N.Y. Insurance Law § 3209: Life insurance, annuities and funding agreements disclosure requirements

§ 3209. Life insurance, annuities and funding agreements disclosure

requirements. (a) Except as hereafter exempted, this section shall apply

to any solicitation, negotiation or procurement of life insurance,

annuities or funding agreements occurring within this state. This

section shall apply to any issuer of life insurance or annuity contracts

or funding agreements, including fraternal benefit societies and the

life insurance department of a savings and insurance bank. Unless

otherwise specifically included, this section shall not apply to: credit

life insurance; group life insurance; life insurance policies, annuity

contracts, and funding agreements issued in connection with pension and

welfare plans as defined by and to the extent covered by the federal

Employee Retirement Income Security Act of 1974 (ERISA); funding

agreements issued to other than individuals pursuant to subsection (b)

of section three thousand two hundred twenty-two of this article; and

any group annuity unless at least one certificate is subject to

paragraph two of subsection (b) of section four thousand two hundred

twenty-three of this chapter.

(b) (1) No policy of life insurance shall be delivered or issued for

delivery in this state after the applicable effective date, as set forth

in subsection (n) of this section, unless the prospective purchaser has

been provided with the following:

(A) a copy of the most recent buyer's guide and the preliminary

information required by subsection (d) of this section, at or prior to

the time an application is taken. When sales solicitations are made by

mail, without the involvement of an agent or broker, each initial

solicitation must include a copy of the buyer's guide unless the policy

for which application is made provides for a period of at least thirty

days within which the applicant may return the policy for an

unconditional refund of the premiums paid, in which event the buyer's

guide must be delivered with the policy or prior to delivery of the

policy; in addition, such solicitation must alert the prospective

purchaser of the right to receive, upon request, a buyer's guide and a

policy summary prior to delivery of the policy; and

(B) a policy summary upon delivery of the policy.

(2) No annuity contract or life insurance policy or certificate with

an equity index account shall be delivered or issued for delivery in

this state unless, no later than at the time of application, the

prospective purchaser has been provided with a disclosure statement

containing the following:

(A) a statement in bold type to the effect that the equity index

account provides benefits linked to an external equity index and does

not participate directly in the equity market;

(B) a statement identifying the equity index used in the equity index

formula, together with a description of any alternate index should the

initial index no longer be publicly available;

(C) a statement indicating whether paid dividends are included in

changes in the equity index, together with a description of how such

dividends, or lack thereof, would affect the changes in the equity

index; the statement must provide the average dividend rate over the

lesser of ten years or the calculable life of the index;

(D) a statement fully describing the equity index formula;

(E) a statement explaining and illustrating the equity index formula

including any features of the equity index formula subject to change

after issuance of the contract, policy or certificate;

(F) a statement identifying the initial minimum guaranteed interest

rate for the minimum accumulation value of an equity index account and

any withdrawal charge;

(G) a statement identifying the initial current and the minimum

specified participation rate, i.e., how much of the increase in the

index will be used to calculate the indexed linked interest rate, if

any;

(H) a statement identifying the initial current and the minimum upper

limit or cap on the indexed linked interest rate, if any;

(I) for a life insurance policy crediting additional amounts in

accordance with an equity index less frequently than annually, a

statement to the effect that: if the policyholder requests a full

surrender of a policy prior to the expiration of the equity index

crediting period, 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

(J) other disclosure information the superintendent deems appropriate.

(3) No participating dividend-paying paid-up deferred annuity contract

shall be delivered or issued for delivery in this state unless a

prospective purchaser is provided with a disclosure statement, no later

than at the time of application, containing the following:

(A) a statement indicating that dividends are not guaranteed under the

participating dividend-paying paid-up deferred annuity contract and the

income is therefore not guaranteed to increase from the dollar amount

set at the time of issue; and

(B) a statement indicating that the initial income under a

participating dividend-paying paid-up deferred annuity contract may be

lower than the initial income under a fully guaranteed paid-up deferred

annuity contract.

(c) Every insurer must provide, to any policyholder who so requests, a

policy summary for each in-force premium-paying policy for which no

policy summary has ever been furnished. The insurer may charge the

policyholder a reasonable fee for preparation of this summary, subject

to guidelines specified in rules promulgated by the superintendent.

(d) The preliminary information shall be in writing and include, to

the extent applicable, the following:

(1) the name and address of the insurance agent or broker or, if no

agent or broker is involved, a statement of the procedure to be followed

in order to receive responses to inquiries concerning the preliminary

information;

(2) the full name and home office, administrative office or branch or

agency office address of the company in whose name the life insurance

policy is to be written;

(3) the date of the preliminary information and the generic name, the

initial amount of insurance and the initial annual premium for the basic

policy;

(4) the total guaranteed cash surrender values for the basic policy,

at the end of the tenth and twentieth policy years or at the end of the

premium-paying period if earlier. These values may be shown on a per

thousand or per unit basis;

(5) the effective policy loan annual percentage interest rate, if the

policy would contain this provision, and whether this rate is applied in

advance or in arrears, adjustable or fixed;

(6) for the life insurance policies described in paragraph one of

subsection (n) of this section, life insurance cost indexes and the

equivalent level annual dividend for the basic policy for ten and twenty

years, but in no case beyond the premium-paying period;

(7) in addition, the applicant shall be advised that, when the policy

is issued, a complete policy summary, including cost data, based on the

benefits, premiums and dividends of the policy as issued, will be

furnished; and that, following the receipt of the policy and policy

summary, there will be a period of not less than ten days within which

the applicant may return the policy for an unconditional refund of the

premiums paid; and

(8) notwithstanding the foregoing, no applicant for life insurance

shall be prevented or delayed in effecting or applying for coverage by

the requirements of this section. In such cases where prior to

application it is impractical to provide any items prescribed by this

section, such items may be estimated in good faith or furnished as soon

thereafter as practical prior to delivery of policy.

(e) A policy summary shall include the following:

(1) a prominently placed title as follows:

"STATEMENT OF POLICY COST AND BENEFIT INFORMATION";

(2) the name and address of the insurance agent or broker, or, if no

agent or broker is involved, a statement of the procedure to be followed

in order to receive responses to inquiries regarding the policy summary;

(3) the full name and home office, administrative office or branch or

agency office address of the company in whose name the life insurance

policy is to be or has been written;

(4) the generic name of the basic policy and each rider;

(5) for the life insurance policies described in paragraph one of

subsection (n) of this section, the following amounts, where applicable,

for the first five policy years and representative policy years

thereafter sufficient to clearly illustrate the premium and benefit

patterns, including the years for which life insurance cost indexes are

displayed and at least one age from sixty through sixty-five or

maturity, whichever is earlier:

(A) the annual premium for the basic policy;

(B) the annual premium for each optional rider;

(C) guaranteed amount payable upon death at the beginning of the

policy year regardless of the cause of death, other than suicide or

other specifically enumerated exclusions, which is provided by the basic

policy and each optional rider, with benefits provided under the basic

policy and each rider shown separately;

(D) total guaranteed cash surrender values at the end of the year with

values shown separately for the basic policy and each rider;

(E) cash dividends payable at the end of the year with values shown

separately for the basic policy and each rider. Dividends need not be

displayed beyond the twentieth policy year; and

(F) guaranteed endowment amounts payable under the policy which are

not included in guaranteed cash surrender values above;

(6) the effective policy loan annual percentage interest rate if the

policy contains this provision, specifying whether this rate is applied

in advance or in arrears. If the policy provides for an adjustable loan

interest rate, the policy summary shall so state, shall set forth the

frequency at which the rate is to be determined for that policy, and

shall describe the index upon which the maximum rate is based at the

time the policy is issued;

(7) for the life insurance policies described in paragraph one of

subsection (n) of this section:

(A) life insurance cost indexes for ten and twenty years but in no

case beyond the premium-paying period. Separate indexes are to be

displayed for the basic policy and for each optional term life insurance

rider. Such indexes need not be included for optional riders which are

limited to benefits such as accidental death benefits, disability waiver

of premium, preliminary term life insurance coverage of less than twelve

months and guaranteed insurability benefits, nor for basic policies or

optional riders covering more than one life;

(B) the equivalent level annual dividend, in the case of participating

policies and participating optional term life insurance riders, under

the same circumstances and for the same durations at which life

insurance cost indexes are displayed;

(8) a policy summary which includes dividends shall also include a

statement that dividends are based on the company's current dividend

scale and are not guaranteed; in addition, the summary shall, for the

life insurance policies described in paragraph one of subsection (n) of

this section, include a statement in close proximity to the equivalent

level annual dividend as follows: "An explanation of the intended use of

the equivalent level annual dividend is included in the buyer's guide";

(9) a statement in close proximity to the life insurance cost indexes

as follows:

"AN EXPLANATION OF THE INTENDED USE OF THESE INDEXES IS PROVIDED IN

THE BUYER'S GUIDE"; and

(10) the date on which the policy summary is prepared.

(f) The policy summary must be a separate document. All information

required to be disclosed must be set out in such a manner as not to

minimize or render any portion thereof obscure. Any amounts which remain

level for two or more years of the policy may be represented by a single

number if it is clearly indicated what amounts are applicable for each

policy year. Amounts in paragraph five of subsection (e) of this section

shall be listed in total, not on a per thousand or per unit basis. If

more than one insured is covered under one policy or rider, guaranteed

death benefits shall be displayed separately for each insured or for

each class of insureds if death benefits do not differ within the class.

Zero amounts shall be displayed as zero and shall not be displayed as a

blank space.

(g) Every insurer shall maintain, at its home office or principal

office, a complete file containing one copy of each policy summary form

authorized by the insurer for use pursuant to this section.

(h) An agent or broker shall inform a prospective purchaser, prior to

commencing a life insurance sales presentation, that he is acting as a

life insurance agent or broker, and inform the prospective purchaser of

the full name of the insurer which he is representing. In sale

situations in which an agent or broker is not involved, the insurer

shall identify its full name.

(i) As used in this section, "buyer's guide" means a separate document

published and disseminated by insurers. The language therein shall be

promulgated by the superintendent, and shall, to the extent practicable

and in the public interest as determined by the superintendent, be

consistent with the latest version of a buyer's guide as adopted by the

national association of insurance commissioners.

(j) For life insurance policies, except term life insurance policies,

which are to be issued to qualify for special tax treatment under

subsection (b) of section four hundred three of the Internal Revenue

Code of 1986, as amended, a written notice shall be delivered to the

proposed insured in a manner satisfactory to the superintendent at or

prior to the time an application is taken and shall read as follows:

"The purchase of a life insurance policy with cash value, which

qualifies for special tax treatment under section 403(b) of the Internal

Revenue Code of 1986, as amended, may not be appropriate for individuals

seeking to maximize the accumulation of funds for retirement or for

individuals seeking life insurance coverage primarily to provide a

survivorship benefit for the spouse in the event of death prior to

retirement. If an individual needs coverage to continue after

retirement, current tax laws require the commencement of taxable

distributions under the tax sheltered annuity plan (TSA) no later than

age seventy and one-half which may necessitate some adjustment in the

cash value life insurance policy or may result in increased insurance

costs in future policy years. You should consult with your tax advisor

before purchasing life insurance with cash value as part of a tax

sheltered annuity (TSA)."

(k) The superintendent shall promulgate by regulation the contents and

allowable format of the preliminary information and the information to

appear in the policy summary. The superintendent shall also promulgate

by regulation standards governing the content, format and use of

illustrations of individual life insurance policies and certain group

life insurance policies and certificates, life insurance policies

subject to section four thousand two hundred thirty-two of this chapter,

variable life insurance policies under which the death benefits and cash

values vary in accordance with the unit values of investments held in a

separate account and individual annuities, individual funding

agreements, variable annuities, and group annuity contracts if any

certificate is issued to which paragraph two of subsection (b) of

section four thousand two hundred twenty-three of this chapter applies.

The illustration regulation shall be consistent, to the greatest extent

practicable and in the public interest as determined by the

superintendent, with the illustration regulations as adopted by the

national association of insurance commissioners. The superintendent in

developing regulations to govern the content and format of the

preliminary information, policy summary and illustrations shall ensure

that such forms are presented in an easy, concise and meaningful way to

enable consumers to understand the operation of the policy or contract.

(l) An insurer of any life insurance policy or annuity contract

subject to this section shall notify the superintendent whether its

policies or contract forms have been or will be marketed with or without

an illustration. For those policies and contracts marketed with an

illustration which complies with the regulations promulgated pursuant to

subsection (k) of this section, no preliminary information or policy

summary shall be required. For those policies which are not marketed

with an illustration, the preliminary information and policy summary

shall be provided pursuant to the provisions of this section.

(m) The superintendent, by regulation, shall determine the

applicability of the illustration regulation promulgated pursuant to

subsection (k) of this section to group life insurance policies and

group annuities and funding agreements. Such determination shall be

consistent, to the greatest extent practicable and in the public

interest, with the illustration regulations as adopted by the national

association of insurance commissioners.

(n) The effective dates of this section as applied to policies of life

insurance, annuity contracts, and funding agreements shall be as

follows:

(1) for individual life insurance policies, certain group life

insurance policies and certificates and life insurance policies subject

to section four thousand two hundred thirty-two of this chapter, January

first, nineteen hundred ninety-eight;

(2) for annuities and funding agreements, the date of promulgation of

regulations by the superintendent pursuant to subsection (k) of this

section but not later than June thirty, nineteen hundred ninety-eight;

(3) for variable life insurance policies and variable annuities, the

date of promulgation of regulations by the superintendent but not later

than January first, nineteen hundred ninety-nine.

No less than three months prior to promulgating the regulations

required to implement subsection (k) of this section pursuant to

paragraphs two and three of this subsection, the superintendent shall

hold public hearings on such regulations.