(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).