Sec. 185.14. Special rules for credit insurance on transactions secured by real estate mortgages

(a) In addition to all other provisions of this Part, this section shall apply to policy forms and certificates for credit transactions in this State involving first mortgage loans, other than home equity loans, and shall be controlling in any conflict with other provisions of this Part. This section shall not apply to policies and certificates covering home equity loans or second or junior mortgage loans, unless an insurer advises the superintendent in writing that it opts for a particular policy or policies and certificates to be subject to the requirements of this section in lieu of those of section 185.7 of this Part. For the purpose of this section, the addition of a new creditor or a change in premium rates, other than that required by subdivision (c) of this section, shall be considered an amendment to the policy.

(b) The following provisions shall apply to mortgage credit life and accident and health insurance policies issued, altered, modified or amended on or after the effective date of this Part.

(1) No coverage shall terminate prior to the earliest of:

(i) termination of the mortgage by prepayment, refinancing, foreclosure or maturity;

(ii) transfer of title by debtor to other than his spouse;

(iii) attainment of age 70 for life insurance or attainment of age 65 for accident and health insurance;

(iv) nonpayment of premium within 31 days of the due date (modified as noted in paragraph [5] of this subdivision);

(v) any payment under a mortgage note becoming six months overdue;

(vi) assumption of coverage by another insurer;

(vii) in the case of a group policy, the opportunity for the covered person to obtain an individual conversion policy when the indebtedness is assigned to any other party or when the group policy terminates, or for such other reasons as approved by the superintendent (see paragraph [5] of this subdivision); or

(viii) in the event of joint coverage for life insurance or accident and health insurance, the coverage may cease on the older life at the limiting age, but shall continue on the younger life until the limiting age.

(2) Premium rates meeting the standards set forth in subdivisions (c) and (e) of this section, and any revision thereto, shall be approved by the superintendent.

(3) If questions as to specific conditions of health are requested of individuals, insurance shall be considered to be underwritten. However, an age exclusion, a general statement as to good health or, the use of a preexisting condition exclusion permitted under section 185.5(e) of this Part, shall not constitute underwriting for purposes of this section. For debtors who enroll after the issuance of the policy and more than two months beyond the effective date of their mortgage, questions as to specific conditions of health or other underwriting will not change the status of a nonunderwritten group to underwritten.

(4) A policy may provide for discontinuance of acceptance of new covered persons, but may not provide for termination of covered persons except as provided in paragraph (1) of this subdivision.

(5) If the policyholder discontinues the collection of premiums, or if the indebtedness is transferred to another lender, unless another insurer agrees to insure persons then covered, any person then covered shall have the right, within two months after such discontinuance or transfer and notice to the insured, to continue coverage by the timely payment of premiums direct to the insurer, unless the insurer offers conversion to an individual policy providing the same coverage which may be terminated only as stated in applicable provisions of paragraph (1) of this subdivision; or, alternatively in the case of life insurance, to an individual policy with fixed benefits and reasonably similar coverage as to amount and term. Premiums paid direct to the insurer may be reasonably adjusted to reflect the difference in administrative costs if approved by the superintendent. If life insurance is continued under an individual policy with fixed benefits and reasonably similar coverage as to amount and term, the premium shall be in accordance with the premium applicable to the class of risk to which the insured belongs, and at the insured's then attained age. If premiums under the group policy had been approved under paragraph (c)(10) of this section, any additional refunds shall be made direct to the covered person when a conversion policy is issued or coverage is assumed by another insurer and such insurer does not assume the obligations of additional refunds.

(6) If an insurer agrees to assume existing coverage from another insurer, all persons then covered under the original policy shall be offered coverage by the assuming insurer without underwriting by the assuming insurer. Benefits shall be on the same basis as the original policy or, at the option of the insurer, on the same basis as those provided debtors under the new policy, without being subject to incontestability and suicide provisions of the policy. At the option of the assuming insurer, either the existing rates or the assuming insurer's rates may be used. If the assuming rates are used for persons then covered, the use of underwritten or nonunderwritten rates shall be consistent with the underwriting of the original policy. For accident and health plans, rates shall be based on original issue age if the premium rates of both insurers are level based on issue age. Other procedures for assumption of coverage may be approved by the superintendent.

(c) The following provisions shall apply to premium rates and refunds for mortgage credit life insurance policies and certificates issued on or after the effective date of this Part.

(1) Premium rates not in excess of those contained in this paragraph shall be considered adequate and not unreasonable in relation to the benefits provided for coverage that is underwritten, with no requirement of refund other than the unearned premium or identifiable charge. With respect to policy renewal years, such rates shall be subject to adjustment in accordance with subdivision (d) of this section.

LEVEL MONTHLY PREMIUM RATES

PER $1,000 OF INITIAL INSURANCE COVERAGE TO AGE 70

Age at issue-balance in years of mortgage period at issue of insurance

	10	15	20	25	30	35
22	$.11	$.13	$.15	$.17	$.19	$.19
27	.13	.15	.18	.18	.20	.23
32	.17	.18	.21	.22	.25	.26
37	.22	.25	.27	.30	.35	.39
42	.27	.34	.42	.50	.57	.63
47	.45	.57	.69	.81	.89	.95
52	.73	.91	1.11	1.25	1.34	1.39
57	1.15	1.47	1.71	1.84	1.91	1.96
62	1.91	2.29	2.47	2.57	2.63	2.66

The above rates are for single life coverage. Rates for other ages and balances may be determined by straight line interpolation or extrapolation from the rates shown above. An additional monthly premium amount of $.50 per certificate for single life coverage and $.80 per certificate for joint life coverage, or $.03 per $1,000 of initial insurance for single life coverage and $.05 for joint life coverage, may be charged.

(2) The rates for joint life coverage shall be computed in accordance with one of the following methods:

(i) 140 percent of the single life rate for the older insured;

(ii) 100 percent of the single life rate for the older insured, plus 60 percent of the rate for the younger insured; or

(iii) any other method reasonably consistent with subparagraphs (i) and (ii) of this paragraph approved by the superintendent, including but not limited to use of husband and wife in lieu of older and younger, and to use of the younger insured as the principal insured.

(3) When the insurance for the older life terminates due to limiting age, the insurance shall be continued on the younger life until the limiting age, and the rate shall be adjusted in accordance with one of the following methods as filed by the company:

(i) 100 percent of the rate for such younger insured, based on the original age, original amount of insurance and original term of insurance;

(ii) 100 percent of the rate of such younger insured, based on the age attained, remaining balance and remaining term on the date insurance is terminated on the older insured; or

(iii) such other method as approved by the superintendent.

(4) Reasonable groupings of mortgage periods may be used, subject to the approval of the superintendent.

(5) With respect to level premium rates per $1,000 of initial insurance, no age groupings of more than five years for ages 40 and above shall be used. The maximum premium rate for the age group shall be that for the central age of the group.

(6) If insurance is not underwritten in accordance with paragraph (b)(3) of this section, applicable rates may be increased 20 percent.

(7) The maximum gross premium rates for modes of payment other than monthly are as follows:

(i) quarterly—not greater than 3.00 times monthly;

(ii) semiannually—not greater than 5.95 times monthly; and

(iii) annually—not greater than 11.79 times monthly.

(8) In lieu of the rates prescribed in paragraph (1) of this subdivision, an insurer may use other rates for new policies issued and/or for new certificates issued to existing group policies, and may use a different set of rates for those insured before a given date (e.g., effective date of a new premium scale for new insureds), than for those insured after such date, subject to the approval of the superintendent.

(9) A refund of the premium shall be made for termination for any reason in accordance with the rules in section 185.8 of this Part, except that for good cause, upon application by the insurer, the superintendent may waive the requirement for refund of that portion of the premium for the balance of the month, as measured from the premium due date, in the month in which termination occurs. In addition, a refund of any additional reserve may be required as a condition for approval of an accumulation of reserves in addition to any unearned premium reserves.

(10) Level premium rates higher than those in paragraphs (1) and (8) of this subdivision may be charged, provided a plan for the maintenance of reserves in addition to any unearned premium reserves, and for payment of refunds in addition to those provided for in paragraph (9) of this subdivision in the event of termination other than by death, if approved by the superintendent.

(11) Other patterns of rates, such as the use of attained age rates either per $1,000 of initial amount of insurance or per $1,000 of outstanding balance, may be submitted for approval by the superintendent. Such rates shall conform to the requirements of this subdivision, except to the extent of necessary modifications for such pattern of rates.

(12) Other plans of insurance not specifically provided for in this subdivision may be submitted for approval by the superintendent.

(13) Rates for policies in force on the effective date of this Part may be continued for new certificates issued under such policies.

(14) Notwithstanding anything to the contrary, the superintendent may approve rates with no grading by age or with grading by age in broader bands than permitted by paragraph (5) of this subdivision. The superintendent may require that age graded rates be used either with the initial writing of a group, or upon renewal, if the experience indicates it is appropriate.

(d) The following provisions shall apply to mortgage credit life policies:

(1) As of December 31st of each year, each insurance company shall set aside for distribution in the following year any amount needed so that the total benefits for the experience period equal at least 72 percent of earned premiums attributed to contributions from debtors for the life insurance for such period, exclusive of benefits and premiums for those persons insured for less than one year.

(i) For purposes of this paragraph, benefits shall include: (a) incurred claims; and (b) premium charge adjustments returned to or applied for the sole benefit of those persons contributing to premiums by payment of identifiable premium charges, who are insured on the date such premium charge adjustments are distributed to the policyholder by the insurance company. A company may establish a minimum duration for eligibility for premium charge adjustments.

(ii) For purposes of this paragraph, benefits and earned premium for each year shall be combined with respect to all insured residents of New York, exclusive of those residents insured for less than one year for mortgage credit life with any insurer.

(iii) For purposes of this paragraph, the experience period shall be, as of each December 31st, the most recent calendar years up to a maximum of three, including the calendar year then ending, using estimates for the most recent calendar year. The first calendar year of experience to be considered shall be 1998.

(iv) No premium charge adjustment, refund or credit is required if the amount thereof is less than one dollar. The benefit ratio requirement shall be based on refunds made or credited. If the total monies to be credited include monies for refunds of less than one dollar and such refunds are not made or credited, then the amount for such refunds shall be added to the total to be distributed in the following year.

(v) Insurers shall be responsible for the establishment of procedures by which premium charge adjustment refunds or credits are made. Such refunds or credits may be paid directly by the insurer to the insured debtors, or total monies may be turned over to the policyholder for distribution in accordance with the directions and eligibility conditions outlined by the insurer. The policyholder may make the distribution by direct payment to the insured debtor or by crediting his escrow account. If the policyholder fails to make the distribution within a reasonable time, no later than one year from date of receipt from insurer, then the insurer shall make future distribution directly to the insureds and the policyholder shall forfeit all right to any fees, and the cost of distribution shall be charged against the policyholder before determining any dividends or experience rating credits available after satisfying the benefit requirements.

(2) If the ratio of claims incurred to premiums earned for the experience referred to in paragraph (1) of this subdivision exceeds 72 percent, exclusive of first year insureds, then premiums during the following year may be adjusted without the approval of the superintendent, if such premiums would have produced a 72 percent claim ratio. Such adjusted premiums may be used for new issues as well as inforce business. If premiums adjusted with the intention of producing at least a 72 percent ratio of claims incurred to premiums earned fail to produce the intended claim ratio for three consecutive calendar years of experience, then, in addition to premium charge adjustments, the rates shall be reduced to the greater of: (i) such rates as would have produced the intended claim ratio; or (ii) the rates in effect prior to any adjustment designed to produce the intended claim ratio.

(3) By June 1st of each year, each insurer shall submit a report to the superintendent of its mortgage credit life experience, showing losses paid, losses incurred, premium charge adjustments distributed to insured mortgagors, actual premiums written, refunds due to terminations, reserve increases (separately for unearned premium and additional reserves), actual premiums earned, premium charge adjustments to be distributed and, if applicable, adjusted premiums earned for purposes of computing new premiums.

(4) In lieu of paragraphs (1) and (2) of this subdivision, a company may use other plans designed to produce a reasonable relationship of benefits to premiums, provided such plans are approved by the superintendent and are applied uniformly to all policies and certificates. Such plans may take into consideration such factors as, but not limited to, the following: policy year experience and adjustments; differentiation by size; appropriate limits for credibility factors; reserves in addition to unearned premium reserves; written premiums; select and ultimate experience; and form of expense factors. Such plans may provide for an accumulation of a reserve in addition to the unearned premium reserve, and such reserve may be in lieu of some or all premium charge adjustments, provided provision is made for refund upon termination other than by death; but an allowance shall be made for interest earnings on such reserves and in the event of termination of the master contract, the additional reserve may be transferred to a new carrier if such new carrier assumes responsibility for the plan and any refunds. A date other than that specified in paragraph (3) of this subdivision may be approved by the superintendent as appropriate for any alternative plan approved under this paragraph.

(5) For any policy to which this subdivision is not applicable as of December 31, 1997, the premium charge adjustment plan or alternative plan in effect immediately prior to the effective date of this Part shall apply for the 1998 distribution.

(e) The following provisions shall apply to mortgage credit accident and health insurance policies and certificates issued, altered, modified or amended on or after the effective date of this Part.

(1) All premiums must be calculated on either an issue age or attained age rate basis using reasonable age groupings. The premium should be calculated such that a 70 percent loss ratio is expected for single life coverage and a 75 percent loss ratio is expected for joint life coverage. Except where alternatives are established on the basis of credible evidence, no premium shall exceed the premium developed on the basis of the following assumptions and considerations:

(i) claim costs based on 110 percent of the 1985 Commissioners' Individual Disability Tables A, at three percent interest for coverage which is not underwritten and 100 percent of such claim costs for underwritten coverage; and

(ii) monthly premiums are the annual premiums divided by 12.

(2) No policy shall provide a maximum benefit period of less than one year for continuous total disability commencing prior to age 65.

(3) No policy shall provide coverage beyond the original term of indebtedness.

(4) No policy shall provide an elimination period of less than 14 days.

(5) No policy shall provide retroactive benefits for a period of more than 30 days.

(6) Where level premiums are computed on a 10 year term or term to age 65 basis, level premium reserves shall be maintained on the same basis.