CHAPTER~ PRETLow 4-( '6. APR l IN SENATE ---_._ LAWS OF 20 ~ SENATE BILL b13~ ASSEMBLY BILL _

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1 CHAPTER~ LAWS OF 20 ~ SENATE BILL b13~ ASSEMBLY BILL _ 6132 IN SENATE,January 22, 2002 Introduced by Sen. SEWARD -- read twice and ordered printed, and when printed to be co~itted to the Committee on Insurance.ll.N ACT to amend the insurance law, in relation to nonforfeiture benefits on term life insurance policies PRETLow ---_._ DATE RECEIVED BY GOVERNOR: 4-( '6 ACTION MUST BE TAKEN BY: "z..t ~3V DATE GOVERNOR'S ACTION TAKEN: APR l i< ','

2 SENATE VOTE y N HOME RULE MESSAGE y N DATE _ ASSEMBLY VOTE y N DATE OC:G002

3 JAMES L. SEWARD SENATOR, 50TH DISTRICT CHAIRMAN INSURANCE COMMITTEE SECRETARY MAJORITY CONFERENCE THE SENATE STATE OF NEW YORK.s GIJz tjroom 307.l}GISLATlVE OFFICE BUILDING ALBANY. NEW YORK (518) o 41 S. MAIN STREET ONEONTA, NEW YORK ( COBLESKILL (518) CORTLAND ( HERKIMER (315) ITHACA (607) NORWICH (607) April 18, 2002 Honorable James M. McGuire Executive Chamber State Capitol Albany, New York RE: S.6132/A.9851 Dear Mr. McGuire: I would greatly appreciate your consideration ofthe following thoughts in response to your solicitation ofcomments on the above-mentioned legislation. This bill would provide an exception from nonforfeiture provisions for term life insurance policies with terms up to thirty years, expiring prior to age 81. Under current law, nonforfeiture law provisions are not applicable to term life insurance policies with terms up to twenty years, thereby allowing them to be offered at lower rates than other kinds oflife insurance. By expanding this exception to term policies with terms up to thirty years, it will become feasible for lower cost thirty year term policies to be written in new York, as they are in most other states. These policies will allow consumers to obtain affordable life insurance coverage that will remain in force over their period of greatest need for pure life insurance and will provide New York consumers with the life insurance options that residents ofmost other states currently enjoy. Please note that I have received no written objections regarding this legislation and I urge the Governor to sign this legislation into law. Sincerely yours, ~~~ State Senator () OOO(1)l) 3

4 RETRIEVE BILL Page 2 of4 NEW YORK STATE SENATE INTRODUCER'S MEMORANDUM IN SUPPORT submitted in accordance with Senate Rule VI. Sec 1 S6132 SPONSOR: SEWARD TITLE OF BILL: An act to amend the insurance law, in relation to nonforfeiture benefits on term life insurance policies PURPOSE: This bill would amend 4220 and 4221 of the insurance law to expand the current exception from the standard nonforfeiture sections of the insurance law for term life insurance policies to include policies with terms of up to 30 years, expiring prior to age 81. SUMMARY OF PROVISIONS: This bill amends paragraph (8) of subsection (a) of 4220 (life insurance and annuities; nonforfeiture benefits under defaulted contracts issued prior to 1948) and subparagraph (F) of paragraph (1) of subsection (0) of 4221 (standard nonforfeiture law of the insurance law. These revisions would allow for an expansion of the current exception from the standard nonforfeiture law for term life insurance to include policies with up to a thirty-year term, expiring no later than age 81. The current law authorizes an exception for policies with terms of up to twenty years in duration, expiring no later than age 71. JUSTIFICATION: The nonforfeiture law protects policyholders paying level premiums over long periods of time from forfeiting the early year excess of premiums over mortality costs and expenses when the policy lapses or ceases to be premium paying. However, the law allows for an exception for term insurance since, without an endowment benefit to fund, these contracts can be offered to consumers at lower premium rates. The exception was sufficient previously because all term contracts in the non-business market were required to expire at age seventy and because shorter, rather than longer, term periods were favored by consumers (in order to minimize premiums). Today, consumers favor longer term periods, with level, guaranteed premium rates. These contracts serve both consumers and companies well, since they tend to be kept in force much longer than traditional, shortterm periods since customers can now purchase comparatively inexpensive term policies that remain in force over the period of their greatest need for pure life insurance. The vast majority, if not all, other states authorize the sale of thirty-year term life insurance policies. Nationally, companies offering the thirty-year term period are finding that the plan is replacing the twenty-year term period as their most popular. This has not occurred in NY because insurance carriers would be required to provide nonforfeiture benefits at most issue ages, if they offered a thirty-year term period. For insurers, this is incompatible with a profitable term offering, and would result in premium levels that would not be competitive with the thirty-year term policy rates offered in other states. The amendments contained in this bill would encourage the offering of thirty-year term contracts through issue age 50, thus providing New York consumers the same type of increasingly popular life insurance product available to consumers in most other states.

5 RETRIEVE BILL Page 3 of4 New Bill. FISCAL IMPLICATIONS: None. EFFECTIVE DATE: Immediately.

6 B-203 SENATE No. S.6132 BUDGET REPORT ON BILLS NO RECOMMENDATION Senator Seward Session Year 2002 ASSEMBLY No. Title: AN ACT to amend the insurance law, in relation to nonforfeiture benefits on term life insurance policies. The above bill has been referred to the Division of the Budget for comment. After careful review, we find that the bill has no appreciable effect on State finances or programs, and/or this office does not have the technical expertise to make a recommendation on the bill. We therefore make no recommendation. G:\ \Legislation\1ODayBills\S6132-no rec.doc

7 STATE OF NEW YORK DEPARTMENT OF STATE 41 STATE STREET ALBANY, NY RANDY A. DANIELS SECRETARY OF STATE MEMORANDUM April 17, 2002 TO: FROM: SUBJECT: Honorable James M. McGuire, Esq. Counsel to the Governor Joshua B. Toas Deputy Counsel 10-day bills The Department of State has no comment on the following 10-day bills: S6300 S6132 JBT/sm

8 Memo of Support New York State Association ofinsurance and Financial Advisors, Inc S Seward Standard Non-Forfeiture Amendment NYSAIFA supports the enactment of86132 by Senator Seward. The measure amends Sections 4220 and 4221 ofthe insurance law to expand the current exceptions from the standard nonforfeiture sections ofthe law for term life insurance policies to include policies with terms up to 30 years prior to age 81. The non-forfeiture law protects policyholders who pay level premiums over long periods oftime, from forfeiting the early year excess ofpremiums over mortality costs and expenses when the policy lapses or when premium payment ceases. There has long been an exception to the law for term insurance. Term insurance does not have an endowment benefit to fund, and therefore can be offered to consumers at lower rates. The exception as written, was sufficient when term contracts were required to expire at age 70. However, recent changes in the law allow term policies to expire up to age 80 and consumers favor longer term periods with level, guaranteed rates. The vast majority of states authorize the sale of30-year term and companies have found it very popular with customers. This has not occurred in New York, due to the fact that insurers would be required to provide non-forfeiture benefits and this would result in premium levels that would not be competitive with the 30-year term policies offered in other states. By updating the standard nonforfeiture law, the offering of30-year term contracts through age 50 would be encouraged, thus making a popular product now available in other states, available to New York consumers. For Further Information Contact: Mark L. Yavornitzki, CAE Executive Vice President NYSAIFA 38 Sheridan Avenue, Albany, New York Telephone: (518) Fax: (518) nzarkyavczij,aol.com

9 5 ~13'2 STATE OF NEW YORK INSURANCE DEPARTMENT AGENCY BUILDING ONE EMPIRE STATE PLAZA ALBANY, NY April 18, 2002 Honorable James M. McGuire Counsel to the Governor Executive Chamber State Capitol Albany, New York Re: Senate 6132 (Seward) Dear Mr. McGuire: This letter responds to your request for our comments on the above-captioned bill, which has passed both houses and is presently awaiting executive action. Section 1 ofthe bill amends paragraph 8 of subsection (a) ofsection 4220 ofthe Insurance Law, which applies to defaulted life insurance and annuity contracts issued prior to 1948, to provide that term life insurance policies of 30 years or less would not be subject to the standard nonforfeiture law. Current law provides an exception to the provisions ofthe nonforfeiture law only for term life insurance policies of 20 years or less. Section 2 ofthe bill amends subparagraph (F) ofparagraph 1 ofsubsection (0) ofsection 4221 ofthe Insurance Law, which applies to defaulted life insurance and annuity contracts issued after 1948, to provide that term life insurance policies of30 years less expiring before age 81 would not be subject to the provisions ofthe standard nonforfeiture law. Current law provides an exception to the provisions ofthe nonforfeiture law for term life insurance policies of20 years or less expiring before age 71. Currently in New York, term life insurance policies in excess of20 years or expiring after age 71 must provide a nonforfeiture benefit in the event the policy owner defaults on a premium payment. This nonforfeiture benefit may be in the form ofa cash surrender value, an extended term insurance policy or a reduced paid-up insurance policy. This requirement, though, has the effect ofincreasing the cost to purchase these policies. In some cases, the cost to purchase a term policy in New York could be up to twice as much as the same policy bought outside New York due to the need to provide this nonforfeiture benefit. In fact, in New York only a few insurers

10 offer 15- or 20-year term policies that extend beyond age 70 and no insurer is currently writing 3D-year term policies This bill, which provides for an expanded exception to the provisions ofthe standard nonforfeiture law for term life insurance policies of 30 years or less expiring before age 81, should bring more insurers into the market, increase competition and reduce the cost to purchase these policies. The Department therefore recommends approval ofthe bill. Very truly yours, Gregory V. Serio Superintendent ofinsurance

11 ()f\ LIFE INSURANCE COUNCIL OF NEW YORK, INC. 111 Washington Avenue - Suite 300 Albany, New York Tel: (518) Fax: (518) In New York City 551 Fifth Avenue - 29 th Floor New York, New York Tel: (212) Fax: (212) April 24, 2002 The Honorable James M. McGuire, Esq. Counsel to the Governor Executive Chamber State Capitol Building Albany, New York VIA & HAND DELIVERY RE: (Seward)/A.9851 (Pretlow) The Life Insurance Council of New York, Inc. (L1CONY), the domestic trade association representing the life insurance industry of New York, STRONGLY SUPPORTS the above-referenced legislation that has passed both houses and is currently before the Governor for his consideration. This bill would amend 4220(a)(8) and 4221 (0)(1 )(F) of the insurance law to allow for an expansion of the current exception from the standard nonforfeiture law for term life insurance to include policies with up to a 30-year term, expiring no later than age 81. The current law authorizes an exception only for policies with terms of up to 20 years in duration, expiring no later than age 71. The nonforfeiture law protects policyholders paying level premiums over long periods of time from forfeiting the early year excess of premiums over mortality costs and expenses when the policy lapses or ceases to be premium paying. However, the law allows for an exception for term insurance since, without an endowment benefit to fund, these contracts can be offered to consumers at lower premium rates. This exception in the current law was sufficient previously because all term contracts in the non-business market were required to expire at age 70 and because shorter term periods were favored by consumers (in order to minimize premiums). Today, the insurance law has been changed in New York to allow term policies to expire up to age 80 and consumers favor longer term periods, with level, guaranteed premium rates. These contracts serve both the customer and insurer well, since they tend to be kept in force much longer than traditional, short-term periods and since customers can now purchase comparatively inexpensive term policies that remain in force over the period of their greatest need for pure life insurance. The vast majority, if not all, other states authorize the sale of 30-year term life insurance policies. Nationally, companies offering a 30-year term product are finding that it is replacing the 20-year term product as their most popular. This

12 The Honorable James M. McGuire, Esq. Page 2 of2 has not occurred in New York because insurers would be required to provide nonforfeiture benefits at most issue ages. For insurers, this is incompatible with a profitable term offering, and would result in the establishment of premium levels that would not be competitive with the 30-year term rates offered in other states. The amendments contained in this bill would encourage the offering of 30 year term contracts through issue age 50, thus providing New York consumers the same type of increasingly popular life insurance product available to consumers in most other states. For the reasons enumerated herein and on behalf of its member companies, L1CONY STRONGLY SUPPORTS this legislation and urges its approval by the Governor. Sincerely, Thomas W. Faist Executive Vice President & General Counsel CC: Christopher McCarthy, Esq. Senior Assistant Counsel to the Governor

13 LIFE INSURANCE COUNCIL OF NEW YORK, INC. 111 Washington Avenue - Suite 300 Albany, New York Tel: (518) Fax: (518) April 24, 2002 In New York City 551 Fifth Avenue - 29 th Floor New York, New York Tel: (212) Fax: (212) The Honorable James M. McGuire, Esq. Counsel to the Governor Executive Chamber State Capitol Building Albany, New York VIA & HAND DELIVERY RE: S.6132 (Seward)/A.9851 (Pretlow) The Life Insurance Council of New York, Inc. (L1CONY), the domestic trade association representing the life insurance industry of New York, STRONGLY SUPPORTS the above-referenced legislation that has passed both houses and is currently before the Governor for his consideration. This bill would amend 4220(a)(8) and 4221 (0)(1 )(F) of the insurance law to allow for an expansion of the current exception from the standard nonforfeiture law for term life insurance to include policies with up to a 30-year term, expiring no later than age 81. The current law authorizes an exception only for policies with terms of up to 20 years in duration, expiring no later than age 71. The nonforfeiture law protects policyholders paying level premiums over long periods of time from forfeiting the early year excess of premiums over mortality costs and expenses when the policy lapses or ceases to be premium paying. However, the law allows for an exception for term insurance since, without an endowment benefit to fund, these contracts can be offered to consumers at lower premium rates. This exception in the current law was sufficient previously because all term contracts in the non-business market were required to expire at age 70 and because shorter term periods were favored by consumers (in order to minimize premiums). Today, the insurance law has been changed in New York to allow term policies to expire up to age 80 and consumers favor longer term periods, with level, guaranteed premium rates. These contracts serve both the customer and insurer well, since they tend to be kept in force much longer than traditional, short-term periods and since customers can now purchase comparatively inexpensive term policies that remain in force over the period of their greatest need for pure life insurance. The vast majority, if not all, other states authorize the sale of 30-year term life insurance policies. Nationally, companies offering a 30-year term product are finding that it is replacing the 20-year term product as their most popular. This

14 The Honorable James M. McGuire, Esq. Page 2 of 2 has not occurred in New York because insurers would be required to provide nonforfeiture benefits at most issue ages. For insurers, this is incompatible with a profitable term offering, and would result in the establishment of premium levels that would not be competitive with the 3D-year term rates offered in other states. The amendments contained in this bill would encourage the offering of 30 year term contracts through issue age 50, thus providing New York consumers the same type of increasingly popular life insurance product available to consumers in most other states. For the reasons enumerated herein and on behalf of its member companies, L1CONY STRONGLY SUPPORTS this legislation and urges its approval by the Governor. Sincerely, ~ \~..~~.:.:;:7 Thomas W. Faist Executive Vice President & General Counsel CC: Christopher McCarthy, Esq. Senior Assistant Counsel to the Governor