The Office of General Counsel issued the following informal opinion on May 19, 2004, representing the position of the New York State Insurance Department.
Re: Unearned premium on life insurance policies
When the premiums of a term life insurance policy are paid annually, and the policy is cancelled mid-year, must the life insurance company return the unearned premium for the balance of the year?
The New York Insurance Laws do not require life insurance companies to return the unearned premium in such situations. The terms of the term life insurance contract would control whether the unearned premium should be returned.
The inquirer is a licensed life insurance agent who has a corporate client that has taken out a term life insurance policy on one of its executives with whom it recently negotiated a new contract. The existing term life contract was for a term of ten years, and the premiums were paid annually. There are about six years left on the existing policy and the premium for this year has already been paid.
Pursuant to the new contract with the executive, the corporation plans to replace the existing term life insurance policy with a different term life insurance policy from a different company for a term of 15 years. The inquirer wants to know whether the insurance company that issued the existing term life insurance policy must return the unearned premium for the balance of this year.
Nothing in the New York Insurance Law requires the insurer that issued the existing term life insurance policy to return the unearned portion of the annual premium for the policy that was paid for this year, except in the event of the insureds death. N.Y. Ins. Law § 3203(a)(2) (McKinney 2000) states in pertinent part:
All life insurance policies, except as otherwise stated herein, delivered or issued for delivery in this state, shall contain in substance the following provisions, or provisions which the superintendent deems to be more favorable to policyholders:
. . . .
that if the death of the insured occurs within the grace period provided in the policy, the insurer may deduct from the policy proceeds the portion of any unpaid premium applicable to the period ending with the last day of the policy month in which such death occurred, and if the death of the insured occurs during a period for which the premium has been paid, the insurer shall add to the policy proceeds a refund of any premium actually paid for any period beyond the end of the policy month in which such death occurred, provided such premium was not waived under any policy provision for waiver of premiums benefit. This paragraph shall not apply to single premium or paid-up policies;
In all other instances, the terms of the term life insurance policy would control whether any unearned premium is refunded to the owner of the term life insurance policy.
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.