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entire balance is withdrawn;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.