Sec. 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 percent and 50 percent 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.