N.Y. Insurance Law § 4220: Life insurance and annuities; nonforfeiture benefits under defaulted contracts

§ 4220. Life insurance and annuities; nonforfeiture benefits under

defaulted contracts. (a) (1) This section shall apply only to those

policies and contracts issued prior to the operative date specified in

section four thousand two hundred twenty-one of this article.

(2) Except as otherwise provided in this chapter, in the event of

default in payment of a premium or a note therefor or any interest on

such note, after three full years' premiums have been paid on a policy

of life insurance issued by a domestic insurance company on or after

January first, nineteen hundred forty, such company, upon surrender of

such policy within the period of three months from the due date of the

payment in default, shall pay to the person entitled thereto a cash

surrender value not less than the excess, if any, of subparagraph (A)

over subparagraph (B) as follows:

(A) The reserve on the policy at the due date of the premium in

default (including the reserve for any paid-up additions thereto and

excluding the reserve for any additional benefits in the event of death

by accident or for benefits in the event of total and permanent

disability or for any continuous instalment payments to the beneficiary

or to the insured and the beneficiary incidental to the life insurance

benefit), determined on the basis, in accordance with section four

thousand two hundred seventeen of this article, specified in the policy,

and in addition to such reserve, the amount of any dividends standing to

the credit of the policy;

(B) the sum of any indebtedness to the company on the policy,

including interest due or accrued, and a surrender charge equal to two

and one-half per centum of the face amount of such policy and of any

paid-up additions thereto, and if the policy be surrendered within the

period above specified and after the expiration of the grace period, if

any, following the due date of the payment in default, then there may be

added to the sum to be deducted the value of any extended term insurance

granted (determined as hereinafter specified) during the period between

the expiration of the grace period and the date of surrender of the

policy.

(3) The person entitled to such cash surrender value may, upon demand

therefor within three months after the due date of the payment in

default, elect to receive in lieu of such cash surrender value either

extended term insurance (including pure endowment benefits, if any) or

reduced paid-up insurance under the policy, for a term, in the case of

extended term insurance, and for an amount, in the case of reduced

paid-up insurance, which, in either case, shall be not less than that

provided by applying such cash surrender value at the date of default to

provide such extended term or paid-up insurance, computed at net rates

at the attained insurance age of the insured and on the same basis used

for the computation of such cash surrender value, except that in the

case of policies issued on a substandard basis or policies for which the

reserves are computed upon the American Men Ultimate Table of Mortality,

the term of such extended insurance may be computed upon rates of

mortality not greater than one hundred thirty per centum of those shown

by the table specified in the policy for the computation of the reserve.

The period of extended term insurance shall date from the due date of

the premium in default. Reduced paid-up insurance shall be participating

if the policy be participating.

(4) The amount of the extended term insurance shall be not less than

the amount of life insurance under the policy as expressed in the policy

with the approval of the superintendent (including any paid-up additions

thereto and excluding any additional benefits on account of death by

accident or any continuous instalment payments to the beneficiary or to

the insured and the beneficiary incidental to the life insurance

benefit), decreased by the amount of any indebtedness to the company on

the policy, including interest due or accrued. In the case of any

endowment life insurance policy, if the sum used to provide extended

term insurance shall be more than sufficient to continue the insurance

to the end of the endowment period, the excess shall be used to provide

a pure endowment benefit at the end of the endowment period.

(5) Extended term insurance and reduced paid-up insurance may exclude

additional benefits in the event of death by accident and benefits in

the event of total and permanent disability, and extended term insurance

may be without participation in surplus and without the right to loans.

(6) If no other option expressed in the policy be so selected by such

person within three months after the due date of the premium in default,

the amount of such nonforfeiture value shall be applied to continue the

insurance in force from the due date of the premium in default as

extended term insurance as hereinbefore provided.

(7) The policy shall specify the reserve basis used in determining

nonforfeiture benefits and cash surrender values.

(8) This subsection shall not apply to any pure endowment, annuity, or

reversionary annuity contract, nor to any term insurance of thirty years

or less.

(9) In the case of ordinary or industrial life insurance policies

issued on a substandard basis the company shall not be required to

provide extended term insurance as a nonforfeiture benefit.

(10) That the company must provide, to any policyowner who so requests

in writing, within twenty business days from the date the written

request is received by the company, a statement of the cash surrender

value of the policy.

(b) (1) Every contract issued after January first, nineteen hundred

forty, by any domestic life insurance company which provides for a

deferred annuity on the life of the insured or of the annuitant, or for

a pure endowment contract, except a contract paid for by a single

premium, shall provide that if the contract after having been in force

for three full years, shall by its terms lapse or become defaulted

because any stipulated payment to the company shall not have been made,

the reserve on such contract, computed according to the standard adopted

by such company pursuant to section four thousand two hundred seventeen

of this article, shall, after deducting a surrender charge not to exceed

the limits hereinafter specified, and after deducting the amount of the

unpaid balance, including interest due or accrued, on any loans on such

contract by the company, be applied as a net single premium according to

such standard, for the purchase of a paid-up annuity or pure endowment

contract, which shall be payable by the company under the same terms and

conditions, except as to amount, as the original contract.

(2) The surrender charge to be deducted pursuant to paragraph one

hereof shall not exceed the greater of the following amounts:

(A) thirty-five percent of the gross annual stipulated payment

required by the holder of such contract by the terms thereof; or

(B) twenty-five dollars per one hundred dollars a year income provided

by the contract at the normal retirement age.

(3) If such contract provides for a cash surrender value at the option

of the holder of such contract and in lieu of such paid-up annuity or

pure endowment contract, such cash surrender value shall be an amount at

least equal to such net single premium and shall be payable to the

holder of such contract upon demand therefor and the surrender of such

contract within ninety days after the date of lapse or default.

(4) The paid-up annuity or pure endowment contract prescribed by this

section shall not include additional benefits in the event of accidental

death or benefits in the event of total and permanent disability and, at

the option of the insurer, may be without future participation in

surplus and without the right to loans.

(c) The company may provide in any policy or contract that the payment

of any cash surrender value may be deferred for not exceeding six months

after demand therefor with surrender of the policy or contract as

provided above, and the amount payable shall bear interest during any

such deferred period of thirty days or more at the rate specified in the

policy for the computation of the reserve.

(d) The surrender value and other nonforfeiture benefits of any lapsed

or defaulted policy of life insurance or annuity contract issued by any

domestic life insurance company before January first, nineteen hundred

forty shall be determined in accordance with the law applicable at the

date of issuance of such policy or contract.

(e) No foreign or alien life insurance company shall deliver or issue

for delivery in this state any policy of life insurance or any annuity

or pure endowment contract which does not contain the provisions

required by subsection (a) or (b) hereof, as the case may be, or

provisions which, in the opinion of the superintendent, are at least

equally favorable to policyholders.