senate Bill S4171B

Signed By Governor
2013-2014 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 - Signed by Governor


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

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Actions

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Dec 18, 2013 signed chap.535
Dec 06, 2013 delivered to governor
Jun 12, 2013 returned to senate
passed assembly
ordered to third reading rules cal.155
substituted for a7306b
Jun 10, 2013 referred to insurance
delivered to assembly
passed senate
May 29, 2013 amended on third reading 4171b
May 21, 2013 amended on third reading 4171a
Mar 20, 2013 advanced to third reading
Mar 19, 2013 2nd report cal.
Mar 18, 2013 1st report cal.206
Mar 12, 2013 referred to insurance

Votes

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Bill Amendments

Original
A
B (Active)
Original
A
B (Active)

S4171 - Bill Details

See Assembly Version of this Bill:
A7306B
Law Section:
Insurance Law
Laws Affected:
Amd §§3203 & 3209, Ins L
Versions Introduced in 2011-2012 Legislative Session:
S4039A, A7708A

S4171 - Bill Texts

view summary

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

view 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.

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                    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.

S4171A - Bill Details

See Assembly Version of this Bill:
A7306B
Law Section:
Insurance Law
Laws Affected:
Amd §§3203 & 3209, Ins L
Versions Introduced in 2011-2012 Legislative Session:
S4039A, A7708A

S4171A - Bill Texts

view summary

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

view sponsor memo
BILL NUMBER:S4171A

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)(8)(A), 3203(a)(14), 3203(e)
and 3209(i) 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 This bill also contains several provisions that require
insurers to include certain favorable policy features in the contract
and also requires customer disclosures regarding the specific terms of
the contract.

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 neater 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.


This bill also contains provisions that will provide customers with an
option to surrendering their policy prior to the crediting of the
additional amounts of interest. The bill requires that a policy loan
must be made available for these types of policies from the inception
of the policy. The bill also requires that the customer must be
provided with disclosure that warns them of the consequences of
surrendering their contract before additional amounts have been
credited (that they will lose those additional amounts) and also
discloses the alternatives to surrender and loss of the additional
amounts (policy loan or partial surrender of the policy). These
disclosures must be provided to the customer both when the policy is
issued and also if the policyholder attempts to surrender the policy
prior to the crediting of the additional amounts of interest All of
these additional safeguards will serve to protect the very few
customers (approximately 1-3%) who might find it necessary to
surrender their policy before the additional amounts of interest have
been credited.

LEGISLATIVE HISTORY: S.4039-A of 2011-12

FISCAL IMPLICATIONS: None to State.

EFFECTIVE DATE: Immediately

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

                                 4171--A
    Cal. No. 206

                       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  --  reported
  favorably  from  said  committee,  ordered to first and second report,
  ordered to a third reading, amended and ordered  reprinted,  retaining
  its place in the order of third reading

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] THAT, FOR A POLICY NOT IN DEFAULT AND WHERE THREE  FULL  YEARS'
PREMIUMS  HAVE  BEEN  PAID OR, IN THE CASE OF A POLICY WHERE THE POLICY-
HOLDER MAY VARY THE AMOUNT AND FREQUENCY OF PREMIUMS TO BE PAID  TO  THE
INSURER,  AFTER  THREE  YEARS  FROM THE DATE OF ISSUE OF THE POLICY, THE
POLICYHOLDER SHALL BE ENTITLED TO A LOAN IN AN AMOUNT NOT EXCEEDING  THE
LOAN  VALUE, UNDER THE CONDITIONS SPECIFIED IN SECTION FOUR THOUSAND TWO
HUNDRED TWENTY-TWO OF THIS CHAPTER. HOWEVER,  A  POLICYHOLDER  SHALL  BE
ENTITLED  TO A LOAN FROM AN EQUITY INDEX ACCOUNT THAT CREDITS ADDITIONAL
AMOUNTS LESS FREQUENTLY THAN ANNUALLY AT ANY TIME THE EQUITY INDEX POLI-
CY HAS A LOAN VALUE;
  S 2. Paragraph 14 of subsection (a) of section 3203 of  the  insurance
law is amended to read as follows:

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD06624-03-3

S. 4171--A                          2

  (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.]  THAT  THE POLICY SHALL STATE THE FREQUENCY AT WHICH ADDITIONAL
AMOUNTS ARE CREDITED, WHICH SHALL BE NO LESS FREQUENTLY  THAN  ANNUALLY,
EXCEPT  THAT  POLICIES THAT CREDIT ADDITIONAL AMOUNTS IN AN EQUITY INDEX
ACCOUNT MAY DO SO IN SUCH ACCOUNT NO LESS FREQUENTLY  THAN  EVERY  THREE
YEARS;
  S 3. Subsection (e) of section 3203 is relettered subsection (f) and a
new subsection (e) is added to read as follows:
  (E)  FOR  POLICIES  THAT  CREDIT ADDITIONAL AMOUNTS IN AN EQUITY INDEX
ACCOUNT LESS FREQUENTLY THAN ANNUALLY: (1) IF THE POLICY HOLDER REQUESTS
A FULL SURRENDER OF A POLICY PRIOR TO THE EXPIRATION OF THE EQUITY INDEX
CREDITING PERIOD, THE INSURER SHALL PROVIDE A STATEMENT TO  THE  POLICY-
HOLDER,  PRIOR  TO PROCESSING THE SURRENDER, TO THE EFFECT THAT:  (A) NO
ADDITIONAL INTEREST BASED ON THE EQUITY INDEX WILL  BE  CREDITED,  SINCE
THE EQUITY INDEX CREDITING PERIOD HAS NOT YET EXPIRED, AND THAT ONLY THE
GUARANTEED INTEREST WILL BE CREDITED TO THE ACCOUNT; AND (B) THE POLICY-
HOLDER  IS  ADVISED  TO CONSIDER ALTERNATIVES TO A FULL SURRENDER OF THE
POLICY PRIOR TO THE CREDITING OF ADDITIONAL INTEREST BASED ON THE EQUITY
INDEX, SUCH AS A POLICY LOAN OR, IF AVAILABLE, A PARTIAL  WITHDRAWAL  OF
THE  POLICY;  (2) IN DETERMINING THE ADDITIONAL AMOUNT TO BE CREDITED TO
THE POLICY IN  ACCORDANCE  WITH  AN  EQUITY  INDEX,  THE  INSURER  SHALL
INCLUDE,  IN  THE  CALCULATION  OF  THE  CREDIT,  ANY AMOUNTS WITHDRAWN,
INCLUDING FOR POLICY LOANS, FROM THE EQUITY INDEX ACCOUNT FOR THE PERIOD
OF TIME PRIOR TO THEIR WITHDRAWAL;  (3)  THE  POLICY  SHALL  INCLUDE  AN
OPTION  THAT  CREDITS  ADDITIONAL AMOUNTS AT LEAST ANNUALLY; AND (4) THE
POLICY MAY PROVIDE THAT THE AMOUNTS TO BE PAID UPON THE  EXERCISE  OF  A
POLICY  LOAN  MAY  BE  SECURED BY THE VALUE OF THE POLICY'S EQUITY INDEX
ACCOUNT OR BY THE GENERAL ACCOUNT OF THE INSURER.
  S 4. Subparagraph (H) of paragraph 2 of subsection (b) of section 3209
of the insurance law, as added by chapter 170 of the laws  of  2008,  is
amended,  subparagraph  (I)  is  relettered  subparagraph  (J) and a new
subparagraph (I) is added to read as follows:
  (H) a statement identifying the initial current and the minimum  upper
limit or cap on the indexed linked interest rate, if any; [and]
  (I)  FOR  A  LIFE  INSURANCE  POLICY  CREDITING  ADDITIONAL AMOUNTS IN
ACCORDANCE WITH AN EQUITY INDEX LESS FREQUENTLY THAN ANNUALLY, A  STATE-
MENT  TO  THE EFFECT THAT: IF THE POLICYHOLDER REQUESTS A FULL SURRENDER
OF A POLICY PRIOR TO THE EXPIRATION OF THE EQUITY INDEX CREDITING  PERI-
OD,  NO  ADDITIONAL  INTEREST BASED ON THE EQUITY INDEX WILL BE CREDITED
AND THAT ONLY THE GUARANTEED INTEREST WILL BE CREDITED TO  THE  ACCOUNT;
AND  THE  POLICYHOLDER  IS  ADVISED  TO  CONSIDER ALTERNATIVES TO A FULL
SURRENDER OF THE POLICY PRIOR TO THE  EXPIRATION  OF  THE  EQUITY  INDEX
CREDITING  PERIOD,  SUCH  AS  A  POLICY LOAN OR, IF AVAILABLE, A PARTIAL
WITHDRAWAL OF THE POLICY; AND
  S 5. This act shall take effect immediately.

S4171B (ACTIVE) - Bill Details

See Assembly Version of this Bill:
A7306B
Law Section:
Insurance Law
Laws Affected:
Amd §§3203 & 3209, Ins L
Versions Introduced in 2011-2012 Legislative Session:
S4039A, A7708A

S4171B (ACTIVE) - Bill Texts

view summary

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

view sponsor memo
BILL NUMBER:S4171B

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)(8)(A), 3203(a)(14), 3203(e) and 3209(I) of the insur-
ance law to permit any policy that credits additional amounts in accord-
ance 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 than every three years. This bill also
contains several provisions that require insurers to include certain
favorable policy features in the contract and also requires customer
disclosures regarding the specific terms of the contract.

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 cred-
it. 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 Depart-

ment 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 calcu-
lating 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 allow 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 alongside 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, howev-
er, 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 cred-
iting 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 with-
out risk of loss associated with market downturns.

This bill also contains provisions that will provide customers with an
option to surrendering their policy prior to the crediting of the addi-
tional amounts of interest. The bill requires that a policy loan must be
made available for these types of policies from the inception of the
policy. The bill also requires that the customer must be provided with
disclosure that warns them of the consequences of surrendering their
contract before additional amounts have been credited (that they will
lose those additional amounts) and also discloses the alternatives to
surrender and loss of the additional amounts (policy loan or partial
surrender of the policy). These disclosures must be provided to the
customer both when the policy is issued and also if the policyholder
attempts to surrender the policy prior to the crediting of the addi-
tional amounts of interest. All of these additional safeguards will
serve to protect the very few customers (approximately 1-3%) who might
find it necessary to surrender their policy before the additional
amounts of interest have been credited.

LEGISLATIVE HISTORY:

S.4039-A of 2011-12

FISCAL IMPLICATIONS:

None to State.

EFFECTIVE DATE:

Immediately.

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

                                 4171--B
    Cal. No. 206

                       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  --  reported
  favorably  from  said  committee,  ordered to first and second report,
  ordered to a third reading, amended and ordered  reprinted,  retaining
  its  place  in the order of third reading -- again amended and ordered
  reprinted, retaining its place in the order of third reading

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]  THAT,  FOR A POLICY NOT IN DEFAULT AND WHERE THREE FULL YEARS'
PREMIUMS HAVE BEEN PAID OR, IN THE CASE OF A POLICY  WHERE  THE  POLICY-
HOLDER  MAY  VARY THE AMOUNT AND FREQUENCY OF PREMIUMS TO BE PAID TO THE
INSURER, AFTER THREE YEARS FROM THE DATE OF ISSUE  OF  THE  POLICY,  THE
POLICYHOLDER  SHALL BE ENTITLED TO A LOAN IN AN AMOUNT NOT EXCEEDING THE
LOAN VALUE, UNDER THE CONDITIONS SPECIFIED IN SECTION FOUR THOUSAND  TWO
HUNDRED  TWENTY-TWO  OF  THIS  CHAPTER. HOWEVER, A POLICYHOLDER SHALL BE
ENTITLED TO A LOAN FROM AN EQUITY INDEX ACCOUNT THAT CREDITS  ADDITIONAL
AMOUNTS LESS FREQUENTLY THAN ANNUALLY AT ANY TIME THE EQUITY INDEX POLI-
CY HAS A LOAN VALUE;
  S  2.  Paragraph 14 of subsection (a) of section 3203 of the insurance
law is amended to read as follows:

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD06624-05-3

S. 4171--B                          2

  (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.]  THAT  THE POLICY SHALL STATE THE FREQUENCY AT WHICH ADDITIONAL
AMOUNTS ARE CREDITED, WHICH SHALL BE NO LESS FREQUENTLY  THAN  ANNUALLY,
EXCEPT  THAT  POLICIES THAT CREDIT ADDITIONAL AMOUNTS IN AN EQUITY INDEX
ACCOUNT MAY DO SO IN SUCH ACCOUNT NO LESS FREQUENTLY  THAN  EVERY  THREE
YEARS;
  S 3. Subsection (e) of section 3203 of the insurance law is relettered
subsection (f) and a new subsection (e) is added to read as follows:
  (E)  FOR  POLICIES  THAT  CREDIT ADDITIONAL AMOUNTS IN AN EQUITY INDEX
ACCOUNT LESS FREQUENTLY THAN ANNUALLY: (1) IF THE POLICY HOLDER REQUESTS
A FULL SURRENDER OF A POLICY PRIOR TO THE EXPIRATION OF THE EQUITY INDEX
CREDITING PERIOD, THE INSURER SHALL PROVIDE A STATEMENT TO  THE  POLICY-
HOLDER,  PRIOR  TO PROCESSING THE SURRENDER, TO THE EFFECT THAT:  (A) NO
ADDITIONAL INTEREST BASED ON THE EQUITY INDEX WILL  BE  CREDITED,  SINCE
THE EQUITY INDEX CREDITING PERIOD HAS NOT YET EXPIRED, AND THAT ONLY THE
GUARANTEED INTEREST WILL BE CREDITED TO THE ACCOUNT; AND (B) THE POLICY-
HOLDER  IS  ADVISED  TO CONSIDER ALTERNATIVES TO A FULL SURRENDER OF THE
POLICY PRIOR TO THE CREDITING OF ADDITIONAL INTEREST BASED ON THE EQUITY
INDEX, SUCH AS A POLICY LOAN OR, IF AVAILABLE, A PARTIAL  WITHDRAWAL  OF
THE  POLICY;  (2) IN DETERMINING THE ADDITIONAL AMOUNT TO BE CREDITED TO
THE POLICY IN  ACCORDANCE  WITH  AN  EQUITY  INDEX,  THE  INSURER  SHALL
INCLUDE,  IN  THE  CALCULATION  OF  THE  CREDIT,  ANY AMOUNTS WITHDRAWN,
INCLUDING FOR POLICY LOANS, FROM THE EQUITY INDEX ACCOUNT FOR THE PERIOD
OF TIME PRIOR TO THEIR WITHDRAWAL;  (3)  THE  POLICY  SHALL  INCLUDE  AN
OPTION  THAT  CREDITS  ADDITIONAL AMOUNTS AT LEAST ANNUALLY; AND (4) THE
POLICY MAY PROVIDE THAT THE AMOUNTS TO BE PAID UPON THE  EXERCISE  OF  A
POLICY  LOAN  MAY  BE  SECURED BY THE VALUE OF THE POLICY'S EQUITY INDEX
ACCOUNT OR BY THE GENERAL ACCOUNT OF THE INSURER.
  S 4. Subparagraph (H) of paragraph 2 of subsection (b) of section 3209
of the insurance law, as added by chapter 170 of the laws  of  2008,  is
amended,  subparagraph  (I)  is  relettered  subparagraph  (J) and a new
subparagraph (I) is added to read as follows:
  (H) a statement identifying the initial current and the minimum  upper
limit or cap on the indexed linked interest rate, if any; [and]
  (I)  FOR  A  LIFE  INSURANCE  POLICY  CREDITING  ADDITIONAL AMOUNTS IN
ACCORDANCE WITH AN EQUITY INDEX LESS FREQUENTLY THAN ANNUALLY, A  STATE-
MENT  TO  THE EFFECT THAT: IF THE POLICYHOLDER REQUESTS A FULL SURRENDER
OF A POLICY PRIOR TO THE EXPIRATION OF THE EQUITY INDEX CREDITING  PERI-
OD,  NO  ADDITIONAL  INTEREST BASED ON THE EQUITY INDEX WILL BE CREDITED
AND THAT ONLY THE GUARANTEED INTEREST WILL BE CREDITED TO  THE  ACCOUNT;
AND  THE  POLICYHOLDER  IS  ADVISED  TO  CONSIDER ALTERNATIVES TO A FULL
SURRENDER OF THE POLICY PRIOR TO THE  EXPIRATION  OF  THE  EQUITY  INDEX
CREDITING  PERIOD,  SUCH  AS  A  POLICY LOAN OR, IF AVAILABLE, A PARTIAL
WITHDRAWAL OF THE POLICY; AND
  S 5. This act shall take effect immediately.

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