. This act shall take effect on the one hundred eightieth day after
it shall have become a law.

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