Unit 24: NY Law, Rules, & Regulations Pertinent To Life Insurance Only

Question 1

What provisions must be included in all individual life insurance policies delivered or issued for delivery in NY?

Answer 1

•grace period
•incontestability
•entire contract
•misstatement of age
•reinstatement
•payment of premiums
•statements of applicant provision
•right to examine (free look)

Question 2

What is the grace period provision?

Answer 2

•allows a grace period of 31 days or 1 month for payment of any premium except during the first, during which the death benefit coverage continues in force
•if a claim arises during the grace period, the premium amount due may be deducted from the amount payable under the policy
•policyholder is entitled to a grace period of 61 days if the amount & frequency of premiums vary after the first premium (ex. universal life plans) & the policy’s net cash surrender value is insufficient to pay the total charges necessary to keep the policy in force

Question 3

What is the incontestability provision?

Answer 3

•the validity of a policy cannot be contested (except for. I payment of premiums, conditions related to military service, & at the insurer’s option, provisions relating to disability or accidental death benefits) after is has been in force for 2 years from the date of issue during the insurer’s lifetime

Question 4

What is the reinstatement provision?

Answer 4

•the policy will be reinstated at any time within 3 years from the date of default (unless the cash surrender value has been exhausted by payment or the period of extended insurance has expired) if the insured:
-applies for coverage
-produces evident of insurability
-pays all overdue premiums with interest at a rate not exceeding 6 per centimeter per annum compounded annually
-pays or reinstated any other indebtedness to the insurer with interest at a rate not exceeding the applicable policy loan rate

Question 5

Every annuity or pure endowment contract, except a group annuity contract, must contain what provisions?

Answer 5

•grace period of 31 days
•incontestability after being in force for at least 2 years from date of issue
•entire contract provision
•misstatement of age or sex provision
•apportionment of divisible surplus on the contract
•reinstatement within 3 years from the date of payment default
•options available upon cessation of payment of considerations under a contract
•nonforfeiture benefits under defaulted contacts

Question 6

What is the guaranteed minimum withdrawal benefit (GMWB)?

Answer 6

•used in deferred annuities-especially variable annuities
•used to protect contract owners against potential market losses, without sacrificing potential market gains
•owners may withdraw an amount equal to the % of their principal on an annual basis
Ex. If a contract allows an owner to withdraw 5% of the principal amount each year, the owner could withdraw her entire principal amount over a 20-year period

•does not require annuitization, so an owner that exercised this option would still maintain ownership of any remaining balance in the accumulation account
•at the same time, the feature does NOT allow owners to withdraw their entire principal amount in a lump sum
•lump-sum withdrawals would still be subject toy the impact of market losses

Question 7

Payment of accelerated benefits

Answer 7

•insurers may not pay accelerated death benefits to the policyholder for a period of 5 days following receipt of the information given in response to the application
•policyholder may rescind the request for accelerated death benefits anytime during a 15-day rescission period

Question 8

When must a policy summary be given to each policyowner?

Answer 8

When the policy is delivered

Question 9

When must the insured receive a copy of the insurance Buyer’s Guide & preliminary information (a policy summary)?

Answer 9

At the time of application

Question 10

What is the buyer’s guide?

Answer 10

•provides a consumer-friendly explanation of term & permanent insurance
•specifically describes the meaning & use of:
-surrender cost index
-net payment cost index
-equivalent level annual dividend index

Question 11

What are the illustration requirements?

Answer 11

•when submitting a policy form for the superintendent’s approval, insurers must give notice as to whether the form will be marketed with or without an illustration
•if a policy form will be marketed without an illustration, any use of an illustration prior or to the first anniversary is prohibited
•this requirement applies to policies other than variable life insurance, annuities, credit life, & life insurance policies with no illustrated death benefits on any person exceeding $10,000

Question 12

What indexes are described in the life insurance buyer’s guide?

Answer 12

•equivalent level annual dividend index
•surrender cost index
•net payment cost index

Question 13

What is Regulation 60?

Answer 13

•establishes minimum standards of conduct & procedures to be followed in replacing life insurance & annuity policies
•makes available full & clear information so applicants can make decisions in their best interests
•reduces the opportunity for misrepresentation & incomplete comparisons (commonly known as “twisting”) in replacement situations
•precludes unfair methods of competition & unfair practices

Question 14

What are the exemptions from the replacement requirements?

Answer 14

•a new life insurance or annuity provided under a group policy, pension, or other benefit plan
•a policy or annuity paid for in whole or in part by an employer
•nonconvertible term insurance policy that will expire within 5 years & cannot be renewed
•a policy or annuity distributed through mass merchandising & covering debtors of a creditor or members of an association
•a contractual conversion privilege being exercised
•a policy change customarily granted by the insurer that does not result in additional surrender, expense charges, suicide, or contestable restrictions

Question 15

If replacement is involved, what are the 3 documents the agent must give the prospective insured, in addition to policy information on all proposed & existing coverage affected?

Answer 15

•the definition of replacement
•the important Notice Regarding Replacement or Change of Life Insurance Policies or Annuity Contracts (directions on how to analyze whether replacement is in the applicant’s best interest)
AND
•the Disclosure Statement (a form that will allow the applicant to summarize & compare the features of the current policy with those of the proposed replacement policy)

Question 16

How long must insurers keep signed copies of the Definition of Replacement?

Answer 16

6 years

Question 17

What is the free-look period for a replacement life insurance policy or annuity contract?

Answer 17

60 days

Question 18

What is Regulation 187?

Answer 18

Required a producer-or insurer where no producer is involved-to act in the best interest of the consumer when recommending an in-force transaction or sales transaction to a consumer

Question 19

What must the policy summary include?

Answer 19

•guaranteed components of the policy
•name & address of both the company & the producer
•net payment indices for 10 & 20 years

Question 20

In situations where the sale of a life insurance policy will result in the replacement of an existing policy, what is the replacement agent responsible for?

Answer 20

•presenting a completed Disclosure of Replacement & getting it signed after meeting with the applicant a second time
•submitting to the insurer, with the application, copies of any proposal, sales illustration, & related sales material
•obtaining the applicant’s signature on a Notice Regarding Replacement of Life Insurance

Question 21

When a replacement occurs, what must the insurer replacing the policy or annuity do?

Answer 21

•examine all sales material & the signed Disclosure Statement & ascertain that they’re accurate
•furnish to the current insurer a copy of any proposal
•maintain copies for 6 years of the signed receipt by the applicant that he received the IMPORTANT Notice Regarding Replacement

Question 22

What is a life settlement contract?

Answer 22

•defined the terms under which a policyowner is paid a portion of the expected death benefit of a policy, in return for assigning, transferring, selling, or bequeathing all or any portion of a life insurance policy death benefit, ownership, or any beneficial interest

Question 23

What is a life settlement broker?

Answer 23

•solicits, negotiates, or offers to negotiate, a life settlement contract on behalf of a policyowner for compensation

Question 24

What is business of life settlements?

Answer 24

•activity involving the soliciting, negotiating, procuring, effectuating, monitoring, or tracking of life settlement contracts

Question 25

What is stranger-originated life insurance?

Answer 25

•any act to initiate or facilitate the issuance of a policy for the intended benefit of a person who, at the time of policy origination, has no insurance interest in the life of the insured
•does NOT include lawful life settlement contracts
•no person or trust shall directly or indirectly engage in any act, practice, or arrangement that constitutes stranger-originated life insurance

Question 26

What are the maximum life insurance limits for juveniles in NY?

Answer 26

•an insurer may issue an insurance policy on the life of a minor under age 14 years & 6 months if the policy is taken out by a person having an insurance interest in the minor or by a person upon whom the minor is dependent for support & maintenance
•total amount of all life insurance policies on the minor may not exceed $50,000 or 50 per centum of the amount of life insurance in force upon the life of the applicant at the date of issue of the policy on the minor’s life, whichever is greater
•a minor who is older than 14 years & 6 months is competent to enter into a life insurance contract upon the life of the minor or upon the life of any person in whom the minor has an insurance interest, but the beneficiary may only be the minor or the minor’s parent, brother, sister, child, or grandparent

Question 27

Backdating of policies

Answer 27

•to obtain a lower premium, a life insurance policy may be backdated (also known as “antedating”) if the policy is issued to take effect not more than 6 months before the date of the application
•a contract that violates this provision still is valid & can be converted

Question 28

What is a return of premium term policy?

Answer 28

•will return all or part of the premium paid for the policy at the end of the term if the insured has not died
•premium for this policy will be higher than a regular term insurance policy based upon the % of premium that will be returned

Question 29

What is a fixed (equity) indexed life policy?

Answer 29

•a form of interest-sensitive universal life where the rate of return for the cash value is based on an index, such as the S&P 500
•also has a guaranteed minimum interest rate to protect against downside market risk

Question 30

If a life insurance policy is lapsed or surrendered so the insured can take out a new policy, the transaction is said to involve a __________.

Answer 30

Replacement

Question 31

What is the earliest age at which a minor is competent to enter into a life insurance contract?

Answer 31

14 years & 6 months