New York State

Insurance

Department

New York State seal

LIFE BUREAU

FILING GUIDANCE NOTE

Eric R. Dinallo   Superintendent of Insurance  25 Beaver Street  New York, N.Y. 10004

GUIDANCE DATE: 08/22/2008 FOR IMMEDIATE RELEASE

Guidance for Life Insurance Policy Illustrations

It has come to the Department’s attention that there may be some confusion between the NAIC requirements for Life Insurance Policy Illustrations and those required by New York’s Statutes and Regulations.  Of particular concern is the differences between the explanation of the NAIC Life Insurance Illustrations Model Regulation found in Section 9.12 in the NAIC Questions & Answers Life Illustrations Model Regulation (As of March 19, 1997 -NAIC Q&A document), and Subpart 53-3 of Regulation 74 (11 NYCRR 53).  The NAIC Model Regulation and Regulation 74 both set forth standards regarding the use of illustrations in the marketing of life insurance policies.  However, New York Regulation 74 differs from the NAIC Model Regulation in specific areas. 

The purpose of this guidance is to address the applicability in New York of Section 9.12 of the NAIC Q&A document and to set forth some of the differences between the NAIC Model Regulation and Regulation 74 in an effort to eliminate occurrences of non-compliance.  It is the responsibility of each insurer to comply fully with the requirements of Regulation 74.

I.  NAIC Q&A Document

Some insurers may be incorrectly relying upon the NAIC Q&A document with respect to the use of sales illustrations displayed on a computer screen.  Typically, in this situation an illustration displayed on a computer screen is used in the sale of a life insurance policy, but the applicant is not furnished a hard copy of the illustration at time of application.  An illustration conforming to the policy as issued is then provided no later than policy delivery.  Section 9.12 of the NAIC Q&A document states in part:

“9.12 For Section 9B(1), is it permissible to show an illustration conforming to the model requirements on a computer screen, and obtain the signature at policy delivery?

Where a computer screen illustration conforming to the regulation is used and no hard copy is furnished at the time of application, an acknowledgment, signed by the applicant and agent, should be obtained and submitted with the application, conforming to the following requirements:…

2.  An acknowledgment consistent with the provisions of Section 9B(1) shall be obtained so that the applicant is aware that a copy of an illustration conforming to the policy as issued will be provided to him or her no later than at the time of policy delivery. …”

It is the position of the Department that such a delay in the delivery of a copy of the illustration conflicts with Regulation 74.  Section 53-3.5(a) of Regulation 74, which requires a copy of an illustration to be signed by the applicant and furnished to the applicant at the time of application, states in relevant part:

“(a) If a basic illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this Subpart, shall be submitted to the insurer at the time of policy application.  A copy also shall be provided to the applicant.”

It is the position of the Department that, regardless of the format or method by which the illustration was shown to the applicant, a copy of the illustration signed by both the applicant and company’s authorized representative must be furnished to the applicant at the time of application.

It should also be noted that Section 53-3.5(d) of Regulation 74 permits a sales illustration to be used in lieu of the preliminary information required by Section 3209(d) of the Insurance Law.  The preliminary information is required to be provided at or prior to the time an application is taken.  This requirement is found in Section 3209(b)(1).

II.  Regulation 74 vs. NAIC Model Regulation

Below is a comparison highlighting the differences between Sections 53-3.2, 53-3.3, 53-3.5 and 53-3.6 of Regulation 74 and Sections 6, 7, 9, and 10 of the NAIC Model Regulation.  While identical in most respects, there are differences.  As stated previously, it is the responsibility of each insurer to comply fully with Regulation 74.

A. General Rules

The language contained in Section 53-3.2(d) of Regulation 74 is absent from Section 6 of the NAIC Model Regulation.

Regulation 74

NAIC Model Rule

Section 53-3.2.  General rules and illustrations

(a) An illustration used in the sale of a life insurance policy and subject to this Subpart shall satisfy the applicable requirements of this Subpart, be clearly labeled "life insurance illustration" and contain the following basic information:

(1) name of insurer;

(2) name and business address of producer or insurer's authorized representative, if any;

(3) name, age and sex of proposed insured, except where a composite illustration is permitted under this Subpart;

(4) underwriting or rating classification upon which the illustration is based;

(5) generic name of policy, the company product name, if different, and form number;

(6) initial death benefit; and

(7) dividend option election or application of non-guaranteed elements, if applicable.

(b) When using an illustration in the sale of a life insurance policy, an insurer or its producers or other authorized representatives shall not:

(1) represent the policy as anything other than a life insurance policy;

(2) use or describe non-guaranteed elements in a manner that is misleading or has the capacity or tendency to mislead;

(3) state or imply that the payment or amount of non-guaranteed elements is guaranteed;

(4) use an illustration that does not comply with the requirements of this Subpart;

(5) use an illustration that at any policy duration depicts policy performance more favorable to the policyowner than that produced by the illustrated scale of the insurer whose policy is being illustrated;

(6) provide an applicant with an incomplete illustration;

(7) represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact;

(8) use the term "vanish" or "vanishing premium," or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums;

(9) except for policies that can never develop nonforfeiture values, use an illustration that is "lapse-supported;" or

(10) use an illustration that is not "self-supporting."

(c) If an interest rate used to determine the illustrated non-guaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.

(d) Pursuant to sections 4231 and 4232 of the Insurance Law, no sales illustration, preliminary information form or policy summary shall depict a persistency bonus, a specified additional amount or specified reduction in mortality costs or expense costs in a specific policy year, after the first policy year, unless such bonus, additional amount or reduction is guaranteed in the contract or policy.

Section 6.  General Rules and Prohibitions

A. An illustration used in the sale of a life insurance policy shall satisfy the applicable requirements of this regulation, be clearly labeled "life insurance illustration" and contain the following basic information:

(1) Name of insurer;

(2) Name and business address of producer or insurer's authorized representative, if any;

(3) Name, age and sex of proposed insured, except where a composite illustration is permitted under this regulation;

(4) Underwriting or rating classification upon which the illustration is based;

(5) Generic name of policy, the company product name, if different, and form number;

(6) Initial death benefit; and

(7) Dividend option election or application of non-guaranteed elements, if applicable.

B. When using an illustration in the sale of a life insurance policy, an insurer or its producers or other authorized representatives shall not:

(1) Represent the policy as anything other than a life insurance policy;

(2) Use or describe non-guaranteed elements in a manner that is misleading or has the capacity or tendency to mislead;

(3) State or imply that the payment or amount of non-guaranteed elements is guaranteed;

(4) Use an illustration that does not comply with the requirements of this regulation;

(5) Use an illustration that at any policy duration depicts policy performance more favorable to the policy owner than that produced by the illustrated scale of the insurer whose policy is being illustrated;

(6) Provide an applicant with an incomplete illustration;

(7) Represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact;

(8) Use the term "vanish" or "vanishing premium," or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums;

(9) Except for policies that can never develop nonforfeiture values, use an illustration that is "lapse-supported"; or

(10) Use an illustration that is not "self-supporting."

C. If an interest rate used to determine the illustrated non-guaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.

B.  Basic Illustrations.

Subsections (f), (g), (h), and (i) of Section 53-3.3 of Regulation 74 contain additional requirements not present in Section 7 of the NAIC Model Regulation.

Regulation 74

NAIC Model Rule

Section 53-3.3.  Standards for basic illustrations

(a) Format.  A basic illustration shall conform with the following requirements:

(1) The illustration shall be labeled with the date on which it was prepared.

(2) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration(e.g., the fourth page of a seven-page illustration shall be labeled "page 4 of 7 pages").

(3) The assumed dates of payment receipt and benefit pay-out within a policy year shall be clearly identified.

(4) If the age of the proposed insured is shown as a component of the tabular detail, it shall be the issue age plus the number of years the policy is assumed to have been in force.

(5) The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable.  For policies that do not require a specific contract premium, the illustrated payments shall be identified as premium outlay.

(6) Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

(7) If the illustration shows any non-guaranteed elements, they cannot be based on a scale more favorable to the policyowner than the insurer's illustrated scale at any duration.  These elements shall be clearly labeled non-guaranteed.

(8) The guaranteed elements, if any, shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements (e.g., "see page one for guaranteed elements").

(9) The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.

(10) The value available upon surrender shall be identified by the name the value is given in the policy being illustrated and shall be the amount available to the policyowner in a lump sum after deduction of surrender charges, policy loans and policy loan interest, as applicable.

(11) Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.

(12) Any illustration of non-guaranteed elements shall be accompanied by a statement indicating that:

(i) the benefits and values are not guaranteed;

(ii) the assumptions on which they are based are subject to change by the insurer; and

(iii) actual results may be more or less favorable.

(13) If the illustration shows that the premium payer may have the option to allow policy charges to be paid using non-guaranteed values, the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays.  Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium.  If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.

(14) If the applicant plans to use dividends or policy values, guaranteed or non-guaranteed, to pay all or a portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.

(b) Narrative summary.  A basic illustration shall include the following:

(1) a brief description of the policy being illustrated, including a statement that it is a life insurance policy;

(2) a brief description of the premium outlay or contract premium, as applicable, for the policy.  For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code;

(3) a brief description of any policy features, riders or options, guaranteed or non-guaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy;

(4) identification and a brief definition of column headings and key terms used in the illustration; and

(5) a statement containing in substance the following: "This illustration assumes that the currently illustrated non-guaranteed elements will continue unchanged for all years shown.  This is not likely to occur, and actual results may be more or less favorable than those shown."

(c) Numeric summary.

(1) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable.  For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium.  Except as provided in subdivision (g) of this section, this summary shall be shown for at least policy years 5, 10 and 20 and at age 70, if applicable, on the three bases shown below.  For multiple life policies the summary shall show policy years 5, 10, 20 and 30.  The three bases are as follows:

(i) policy guarantees;

(ii) insurer's illustrated scale;

(iii) insurer's illustrated scale used but with the non-guaranteed elements reduced as follows:

(a) dividends at 50 percent of the dividends contained in the illustrated scale used;

(b) non-guaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used; and

(c) all non-guaranteed charges, including but not limited to, term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used; and

(d) if coverage would cease prior to policy maturity or age 100, the year in which coverage ceases shall be identified for each of the three bases.

(d) Statements.  Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policyowner in the case of an illustration provided at time of delivery, as required in this Subpart.

(1) A statement to be signed and dated by the applicant or policyowner reading as follows: "I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower.  The agent or broker has told me they are not guaranteed."

(2) A statement to be signed and dated by the insurance producer or other authorized representative of the insurer reading as follows: "I certify that this illustration has been presented to the applicant and that I have explained that any non-guaranteed elements illustrated are subject to change.  I have made no statements that are inconsistent with the illustration."

(e) Tabular detail.

(1) A basic illustration shall include the following for at least each policy year from one to ten and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, is to change:

(i) the premium outlay and mode the applicant plans to pay and the contract premium, as applicable;

(ii) the corresponding guaranteed death benefit, as provided in the policy; and

(iii) the corresponding guaranteed value available upon surrender, as provided in the policy.

(2) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender shall correspond to the contract premium.

(3) Non-guaranteed elements may be shown if described in the policy.  In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, they may be shown if the insurer's current practice is to pay terminal dividends.  If any non-guaranteed elements are shown, they shall be shown at the same durations as the corresponding guaranteed elements, if any.  If no guaranteed benefit or value is available at any duration for which a non-guaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

(f) An illustration for a policy that has a contract premium and which shows a premium outlay based on current or median policy cost factors or current or median dividend scales which permits a suspension of premium payments prior to the maturity or final expiration date shall be presented only in conjunction with another illustration setting forth a continuous premium payment pattern based on current, median and guaranteed policy cost factors or based on current, median and zero dividend scales for the contract premium. As one alternative, an insurer may utilize a single basic illustration showing a suspension of premium if the numeric summary shows premium payments payable to a specific policy year on a current, median and guaranteed basis.  As a second alternative, the insurer may use a single basic illustration depicting the full contract premium being paid for the period required under the policy with both a full pay and abbreviated-pay values included in the numeric summary.  As a third alternative, an insurer may elect to use a disclosure document, in conjunction with the supplemental illustration, to be signed by the agent or broker and the applicant, which explains in narrative form that: the requirements to pay policy premiums are not canceled, forgiven or waived; the operation of the suspension of premiums is contingent upon current non-guaranteed factors remaining unchanged, which may or may not occur; a brief description of the factors; and hypothetical examples for issue age 50 with reduction in the current non-guaranteed factors of 25% and 50% as well as an example which shows the need to continue premium payments in order to maintain the policy in force beyond the illustrated premium suspension date. In addition, the insurer shall provide with any illustration showing a suspension of premium:

(1) a statement displayed in a prominent manner that this illustration is not for a paid-up policy or a guaranteed limited premium payment policy;

(2) for a fixed premium policy subject to section 4232(b) of the Insurance Law, disclosure that the policy, after suspension, continues to require monthly cost of insurance and expense charges, and interest credits, but any changes in current policy cost factors may result in a need to continue premium payments or to resume premium payments, which may be greater than the initial annual premium; or

(3) for a participating policy, disclosure that future dividends may be less than those illustrated which may result in the need to continue premium payments or resume premium payments after an initial suspension of such premium payments.

(g) The numeric summary for a policy subject to section 4232(b) of the Insurance Law and a cash value policy providing three basic components consisting of a base policy, a paid-up additions element and a term insurance element shall show, in addition to the policy durations set forth in subdivision (c) of this section, policy duration at age 85 and age 90 of the insured.

 (h) An illustration for a joint and last survivor policy which, if applicable, provides for an adjustment in cash value on the first death shall assume that death occurs at the later of age 75 of the older insured or 10 years from the issue date of the policy.  Otherwise, an illustration for a joint and last survivor policy for the purposes of the basic illustration, including the numeric summary, may use the younger age or the older age.

 (i) Pension maximization.

 (1) All illustrations of a life insurance policy with the use of life insurance proceeds to purchase a single premium immediate annuity in order to maximize periodic annuity income payments under a qualified or non-qualified employee welfare benefit plan as defined under the Employee Retirement Income Security Act of 1974 shall contain the following information:

(i) in addition to the information required for the life insurance policy by this Subpart, such illustration shall state the monthly annuity income for a life annuity option on both a current annuity purchase rate basis and on the guaranteed annuity purchase rate basis set forth in the life insurance policy;

(ii) the assumed date of death under the life policy for illustration purposes shall be the later of the 10th policy anniversary or the policy year that the proposed insured attains age 75;

(iii) such illustration shall prominently state that any annuity income amount is not guaranteed;

(iv) such illustration shall prominently disclose that the amounts of actual annuity income depends on the amount of life insurance proceeds applied towards the purchase of the annuity, the date of death of the insured, the annuity option selected and the annuity purchase rate which is based upon prevailing interest rates and life expectancy of the annuitant/beneficiary; and

(v) such illustration shall state that the plan depends upon the life insurance policy being maintained to the date of death of the insured at a premium that may not be guaranteed.

(2) If the life insurance policy does not provide guaranteed annuity income optional settlement purchase rates, such illustration shall provide in addition to any current single premium annuity purchase rates, a hypothetical purchase rate based upon three percent interest and the 1983 annuity mortality table.

(3) The sales illustration summary required for the life insurance policy by this Subpart shall be appropriately modified to disclose the amount of monthly annuity income as determined above and appropriately captioned "not guaranteed."

(4) All illustrations shall use a monthly life annuity income option.

Section 7.  Standards for Basic Illustrations

A. Format.  A basic illustration shall conform with the following requirements:

(1) The illustration shall be labeled with the date on which it was prepared.

(2) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration (e.g., the fourth page of a seven-page illustration shall be labeled "page 4 of 7 pages").

(3) The assumed dates of payment receipt and benefit pay-out within a policy year shall be clearly identified.

(4) If the age of the proposed insured is shown as a component of the tabular detail, it shall be issue age plus the numbers of years the policy is assumed to have been in force.

(5) The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable.  For policies that do not require a specific contract premium, the illustrated payments shall be identified as premium outlay.

(6) Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

(7) If the illustration shows any non-guaranteed elements, they cannot be based on a scale more favorable to the policy owner than the insurer's illustrated scale at any duration.  These elements shall be clearly labeled non-guaranteed.

(8) The guaranteed elements, if any, shall be shown before corresponding non-guaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the non-guaranteed elements (e.g., "see page one for guaranteed elements.")

(9) The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.

(10) The value available upon surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount available to the policy owner in a lump sum after deduction of surrender charges, policy loans and policy loan interest, as applicable.

(11) Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.

(12) Any illustration of non-guaranteed elements shall be accompanied by a statement indicating that:

(a) The benefits and values are not guaranteed;

(b) The assumptions on which they are based are subject to change by the insurer; and

(c) Actual results may be more or less favorable.

(13) If the illustration shows that the premium payer may have the option to allow policy charges to be paid using non-guaranteed values, the illustration must clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays.  Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium.  If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.

(14) If the applicant plans to use dividends or policy values, guaranteed or non-guaranteed, to pay all or a portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.

B. Narrative Summary.  A basic illustration shall include the following:

(1) A brief description of the policy being illustrated, including a statement that it is a life insurance policy;

(2) A brief description of the premium outlay or contract premium, as applicable, for the policy.  For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code;

(3) A brief description of any policy features, riders or options, guaranteed or non-guaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy;

(4) Identification and a brief definition of column headings and key terms used in the illustration; and

(5) A statement containing in substance the following: "This illustration assumes that the currently illustrated nonguaranteed elements will continue unchanged for all years shown.  This is not likely to occur, and actual results may be more or less favorable than those shown."

C. Numeric Summary.

(1) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable.  For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium.  This summary shall be shown for at least policy years five (5), ten (10) and twenty (20) and at age 70, if applicable, on the three bases shown below.  For multiple life policies the summary shall show policy years five (5), ten (10), twenty (20) and thirty (30).

(a) Policy guarantees;

(b) Insurer's illustrated scale;

(c) Insurer's illustrated scale used but with the non-guaranteed elements reduced as follows:

(i) Dividends at fifty percent (50%) of the dividends contained in the illustrated scale used;

(ii) Non-guaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used; and

(iii) All non-guaranteed charges, including but not limited to, term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(2) In addition, if coverage would cease prior to policy maturity or age 100, the year in which coverage ceases shall be identified for each of the three (3) bases.

D. Statements.  Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policy owner in the case of an illustration provided at time of delivery, as required in this regulation.

(1) A statement to be signed and dated by the applicant or policy owner reading as follows: "I have received a copy of this illustration and understand that any non-guaranteed elements illustrated are subject to change and could be either higher or lower.  The agent has told me they are not guaranteed."

(2) A statement to be signed and dated by the insurance producer or other authorized representative of the insurer reading as follows: "I certify that this illustration has been presented to the applicant and that I have explained that any non-guaranteed elements illustrated are subject to change.  I have made no statements that are inconsistent with the illustration."

E. Tabular Detail.

(1) A basic illustration shall include the following for at least each policy year from one (1) to ten (10) and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, is to change:

(a) The premium outlay and mode the applicant plans to pay and the contract premium, as applicable;

(b) The corresponding guaranteed death benefit, as provided in the policy; and

(c) The corresponding guaranteed value available upon surrender, as provided in the policy.

(2) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender shall correspond to the contract premium.

(3) Non-guaranteed elements may be shown if described in the contract.  In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, they may be shown if the insurer's current practice is to pay terminal dividends.  If any non-guaranteed elements are shown they must be shown at the same durations as the corresponding guaranteed elements, if any.  If no guaranteed benefit or value is available at any duration for which a non-guaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.

C.  Delivery of Illustration and Record Retention. 

The language contained in Section 53-3.5(d) dealing with compliance with applicable laws and regulations is not contained in Section 9 of the NAIC Model Regulation.  With regard with record retention, Section 9(D) and Section 53-3.5(e) state different timeframes in which an insurer is required to keep a copy of an illustration or, if no illustration was used at the time of sale, a certification to that effect. 

Regulation 74 NAIC Model Rule

Section 53-3.5.  Delivery of illustration and record retention

(a) If a basic illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this Subpart, shall be submitted to the insurer at the time of policy application.  A copy also shall be provided to the applicant.  If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy.  The revised illustration shall conform to the requirements of this Subpart, shall be labeled "revised illustration" and shall be signed and dated by the applicant or policyowner and producer or other authorized representative of the insurer no later than the time the policy is delivered.  A copy shall be provided to the insurer and the policyowner.

(b) If no illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the producer or representative shall certify to that effect in writing on a form provided by the insurer.  On the same form the applicant shall acknowledge that no illustration conforming to the policy applied for was provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery.  This form shall be submitted to the insurer at the time of policy application.  If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed no later than the time the policy is delivered.  A copy shall be provided to the insurer and the policyowner.

(c) If the basic illustration or revised illustration is sent to the applicant or policyowner by mail from the insurer, it shall include instructions for the applicant or policyowner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer.  It is not necessary to obtain the signature of the agent or broker.  The insurer's obligation under this Subpart shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page.  The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.

(d) Such basic illustration or revised illustration shall satisfy the requirements for preliminary information required under section 3209(d) of the Insurance Law and section 53-2.1 of this Part, and the requirements for the policy summary required under section 3209(e) of the Insurance Law and section 53-2.2 of this Part if delivered to the applicant or policyowner in conformance with this Subpart.

(e) A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, shall be retained by the insurer until the later of six years after the policy is no longer in force or the next scheduled examination by the department.  A copy need not be retained if no policy is issued.

Section 9.  Delivery of Illustration and Record Retention

A. (1) If a basic illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this regulation, shall be submitted to the insurer at the time of policy application.  A copy also shall be provided to the applicant.

(2) If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy.  The revised illustration shall conform to the requirements of this regulation, shall be labeled "Revised Illustration" and shall be signed and dated by the applicant or policy owner and producer or other authorized representative of the insurer no later than the time the policy is delivered.  A copy shall be provided to the insurer and the policy owner.

B. (1) If no illustration is used by an insurance producer or other authorized representative in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the producer or representative shall certify to that effect in writing on a form provided by the insurer.  On the same form the applicant shall acknowledge that no illustration conforming to the policy applied for was provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery.  This form shall be submitted to the insurer at the time of policy application.

(2) If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed no later than the time the policy is delivered.  A copy shall be provided to the insurer and the policy owner.

C. If the basic illustration or revised illustration is sent to the applicant or policy owner by mail from the insurer, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer.  The insurer's obligation under this subsection shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page.  The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.

D. A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, shall be retained by the insurer until three (3) years after the policy is no longer in force.  A copy need not be retained if no policy is issued.

D.  Annual Report; Notice to Policy Owners

Section 53-3.6(e) of Regulation 74 contains a section not present in Section 10 of the Model Regulation.

Regulation 74 NAIC Model Rule

Section 53-3.6.  Annual report; notice to policy owners

(a) In the case of a policy designated as one for which illustrations will be used, the insurer shall provide each policyowner with an annual report on the status of the policy that shall contain at least the following information:

(1) For policies subject to section 4232(b) of the Insurance Law, the report shall include the following:

(i) the beginning and end date of the current report period;

(ii) the policy value at the end of the previous report period and at the end of the current report period;

(iii) the total amounts that have been credited or debited to the policy value during the current report period, identifying each by type (e.g., interest, mortality, expense and riders);

(iv) the current death benefit at the end of the current report period on each life covered by the policy;

(v) the net cash surrender value of the policy as of the end of the current report period;

(vi) the amount of outstanding loans, if any, as of the end of the current report period; and

(vii) a notice in the report for fixed premium policies, when applicable, that the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period assuming guaranteed issue (sic), mortality, and expense loads; or

(viii) a notice, in the report for flexible premium policies, when applicable, that the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made assuming guaranteed interest, mortality and expense loads.


 


(2) For all other policies, where applicable:

(i) current death benefit;

(ii) annual contract premium;

(iii) current cash surrender value;

(iv) current dividend;

(v) application of current dividend; and

(vi) amount of outstanding loan.

(3) Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years when a change has been made to non-guaranteed policy elements by the insurer.

(b) If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently: "IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it may perform in the future.  You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration.  You may annually request, without charge, such an illustration by calling [insurer's phone number], writing to [insurer's name] at [insurer's address] or contacting your agent or broker.  If you do not receive a current illustration of your policy within 30 days from the date of your request, you should contact your state insurance department.”  The insurer may vary the sequential order of the methods for obtaining an in force illustration.
(c) Upon the request of the policyowner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer's present illustrated scale.  This illustration shall comply with the requirements of sections 53-3.2(a), 53-3.3(a) and (e) of this Subpart.  No signature or other acknowledgment of receipt of this illustration shall be required.

(d) If an adverse change in non-guaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change prominently displayed.

(e) Every insurer shall provide, to any insured who so requests, a policy summary for each in force premium paying policy for which no policy summary has ever been furnished but excluding policies for which an illustration has been provided in lieu of a policy summary pursuant to section 53-3.5(d) of this Subpart.  The insurer may charge the insured a reasonable fee for preparation of this summary, not to exceed $5.  The superintendent, in his discretion, may permit the insurer to charge a higher amount if the insurer can demonstrate in a manner satisfactory to the superintendent that the actual cost of preparing such policy summary exceeds $5.

Section 10.  Annual Report; Notice to Policy Owners

A. In the case of a policy designated as one for which illustrations will be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall contain at least the following information:

(1) For universal life policies, the report shall include the following:

(a) The beginning and end date of the current report period;

(b) The policy value at the end of the previous report period and at the end of the current report period;

(c) The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type (e.g., interest, mortality, expense and riders);

(d) The current death benefit at the end of the current report period on each life covered by the policy;

(e) The net cash surrender value of the policy as of the end of the current report period;

(f) The amount of outstanding loans, if any, as of the end of the current report period; and

(g) For fixed premium policies:

If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy's net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report; or

(h) For flexible premium policies:

If, assuming guaranteed interest, mortality and expense loads, the policy's net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.

(2) For all other policies, where applicable:

(a) Current death benefit;

(b) Annual contract premium;

(c) Current cash surrender value;

(d) Current dividend;

(e) Application of current dividend; and

(f) Amount of outstanding loan.

(3) Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years when a change has been made to nonguaranteed policy elements by the insurer.

B. If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently: "IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it may perform in the future.  You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration.  You may annually request, without charge, such an illustration by calling [insurer's phone number], writing to [insurer's name] at [insurer's address] or contacting your agent.  If you do not receive a current illustration of your policy within 30 days from your request, you should contact your state insurance department.”  The insurer may vary the sequential order of the methods for obtaining an in force illustration.
C. Upon the request of the policy owner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer's present illustrated scale.  This illustration shall comply with the requirements of Section 6A, 6B, 7A and 7E.  No signature or other acknowledgment of receipt of this illustration shall be required.

D. If an adverse change in non-guaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change prominently displayed.

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