senate Bill S4171

Signed by Governor 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 by Governor
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actions

  • 12 / Mar / 2013
    • REFERRED TO INSURANCE
  • 18 / Mar / 2013
    • 1ST REPORT CAL.206
  • 19 / Mar / 2013
    • 2ND REPORT CAL.
  • 20 / Mar / 2013
    • ADVANCED TO THIRD READING
  • 21 / May / 2013
    • AMENDED ON THIRD READING 4171A
  • 29 / May / 2013
    • AMENDED ON THIRD READING 4171B
  • 10 / Jun / 2013
    • PASSED SENATE
  • 10 / Jun / 2013
    • DELIVERED TO ASSEMBLY
  • 10 / Jun / 2013
    • REFERRED TO INSURANCE
  • 12 / Jun / 2013
    • SUBSTITUTED FOR A7306B
  • 12 / Jun / 2013
    • ORDERED TO THIRD READING RULES CAL.155
  • 12 / Jun / 2013
    • PASSED ASSEMBLY
  • 12 / Jun / 2013
    • RETURNED TO SENATE
  • 06 / Dec / 2013
    • DELIVERED TO GOVERNOR
  • 18 / Dec / 2013
    • SIGNED CHAP.535

Summary

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

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Bill Details

See Assembly Version of this Bill:
A7306
Versions:
S4171
S4171A
S4171B
Legislative Cycle:
2013-2014
Law Section:
Insurance Law
Laws Affected:
Amd §§3203, 3209 & 4221, Ins L
Versions Introduced in 2011-2012 Legislative Cycle:
S4039A, A7708A

Sponsor Memo

BILL NUMBER:S4171

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 three years.

SUMMARY OF PROVISIONS: Amends § 3203(a)(14), 3209 (b) and 4221 (n-1)
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
three 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 life
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 three 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: S .4039-A of 2011-12


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
________________________________________________________________________

                                  4171

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                             March 12, 2013
                               ___________

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. Subparagraph (A)  of  paragraph  8  of  subsection  (a)  of
section 3203 of the insurance law is amended to read as follows:
  (A)  that the policyholder shall be entitled to a loan at any time the
policy is in force in an amount not exceeding the loan value, and  under
the  conditions,  specified in section four thousand two hundred twenty-
two of this chapter, provided three full years' premiums have been  paid
or,  in the case of policies that provide that the policyholder may vary
the amount and frequency of premiums to be paid to  the  insurer,  after
three  years  from  the  issue  of  the  policy, if the policy is not in
default, PROVIDED THAT POLICIES CREDITING ADDITIONAL AMOUNTS IN  ACCORD-
ANCE  WITH  AN  EQUITY INDEX SHALL BE ENTITLED TO A LOAN, ELECTED BY THE
POLICY OWNER, AT ANY TIME DURING THE EQUITY INDEX PERIOD  AND  THAT,  IN
THE  EVENT  THAT A POLICY LOAN THAT REDUCES THE ACCOUNT VALUE IS ELECTED
PRIOR TO THE END OF THE EQUITY  INDEX  PERIOD,  THE  ADDITIONAL  AMOUNTS
DETERMINED  AT  THE  END  OF  THE  EQUITY INDEX PERIOD SHALL REFLECT THE
CHANGE IN ACCOUNT VALUES DURING SUCH EQUITY INDEX PERIOD;
  S 2. Paragraph 14 of subsection (a) of section 3203 of  the  insurance
law is amended to read as follows:
  (14)  (A) 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 THREE YEARS, AND

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD06624-02-3

S. 4171                             2

  (B) THAT ANY POLICY CREDITING ADDITIONAL AMOUNTS IN ACCORDANCE WITH AN
EQUITY INDEX LESS FREQUENTLY THAN ANNUALLY SHALL ALSO  OFFER  AN  OPTION
THAT CREDITS ADDITIONAL AMOUNTS NO LESS FREQUENTLY THAN ANNUALLY.
  S 3. Subparagraph (I) of paragraph 2 of subsection (b) of section 3209
of  the  insurance law is relettered subparagraph (J) and a new subpara-
graph (I) is added to read as follows:
  (I) FOR A  LIFE  INSURANCE  POLICY  CREDITING  ADDITIONAL  AMOUNTS  IN
ACCORDANCE  WITH  AN  EQUITY INDEX LESS FREQUENTLY THAN ANNUALLY, STATE-
MENTS THAT NO ADDITIONAL AMOUNTS WILL BE CREDITED TO  THE  EQUITY  INDEX
ACCOUNT  OF  THE  POLICY IF THE POLICYHOLDER FULLY SURRENDERS THE POLICY
PRIOR TO THE EXPIRATION OF THE EQUITY INDEX  CREDITING  PERIOD,  SO  THE
POLICYHOLDER SHOULD CONSIDER OTHER ALTERNATIVES TO FULL SURRENDER BEFORE
THAT  PERIOD  EXPIRES, SUCH AS A POLICY LOAN OR A PARTIAL SURRENDER FROM
THE EQUITY INDEX ACCOUNT; AND
  S 4. Subsection (b) of section 3209 of the insurance law is amended by
adding a new paragraph 3 to read as follows:
  (3) A LIFE INSURANCE POLICY CREDITING ADDITIONAL AMOUNTS IN ACCORDANCE
WITH AN EQUITY INDEX LESS FREQUENTLY THAN ANNUALLY SHALL DISCLOSE TO THE
POLICYHOLDER AT THE TIME OF A REQUEST FOR FULL SURRENDER OF  THE  POLICY
BY  THE  POLICYHOLDER PRIOR TO THE EXPIRATION OF THE EQUITY INDEX PERIOD
THAT NO ADDITIONAL AMOUNTS WILL BE CREDITED TO THE EQUITY INDEX  ACCOUNT
OF  THE  POLICY IF THE POLICYHOLDER FULLY SURRENDERS THE POLICY PRIOR TO
THE EXPIRATION OF THE EQUITY INDEX PERIOD  SO  THE  POLICYHOLDER  SHOULD
CONSIDER  OTHER  ALTERNATIVES  TO  FULL  SURRENDER  BEFORE  THAT  PERIOD
EXPIRES, SUCH AS A POLICY LOAN OR A PARTIAL SURRENDER  FROM  THE  EQUITY
INDEX ACCOUNT.
  S  5.    The  opening  paragraph of paragraph 3 of subsection (n-1) of
section 4221 of the insurance law, as added by chapter 365 of  the  laws
of 1986, is amended to read as follows:
  A  policy  that meets the requirements of this subsection must provide
for cash surrender values that meet the requirements of either  subpara-
graph (A) or subparagraph (B) and comply with the provisions of subpara-
graphs (C) and (D) of this paragraph, PROVIDED THAT, FOR PARTIAL SURREN-
DERS UNDER POLICIES THAT CREDIT ADDITIONAL AMOUNTS IN ACCORDANCE WITH AN
EQUITY  INDEX  LESS  FREQUENTLY  THAN  ANNUALLY,  THE ADDITIONAL AMOUNTS
DETERMINED AT THE END OF THE  EQUITY  INDEX  PERIOD  SHALL  REFLECT  THE
CHANGE IN ACCOUNT VALUES DURING SUCH EQUITY INDEX PERIOD.
  S 6. This act shall take effect immediately.

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