Requires disclosure of settlement options for life insurance policies

Summary of provisions

This bill amends §3213 of the insurance law to add a new subsection (b) which would require life insurers to provide disclosure related to the settlement options available to the beneficiary of a life insurance policy and to provide additional, detailed disclosure if the benefit is to be provided through the use of a "retained asset account". The term "retained asset account" is defined in the bill as a "mechanism whereby the settlement of proceeds payable under a life insurance policy is accomplished by the life insurer or an entity acting on behalf of the life insurer placing the proceeds into an account with check or draft writing privileges where those proceeds are retained by the life insurer pursuant to a supplementary contract". If an insurer settles the benefit through the use of a "retained asset account," the insurer must provide the following disclosures to the beneficiary before the account is established:

1) that payment of the full benefit amount is accomplished by delivery of a draft or check book and that one draft or check may be written to access the entire amount, including interest, of the retained asset account at any time;

2) a statement identifying the account as either a checking account or a draft account and an explanation of how the account works;

3) whether other available settlement options are preserved until the entire balance is withdrawn;

4) information about the account services provided and contact information where the beneficiary may request and obtain more details about such services;

5) a description of fees charged for the account, if applicable;

6) information relating to the frequency of statements showing the current account balance, the interest credited, drafts or checks written, and any other account activity;

7) information regarding the minimum interest rate to be credited to the account and how the actual interest rate will be determined;

8) a statement that the interest earned on the account may be taxable;

9) a statement that retained asset account funds are not insured by the FDIC but are guaranteed by the state guaranty association; and

10) a description of the life insurer's policy regarding retained asset accounts that become inactive.

Justification

Currently, neither the insurance law nor regulation in New York provides for specific disclosures that must be provided to the beneficiary of a life insurance policy related to their options for settling the payment of the death benefit when a loved one passes away. Although life insurers do provide such information, the substance of such disclosure is not uniform and may not always provide all of the information necessary to ensure that a beneficiary is fully aware of their options, including specific details related to the use of a retained asset account to settle the benefit. Life insurance contracts containing retained asset account provisions permit death benefit proceeds to be paid into an interest-bearing, draft or checking account to be held by the insurer. The interest provided on the account is usually comparable to or better than that which is provided for a liquid account in a savings institution. Beneficiaries who have their death benefit paid into a retained asset account have full and immediate access to their benefits and can withdraw some or all of it at any time. In the unlikely event that an insurer were to become insolvent while maintaining a death benefit in a retained asset account, the account would be covered by the New York Life Insurance Guaranty Corporation (LIGC). The LIGC provides coverage of up to $500,000 per policy, which is more than what would be provided to an insolvent bank account holder under the FDIC. Retained asset accounts have existed since 1982 and are now routinely used by many life insurers for all types of life insurance policies.

Recent new reports related to the use of retained asset accounts by life insurers have lead to an examination of their use. As a result, both the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance legislators (NCOIL) have concluded that the use of retained asset accounts by life insurers is appropriate, and may even be in the beneficiary's best interest, so long as they are fully advised of all the settlement options available to them, including the details related to benefits paid into a retained asset account. This bill requires life insurers to fully disclose all the details related to their death benefit settlement options, including settlement through the use of a retained asset account, and will lead to a more transparent process.

Legislative history

New Bill.

Fiscal implications

None.

Effective date

This act will take effect on the 180th day after it shall have become a law.