senate Bill S4039A

2011-2012 Legislative Session

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

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Archive: Last Bill Status - Passed Senate


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

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Actions

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jun 19, 2012 referred to insurance
delivered to assembly
passed senate
Jun 06, 2012 advanced to third reading
Jun 05, 2012 2nd report cal.
Jun 04, 2012 1st report cal.993
May 31, 2012 print number 4039a
amend and recommit to insurance
Jan 04, 2012 referred to insurance
returned to senate
died in assembly
Jun 13, 2011 referred to insurance
delivered to assembly
passed senate
Jun 06, 2011 advanced to third reading
Jun 02, 2011 2nd report cal.
Jun 01, 2011 1st report cal.896
Mar 15, 2011 referred to insurance

Votes

view votes

Jun 4, 2012 - Insurance committee Vote

S4039A
17
0
committee
17
Aye
0
Nay
0
Aye with Reservations
0
Absent
1
Excused
0
Abstained
show Insurance committee vote details

Insurance Committee Vote: Jun 4, 2012

excused (1)

Jun 1, 2011 - Insurance committee Vote

S4039
15
0
committee
15
Aye
0
Nay
2
Aye with Reservations
1
Absent
0
Excused
0
Abstained
show committee vote details

Committee Vote: Jun 1, 2011

aye wr (2)
absent (1)

Bill Amendments

Original
A (Active)
Original
A (Active)

S4039 - Bill Details

See Assembly Version of this Bill:
A7708A
Current Committee:
Law Section:
Insurance Law
Laws Affected:
Amd §§3203, 3209 & 4221, Ins L

S4039 - Bill Texts

view 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.

view 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 full text
download pdf
                    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

Co-Sponsors

S4039A (ACTIVE) - Bill Details

See Assembly Version of this Bill:
A7708A
Current Committee:
Law Section:
Insurance Law
Laws Affected:
Amd §§3203, 3209 & 4221, Ins L

S4039A (ACTIVE) - Bill Texts

view 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.

view sponsor memo
BILL NUMBER:S4039A

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), 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
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
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 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 lite 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 full text
download pdf
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                 4039--A

                       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  --  recommitted
  to the Committee on Insurance in accordance with Senate Rule 6, sec. 8
  --  committee  discharged,  bill amended, ordered reprinted as amended
  and recommitted to said committee

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

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD10037-02-2

S. 4039--A                          2

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 TWO YEARS, AND
  (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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