New York policy backdating limits and HIV testing consent rules (Ins. Law 3208, 2611)

Two New York rules that protect the applicant

This objective covers two short but heavily tested New York sections. Insurance Law § 3208 limits how far a life insurance policy may be backdated (antedated) and also polices burial-related policies. Insurance Law § 2611 controls when an insurer may test an applicant for HIV, and what the insurer must do with the result.

Backdating: why anyone wants it

Life insurance premiums are based on the insured's age. If a policy is dated back to a point before the insured's last birthday counted for rating, the insured is rated at the younger age and pays a lower premium for life. The industry calls this saving age. The trade-off is that the insured pays premium for a period that has already passed, and policy anniversaries, loan values and contestable and suicide periods are generally measured from the earlier date.

The New York limit: six months

Under § 3208(a), no insurer may knowingly deliver or issue for delivery in New York a life policy that purports to have been issued or to have taken effect more than six months before the date the application was made, if doing so reduces the premium below what would be payable based on the insured's birthday nearest the application date.

Read the trigger carefully:

• The look-back is measured from the application date, not the delivery date.
• The baseline age is the nearest birthday to the application date (age-nearest-birthday rating).
• Backdating is prohibited only where it is more than six months and lowers the premium. Backdating within six months to save age is lawful.

Producers are bound too

Section 3208(b) says no agent, other representative of an insurer, or broker may prepare, submit or accept in New York any application dated earlier than the date the insured or applicant actually made it, if that reduces the premium in the same way. A producer who writes a false, earlier date on an application to win a lower rate is personally violating the statute.

What the section does not do

Section 3208(c) adds three important limits:

• A contract issued in violation is not invalidated. The policyholder keeps the coverage; the penalty falls on the insurer or producer.
• An exchange, alteration or conversion may be dated as of the original policy date, as long as the new amount of insurance does not exceed the greater of the original amount or what the original premium would have bought had the new policy been applied for originally.
• Exercising a conversion privilege contained in a policy (for example, converting term to permanent) is not prohibited.

Burial and funeral protections

Section 3208(d) protects families buying funeral coverage. No insurer, and no burial society or similar organization, may:

• issue a contract whose death benefit is payable to a designated or restricted funeral director or group of them;
• pay any benefit to a funeral director without the consent of the person entitled to it;
• pay a commission to a funeral director or employee to induce the sale of a policy marketed as payable for funeral or burial expenses; or
• otherwise deprive the family of the advantages of competition in buying funeral goods and services.

The family must stay free to shop.

HIV testing requires written informed consent

Under § 2611(a), no insurer or its designee may request or require a proposed insured to take an HIV related test without first obtaining written informed consent and providing general information about AIDS and HIV transmission. Consent comes before testing.

Per § 2611(b), the consent must be a dated written authorization that includes at least:

1. a general description of the test;
2. the purpose of the test;
3. a statement that a positive result indicates the person may develop AIDS and may wish to consider further independent testing;
4. a statement that the person may name, on the form, who will receive specific results if there is an adverse underwriting decision: the individual, a physician, or another designee;
5. the Department of Health's statewide toll-free number for information and counseling; and
6. the signature of the applicant or proposed insured, or of a person authorized to consent if the individual lacks capacity.

After an adverse decision

An adverse underwriting decision means a declination of coverage as applied for, or an offer at a higher than standard rate (§ 2611(d)). If such a decision rests in whole or in part on an HIV test result, the insurer must notify the individual and ask them to elect in writing, if they have not already, whether results go directly to them or to a designee. If they choose to receive results directly, the insurer must give them the Department of Health toll-free number and advise them to consult a physician about counseling.

A violation of § 2611 is subject to Article 24, New York's unfair trade practices article.

Exam tip: six months, nearest birthday, application date. And for HIV: written, dated, informed consent before the test.