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20-2604. Variable life insurance policy and filing requirements

A. Except pursuant to chapter 5, article 1 of this title, the director shall not approve a variable life insurance form unless the insurer files with the director its variable life insurance policies, and all riders, endorsements, applications and other documents that are attached to the policy and that relate to the variable nature of the policy, and the director approves each policy before the policy is delivered or issued for delivery in this state. For the purposes of this subsection the procedures and requirements for the filing and approval of variable life insurance policies shall be the same as the filing and approval procedures that apply to other life insurance policies, to the extent those procedures are not inconsistent with this article.

B. A variable life insurance policy that is delivered or issued for delivery in this state shall comply with the following minimum requirements:

1. The insurer shall bear mortality and expense risks. The mortality and expense charges are subject to the maximums stated in the policy.

2. For scheduled premium policies, the insurer shall provide a minimum death benefit in an amount that equals or exceeds the initial face amount of the policy as long as the insured pays the premiums.

3. The policy shall reflect the investment experience of one or more separate accounts that are established and maintained by the insurer. The insurer shall demonstrate that the reflection of investment experience in the variable life insurance policy is actuarially sound.

4. Each variable life insurance policy shall be credited with the full amount of the net investment return that is applied to the benefit base.

5. At least annually the insurer shall determine any changes in the variable death benefits of each variable life insurance policy.

6. At least monthly the insurer shall determine the cash value of each variable life insurance policy. The method of computation of cash values and other nonforfeiture benefits shall be in accordance with actuarial procedures that recognize the variable nature of the policy. If the net investment return that is credited to the policy at all times from the date of issue is equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy, the resulting cash values shall not be less than the minimum values that are required by section 20-1231 for a general account policy with these premiums and benefits. The assumed investment rate shall not exceed the maximum interest rate permitted under section 20-1231. If the policy does not contain an assumed investment rate the method of computation shall be based on the maximum interest rate permitted under section 20-1231. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. For the purposes of this paragraph incidental minimum guarantees include a guarantee that the amount payable at death or maturity shall equal or exceed the amount that otherwise would have been payable if the net investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate.

C. The insurer may base the computation of values that are required for each variable life insurance policy on any reasonable and necessary approximations that the director accepts.

D. Each variable life insurance policy that is filed for approval in this state shall contain at least the following:

1. The cover page or a page that corresponds to the cover page of each policy that:

(a) Prominently states in either a contrasting color or bold-faced type that the amount or duration of the death benefit may be variable or fixed under specified conditions.

(b) Prominently states in either a contrasting color or bold-faced type that cash values may increase or decrease according to the experience of the separate account, subject to any specified minimum guarantees.

(c) Describes any minimum death benefit that is required pursuant to subsection B, paragraph 2 of this section.

(d) Describes the method or refers to the policy provision that describes the method for determining the amount of insurance payable at death.

(e) Informs the policyholder that the policyholder may return the variable life insurance policy within ten days after receiving the policy and receive a refund that equals the sum of:

(i) The difference between the premiums paid and the amounts allocated to any separate accounts under the policy.

(ii) The value of the amounts that are allocated to any separate accounts under the policy on the date the returned policy is received by the insurer or the insurer's insurance producer.

(f) Identifies the owner of the contract.

(g) Includes items that are required for fixed benefit life insurance policies and that are not inconsistent with this article.

2. For scheduled premium policies, a grace period provision of not less than thirty-one days from the premium due date. The grace period shall provide that if the premium is paid within the grace period, the policy values will be the same as if the premium had been paid on or before the due date, except for the deduction of any overdue premium.

3. For flexible premium policies, a grace period provision that begins on the policy processing day on which the total charges that are authorized by the policy and that are necessary to keep the policy in force until the next policy processing day exceed the amounts available under the policy to pay the charges according to the terms of the policy. The grace period shall end on a date not less than sixty-one days after the report to policyholders is mailed pursuant to section 20-2609, paragraph 1. The death benefit that is payable during the grace period shall equal the death benefit that was in effect immediately before the grace period less any overdue charges. If the policy processing days occur monthly, the insurer may require the payment of not more than three times the charges that were due on the policy processing day on which the amounts available under the policy were insufficient to pay all of the charges that are authorized by the policy and that are necessary to keep the policy in force until the next policy processing day.

4. For scheduled premium policies, a reinstatement provision that states that the policy shall be reinstated at any time within two years from the date of default on the occurrence of all of the following:

(a) The written application of the insured and on the presentation of evidence of insurability, including good health, that is satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired.

(b) The payment of any outstanding indebtedness that arose after the end of the grace period following the date of default together with accrued interest on the indebtedness to the date of reinstatement.

(c) Payment of an amount not exceeding the greater of:

(i) All overdue premiums with interest at a rate of not more than six per cent per annum compounded annually and any indebtedness in effect at the end of the grace period following the date of default with interest at a rate of not more than six per cent per annum compounded annually.

(ii) One hundred ten per cent of the increase in cash value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest at a rate of not more than six per cent per annum compounded annually.

5. A full description of the benefit base, the method of calculation and the application of any factors that are used to adjust variable benefits under the policy.

6. A provision that designates the separate account to be used and that states both of the following:

(a) The assets of the separate account are available to cover the liabilities of the insurer's general account only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life insurance policies supported by the separate account.

(b) The assets of the separate account will be valued monthly or more frequently if any policy benefits vary.

7. A provision that specifies what documents constitute the entire insurance contract.

8. The names of the officers who are empowered to make an agreement or representation on behalf of the insurer.

9. The conditions or requirements for the designation or change of designation of a beneficiary and for the disbursement of benefits if a beneficiary is not designated.

10. The conditions of or requirements for the assignment of the policy.

11. A description of policy value adjustments that will be made if the insured misstates the insured's age or sex.

12. A provision that after a policy has been in force for two years the insurer may not contest the policy during the lifetime of the insured. If an increase in the amount of the policy's death benefits occurs after the policy issue date, if the owner applied for or requested the increase and if the increase was subject to satisfactory proof of the insured's insurability, after the increase has been in force for two years, the insurer may not contest the increase during the lifetime of the insured.

13. A statement that the investment policy of the separate account shall not be changed without the approval of the insurance regulatory authority of the insurer's state of domicile and that the approval is on file with the director.

14. A provision that except if variable death benefits are used to pay premiums the payment of variable death benefits in excess of any minimum death benefits, cash values, policy loans or partial withdrawals or the payment of variable death benefits in excess of any partial surrenders may be deferred either:

(a) For up to six months from the date of the request, if the payments are based on policy values that do not depend on the investment performance of the separate account.

(b) For any period during which the New York stock exchange is closed for trading, except for normal holiday closing, or for any period during which the securities and exchange commission determines that a state of emergency exists.

15. If settlement options are provided, that at least one option is provided on a fixed basis only.

16. A description of the basis for computing the cash value and the surrender value under the policy.

17. A statement of the premiums or other charges for incidental insurance benefits.

18. Any other items that are currently required for fixed benefit life insurance policies and that are not inconsistent with this article.

19. A provision for nonforfeiture insurance benefits. The insurer may establish a reasonable minimum cash value below which any nonforfeiture insurance options will not be available.

20. That statements that are made by the insured or on behalf of the insured are representations and not warranties.

E. Except for term insurance policies and pure endowment policies that are delivered or issued for delivery in this state, each variable life insurance policy shall contain loan provisions for policies that have been in force for two full years that are not less favorable to the policyholder than the following:

1. At least seventy-five per cent of the policy's cash surrender value may be borrowed.

2. The amount borrowed bears interest at a rate that does not exceed the rate permitted by this title.

3. Any indebtedness shall be deducted from the proceeds payable on death.

4. Any indebtedness shall be deducted from the cash surrender value on surrender or in determining any nonforfeiture benefit.

5. For scheduled premium policies, if the indebtedness exceeds the cash surrender value, the insurer shall give notice of its intent to cancel the policy if the excess indebtedness is not repaid within thirty-one days after the date on which the notice was mailed. For flexible premium policies, if the total charges that are authorized by the policy and that are necessary to keep the policy in force until the next following policy processing day exceed the amounts available under the policy to pay the charges, the insurer must send the policyholder a report containing the information specified by section 20-2609, paragraph 3.

F. The policy may provide that, as long as the premiums are paid, if, at any time, the variable death benefit is less than it would have been if a loan or withdrawal had not been made, the policyholder may increase the variable death benefit up to the amount it would have been if a loan or withdrawal had not been made. The insured may increase the variable death benefit by paying an amount that does not exceed one hundred ten per cent of the corresponding increase in cash value and by furnishing any evidence of insurability that the insurer requests.

G. The policy may specify a reasonable minimum amount that may be borrowed at any time. The minimum does not apply to any automatic premium loan provision.

H. If the policy is under an extended insurance nonforfeiture option, a policy loan provision is not required.

I. Variable life insurance policyholders who exercise their rights under policy loan provisions shall not be disadvantaged by the exercise of those rights.

J. On the exercise of any policy loan provision, the amounts paid to the policyholder shall be withdrawn from the separate account and shall be returned to the separate account on repayment, except that a stock insurer may provide the amounts for policy loans from the general account.

K. A variable life insurance policy or related form that is delivered or issued for delivery in this state may:

1. Include an exclusion for suicide that occurs within two years of the issue date of the policy. If the owner applies for an increase in death benefits after the policy issue date, the policy may provide an exclusion for suicide that occurs within two years of any increase in death benefits to the extent of the increased death benefits only.

2. Offer incidental insurance benefits on a fixed or variable basis.

3. Offer to pay dividend amounts in cash. In addition, the policies may offer the following dividend options:

(a) The amount of the dividend may be credited against premium payments.

(b) The amount of the dividend may be applied to provide amounts of additional fixed or variable benefit life insurance.

(c) The amount of the dividend may be deposited in the general account at a specified minimum rate of interest.

(d) The amount of the dividend may be applied to provide paid-up amounts of fixed benefit one year term insurance.

(e) The amount of the dividend may be deposited as a variable deposit in a separate account.

4. Allow the policyholder to elect in writing an automatic premium loan on a basis that is not less favorable than that required of policy loans under subsection E of this section. The policy may impose a restriction that no more than two consecutive premiums can be paid under the requirements of this paragraph.

5. Allow the policyholder to make partial withdrawals.

6. Include any other policy provision that the director approves.