New York life insurance advertising, policy summary, buyer's guide, and illustrations (Ins. Law 2122, 3209; Reg 74)

Why New York regulates the paperwork of a life sale

A life insurance policy is a long-term contract that most buyers cannot easily compare. New York therefore controls what a buyer must be handed, and when, through Insurance Law § 3209, and what a producer may say in public through Insurance Law § 2122. The detailed formats live in the Superintendent's regulations, most importantly Regulation 74, which § 3209(k) directs the Superintendent to write.

Who and what § 3209 covers

Section 3209 applies to any solicitation, negotiation or procurement of life insurance, annuities or funding agreements in New York, and to every issuer of them, including fraternal benefit societies and savings bank life insurance departments. Unless specifically included, it does not apply to:

• credit life insurance;
• group life insurance;
• policies and contracts issued in connection with ERISA pension and welfare plans;
• certain funding agreements issued to non-individuals; and
• group annuities, unless at least one certificate falls under § 4223(b)(2).

The disclosure sequence

1. Before the sales presentation

Before starting a life sales presentation, the agent or broker must tell the prospect that he or she is acting as a life insurance agent or broker, and must give the full name of the insurer being represented. Where no producer is involved, the insurer identifies itself.

2. At or before the application: buyer's guide and preliminary information

No individual life policy may be delivered in New York unless the buyer received a buyer's guide and the preliminary information at or before the time the application is taken.

• The buyer's guide is a separate document published by insurers. Its language is set by the Superintendent and tracks the NAIC buyer's guide as far as practicable. It explains, in general terms, how to shop for life insurance and how to use cost indexes.
• The preliminary information is written and policy-specific: the producer's name and address, the insurer's full name and address, the generic policy name, initial face amount and premium, guaranteed cash values at years 10 and 20, the policy loan interest rate, and cost indexes and the equivalent level annual dividend for 10 and 20 years. It must also tell the applicant that a full policy summary will follow, and that after receiving the policy and summary there is at least a ten-day period to return the policy for an unconditional refund.

Disclosure may never block coverage. If an item is impractical to give before the application, it may be estimated in good faith or furnished as soon as practical before delivery.

Mail sales without a producer: each initial solicitation must include the buyer's guide, unless the policy has at least a 30-day unconditional-refund period. In that case the guide may come with or before the policy, and the solicitation must tell the buyer of the right to request a buyer's guide and policy summary before delivery.

3. At delivery: the policy summary

The policy summary is delivered with the policy. It must be a separate document with the prominent title "Statement of Policy Cost and Benefit Information". It shows, for the first five years and representative later years, premiums for the base policy and each rider, guaranteed death benefits, guaranteed cash surrender values, dividends and endowment amounts, plus the loan rate, cost indexes and the date it was prepared. Amounts are shown in total, not per thousand, and a zero is printed as a zero, never a blank. If dividends appear, the summary must say they are based on the current dividend scale and are not guaranteed.

An in-force policyholder who never received a summary can request one; the insurer may charge a reasonable fee. Each insurer keeps a file copy of every policy summary form at its home or principal office.

Illustrations: the alternative route

An illustration is a presentation of a policy's projected values over time, separating what is guaranteed from what is not guaranteed, such as current dividends or credited interest. Section 3209(k) requires the Superintendent to set standards for illustrations, consistent with the NAIC illustration model as far as practicable. Regulation 74 is that rule.

Each insurer must tell the Superintendent whether each policy form will be marketed with or without an illustration. If a form is sold with a compliant illustration, no preliminary information or policy summary is required; the illustration takes their place. If it is sold without one, the buyer's guide, preliminary information and policy summary route applies.

Under the standard NAIC-model approach that New York's rule tracks:

• non-guaranteed values may not be shown more favourably than the insurer's current scale supports;
• guaranteed and non-guaranteed columns must be clearly labelled;
• the applicant and the producer sign the illustration used in the sale;
• if no illustration is used, or one is used but the policy is issued differently, that is documented and a revised illustration is provided at delivery.

Other required notices

• Equity index products: an annuity or life policy with an equity index account needs a disclosure statement at or before application. It must say, in bold, that the account is linked to an external index and does not participate directly in the equity market, and explain the index, formula, participation rate and cap.
• 403(b) policies: cash value life insurance sold for special tax treatment under Internal Revenue Code § 403(b) requires a written warning, at or before application, that it may not suit someone maximising retirement savings.

Advertising by producers: § 2122

Three rules apply to every producer advertisement in New York:

1. An advertisement that describes an insurer's financial condition must conform to Insurance Law § 1313.
2. No producer, or anyone else, may advertise in a way that calls attention to an unauthorized insurer.
3. Any advertisement, sign, pamphlet, circular or card that refers to an insurer must give the insurer's full name and the city, town or village of its principal U.S. office.

More generally, life insurance advertising must never misrepresent a policy's benefits, terms or dividends, and must not present a life policy as a savings account or investment.

Exam tip: Buyer's guide and preliminary information at or before application; policy summary at delivery; at least 10 days to return. A compliant illustration replaces the preliminary information and policy summary.