N.Y. Comp. Codes R. & Regs. tit. 11 § 54.7

Current through Register Vol. 46, No. 43, October 23, 2024

Section 54.7 - Policy value and cash surrender value

The policy value and cash surrender value shall be determined no less frequently than annually for a private placement variable life insurance policy and at least monthly for any other variable life insurance policy. A summary of the method of computation of cash surender values and other nonforfeiture benefits shall be described in the policy; a complete statement of the method of computation shall be filed with the superintendent. Such method shall be in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation must be such that it complies with subdivision (a) or (b) of this section:

(a) If the net investment return credited to the policy at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy or, where premiums are not determined by the terms of the policy, according to the planned premiums to be paid as set forth in the application, then the resulting cash surrender values and other nonforfeiture benefits must be at least equal to the minimum values required by section 4221 of the Insurance Law, for a general account policy with such premiums and benefits. The assumed investment rate shall not exceed the maximum interest rate permitted under section 4221. If the policy does not contain an assumed investment rate, this demonstration shall be based on the maximum interest rate permitted under section 4217 of the Insurance Law, for a general account life insurance policy of comparable duration based on the planned premium. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, but are not to be limited to, a guarantee that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate.

(b) Alternative policy value and cash surrender valuerequirement.

(1) Definitions. Wherever used in this section, the terms have the respective meanings set forth or indicated in this paragraph.

(i) Policy value is equal to gross premiums paid (excluding separate identified premiums for riders or supplementary benefits which are not credited to policy value) plus net investment income (which may be positive or negative and may vary based on policy loans), less the following as specified in the policy:

(a) administrative charges (which may be taken in part from premiums and in part from policy value);

(b) acquisition and other charges;

(c) deferred acquisition and other charges;

(d) benefits charges;

(e) service charges;

(f) partial withdrawals; and

(g) partial surrender charges.

(ii) Benefit charges made to the policy value are the mortality charges made for life insurance on the insured person or persons and any charges made for riders or supplementary benefits.

(iii) Service charges made to the policy value are charges for transactional costs such as partial withdrawals, reallocations of policy values and benefit illustrations. Transactional charges shall not be assessed unless specifically permitted by law or regulation for transactions made under mandatory policy provisions.

(iv) Administrative charge is a per-policy charge made regularly to the policy value (or deducted from premiums on scheduled premium policies) for the cost of administration. This charge may not exceed $5 per month in 1985 or 1986. In subsequent years, the limit for any new or in-force policy shall be the product of $5 and the ratio (not to exceed 2.00) of (a) the Consumer Price Index (for all urban households) for the September preceding the year for which the determination is being made to (b) the Consumer Price Index for September 1985. The superintendent may allow a higher charge upon an insurer demonstrating a justification.

(v) Acquisition and other charges are charges deducted from gross premiums before they are credited to policy value and/or made to the policy value. They may be expressed as a percentage of premium or a dollar amount per $1,000 of insurance or a dollar amount per premium payment or a per-policy charge (other than the administrative charge). They do not include charges made as a reduction in investment return. These charges may vary by premium size, policy size and by policy year.

(vi) Excess first-year acquisition and other charges shall be the maximum excess of (A) over (B), based on the assumption that any premium (other than a single premium) payable in the first policy year is also payable during the entire premium-paying period.

(A) is the acquisition and other charge made in the first policy year and

(B) is the arithmetic average of the corresponding charges which the policy states would be made in policy years 2 through 20.

(vii) Excess acquisition and other charges for a face amount increase shall be the maximum excess of (A) over (B), based on the assumption that the net level whole life annual premium for the increase (as defined in subparagraph [x] of this paragraph) applies throughout the remaining premium-paying period.

(A) is the acquisition and other charge for the increase, and

(B) is the arithmetic average of the corresponding charges which the policy states would be made in the 19 policy years following the increase.

(viii) Net investment return is the actual amount credited to policy value net of investment expenses and/or other charges made as a reduction in investment return.

(ix) The net level whole life annual premium at issue is based on the assumption of level insurance and level annual premium for life, the mortality table rate used to calculate the maximum mortality charges and an interest rate based on the higher of four percent or that specified in the policy.

(x) The net level whole life annual premium for an increase in the face amount of insurance shall be determined as of the date of the increase as though such increase were a separate policy under subparagraph (ix) of this paragraph. Only increases in the face amount requested by the policyowner and increases in the face amount pursuant to the terms of the policy ( e.g., an option to purchase or a cost of living increase) shall give rise to such a premium and the associated excess acquisition and other charges for a face amount increase. Increases for this purpose shall not include increases in face amount resulting from a change in the death benefit option or changes in death benefit pursuant to policy terms that do not affect the face amount. Increases for this purpose shall be reduced by the amounts of any earlier decreases that have not been offset against an earlier increase. Such decreases shall include a decrease by reason of a partial withdrawal, but not a decrease resulting from a change in the death benefit option.

(xi) Surrender charge is a deferred charge made to the policy value in the event of a full or partial surrender of the policy, reduction in the face amount of insurance or premium, or a lapse.

(xii) Cash surrender value is the policy value less any surrender charge, before reduction for outstanding loans or other amounts due under the policy.

(xiii) Deferred acquisition and other charges are acquisition and other charges deducted from the policy value after the first policy year.

(2) The minimum cash surrender values must meet the requirements of either subparagraph (i) or (ii) of this paragraph:

(i) Cash surrender values determined in accordance with this subparagraph shall meet minimum requirements.

(a) If acquisition and other charges do not exceed the sum of:

(1) 90 percent of premiums received up to the net level whole life annual premium at issue (regardless of when received);

(2) 10 percent of all other premiums received;

(3) 90 percent of the net level whole life annual premium for increases in the face amount of insurance as defined in subparagraph (1)(x) of this subdivision;

(4) $10 per $1,000 of initial face amount in the first policy year;

(5) $1 per $1,000 of face amount in subsequent policy years;

(6) $10 per $1,000 of any increase in the face amount of insurance other than an increase resulting from a change in the death benefit option. Increases up to the amount of earlier decreases are included here but not in subclause (3) of this clause;

(7) $200 per policy in the first year.

(b) A surrender charge may be established, provided that the initial surrender charge together with the actual acquisition and other charges made in the first policy year (and on premiums up to the net level whole life annual premium if received after the first year) do not exceed the sum of (1), (2) in the first year, (4) and (7) in clause (a) of this subparagraph. Additional surrender charges may be established after issue in connection with an increase in face amount, provided that any such additional surrender charge and any acquisition and other charges made in connection with such increase do not exceed the sum of (3) and (6) in clause (a) of this subparagraph.

(c) A deferred acquisition and other charge may be charged against the policy value in any policy year 2 through 20, such that the total of all such charges imposed to date plus the surrender charge for that year does not exceed the maximum initial surrender charge. The deferred acquisition and other charge in any one year may not exceed the maximum allowable surrender charge for that year. Similar deferred acquisition and other charges may be imposed with respect to an increase in face amount.

(ii) Cash surrender values determined in accordance with this subparagraph shall meet minimum requirements.

(a) Policy values shall not be less than a minimum policy value which reflects the same transactions, the same net investment income and the same benefit charges that are reflected in the actual policy value, except that the excess first-year acquisition and other charges shall not be greater than an initial expense allowance as defined below, and any excess acquisition and other charges for a face amount increase after issue, as defined in subparagraph (1)(x) of this subdivision, shall not be greater than an increase expense allowance as defined below. For this purpose, the initial expense allowance shall be (1) the lesser of (i) 125 percent of the net level whole life annual premium at issue and (ii) four percent of the initial face amount of insurance, plus (2) one percent of the face amount at issue. The increase expense allowance shall be (1) the lesser of (i) 125 percent of the net level whole life annual premium for an increase in the face amount of insurance as defined in subparagraph (1)(x) and (ii) four percent of such increase in face amount, plus (2) one percent of any increase in the face amount of insurance other than an increase resulting from a change in death benefit option.

(b) A surrender charge may be established, provided that the initial surrender charge, together with the excess first-year acquisition and other charges, do not exceed the initial expense allowance. Additional surrender charges may be established after issue in connection with an increase in face amount, provided that any such additional surrender charge, together with any excess acquisition and other charges made in connection with such increase, do not exceed the increase expense allowance.

(3) Any surrender charge in paragraph (2) of this subdivision must be such that during any policy year it does not exceed the maximum initial surrender charge that would be allowed multiplied by the ratio of a life annuity due for age xkt for 20-t years to a life annuity due for age x for 20 years based on the mortality table and interest rate used in calculating the net level whole life annual premiums. Furthermore, any such surrender charge may not exceed the maximum initial surrender charge less the sum of all deferred acquisition and other charges made to date against the policy value. For these annuity values, x is the age at the effective date of the surrender charge and t is the number of years completed since the effective date of the surrender charge.

(4) In the case of standard medically underwritten lives, the mortality charges for life insurance on any insured under the policy may not exceed, prior to the operative date of subsection (k) of section 4221 of the Insurance Law, the 1958 CSO table; and on or after such operative date, the 1980 CSO with or without 10-year select mortality factors or any other table approved by regulation promulgated by the superintendent, in accordance with section 4221(k)(9)(B)(vi), as substitutes for such tables. For other standard issues, the CET versions of these tables may be used. Mortality charges for substandard lives may be used on appropriate modification of the aforementioned tables as described or set forth in the policy. Otherwise, for purposes of this section, the mortality tables are those prescribed in section 4221, and for the mortality tables an insurer must elect an operative date of subsection (k) of section 4221, or such operative date is January 1, 1989 in absence of such election.

(5) This subdivision shall be applicable to all variable life policies whose funds are solely in one or more separate accounts. In case of a combination general account and separate account product providing for one basic amount of insurance, but with the policy value allocated among the general account and one or more separate accounts and with mortality charges applicable to the difference between the death benefit and the policy value, the alternative cash surrender value procedures in this subdivision shall be applicable to both the general account and the separate account portions, provided:

(i) The policy shall specify a guaranteed rate of interest for the portion of the fund accumulated in the general account.

(ii) Additions, amounts derived from more favorable interest, mortality and expense than guaranteed in the policy on the general account fund, and credited within 12 months prior to surrender, may be subject to forfeiture upon surrender.

(iii) The policyholder shall have the option to transfer all separate account funds to the general account and apply the policy's cash surrender value to purchase a guaranteed fixed paid-up benefit at least once every five years for a private placement variable life insurance policy and at least once each year for any other variable life insurance policy.

(iv) Any amount of paid-up whole life insurance provided under subparagraph (iii) of this paragraph shall be at least as great as that computed using the mortality table on which the maximum mortality charges have been calculated and the interest rate guaranteed in the policy. Any period of extended term insurance provided under subparagraph (iii) shall be at least as long as that using an extended term insurance mortality table appropriate to the mortality table for the maximum mortality charges and the interest rate guaranteed in the policy.

(v) The annual report shall note the availability of the option under subparagraph (iii).

(c) An insurer may use different methods to compute minimum cash surrender values for different variable life policies, but for any one policy form, an insurer must use the same method for all issue ages. An insurer may revise its method for new issues.

N.Y. Comp. Codes R. & Regs. Tit. 11 § 54.7