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Term Life Insurance New York Replacement Laws
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THE PURPOSE OF THIS REGULATION
• To regulate the acts and practices of
insurers and agents with respect to the replacement of life
insurance policies and annuity contracts
• To protect the interest of the public
• To establish minimum standards of
conduct regarding the replacement of life insurance and
annuities
• To provide full and clear information so
an applicant can make an informed
decision
• To reduce the opportunity for
misrepresentation and incomplete comparison in replacement
DEFINITIONS OF REPLACEMENT
When a new life insurance or
annuity contract is purchased for delivery in New York and
the agent knows that, as part of the transaction, existing
life insurance or annuity contracts have been or are likely
to be:
• lapsed, surrendered, partially
surrendered, forfeited, assigned to the replacing
insurer, or otherwise terminated;
• changed or modified into paid-up
insurance, continued as extended term or another form of
non-forfeiture benefit or otherwise reduced in value by the
use of non-forfeiture benefits, dividend accumulations,
dividend cash values or other
cash values;
• changed or modified to reduce the amount
of existing life insurance or annuity benefit or in the
period of time the existing life insurance or annuity
benefit will remain in force;
• reissued with a reduction in amount such
that any cash values are released, including dividend
accumulations or paid-up additions;
• assigned as collateral for a loan or
made subject to borrowing or withdrawal of any portion of
the loan value, including dividend accumulation or paid-up
insurance;
• continued with a stoppage of premium
payments or a reduction in the amount of
premium paid.
EXEMPTIONS
• Contractual conversion privileges
• If the new coverage is group life or
group annuity, and a portion of the premium is directly or
indirectly paid by the insured
• Individual policy or annuity which is
wholly paid for by employer or an association to which the
insured belongs
• Individual policy or annuity distributed
on a mass merchandising basis and administrated by group
type methods
• If the existing life insurance is
nonrenewable, nonconvertible term that expires in 5 years or
less
DUTIES OF AGENT
• Obtain with each application a completed
and signed Definition of Replacement form. Leave a copy for
your client. If no replacement involved, submit copy of
signed Definition of Replacement form with the application
to the insurer.
If replacement is indicated:
o obtain a list of all coverage proposed to be
replaced.
o submit to existing insurer a list of coverage
to be replaced, as well as the policy or contract number,
with Authorization form signed by the policy-owner
requesting information needed to complete the Disclosure
Statement.
o present to the applicant, no later than
at the time of signing the application, review and sign the
Important Notice Regarding Replacement and the completed
Disclosure Statement and leave copies of such forms with
applicant for his or her records.
o submit the application to the insurer with:
• signed and dated Authorization to
Release Information listing all policies to be replaced
(LF-203);
• a copy of any new business illustration
if required;
• proof of receipt by applicant of the
Important Notice Regarding
Replacement (PR-103);
• completed and signed Disclosure
Statement (PR-101);
• signed and dated Definition of
Replacement (PR-102);
• copy of in force illustration provided
by replaced carrier.
DUTIES OF REPLACING INSURER
• Training its agents about this
regulation.
• With each application, life or annuity,
with or without a replacement involved, require a Definition
of Replacement form signed by the applicant and agent.
• Date all materials upon receipt.
• Retain copies of the Definition of
Replacement for at least 6 years.
• Require with each application a signed
statement by the agent (page 9 of the William Penn
application) as to whether, to the best of his/her
knowledge, replacement is involved in the transaction.
• If replacement is indicated, the insurer
must require the submission of: o A copy of any
new business illustration if required;
o
Proof of receipt by applicant of the Important Notice
Regarding
Replacement (PR-103);
o Completed and signed Disclosure Statement
(PR-101);
o Signed and dated Definition of
Replacement (PR-102);
o Signed and dated
Authorization to release information (LF-203)o
Copy of in force illustration provided by replaced carrier.
• If replacement is indicated, the insurer
must:
o examine the proposal and sales material for
accuracy; o examine the Disclosure Statement for
accuracy and compliance with
regulation.
• If replacement is indicated, within 10
business days the replacing insurer must: o
notify existing insurer;
o provide existing insurer copy of proposal,
sales material and Disclosure; o maintain copies
of all documents for at least 6 years.
• Reject the application within 10 days of
receipt if the required forms are not received, or if the
forms are not correct and so notify the applicant of such
rejection and the reason therefore.
• Submit quarterly reports within thirty
days of the end of each quarter, to the Superintendent of
Insurance, indicating which insurers, if any, have failed to
provide the information to complete the Disclosure form.
• Provide the policy owner a 60 day refund
provision.
• Treat proposed policies in all respects
as if it were new issuance subject to no differences in
underwriting or in other considerations including but not
limited to: premium discount, interest rate credit, and or
broker compensation or expenses, or incentives such as
bonuses or other inducements to agents and or brokers.
If the policy issued differs from the application applied
for, obtain revised documents including but not limited to a
revised "Disclosure Statement", revised or additional sales
material and acknowledgment by the applicant of receipt of
such material.
DUTIES OF EXISTING INSURER
• Inform and train its agents about this
regulation.
• Date all materials upon
receipt.
• Maintain copies of
replacement notification for at least 6 years.
•
Within 20 days of receipt of a request from the replacing
agent with proper authorization from the applicant, furnish
the required information to complete the Disclosure
Statement with respect to the contract being replaced,
including:
o the insurer's customer service
telephone number; o current status;
o
currently illustrated dividends/interest and other
non-guaranteed costs and
benefits.
• Allow a 60 day free
look period on replaced policies. Should policy owner elect
to not accept the new policy within 60 days of receipt and
upon written proof of cancellation, reinstate existing
insurance without evidence.
WILLIAM PENN NEW BUSINESS REPLACEMENTS
Agent meets with prospect
Agent obtains signed Definition of Replacement form and
leaves copy with applicant.
Replacement?
NO-Submit
app to general agency with Definition of Replacement form.
YES-Obtain
list of all policies to be replaced.
Agent contacts existing insurers with authorization from
policy-owner to request information to complete disclosure
statement. Sends copy to replacing insurer.
Wait 20 days for response
Received?
NO-
Agent completes disclosure form with "Good Faith
Approximation.
Gives copy to client.
YES-
Agent completes disclosure form with information received.
Gives copy to client.
Client wants to proceed >
Agent gets signed app, signed Disclosure and signed
Important Notice forms. Leaves copies with applicant
Agent submits to general agency:
1. Application
2. Signed Disclosure Form (PR-101)
3. Signed Important Notice Form (PR-103)
4. Signed Definition of Replacement Form (PR-102)
5. New business illustration if required
6. Authorization to release information (LF-203)
7. Copy of in force illustration provided by replaced
carrier
Company reviews forms from general agency. Are they complete
and accurate?
NO-
Company attempts to get forms corrected If
not corrected within 10 days, app is rejected.
YES-
Within 10 days of app receipt, company sends Notification of
Replacement to replaced company. Includes Disclosure form
and illustrations/sales materials.
Life applications
forwarded to Underwriting Department.
If the life
insurance or annuity contract issued differs from what was
originally applied for,
company asks agent to get a new Disclosure form signed and
resubmit with any revised illustrations/sales
materials used.
Company submits quarterly reports to
the Superintendent of Insurance, indicating insurers which
have failed to provide information to complete the
disclosure form
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