The Office of General Counsel issued the following opinion on October 28, 2003 representing the position of the New York State Insurance Department.
Re: New York Military Law Provisions Addressing Non-Lapse of Life Insurance.
Questions:
1. What are life insurers required to do regarding premiums for the life policy during the time they are keeping the policy in force because of an insureds active duty?
2. Do insurers waive the premiums entirely? Or can they ask for all the back premium once the person starts paying the premium again?
3. If the person dies, can insurers deduct the premiums that were not paid from the benefit payable?
4. Does the requirement apply to both individual and group life policies?
Conclusions:
1. The applicable statutes both generally require that insurers keep the life insurance policy in force during an insureds period of active duty. State law affords greater protection, in that the state statute contains no limit on the dollar amount of the policy.
2. The applicable statutes do not require that insurers waive premiums. Rather, they require the deferral of premiums during the time of active-duty service. The service member has two years following the date of the end of active-duty service in which to repay the premiums owed. Federal law provides a guarantee for the payment of premiums for policies up to $10,000; state law provides no such guarantee.
3. In the event of the death of the service member prior to the repayment of the deferred premiums, the insurer may deduct outstanding unpaid premiums from the benefit payable.
4. The applicable state law applies to both individual and group policies. The provisions of the applicable federal law, the Soldiers and Sailors Civil Relief Act of 1940, appear applicable only to individual policies.
Facts:
The inquiry was general in nature and did not provide any specific facts.
Analysis:
The issues that the inquirer raised are addressed by the federal Soldiers and Sailors Civil Relief Act of 1940, 50 U.S.C.A. (Appendix) §§ 501 593 (West Supp. 2003) (hereinafter, "SSCRA") and N. Y. Military Law § 316 [McKinney Supp. 2003, as amended by the "Patriot Plan", Ch. 106, N.Y. Laws 2003 (S. 5679, June 18, 2003)]. The relevant provision of New York law provides as follows:
No policy which insures the life of a member of a reserve component of the armed forces of the United States, including the National Guard, who is called to active duty, or no policy which has been brought within the benefits of the federal "soldiers and sailors civil relief act" shall lapse or be forfeited for the nonpayment of premium during the period of such service, or during two years after the expiration of such period; provided that any such policy has not lapsed for the nonpayment of premium before the commencement of the period of military service of the insured, provided that in no case shall this prohibition extend for more than one year after this article ceases to be in force.
N.Y. Military Law § 316(1) (McKinney Supp. 2003), as amended by section 25 of the Patriot Plan.
The applicable provisions of the SSCRA are found at 50 U.S.C.A. (Appendix) §§ 540 547 (West Supp. 2003). The sections thereof relevant to the present inquiry provide, in pertinent part, as follows:
(a) The term "policy" shall include any contract of life insurance or policy on a life, endowment, or term plan, including any benefit in the nature of life insurance arising out of membership in any fraternal or beneficial association, which does not provide for the payment of any sum less than the face value thereof or for the payment of an additional amount as premiums if the insured engages in the military service of the United States or which does not contain any limitation or restriction upon coverage relating to engagement in or pursuit of certain types of activities which a person might be required to engage in by virtue of his being in such military service, and (1) which is in force on a premium-paying basis at the time of application for benefits hereunder, and (2) which was made and a premium paid thereon not less than 180 days before the date the insured entered into the military service. The provisions of this Act shall not be applicable to policies or contracts of life insurance issued under the War Risk Insurance Act, as amended, the World War Veterans Act, as amended, or the National Service Life Insurance Act of 1940, as amended.
(b) The term "premium" shall include the amount specified in the policy as the stipend to be paid by the insured at regular intervals during the period therein stated.
(c) The term "insured" shall include any person in the military service of the United States whose life is insured under and who is the owner and holder of and has an interest in a policy as above defined.
(d) The term "insurer" shall include any firm, corporation, partnership, or association chartered or authorized to engage in the insurance business and to issue a policy as above defined by the laws of a State of the United States or the United States.
50 U.S.C.A. (Appendix) § 540 (West Supp. 2003).
The benefits and privileges of this article shall apply to any insured, when such insured, or a person designated by him, or, in case the insured is outside the continental United States (excluding Alaska and the Panama Canal Zone), a beneficiary, shall make written application for protection under this article, unless the Secretary of Veterans Affairs in passing upon such application as provided in this article shall find that the policy is not entitled to protection hereunder. The Secretary shall give notice to the military and naval authorities of the provisions of this article, and shall include in such notice an explanation of such provisions for the information of those desiring to make application for the benefits thereof. The original of such application shall be sent by the insured to the insurer, and a copy thereof to the Secretary. The total amount of insurance on the life of one insured under policies protected by the provisions of this article shall not exceed $10,000. If an insured makes application for protection of policies on his life totaling insurance in excess of $10,000, the Secretary is authorized to have the amount of insurance divided into two or more policies so that the protection of this article may be extended to include policies for a total amount of insurance not to exceed $10,000, and a policy which affords the best security to the Government shall be given preference.
50 U.S.C.A. (Appendix) § 541 (West Supp. 2003).
The Secretary of Veterans Affairs shall find whether the policy is entitled to protection under this article and shall notify the insured and the insurer of such finding. Any policy found by the Secretary to be entitled to protection under this article shall not, subsequent to the date of application, and during the period of military service of the insured or during two years after the expiration of such service, lapse or otherwise terminate or be forfeited for the nonpayment of a premium becoming due and payable, or the nonpayment of any indebtedness or interest.
50 U.S.C.A. (Appendix) § 542 (West Supp. 2003).
No dividend or other monetary benefit under a policy shall be paid to an insured or used to purchase dividend additions while a policy is protected by the provisions of this article except with the consent and approval of the Secretary of Veterans Affairs. If such consent is not procured, such dividends or benefits shall be added to the value of the policy to be used as a credit when final settlement is made with the insurer. No cash value, loan value, or withdrawal of dividend accumulation, or unearned premium, or other value of similar character shall be available to the insured while the policy is protected under this article except upon approval by the Secretary of Veterans Affairs. The insured's right to change a beneficiary designation or select an optional settlement for a beneficiary shall not be affected by the provisions of this article.
50 U.S.C.A. (Appendix) § 544 (West Supp. 2003).
In the event of maturity of a policy as a death claim or otherwise before the expiration of the period of protection under the provisions of this article, the insurer in making settlement will deduct from the amount of insurance the premiums guaranteed under this article, together with interest thereon at the rate fixed in the policy for policy loans. If no rate of interest is specifically fixed in the policy, the rate shall be the rate fixed for policy loans in other policies issued by the insurer at the time the policy bought under the Act was issued. The amount deducted by reason of the protection afforded by this article shall be reported by the insurer to the Secretary of Veterans Affairs.
50 U.S.C.A. (Appendix) § 545 (West Supp. 2003).
As indicated by the above-quoted provisions of the SSCRA, once the U.S. Department of Veterans Affairs deems a policy to be covered by the statute, the policy will not lapse, terminate, or be forfeited because of the service member's failure to make premium payments or pay any indebtedness or interest due during this period of military service or for two years after the expiration of such service. During this period, the government does not pay the premiums for the service member but simply guarantees that the premiums will be paid at the end of the period.
The insured service member must repay the unpaid premiums and interest no later than two years after the expiration of his/her term of military service. If he/she fails to pay these amounts by the end of this two-year period, the amount then due is treated by the insurance company as a loan on the policy. This assumes that the policy has a sufficient cash surrender value to cover the amount of the unpaid premiums and interest. If the cash surrender value of the policy is less than the amount owed, the insurance company may terminate the policy and the United States will pay the insurance company the difference between the cash surrender value and the amount of the then outstanding debt. Also, if the policy matures as a result of death or by any other means during the protected period, the insurance company is required to deduct from the amount of the settlement the unpaid premiums and interest that were guaranteed by the U.S. Department of Veterans Affairs.
If the United States is required to pay any amount to an insurance company by the operation of the SSCRA, the amount paid becomes a debt due the United States by the insured. This amount may be deducted from any other amounts due the insured by the United States. If there is no other sum of money due the insured by the United States, a civil action may be brought to recover the sum due.
The provisions of N.Y. Military Law § 316 and the applicable sections of the SSCRA both provide a mechanism for providing protection against a lapse in life insurance coverage while a service member is on active duty. The New York law differs from the SSCRA in the following ways. First, the federal law only applies to policies that are expressly deemed to be covered by that law. See 50 U.S.C.A. (Appendix) § 540. One of the major limitations is the $10,000 policy limit. Another difference is that the federal law provides for a federal guaranty for payment of any past due premium. The state law does not contain limitations on the applicability of the statute, but neither does it provide for any guaranty of premiums.
A further distinction relates to the issue of the payment of interest. The SSCRA expressly provides that interest may be charged on the outstanding balance of premiums owed, and that any such interest may be deducted from any death benefit payable. The federal law requires unpaid premium amounts to be treated in the same manner as policy loans. N.Y. Military Law § 316 is silent as to the issue of interest.
Finally, with respect to the issue of the applicability to group coverage, I note that the state statute should apply in the group context. N.Y. Military Law § 316(2) expressly provides that " the term policy shall include any contract of life insurance as defined in paragraph one of subsection (a) of section one thousand one hundred thirteen of the insurance law." N.Y. Military Law § 316(2)(McKinney 1990). N.Y. Ins. Law § 1113(a)(1)(McKinney 2000) in turn does not distinguish between group and individual policies. Accordingly, group life policies should fall under the state statute. By contrast, the federal statute does not appear to apply to group policies in that, by its terms, it applies only to policies of which the insured is also the "owner and holder". See 50 U.S.C.A. (Appendix) § 540(c) (West Supp. 2003).
For further information you may contact Supervising Attorney Michael Campanelli at the New York City office.