The Vermont Statutes Online

Title 8: Banking and Insurance

Chapter 103: Life Insurance Policies and Annuity Contracts

• Subchapter 001: GENERALLY

• § 3700. Statutory purposes

  The statutory purpose of the exemption for annuity considerations in section 3718 of this title is to avoid reciprocity from other states. (Added 2013, No. 200 (Adj. Sess.), § 17.)

• § 3701. Discriminations prohibited

  A life insurance company doing business in the State shall not make or permit to be made any distinction or unfair discrimination between individual insureds of the same class and of equal expectation of life as to:

  (1) the amount of the premiums or the terms of payment thereof; or

  (2) the rate charged for policies of life or endowment insurance, or

  (3) the dividends or other benefits payable thereon; or

  (4) any of the terms and conditions of the policies it issues. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 1).)

• § 3702. Other prohibited practices

  A life insurance company doing business in the State or an agent thereof shall not:

  (1) issue a policy of insurance or make an agreement other than that plainly expressed in the policy issued to the insured;

  (2) pay or allow, or offer to pay or allow, as an inducement to insurance, a rebate or premium payable on the policy;

  (3) grant a special favor or advantage in the dividends or other benefits to accrue thereon; or

  (4) provide any valuable consideration or inducement not specified in the policy. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 2).)

• § 3703. Penalties

  A person violating sections 3701 and 3702 of this title may be subject to an administrative penalty of not more than $2,000.00; and the license of such person or company may be suspended by the Commissioner for not less than three months nor more than six months, and for a second offense such license shall be revoked. Such person or company shall not thereafter be licensed for one year from the date of such revocation. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 3); amended 1995, No. 167 (Adj. Sess.), § 7.)

• § 3704. Trust agreements

  A life insurance company chartered by and doing business in this State shall have power and authority to hold in trust or otherwise the proceeds of any life insurance policy or annuity issued by it upon such terms and subject to such conditions and limitations as may be agreed upon in writing by such company and the owner of the policy or the purchaser of the annuity. The contract, policy, or trust instrument may provide that no payments of interest or of principal shall be in any way subject to the claims of the creditors of the person entitled to any part of the proceeds so held or to his or her debts, contracts, or engagements, or to any judicial process to levy upon or attach such proceeds for payment of such claims or demands, and that the person entitled to any of the proceeds so held shall not be permitted to commute, anticipate, encumber, alienate, or assign the same or any part thereof or the interest thereon. Such life insurance company shall not be required to segregate the funds so held but may hold them as a part of its general corporate assets. Nothing in this section or in the trust or other provisions herein contemplated shall subject such life insurance company to the provisions of the law of this State relative to banks or trust companies. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 4).)

• § 3705. Spendthrift provisions; creditors of beneficiary

  When a contract of annuity, a policy of insurance, or other contract of a life insurance company authorized to do business in this State is entered into with any person for the benefit of another, and such contract so provides, a beneficiary entitled to any of the proceeds retained thereunder by such company or to interest thereon shall not be permitted to commute, anticipate, encumber, alienate, or assign the principal or interest thereon, or any part thereof, nor, if such contract so provides, shall any part of such principal or interest be subject to the claims of creditors of any such beneficiary, nor be in any way subject to such beneficiary’s debts, contracts, or engagements, or to any judicial process to levy upon or attach such proceeds for payment of such claims or demands. Contracts so providing shall be valid and enforceable. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 5).)

• § 3706. Exemption of proceeds—Life insurance

  (a) If a policy of insurance, whether heretofore or hereafter issued, is effected by any person on his or her own life, or on another life, in favor of a person other than himself or herself, or, except in cases of transfer with intent to defraud creditors, if a policy of life insurance is assigned or in any way made payable to any such person, the lawful beneficiary or assignee thereof, other than the insured or the person so effecting such insurance or executors or administrators of such insured or the person so effecting such insurance, shall be entitled to its proceeds and avails against the creditors and representatives of the insured and of the person effecting the same, whether or not the right to change the beneficiary is reserved or permitted, and whether or not the policy is made payable to the person whose life is insured if the beneficiary or assignee shall predecease such person, and such proceeds and avails shall be exempt from all liability for any debt of the beneficiary existing at the time the policy is made available for his or her use: Provided, that subject to the statute of limitations, the amount of any premiums for such insurance paid with intent to defraud creditors, with interest thereon, shall inure to their benefit from the proceeds of the policy; but the insurer issuing the policy shall be discharged of all liability thereon by payment of its proceeds in accordance with its terms, unless, before such payment, the insurer shall have received written notice at its home office, by or in behalf of a creditor, of a claim to recover for transfer made or premiums paid with intent to defraud creditors, with specification of the amount claimed along with such facts as will assist the insurer to identify the particular policy.

  (b) For the purposes of subsection (a) of this section, a policy shall also be deemed to be payable to a person other than the insured if and to the extent that a facility-of-payment clause or similar clause in the policy permits the insurer to discharge its obligation after the death of the individual insured by paying the death benefits to a person as permitted by such clause. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 6).)

• § 3707. Disability benefits

  Except as may otherwise be expressly provided by the policy or contract, the proceeds or avails of all policies or contracts providing benefits on account of the insured’s disability which are supplemental to life insurance or annuity contracts heretofore or hereafter effected shall be exempt from all liability for any debt of the insured, and from any debt of the beneficiary existing at the time the proceeds are made available for his or her use. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 7).)

• § 3708. Group insurance

  (a) A policy of group life insurance or group disability insurance or the proceeds thereof payable to the individual insured or to the beneficiary thereunder, shall not be liable, either before or after payment, to be applied by any process to pay any debt or liability of such insured individual or his or her beneficiary or of any other person having a right under the policy. The proceeds thereof, when not made payable to a named beneficiary or to a third person pursuant to a facility-of-payment clause, shall not constitute a part of the estate of the individual insured for the payment of his or her debts.

  (b) This section shall not apply to group insurance issued to a creditor covering his or her debtors, to the extent that such proceeds are applied to payment of the obligation for the purpose of which the insurance was so issued. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 8).)

• § 3709. Annuity contracts—Assignability of rights

  (a) The benefits, rights, privileges, and options which under any annuity contract heretofore or hereafter issued are due or prospectively due the annuitant, shall not be subject to execution nor shall the annuitant be compelled to exercise any such rights, powers, or options, nor shall creditors be allowed to interfere with or terminate the contract, except:

  (1) As to considerations paid for any such annuity with intent to defraud creditors, with interest thereon, and of which the creditor has given the insurer written notice at its home office prior to the making of the payments to the annuitant out of which the creditor seeks to recover. Any such notice shall specify the amount claimed or such facts as will enable the insurer to ascertain such amount and shall set forth such facts as will enable the insurer to ascertain the annuity contract, the annuitant and the payments sought to be avoided on the ground of fraud.

  (2) The total exemption of benefits presently due and payable to any annuitant periodically or at stated times under all annuity contracts under which he or she is an annuitant, shall not at any time exceed $350.00 per month for the length of time represented by such installments, and that such periodic payments in excess of $350.00 per month shall be subject to garnishee execution.

  (3) If the total benefits presently due and payable to any annuitant under all annuity contracts under which he or she is an annuitant, shall at any time exceed payment at the rate of $350.00 per month, then the court may order such annuitant to pay to a judgment creditor or apply on the judgment, in installments, such portion of such excess benefits as to the court may appear just and proper, after due regard for the reasonable requirements of the judgment debtor and his or her family if dependent upon him or her, as well as any payments required to be made by the annuitant to other creditors under prior court orders.

  (b) If the contract so provides, the benefits, rights, privileges, or options accruing under such contract to a beneficiary or assignee shall not be transferable nor subject to commutation, and if the benefits are payable periodically or at stated times, the same exemptions and exceptions contained herein for the annuitant, shall apply with respect to such beneficiary or assignee. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 9).)

• § 3710. Power to contract—Purchase of annuities or insurance by minors

  (a) Any person of competent legal capacity may contract for insurance.

  (b) Any minor not less than 15 years of age, notwithstanding his or her minority, may contract for or own annuities or insurance or affirm by novation or otherwise preexisting contracts for annuities or insurance upon his or her own life, body, health, property, liabilities, or other interests, or on the person of another in whom the minor has an insurable interest. Such a minor shall, notwithstanding such minority, be deemed competent to exercise all rights and powers with respect to or under (i) any contract for annuity or for insurance upon his or her own life, body or health, or (ii) any contract such minor effected upon his or her own property, liabilities or other interests, or (iii) any contract effected or owned by the minor, on the person of another, as might be exercised by a person of full legal age, and may at any time surrender his or her interest in any such contracts and give valid discharge for any benefit accruing or money payable thereunder. Such a minor shall not, by reason of his or her minority, be entitled to rescind, avoid, or repudiate the contract, nor to rescind, avoid, or repudiate any exercise of a right or privilege thereunder, except that such a minor not otherwise emancipated, shall not be bound by any unperformed agreement to pay by promissory note or otherwise, any consideration or premium on any such annuity or insurance contract.

  (c) Any annuity contract or policy of life or disability insurance procured by or for a minor under subsection (b) of this section shall be made payable either to the minor or his or her estate or to a person having an insurable interest in the life of the minor. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 10).)

• § 3711. Charitable life gifts

  (a) A life insurance contract may be entered into in which a person paying the consideration for such insurance has no insurable interest in the life of the individual insured, provided that a charitable, benevolent, educational, or religious institution or its agency or any other organization that qualifies under Section 501(c)(3) of the Internal Revenue Code is irrevocably designated as the owner and beneficiary of the contract.

  (b) In making such a contract, both the owner and the insured shall make and sign the joint application. The person paying the premium shall irrevocably designate a charitable, benevolent, educational, or religious institution, or an agency of such an institution or any other organization that qualifies under Section 501(c)(3) of the Internal Revenue Code, as the irrevocable owner and beneficiary of such contract.

  (c) If a prospective insured applies jointly for a life insurance policy which irrevocably names a 501(c)(3) organization or nonprofit as owner and beneficiary then, at the time of such joint application, an insurable interest is created for the entity in the prospective insured’s life. Before an application may be made for such a policy, the insurer shall provide the prospective insured with a written disclosure to remind the prospective insured to consider his or her current state of health and to consult with a tax advisor or estate planner.

  (d) Nothing in this section shall prohibit any combination of the applicant, premium payer, owner, and beneficiary from being the same person.

  (e) This section does not alter the insurable interest requirements of any other law. (Added 2003, No. 20, § 1.)

• § 3712. Payment discharges insurer

  Whenever the proceeds of or payments under a life or disability insurance policy or annuity contract heretofore or hereafter issued become payable in accordance with the terms of such policy or contract, or the exercise of any right or privilege thereunder, and the insurer makes payment thereof in accordance therewith or in accordance with any written assignment thereof, the person then designated as being entitled thereto shall be entitled to receive such proceeds or payments and to give full acquittance therefor, and such payments shall fully discharge the insurer from all claims under the policy or contract unless, before payment is made, the insurer has received at its home office written notice by or on behalf of some other person that such other person claims to be entitled to such payment or some interest in the policy or contract. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 12).)

• § 3713. Assignment of insurance policies or annuity contracts

  (a) A policy of insurance or an annuity contract may be assignable or not assignable, as provided by its terms. Subject to its terms relating to assignability, any such policy or contract, whether heretofore or hereafter issued, under the terms of which the beneficiary may be changed upon the sole request of the insured or owner, may be assigned either by pledge or transfer of title, by an assignment executed by the insured or owner alone and delivered to the insurer, whether or not the pledgee or assignee is the insurer. Any such assignment shall entitle the insurer to deal with the assignee as the owner or pledgee of the policy or contract in accordance with the terms of the assignment, until the insurer has received at its home office written notice of termination of the assignment or pledge, or written notice by or on behalf of some other person claiming some interest in the policy or contract in conflict with the assignment.

  (b) Notwithstanding any provision of law, a person whose life is insured under any policy of group life insurance may make an assignment of all or any part of his or her incidents of ownership in the insurance, including any right to designate a beneficiary or beneficiaries thereunder and any right to have an individual policy issued in lieu of such group insurance coverage upon termination either of employment or of the policy of group life insurance, provided that the insurer and the group policy holder may prohibit or restrict such an assignment by appropriate policy provisions. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 13); amended 1971, No. 58.)

• § 3714. Life policy as separate property of married woman

  Every policy of life insurance heretofore or hereafter made payable to or for the benefit of a married woman, or after its issue heretofore or hereafter assigned, transferred or in any way made payable to a married woman, or to any person in trust for her or for her benefit, whether procured by herself, her husband, or any other person, and whether the assignment or transfer is made by her husband, or by any other person, shall, unless contrary to the terms of the policy, inure to her separate use and benefit. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 14).)

• § 3715. Forms for proof of loss to be furnished

  An insurer shall furnish upon written request of any person claiming to have a loss under an insurance policy issued by such insurer, forms of proof of loss for completion by such person, but such insurer shall not, by reason of the requirement so to furnish forms, have any responsibility for or with reference to the completion of such proof or the manner of any such completion or attempted completion. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 15).)

• § 3716. Claims administration not waiver

  Without limitation of any right or defense of an insurer otherwise, none of the following acts by or on behalf of an insurer shall be deemed to constitute a waiver of any provision of a policy or of any defense of the insurer thereunder:

  (1) Acknowledgment of the receipt of notice of loss or claim under the policy.

  (2) Furnishing forms for reporting a loss or claim, for giving information relative thereto, or for making proof of loss, or receiving or acknowledging receipt of any such forms or proofs completed or uncompleted.

  (3) Investigating any loss or claim under any policy or engaging in negotiations looking toward a possible settlement of any such loss or claim. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 16).)

• § 3717. Annuity contracts

  A company authorized to transact the business of life insurance may grant annuities. An annuity is a contract issued for a valuable consideration under which the obligations are assumed with respect to periodic payments for a specified term or terms or where the making or continuance of all or of some of such payments, or the amount of any such payments, is dependent upon the continuance of human life. Such a contract which includes extra benefits of the kind set forth in subdivisions 3301(a)(1) and (2) of this title relating to life and health insurance shall nevertheless be deemed to be an annuity if such extra benefits constitute a subsidiary or incidental part of the entire contract. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 17).)

• § 3718. Annuity considerations

  Insurers shall be subject to taxation according to the provisions of Title 32; provided, however, that no tax shall be due or payable as to considerations received for annuity contracts. Payment by an insurer of the tax as in Title 32 required shall be in lieu of all taxes imposed by the State upon premiums or upon income, and of franchise, privilege or other taxes measured by income of the insurer. The provisions of this section shall not be modified or repealed by any law of general application hereafter enacted unless expressly referred to or expressly repealed therein. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 1, § 18).)

• § 3718a. Charitable gift annuities

  (a) Charitable gift annuity is not insurance. The issuance of a charitable gift annuity by a qualified charitable organization does not constitute engaging in the business of insurance in this State.

  (b) Not unfair or deceptive trade practice. The issuance of a charitable gift annuity does not constitute a violation of section 4724 of this title. (Added 2001, No. 37, § 1.)

• § 3719. Valuation of bonds, etc

  Bonds or other evidences of debt having a fixed term and rate held by a life insurance company, assessment life association, or fraternal beneficiary association authorized to do business in this State, if amply secured and not in default as to principal and interest, shall be valued as follows: At their market value on December 31 preceding the filing of its return with the Commissioner; or, at the option of the company, as follows: If purchased at par, at the par value; if purchased above or below par, on the basis of the purchase price adjusted so as to bring the value to par at maturity and so as to yield in the meantime the effective rate of interest at which the purchase was made; provided, that the purchase price shall in no case be taken at a higher figure than the actual market value at the time of purchase; and provided, further, that the Commissioner shall have full discretion in determining the method of calculating values according to the foregoing rule. A company having selected one of the foregoing methods of valuation shall not change such method without the consent and approval of the Commissioner. At any time, in his or her discretion, the Commissioner may require any insurance corporation, other than a life insurance corporation, authorized to do business in this State, to value its bonds or other evidences of debt in accordance with the foregoing rule. Provided, however, that any valuation method used shall be consistent with the valuation method promulgated by the National Association of Insurance Commissioners. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 3, § 1); amended 1993, No. 12, § 12, eff. April 26, 1993.)

• Subchapter 002: LIFE INSURANCE AND ANNUITY CONTRACTS

• § 3731. Standard provisions required

  No policy of life insurance, other than group and pure endowments with or without return of premiums or of premiums and interest, shall be delivered or issued for delivery in this State unless it contains in substance all of the applicable provisions required by this subchapter or corresponding provisions which in the opinion of the Commissioner are more favorable to the policyholder. This subchapter shall not apply to any provision of a life insurance policy, or contract supplemental thereto, relating to disability benefits or to additional benefits in the event of death by accident or accidental means; and any of such provisions or portions thereof not applicable to single premium or nonparticipating or term policies shall to that extent not be incorporated therein.

  (1) Payment of premiums. There shall be a provision relating to the time and place of payment of premiums.

  (2) Grace period. There shall be a provision that a grace period of 30 days, or, at the option of the insurer, of one month of not less than 30 days, or of four weeks in the case of industrial life insurance policies the premiums for which are payable more frequently than monthly, shall be allowed within which the payment of any premium after the first may be made, during which period of grace the policy shall continue in full force; but if a claim arises under the policy during such period of grace the amount of any premium due or overdue may be deducted from the policy proceeds.

  (3) Entire contract. There shall be a provision that, except as otherwise expressly provided by law, the policy and the application therefor, if a copy of such application is endorsed upon or attached to the policy when issued, shall constitute the entire contract between the parties, and that all statements contained in the application shall, in the absence of fraud, be deemed representations and not warranties.

  (4) Incontestability. There shall be a provision that the policy (exclusive of provisions relating to disability benefits or to additional benefits in the event of death by accident or accidental means) shall be incontestable, except for nonpayment of premiums, after it has been in force during the lifetime of the insured for a period of two years from its date of issue.

  (5) Misstatement of age. There shall be a provision that if the age of the insured or of any other person whose age is considered in determining the premium or benefit has been misstated, any amount payable or benefit accruing under the policy shall be such as the premium would have purchased at the correct age or ages.

  (6) Dividends.

  (A) There shall be a provision in participating policies that, beginning not later than the end of the third policy year, the insurer shall annually ascertain and apportion the divisible surplus, if any, that will accrue on the policy anniversary or other dividend date specified in the policy provided the policy is in force and all premiums to that date are paid. Except as hereinafter provided, any dividend becoming payable shall at the option of the party entitled to elect such option be either:

  (i) Payable in cash.

  (ii) Applied to any one of such other dividend options as may be provided by the policy. If any such other dividend options are provided, the policy shall further state which option shall be automatically effective if such party shall not have elected some other option. If the policy specifies a period within which such other dividend option may be elected, such period shall be not less than 30 days following the date on which such dividend is due and payable. The annually apportioned dividend shall be deemed to be payable in cash within the meaning of subdivision (i) of this subdivision (6)(A) even though the policy provides that payment of such dividend is to be deferred for a specified period, provided such period does not exceed six years from the date of apportionment and that interest will be added to such dividend at a specified rate; and provided, further, that upon maturity, surrender or other expiry of the policy, any such dividend and interest thereon shall not be forfeited to the insurer.

  (B) In participating industrial life insurance policies, in lieu of the provisions required in subdivision (i) of this subdivision (6)(A), there shall be a provision that, beginning not later than the end of the fifth policy year, the policy shall participate annually in the divisible surplus, if any, in the manner set forth in the policy.

  (C) If a participating policy provides that the benefit under any paid-up nonforfeiture provision is to be participating, it may provide that any divisible surplus becoming payable or apportioned while the insurance is in force under such nonforfeiture provision shall be applied in the manner set forth in the policy.

  (7) Policy loans.

  (A) There shall be a provision that after three full years’ premiums have been paid and after the policy has a cash surrender value and while no premium is in default beyond the grace period for payment, the insurer will advance, on the sole security thereof, an amount equal to or, at the option of the party entitled thereto, less than the loan value of the policy at a policy loan interest rate with respect to which a policy shall contain one of the following policy loan interest rate provisions.

  (i) There may be a provision that a policy loan shall bear interest at a specified rate not exceeding eight percent per annum.

  (ii) There may be a provision that all loans under a policy issued prior to April 9, 1982, including outstanding loans, shall bear interest at a variable rate not exceeding eight percent per annum, specified from time to time by the insurer. The effective date of any change in the variable rate shall be not less than one year after the effective date of the establishment of the previous rate. If the interest rate is increased, the amount of the increase shall not exceed one percent per annum. With respect to policies providing for a variable rate under this subdivision, the insurer shall:

  (I) When a loan is made and when notification of interest due is furnished, give notice of the variable rate currently effective.

  (II) As to any loans outstanding 40 days before the effective date of any increase in the variable rate, give notice of any such increase at least 30 days before the effective date.

  (III) As to any loans made during the 40 days before the effective date of the increase, give notice of the increase when the loan is made. The notice shall be given to the policy owner and any assignee as shown on the records of the insurer at its home office.

  (iii) There may be in policies issued on or after April 9, 1982, a provision permitting an adjustable maximum interest rate established from time to time by the life insurer as permitted by law.

  (B) The rate of interest charged on a policy loan made under subdivision (A)(iii) of this subdivision (7) shall not exceed the higher of the following:

  (i) the Published Monthly Average for the calendar month ending two months before the date on which the rate is determined; or

  (ii) the rate used to compute the cash surrender values under the policy during the applicable period plus one percent per annum.

  (C) If the maximum rate of interest is determined pursuant to subdivision (A)(iii) of this subdivision (7), the policy shall contain a provision setting forth the frequency at which the rate is to be determined for that policy.

  (D) The maximum rate for each policy providing an adjustable interest rate pursuant to subdivision (A)(iii) of this subdivision (7) must be determined at regular intervals at least once every 12 months, but not more frequently than once in any three month period. At the intervals specified in the policy:

  (i) the rate being charged may be increased whenever such increase as determined under subdivision (B) of this subdivision (7) would increase that rate by one-half percent or more per annum;

  (ii) the rate being charged must be reduced whenever such reduction as determined under subdivision (B) of this subdivision (7) would decrease that rate by one-half percent or more per annum.

  (E) The life insurer, with respect to any policy providing an adjustable interest rate pursuant to subdivision (A)(iii) of this subdivision (7), shall:

  (i) notify the policyholder at the time a cash loan is made of the initial rate of interest on the loan;

  (ii) notify the policyholder with respect to premium loans of the initial rate of interest on the loan as soon as it is reasonably practical to do so after making the initial loan, but notice need not be given to the policyholder when a further premium loan is added, except as provided in (iii) of this subdivision (7)(E);

  (iii) send to policyholders with loans reasonable advance notice of any increase in the rate; and

  (iv) include in the notices required above the substance of the pertinent provisions of subdivisions (A) and (C) of this subdivision (7).

  (F) No policy providing for an adjustable interest rate pursuant to subdivision (A)(iii) of this subdivision (7) shall terminate in a policy year as the sole result of a change in the interest rate during that policy year, and the life insurer shall maintain coverage during that policy year until the time at which it would otherwise have terminated if there had been no change during that policy year.

  (G) The substance of the pertinent provisions of subdivisions (A) and (C) of this subdivision (7) shall be set forth in the policies to which they apply.

  (H) For purposes of this section:

  (i) the rate of interest on policy loans permitted under this section includes the interest rate charged on reinstatement of policy loans for the period during and after any lapse of a policy;

  (ii) the term “policy loan” includes any premium loan made under a policy to pay one or more premiums that were not paid to the life insurer as they fell due;

  (iii) the term “policyholder” includes the owner of the policy or the person designated to pay premiums as shown on the records of the life insurer;

  (iv) the term “policy” includes certificates issued by a fraternal benefit society and annuity contracts which provide for policy loans;

  (v) “Published Monthly Average” means:

  (I) Moody’s Corporate Bond Yield Average—Monthly Average Corporates as published by Moody’s Investors Service, Inc. or any successor thereto; or

  (II) in the event that Moody’s Corporate Bond Yield Average—Monthly Average Corporates is no longer published, a substantially similar average, established by regulation issued by the Commissioner.

  (I) No other provision of law shall apply to policy loan interest rates unless made specifically applicable to such rates.

  (J) None of the above provisions shall prevent an insurer from charging less than the rate of interest specified therein. The loan value of the policy shall be at least equal to the cash surrender value at the end of the then current policy year, and the insurer may deduct, either from such loan value or from the proceeds of the loan, any existing indebtedness not already deducted in determining such cash surrender value including any interest then accrued but not due, and unpaid balance of the premium for the current policy year, and interest which may be allowable on the loan to the end of the current policy year. The policy may also provide that if interest on any indebtedness is not paid when due it shall then be added to the existing indebtedness and shall bear interest at the same rate, and that if and when the total indebtedness on the policy, including interest due or accrued, equals or exceeds the amount of the loan value thereof, then the policy shall, except as provided in subdivision (F) of this subdivision (7), terminate and become void, but not until at least 30 days’ notice has been mailed by the insurer to the last address, of record with the insurer, of the insured or other policy owner and of any assignee of record at the insurer’s home office. The policy shall reserve to the insurer the right to defer the granting of a loan, other than for the payment of any premium to the insurer, for six months after application therefor.

  (K) This subdivision shall not apply to term policies, or to term insurance benefits provided by rider or supplemental policy provisions or to industrial life insurance policies.

  (8) Table of installments. In case the policy provides that the proceeds may be payable in installments which are determinable at issue of the policy, there shall be a table showing the amounts of the guaranteed installments.

  (9) Reinstatement. There shall be a provision that unless:

  (A) the policy has been surrendered for its cash surrender value; or

  (B) its cash surrender value has been exhausted; or

  (C) the paid-up term insurance, if any, has expired; the policy will be reinstated at any time within three years (or two years in the case of industrial life insurance policies) from the date of premium default upon written application therefor, the production of evidence of insurability satisfactory to the insurer, the payment of all premiums in arrears, with interest at a rate not exceeding six percent per annum, and the payment or reinstatement of any other indebtedness to the insurer upon the policy, with interest compounded annually at the rate set forth in the policy for policy loan interest.

  (10) Payment of claims. There shall be a provision that when the benefits under the policy shall become payable by reason of the death of the insured, settlement shall be made upon receipt of due proof of death and, at the insurer’s option, surrender of the policy and/or proof of the interest of the claimant. If an insurer shall specify a particular period prior to the expiration of which settlement shall be made, such period shall not exceed 30 days from the receipt of such proofs.

  (11) Beneficiary industrial policies. An industrial life insurance policy shall have the name of the beneficiary designated thereon or in the application or other form if attached to the policy, with a reservation of the right to designate or change the beneficiary after the issuance of the policy, unless such beneficiary be irrevocably designated. The policy may also provide that no designation or change of beneficiary shall be binding on the insurer until endorsed on the policy by the insurer, and that the insurer may refuse to endorse the name of any proposed beneficiary who does not appear to the insurer to have an insurable interest in the life of the insured. The policy may also provide that if the beneficiary designated in the policy does not make a claim under the policy or does not surrender the policy with due proof of death within the period stated in the policy, which shall not be less than 30 days after the death of the insured, or if the beneficiary is the estate of the insured, or is a minor, or dies before the insured, or is not legally competent to give a valid release, then the insurer may make any payment thereunder to the executor or administrator of the insured, or to any relative of the insured by blood or legal adoption or connection by civil marriage, or to any person appearing to the insurer to be equitably entitled thereto by reason of having been named beneficiary, or by reason of having incurred expense for the maintenance, medical attention or burial of the insured. The policy may also include a similar provision applicable to any other payment due under the policy.

  (12) Title. There shall be a title on the policy, briefly describing the same. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 2, §§ 1-13); amended 1977, No. 45, § 1, eff. April 19, 1977; 1981, No. 144 (Adj. Sess.), eff. April 9, 1982; 2009, No. 3, § 12a, eff. Sept. 1, 2009; 2019, No. 103 (Adj. Sess.), § 18.)

• § 3732. “Industrial life insurance” defined

  For the purposes of this subchapter “industrial life insurance” is that form of life insurance written under policies of face amount of $1,000.00 or less bearing the words “industrial policy” imprinted on the face thereof as part of the descriptive matter, and under which premiums are payable monthly or more often. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 2, § 14).)

• § 3733. Excluded or restricted coverage in life insurance policies

  A clause in any policy of life insurance providing that such policy shall be incontestable after a specified period shall preclude only a contest of the validity of the policy, and shall not preclude the assertion at any time of defenses based upon provisions in the policy which exclude or restrict coverage, whether or not such restrictions or exclusions are excepted in such clause. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 2, § 15).)

• § 3734. Incontestability and limitation of liability after reinstatement

  (a) A reinstated policy of life insurance or annuity contract may be contested on account of fraud or misrepresentation of facts material to the reinstatement only for the same period following reinstatement and with the same conditions and exceptions as the policy provides with respect to contestability after original issuance.

  (b) When any life insurance policy or annuity contract is reinstated, such reinstated policy or contract may exclude or restrict liability to the same extent that such liability could have been or was excluded or restricted when the policy or contract was originally issued, and such exclusion or restriction shall be effective from the date of reinstatement. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 2, § 16).)

• § 3735. Application as evidence

  (a) No application for the issuance of any life or disability insurance policy or annuity contract shall be admissible in evidence in any action relative to such policy or contract, unless a true copy of the application was attached to or otherwise made a part of the policy or contract when issued. This provision shall not apply to industrial life insurance policies.

  (b) If any policy of life or disability insurance delivered in this State is reinstated or renewed, and the insured or the beneficiary or assignee of the policy makes written request to the insurer for a copy of the application, if any, for such reinstatement or renewal, the insurer shall, within 15 days after receipt of such request at its home office, deliver or mail to the person making such request a copy of such application reproduced by any legible means. If such copy is not so delivered or mailed after having been so requested, the insurer shall be precluded from introducing the application in evidence in any action or proceeding based upon or involving the policy or its reinstatement or renewal. In the case of such a request from a beneficiary, the time within which the insurer is required to furnish a copy of such application shall not begin to run until after receipt of evidence satisfactory to the insurer of the beneficiary’s vested interest in the policy or contract. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 2, § 17).)

• § 3736. Representations in applications

  All statements and descriptions in any application for a life insurance policy or annuity contract, by or in behalf of the insured or annuitant, shall be deemed to be representations and not warranties. Misrepresentations, omissions, concealment of facts, and incorrect statements shall not prevent a recovery under the policy or contract unless either:

  (1) fraudulent; or

  (2) material either to the acceptance of the risk, or to the hazard assumed by the insurer; or

  (3) the insurer in good faith would either not have issued the policy or contract, or would not have issued it at the same premium rate, or would not have issued a policy or contract in as large an amount, or would not have provided coverage with respect to the hazard resulting in the loss, if the true facts had been made known to the insurer as required either by the application for the policy or contract or otherwise. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 2, § 18).)

• Subchapter 003: STANDARD NONFORFEITURE LAW FOR LIFE INSURANCE

• §§ 3741-3749. Repealed. 2015, No. 63, § 6, effective June 17, 2015.

• Subchapter 003A: STANDARD NONFORFEITURE LAW FOR INDIVIDUAL DEFERRED ANNUITIES

• § 3750. Standard nonforfeiture law for individual deferred annuities

  (a) This section shall be known as the Standard Nonforfeiture Law for Individual Deferred Annuities.

  (b) This section shall not apply to any reinsurance, group annuity purchased under a retirement plan or plan of deferred compensation established or maintained by an employer (including a partnership or sole proprietorship) or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as now or hereafter amended, premium deposit fund, variable annuity, investment annuity, immediate annuity, any deferred annuity contract after annuity payments have commenced, or reversionary annuity, nor to any contract that shall be delivered outside this State through an agent or other representative of the company issuing the contract.

  (c) In the case of contracts issued on or after the operative date of this section as defined in subdivision (1) of this subsection, no contract of annuity, except as stated in subsection (b) of this section, shall be delivered or issued for delivery in this State unless it contains in substance the following provisions, or corresponding provisions that in the opinion of the Commissioner are at least as favorable to the contractholder, upon cessation of payment of considerations under the contract:

  (1) That upon cessation of payment of considerations under a contract, the company will grant a paid-up annuity benefit on a plan stipulated in the contract of such value as is specified in subsections (e), (f), (g), (h), and (j) of this section.

  (2) If a contract provides for a lump sum settlement at maturity, or at any other time, that upon surrender of the contract at or prior to the commencement of any annuity payments, the company will pay in lieu of any paid-up annuity benefit a cash surrender benefit of such amount as is specified in subsections (e), (f), (h), and (j) of this section. The company shall reserve the right to defer the payment of such cash surrender benefit for a period of six months after demand therefor with surrender of the contract.

  (3) A statement of the mortality table, if any, and interest rates used in calculating any minimum paid-up annuity, cash surrender or death benefits that are guaranteed under the contract, together with sufficient information to determine the amounts of such benefits.

  (4)(A) A statement that any paid-up annuity, cash surrender, or death benefits that may be available under the contract are not less than the minimum benefits required by any statute of the state in which the contract is delivered and an explanation of the manner in which such benefits are altered by the existence of any additional amounts credited by the company to the contract, any indebtedness to the company on the contract, or any prior withdrawals from or partial surrenders of the contract.

  (B) Notwithstanding the requirements of this subsection, any deferred annuity contract may provide that if no considerations have been received under a contract for a period of two full years and the portion of the paid-up annuity benefit at maturity on the plan stipulated in the contract arising from considerations paid prior to such period would be less than $20.00 monthly, the company may at its option terminate such contract by payment in cash of the then present value of such portion of the paid-up annuity benefit, calculated on the basis of the mortality table, if any, and interest rate specified in the contract for determining the paid-up annuity benefit, and by such payment shall be relieved of any further obligation under such contract.

  (d) The minimum values as specified in subsections (e), (f), (g), (h), and (j) of this section of any paid-up annuity, cash surrender, or death benefits available under an annuity contract shall be based upon minimum nonforfeiture amounts as defined in this section.

  (1)(A) The minimum nonforfeiture amount at any time at or prior to the commencement of any annuity payments shall be equal to an accumulation up to such time at rates of interest as indicated in subdivision (C) of this subdivision (1) of the net considerations (as hereinafter defined) paid prior to such time decreased by the sum of:

  (i) any prior withdrawals from or partial surrenders of the contract accumulated at rates of interest as indicated in subdivision (C) of this subdivision (1);

  (ii) the amount of any indebtedness to the company on the contract, including interest due and accrued; and

  (iii) an annual contract charge of $50.00, accumulated at rates of interest as indicated in subdivision (C) of this subdivision (1).

  (B) The net considerations for a given contract year used to define the minimum nonforfeiture amount shall be an amount equal to 87 and one-half percent of the corresponding gross considerations credited to the contract during that contract year.

  (C) The interest rate used in determining minimum nonforfeiture amounts shall be an annual rate of interest determined as the lesser of three percent per annum and the following, which shall be specified in the contract if the interest will be reset:

  (i) The five-year Constant Maturity Treasury Rate reported by the Federal Reserve as of a date, or average over a period, rounded to the nearest one-twentieth of one percent, specified in the contract no longer than 15 months prior to the contract issue date or redetermination date under subdivision (iv) of this subdivision (C).

  (ii) Reduced by 125 basis points.

  (iii) Where the resulting interest rate is not less than 0.15 percent.

  (iv) The interest rate shall apply for an initial period and may be redetermined for additional periods. The redetermination date, basis, and period, if any, shall be stated in the contract. The basis is the date or average over a specified period that produces the value of the five-year Constant Maturity Treasury Rate to be used at the redetermination date.

  (D) During the period or term that a contract provides substantive participation in an equity indexed benefit, it may increase the reduction described in subdivision (C)(ii) of this subdivision (1) by up to an additional 100 basis points to reflect the value of the equity index benefit. The present value at the contract issue date, and at each redetermination date thereafter, of the additional reduction shall not exceed the market value of the benefit. The Commissioner may require a demonstration that the present value of the additional reduction does not exceed the market value of the benefit. Lacking such a demonstration that is acceptable to the Commissioner, the Commissioner may disallow or limit the additional reduction.

  (E) The Commissioner may adopt rules to implement the provisions of subdivision (D) of this subdivision (1) and to provide for further adjustments to the calculation of minimum nonforfeiture amounts for contracts that provide substantive participation in an equity index benefit and for other contracts that the Commissioner determines adjustments are justified.

  (2) With respect to contracts providing for fixed scheduled considerations, minimum nonforfeiture amounts shall be calculated on the assumption that considerations are paid annually in advance and shall be defined as for contracts with flexible considerations that are paid annually with two exceptions:

  (A) The portion of the net consideration for the first contract year to be accumulated shall be the sum of 65 percent of the net consideration of the first contract year plus 22 and one-half percent of the excess of the net consideration for the first contract year over the lesser of the net considerations for the second and third contract years.

  (B) The annual contract charge shall be the lesser of:

  (i) $30.00; or

  (ii) 10 percent of the gross annual consideration.

  (3) With respect to contracts providing for a single consideration, minimum nonforfeiture amounts shall be defined as for contracts with flexible considerations except that the percentage of net consideration used to determine the minimum nonforfeiture amount shall be equal to 90 percent and the net consideration shall be the gross consideration less a contract charge of $75.00.

  (e) Any paid-up annuity benefit available under a contract shall be such that its present value on the date annuity payments are to commence is at least equal to the minimum nonforfeiture amount on that date. Such present value shall be computed using the mortality table, if any, and the interest rate specified in the contract for determining the minimum paid-up annuity benefits guaranteed in the contract.

  (f) For contracts that provide cash surrender benefits, such cash surrender benefits available prior to maturity shall not be less than the present value as of the date of surrender of that portion of the maturity value of the paid-up annuity benefit that would be provided under the contract at maturity arising from considerations paid prior to the time of cash surrender reduced by the amount appropriate to reflect any prior withdrawals from or partial surrenders of the contract, such present value being calculated on the basis of an interest rate not more than one percent higher than the interest rate specified in the contract for accumulating the net considerations to determine such maturity value, decreased by the amount of any indebtedness to the company on the contract, including interest due and accrued, and increased by any existing additional amounts credited by the company to the contract. In no event shall any cash surrender benefit be less than the minimum nonforfeiture amount at that time. The death benefit under such contracts shall be at least equal to the cash surrender benefit.

  (g) For contracts that do not provide cash surrender benefits, the present value of any paid-up annuity benefit available as a nonforfeiture option at any time prior to maturity shall not be less than the present value of that portion of the maturity value of the paid-up annuity benefit provided under the contract arising from considerations paid prior to the time the contract is surrendered in exchange for, or changed to, a deferred paid-up annuity, such present values being calculated for the period prior to the maturity date on the basis of the interest rate specified in the contract for accumulating the net considerations to determine such maturity value, and increased by any existing additional amounts credited by the company to the contract. For contracts that do not provide any death benefits prior to the commencement of any annuity payments, such present value shall be calculated on the basis of such interest rate and the mortality table specified in the contract for determining the maturity value of the paid-up annuity benefit. However, in no event shall the present value of a paid-up annuity benefit be less than the minimum nonforfeiture amount at that time.

  (h) For the purpose of determining the benefits calculated under subsections (f) and (g) of this section, in the case of annuity contracts under which any election may be made to have annuity payments commence at optional maturity dates, the maturity date shall be deemed to be the latest date for which election shall be permitted by the contract but shall not be deemed to be later than the anniversary of the contract next following the annuitant’s 70th birthday or the 10th anniversary of the contract, whichever is later.

  (i) Any contract that does not provide cash surrender benefits or does not provide death benefits at least equal to the minimum nonforfeiture amount prior to the commencement of any annuity payments shall include a statement in a prominent place in the contract that such benefits are not provided.

  (j) Any paid-up annuity, cash surrender, or death benefits available at any time, other than on the contract anniversary under any contract with fixed scheduled considerations, shall be calculated with allowance for the lapse of time and the payment of any scheduled considerations beyond the beginning of the contract year in which cessation of payment of considerations under the contract occurs.

  (k) For any contract that provides, within the same contract by rider or supplemental contract provision, both annuity benefits and life insurance benefits that are in excess of the greater of cash surrender benefits or a return of the gross considerations with interest, the minimum nonforfeiture benefits shall be equal to the sum of the minimum nonforfeiture benefits for the annuity portion and the minimum nonforfeiture benefits, if any, for the life insurance portion computed as if each portion were a separate contract. Notwithstanding the provisions of subsections (e), (f), (g), (h), and (j) of this section, additional benefits payable (1) in the event of total and permanent disability, (2) as reversionary annuity or deferred reversionary annuity benefits, or (3) as other policy benefits additional to life insurance, endowment and annuity benefits, and considerations for all such additional benefits, shall be disregarded in ascertaining the minimum nonforfeiture amounts, paid-up annuity, cash surrender, and death benefits that may be required by this section. The inclusion of such additional benefits shall not be required in any paid-up benefits, unless such additional benefits separately would require minimum nonforfeiture amounts, paid-up annuity, cash surrender, and death benefits.

  (l) After the effective date of this section, any company may file with the Commissioner a written notice of its election to comply with the provisions of this section after a specified date before the second anniversary of the effective date of this section. After the filing of such notice, then upon such specified date, which shall be the operative date of this section for such company, this section shall become operative with respect to annuity contracts thereafter issued by such company. If a company makes no such election, the operative date of this section for such company shall be the second anniversary of the effective date of this section. (Added 1981, No. 43, § 10, eff. April 21, 1981; amended 2003, No. 11, § 1, eff. May 6, 2003; 2003, No. 11, § 2, eff. Jan. 1, 2005; 2003, No. 105 (Adj. Sess.), § 17; 2021, No. 139 (Adj. Sess.), § 9, eff. May 27, 2022.)

• Subchapter 003B: STANDARD NONFORFEITURE LAW FOR LIFE INSURANCE

• § 3760. Title

  This subchapter shall be known as the Standard Nonforfeiture Law for Life Insurance. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3761. Definitions

  As used in this subchapter, “operative date of the Valuation Manual” means January 1 of the first calendar year that the Valuation Manual as defined in subchapter 4a of this chapter is effective. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3762. Nonforfeiture benefits

  (a) In the case of policies issued on or after the effective date of this subchapter, as defined in section 3773 of this subchapter, a policy of life insurance, except as stated in section 3772 of this subchapter, shall not be delivered or issued for delivery in this State unless it contains in substance the following provisions, or corresponding provisions that, in the opinion of the Commissioner, are at least as favorable to the defaulting or surrendering policyholder as are the minimum requirements specified in this section and are essentially in compliance with section 3771 of this subchapter.

  (1) In the event of default in any premium payment, the company shall grant, upon proper request not later than 60 days after the due date of the premium in default, a paid-up nonforfeiture benefit on a plan stipulated in the policy, effective as of the due date, of such amount as may be specified in this section. In lieu of the stipulated paid-up nonforfeiture benefit, the company may substitute, upon proper request not later than 60 days after the due date of the premium in default, an actuarially equivalent alternative paid-up nonforfeiture benefit that provides a greater amount or earlier payment of endowment benefits.

  (2) Upon surrender of the policy within 60 days after the due date of any premium payment in default after premiums have been paid for at least three full years in the case of ordinary insurance or five full years in the case of industrial insurance, the company shall pay, in lieu of any paid-up nonforfeiture benefit, a cash surrender value of an amount as may be specified in this section.

  (3) A specified paid-up nonforfeiture benefit shall become effective as specified in the policy unless the person entitled to make the election elects another available option not later than 60 days after the due date of the premium in default.

  (4) If the policy becomes paid-up by completion of all premium payments or if it is continued under any paid-up nonforfeiture benefit that became effective on or after the third policy anniversary in the case of ordinary insurance or the fifth policy anniversary in the case of industrial insurance, the company shall pay upon surrender of the policy within 30 days after any policy anniversary, a cash surrender value of an amount as may be specified in this section.

  (5) If a policy causes, on a basis guaranteed in the policy, unscheduled changes in benefits or premiums, or provides an option for changes in benefits or premiums, other than a change to a new policy, the company shall provide the policyholder a statement of the mortality table, interest rate, and method used in calculating cash surrender values and the paid-up nonforfeiture benefits available under the policy. In the case of all other policies, a company shall provide to its policyholders a statement of the mortality table and interest rate used in calculating the cash surrender values and the paid-up nonforfeiture benefits available under the policy, together with a table showing the cash surrender value, if any, and paid-up nonforfeiture benefit, if any, available under the policy on each policy anniversary either during the first 20 policy years or during the term of the policy, whichever is shorter, such values and benefits to be calculated upon the assumption that there are no dividends or paid-up additions credited to the policy and that there is no indebtedness to the company on the policy.

  (6) A company shall provide statement that the cash surrender values and the paid-up nonforfeiture benefits available under the policy are not less than the minimum values and benefits required by or pursuant to the insurance law of the state in which the policy is delivered; an explanation of the manner in which the cash surrender values and the paid-up nonforfeiture benefits are altered by the existence of any paid-up additions credited to the policy or any indebtedness to the company on the policy; if a detailed statement of the method of computation of the values and benefits shown in the policy is not stated therein, a statement that such method of computation has been filed with the insurance supervisory official of the state in which the policy is delivered; and a statement of the method to be used in calculating the cash surrender value and a paid-up nonforfeiture benefit available under the policy on any policy anniversary beyond the last anniversary for which values and benefits are consecutively shown in the policy.

  (b) Any of the provisions in subsection (a) of this section, or portions thereof not applicable by reason of the plan of insurance may be omitted from the policy, to the extent inapplicable.

  (c) The company shall reserve the right to defer the payment of any cash surrender value for a period of six months after demand therefor with surrender of the policy.

  (d) No individual policy of life insurance covering an individual 64 years of age or older that has been in force for at least one year shall be canceled for nonpayment of premium unless, after expiration of the grace period and not less than 21 days before the effective date of any such cancellation, the insurer has mailed a notice of impending cancellation in coverage to the policyholder and to a specified secondary addressee if such addressee has been designated by name and address in writing by the policyholder. An insurer shall notify the applicant of the right to designate a secondary addressee at the time of application for the policy on a form provided by the insurer, and annually thereafter, and the policyholder shall have the right to designate a secondary addressee, in writing, by name and address, at any time the policy is in force, by submitting such written notice to the insurer. If a life insurance policy provides a grace period longer than 51 days for nonpayment of premium, the notice of cancellation in coverage required by this subsection shall be mailed to the policyholder and to the secondary addressee not less than 21 days prior to the expiration of the grace period provided in such policies. (Added 2015, No. 63, § 2, eff. June 17, 2015; amended 2017, No. 80, § 1.)

• § 3763. Computation of cash surrender value

  (a) Any cash surrender value available under the policy in the event of default in a premium payment due on any policy anniversary, whether or not required by section 3762 of this subchapter, shall be an amount not less than the excess, if any, of the present value, on the anniversary, of the future guaranteed benefits that would have been provided for by the policy, including any existing paid-up additions, if there had been no default, over the sum of:

  (1) the then present value of the adjusted premiums as defined in sections 3765-3768 of this subchapter, corresponding to premiums which would have fallen due on and after the anniversary; and

  (2) the amount of any indebtedness to the company on the policy.

  (b) Notwithstanding subsection (a) of this section, for a policy issued on or after the operative date of section 3768 of this subchapter that provides supplemental life insurance or annuity benefits at the option of the insured and for an identifiable additional premium by rider or supplemental policy provision, the cash surrender value referred to in subsection (a) of this section shall be an amount not less than the sum of the cash surrender value for an otherwise similar policy issued at the same age without the rider or supplemental policy provision and the cash surrender value as defined in subsection (a) of this section for a policy which provides only the benefits otherwise provided by such rider or supplemental policy provision.

  (c) For a family policy issued on or after the operative date of section 3768 of this subchapter that defines a primary insured and provides term insurance on the life of the spouse of the primary insured expiring before the spouse turns 71 years of age, the cash surrender value referred to in subsection (a) of this section shall be an amount not less than the sum of the cash surrender value for an otherwise similar policy issued at the same age without term insurance on the life of the spouse and the cash surrender value as defined in subsection (a) of this section for a policy that provides only the benefits otherwise provided by term insurance on the life of the spouse.

  (d) A cash surrender value available within 30 days after any policy anniversary under any policy paid up by completion of all premium payments or any policy continued under any paid-up nonforfeiture benefit, whether or not required under section 3762 of this subchapter, shall be an amount not less than the present value, on the anniversary, of the future guaranteed benefits provided for by the policy, including any existing paid-up additions, decreased by any indebtedness to the company on the policy. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3764. Computation of paid-up nonforfeiture benefits

  A paid-up nonforfeiture benefit available under a policy in the event of default in a premium payment due on any policy anniversary shall be such that its present value as of the anniversary shall be at least equal to the cash surrender value then provided for by the policy or, if none is provided for, that cash surrender value that would have been required under this subchapter in the absence of the condition that premiums shall have been paid for at least a specified period. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3765. Calculation of adjusted premiums

  (a)(1) This section shall not apply to policies issued on or after the operative date of section 3768 of this subchapter. Except as provided in subsection (c) of this section, the adjusted premiums for any policy shall be calculated on an annual basis and shall be such uniform percentage of the respective premiums specified in the policy for each policy year, excluding amounts stated in the policy as extra premiums to cover impairments or special hazards, that the present value, at the date of issue of the policy, of all such adjusted premiums shall be equal to the sum of:

  (A) the then present value of the future guaranteed benefits provided for by the policy;

  (B) two percent of the amount of insurance, if the insurance be uniform in amount, or of the equivalent uniform amount, as hereinafter defined, if the amount of insurance varies with duration of the policy;

  (C) 40 percent of the adjusted premium for the first policy year; and

  (D) 25 percent of either the adjusted premium for the first policy year or the adjusted premium for a whole life policy of the same uniform or equivalent uniform amount with uniform premiums for the whole of life issued at the same age for the same amount of insurance, whichever is less.

  (2) In applying the percentages specified in subdivisions (a)(1)(C) and (D) of this section, no adjusted premium shall be deemed to exceed four percent of the amount of insurance or level amount equivalent. The date of issue of a policy for the purpose of this section shall be the date as of which the rated age of the insured is determined.

  (b) In the case of a policy providing an amount of insurance varying with duration of the policy, the equivalent level amount for the purpose of this section shall be deemed to be the level amount of insurance provided by an otherwise similar policy, containing the same endowment benefit or benefits, if any, issued at the same age and for the same term, the amount of which does not vary with duration and the benefits under which have the same present value at the inception of the insurance as the benefits under the policy.

  (c)(1) The adjusted premiums for any policy providing term insurance benefits by rider or supplemental policy provision shall be equal to:

  (A) the adjusted premiums for an otherwise similar policy issued at the same age without such term insurance benefits, increased, during the period for which premiums for such term insurance benefits are payable, by

  (B) the adjusted premiums for such term insurance,

  (2) Subdivisions (1)(A) and (B) of this subsection shall be calculated separately except that, for purposes of subdivisions (a)(1)(B)-(D) of this section, the amount of insurance or equivalent uniform amount of insurance used in the calculation of the adjusted premiums referred to in subsection (a)(1)(B) of this section shall be equal to the excess of the corresponding amount determined for the entire policy over the amount used in the calculation of the adjusted premiums in subdivision (1) of this subsection (c).

  (d) Except as otherwise provided in sections 3766 and 3767 of this subchapter, all adjusted premiums and present values referred to in this subchapter shall for all policies of ordinary insurance be calculated on the basis of the Commissioners’ 1941 Standard Ordinary Mortality Table, provided that for any category of ordinary insurance issued on female risks, adjusted premiums and present values may be calculated according to any age not more than three years younger than the actual age of the insured and such calculations for all policies of industrial insurance shall be made on the basis of the 1941 Standard Industrial Mortality Table. All calculations shall be made on the basis of the rate of interest, not exceeding three and one-half percent per annum, specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits. Provided, however, that in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than 130 percent of the rates of mortality according to the applicable table. Provided, further, that for insurance issued on a substandard basis, the calculation of any adjusted premiums and present values may be based on such other table of mortality as may be specified by the company and approved by the Commissioner. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3766. Calculation of adjusted premiums; ordinary policies

  (a) This section does not apply to ordinary policies issued on or after the operative date of section 3768 of this subchapter. In the case of ordinary policies issued on or after the operative date of this section, all adjusted premiums and present values referred to in this subchapter shall be calculated on the basis of the Commissioners’ 1958 Standard Ordinary Mortality Table and the rate of interest specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits, provided that such rate of interest shall not exceed three and one-half percent per annum, except that a rate of interest not exceeding four percent per annum may be used for policies issued on or after April 12, 1973, and prior to January 1, 1980, and a rate of interest not exceeding five and one-half percent per annum may be used for policies issued on or after January 1, 1980, except that for any single premium whole life or endowment insurance policy, a rate of interest not exceeding six and one-half percent per annum may be used, provided that for any category of ordinary insurance issued on female risks, adjusted premiums and present values may be calculated according to an age not more than six years younger than the actual age of the insured. In calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may not be more than those shown in the Commissioners’ 1958 Extended Term Insurance Table. For insurance issued on a substandard basis, the calculation of any adjusted premiums and present values may be based on such other table of mortality as may be specified by the company and approved by the Commissioner.

  (b) After the effective date of this section, any company may file with the Commissioner a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1966. After the filing of such notice, upon the specified date (which shall be the operative date of this section for that company), this section shall become operative with respect to the ordinary policies thereafter issued by the company. If a company makes no election, the operative date of this section for the company shall be January 1, 1966. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3767. Calculation of adjusted premiums; industrial policies

  (a) This section does not apply to industrial policies issued on or after the operative date of section 3768 of this subchapter. In the case of industrial policies issued on or after the operative date of this section, all adjusted premiums and present values referred to in this subchapter shall be calculated on the basis of the Commissioners’ 1961 Standard Industrial Mortality Table and the rate of interest specified in the policy for calculating cash surrender values and paid-up nonforfeiture benefits provided that such rate of interest shall not exceed three and one-half percent per annum, except that a rate of interest not exceeding four percent per annum may be used for policies issued on or after April 12, 1973, and prior to January 1, 1980, and a rate of interest not exceeding five and one-half percent per annum may be used for policies issued on or after January 1, 1980, except that for any single premium whole life or endowment insurance policy, a rate of interest not exceeding six and one-half percent per annum may be used. In calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in the Commissioners’ 1961 Industrial Extended Term Insurance Table. For insurance issued on a substandard basis, the calculations of any such adjusted premiums and present values may be based on such other table of mortality as may be specified by the company and approved by the Commissioner.

  (b) After the effective date of this section, any company may file with the Commissioner a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1968. After the filing of such notice, upon the specified date, which shall be the operative date of this section for that company, this section shall become operative with respect to the industrial policies thereafter issued by the company. If a company makes no election, the operative date of this section for the company shall be January 1, 1968. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3768. Calculations of adjusted premiums by the nonforfeiture net level premium method

  (a)(1) This section shall apply to all policies issued on or after the operative date of this section. Except as provided in subsection (g) of this section. the adjusted premiums for any policy shall be calculated on an annual basis and shall be such uniform percentage of the respective premiums specified in the policy for each policy year, excluding amounts payable as extra premiums to cover impairments or special hazards and also excluding any uniform annual contract charge or policy fee specified in the policy in a statement of the method to be used in calculating the cash surrender values and paid-up nonforfeiture benefits, that the present value, at the date of issue of the policy, of all adjusted premiums shall be equal to the sum of:

  (A) the then present value of the future guaranteed benefits provided for by the policy;

  (B) one percent of either the amount of insurance, if the insurance be uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years; and

  (C) 125 percent of the nonforfeiture net level premium as defined in this section.

  (2) In applying the percentage specified in subdivision (1)(C) of this subsection, no nonforfeiture net level premium shall be deemed to exceed four percent of either the amount of insurance, if the insurance be uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years. The date of issue of a policy for the purpose of this section shall be the date as of which the rated age of the insured is determined.

  (b) The nonforfeiture net level premium shall be equal to the present value, at the date of issue of the policy, of the guaranteed benefits provided for by the policy divided by the present value, at the date of issue of the policy, of an annuity of one per annum payable on the date of issue of the policy and on each anniversary of the policy on which a premium falls due.

  (c) In the case of policies which cause, on a basis guaranteed in the policy, unscheduled changes in benefits or premiums, or which provide an option for changes in benefits or premiums, other than a change to a new policy, the adjusted premiums and present values shall be calculated initially on the assumption that future benefits and premiums do not change from those stipulated at the date of issue of the policy. At the time of any change in the benefits or premiums, the future adjusted premiums, nonforfeiture net level premiums and present values shall be recalculated on the assumption that future benefits and premiums do not change from those stipulated by the policy immediately after the change.

  (d) Except as otherwise provided in subsection (g) of this section, the recalculated future adjusted premiums for any policy shall be the uniform percentage of the respective future premiums specified in the policy for each policy year, excluding amounts payable as extra premiums to cover impairments and special hazards, and also excluding any uniform annual contract charge or policy fee specified in the policy in a statement of the method to be used in calculating the cash surrender values and paid-up nonforfeiture benefits, that the present value, at the time of change to the newly defined benefits or premiums, of all such future adjusted premiums shall be equal to the excess of:

  (1) The sum of:

  (A) the then present value of the then future guaranteed benefits provided for by the policy, and

  (B) the additional expense allowance, if any, over

  (2) the then cash surrender value, if any, or present value of any paid-up nonforfeiture benefit under this policy.

  (e) The additional expense allowance, at the time of the change to the newly defined benefits or premiums, shall be the sum of:

  (1) one percent of the excess, if positive, of the average amount of insurance at the beginning of each of the first 10 policy years subsequent to the change over the average amount of insurance prior to the change at the beginning of each of the first 10 policy years subsequent to the time of the most recent previous change, or, if there has been no previous change, the date of issue of the policy; and

  (2) 125 percent of the increase, if positive, in the nonforfeiture net level premium.

  (f) The recalculated nonforfeiture net level premium shall be equal to the result obtained by dividing the sum arrived at under subdivision (1) of this subsection by the value specified in subdivision (2) of this subsection.

  (1) As used in this subsection, “sum” means:

  (A) the nonforfeiture net level premium applicable prior to the change times the present value of an annuity of one per annum payable on each anniversary of the policy on or subsequent to the date of the change on which a premium would have fallen due had the change not occurred; plus

  (B) the present value of the increase in future guaranteed benefits provided for by the policy.

  (2) As used in this subsection, “value” means the present value of an annuity of one per annum payable on each anniversary of the policy on or subsequent to the date of change on which a premium falls due.

  (g) Notwithstanding any other provisions of this section to the contrary, in the case of a policy issued on a substandard basis which provides reduced graded amounts of insurance so that, in each policy year, the policy has the same tabular mortality cost as an otherwise similar policy issued on the standard basis which provides higher uniform amount of insurance, adjusted premiums and present values for the substandard policy may be calculated as if it were issued to provide higher uniform amounts of insurance on the standard basis.

  (h) All adjusted premiums and present values referred to in this subchapter shall for all policies of ordinary insurance be calculated on the basis of the Commissioners’ 1980 Standard Ordinary Mortality Table or, at the election of the company, for any one or more specified plans of life insurance, the Commissioners’ 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors, shall for all policies of industrial insurance be calculated on the basis of the Commissioners’ 1961 Standard Industrial Mortality Table, and shall for all policies issued in a particular calendar year be calculated on the basis of a rate of interest not exceeding the nonforfeiture interest rate as defined in this section, for policies issued in that calendar year, provided that:

  (1) At the option of the company, calculations for all policies issued in a particular calendar year may be made on the basis of a rate of interest not exceeding the nonforfeiture interest rate, as defined in this section, for policies issued in the immediately preceding calendar year.

  (2) Under a paid-up nonforfeiture benefit, including any paid-up dividend additions, any cash surrender value available, whether or not required by section 3762 of this subchapter, shall be calculated on the basis of the mortality table and rate of interest used in determining the amount of such paid-up nonforfeiture benefit and paid-up dividend additions, if any.

  (3) A company may calculate the amount of any guaranteed paid-up nonforfeiture benefit including any paid-up additions under the policy on the basis of an interest rate no lower than that specified in the policy for calculating cash surrender values.

  (4) In calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a nonforfeiture benefit, the rates of mortality assumed may be not more than those shown in the Commissioners’ 1980 Extended Term Insurance Table for policies of ordinary insurance and not more than the Commissioners’ 1961 Industrial Extended Term Insurance Table for policies of industrial insurance.

  (5) For insurance issued on a substandard basis, the calculation of any adjusted premiums and present values may be based on appropriate modifications of the aforementioned tables.

  (6)(A) For policies issued prior to the operative date of the Valuation Manual defined in subchapter 4a or this chapter, any Commissioners’ Standard Ordinary Mortality Tables, adopted after 1980 by the National Association of Insurance Commissioners, approved by rule adopted by the Commissioner for use in determining the minimum nonforfeiture standard may be substituted for the Commissioners’ 1980 Standard Ordinary Mortality Table with or without 10-Year Select Mortality Factors or for the Commissioners’ 1980 Extended Term Insurance Table.

  (B) For policies issued on or after the operative date of the Valuation Manual the Valuation Manual shall provide the Commissioners’ Standard Mortality Table for use in determining the minimum nonforfeiture standard that may be substituted for the Commissioners’ 1980 Standard Ordinary Mortality Table with or without 10-Year Select Mortality Factors or for the Commissioners’ 1980 Extended Term Insurance Table. If the Commissioner adopts by rule a Commissioners’ Standard Ordinary Mortality Table adopted by the NAIC for use in determining the minimum nonforfeiture standard for policies issued on or after the operative date of the Valuation Manual then that minimum nonforfeiture standard supersedes the minimum nonforfeiture standard provided by the Valuation Manual.

  (7)(A) For policies issued prior to the operative date of the Valuation Manual, any Commissioners’ Standard Industrial Mortality Tables, adopted after 1980 by the NAIC, approved by rule adopted by the Commissioner for use in determining the minimum nonforfeiture standard may be substituted for the Commissioners’ 1961 Standard Industrial Mortality Table or the Commissioners’ 1961 Industrial Extended Term Insurance Table.

  (B) For policies issued on or after the operative date of the Valuation Manual the Valuation Manual shall provide the Commissioners’ Standard Mortality Table for use in determining the minimum nonforfeiture standard that may be substituted for the Commissioners’ 1961 Standard Industrial Mortality Table or the Commissioners’ 1961 Industrial Extended Term Insurance Table. If the Commissioner adopts by rule a Commissioners’ Standard Industrial Mortality Table adopted by the NAIC for use in determining the minimum nonforfeiture standard for policies issued on or after the operative date of the Valuation Manual then that minimum nonforfeiture standard supersedes the minimum nonforfeiture standard provided by the Valuation Manual.

  (i) The nonforfeiture interest rate is defined as follows:

  (1) For policies issued prior to the operative date of the Valuation Manual, the nonforfeiture interest rate per annum for any policy issued in a particular calendar year shall be equal to 125 percent of the calendar year statutory valuation interest rate for such policy as defined under subchapter 4a of this chapter, rounded to the nearer one quarter of one percent, provided the nonforfeiture interest rate shall not be less than four percent.

  (2) For policies issued on and after the operative date of the Valuation Manual, the nonforfeiture interest rate per annum for any policy issued in a particular calendar year shall be provided by the Valuation Manual.

  (j) Notwithstanding any other provision of law to the contrary, any refiling of nonforfeiture values or their methods of computation for any previously approved policy form which involves only a change in the interest rate or mortality table used to compute nonforfeiture values shall not require refiling of any other provisions of that policy form.

  (k) After the effective date of this section, any company may file with the Commissioner a written notice of its election to comply with the provision of this section after a specified date before January 1, 1989, which shall be the operative date of this section for the company. If a company makes no election, the operative date of this section for the company shall be January 1, 1989. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3769. Nonforfeiture benefits for indeterminate premium plans

  In the case of any plan of life insurance which provides for future premium determination, the amounts of which are to be determined by the insurance company based on estimates of future experience, or in the case of any plan of life insurance which is of such a nature that minimum values cannot be determined by the methods described in sections 3762-3768 of this subchapter:

  (1) The Commissioner must be satisfied that the benefits provided under the plan are substantially as favorable to policyholders and insureds as the minimum benefits otherwise required by sections 3762-3768 of this subchapter.

  (2) The Commissioner must be satisfied that the benefits and the pattern of premiums of that plan are not such as to mislead prospective policyholders or insureds.

  (3) The cash surrender values and paid-up nonforfeiture benefits provided by such plan must not be less than the minimum values and benefits required for the plan computed by a method consistent with the principles of this Standard Nonforfeiture Law for Life Insurance, as determined by subchapter 4a of this chapter and any rules adopted thereunder. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3770. Proration of values; net value of paid-up additions

  Any cash surrender value and any paid-up nonforfeiture benefit available under a policy in the event of default in a premium payment due at any time other than on the policy anniversary shall be calculated with allowance for the lapse of time and the payment of fractional premiums beyond the last preceding policy anniversary. All values referred to in sections 3763-3768 of this subchapter may be calculated upon the assumption that any death benefit is payable at the end of the policy year of death. The net value of any paid-up additions, other than paid-up term additions, shall not be less than the amounts used to provide such additions. Notwithstanding the provisions of section 3763 of this subchapter, additional benefits shall be disregarded in ascertaining cash surrender values and nonforfeiture benefits required under this subchapter, and no such additional benefits shall be required to be included in any paid-up nonforfeiture benefits. As used in this section, “additional benefits” means benefits payable:

  (1) in the event of death or dismemberment by accident or accidental means;

  (2) in the event of total and permanent disability;

  (3) as reversionary annuity or deferred reversionary annuity benefits;

  (4) as term insurance benefits provided by a rider or supplemental policy provision to which, if issued as a separate policy, this subchapter would not apply;

  (5) as term insurance in the life on a child or on the lives of children provided in a policy on the life of a parent of the child, if such term insurance expires before the child turns 26 years of age, is uniform in amount after the child’s age is one year of age, and has not become paid-up by reason of the death of a parent of the child; or

  (6) as other policy benefits additional to life insurance and endowment benefits, and premiums for all such additional benefits. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3771. Consistency of progression of cash surrender values with increasing policy duration

  (a) This section, in addition to all other applicable sections of this chapter, shall apply to all policies issued on or after January 1, 1987. Any cash surrender value available under the policy in the event of default in a premium payment due on any policy anniversary shall be in an amount which does not differ by more than two tenths of one percent of either the amount of insurance, if the insurance be uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years, from the sum of:

  (1) the greater of zero and the basic cash value specified in this section; and

  (2) the present value of any existing paid-up additions less the amount of any indebtedness to the company under the policy.

  (b) The basic cash value shall be equal to the present value, on such anniversary, of the future guaranteed benefits which would have been provided for by the policy, excluding any existing paid-up additions and before deduction of any indebtedness to the company, if there had been no default, less the then present value of the nonforfeiture factors, as defined in this subchapter, corresponding to premiums which would have fallen due on and after the anniversary. The effects on the basic cash value of supplemental life insurance or annuity benefits or of family coverage, as described in section 3763 or 3765 of this subchapter, whichever is applicable, shall be the same as the effects specified in those sections, as applicable, on the cash surrender values defined therein.

  (c) The nonforfeiture factor for each policy year shall be an amount equal to a percentage of the adjusted premium for the policy year, as defined in section 3765 or section 3768 of this subchapter, as applicable, except that the percentage:

  (1) must be the same percentage for each policy year between the second policy anniversary and the later of:

  (A) the fifth policy anniversary; or

  (B) the first policy anniversary at which there is available under the policy a cash surrender value in an amount, before including any paid-up additions and before deducting any indebtedness, of at least two tenths of one percent of either the amount of insurance, if the insurance be uniform in amount, or the average amount of insurance at the beginning of each of the first 10 policy years; and

  (2) must be such that no percentage after the later of the two policy anniversaries specified in subsection (a) of this section may apply to fewer than five consecutive policy years.

  (d) Basic cash value shall not be less than the value which would be obtained if the adjusted premiums for the policy, as defined in section 3768 of this subchapter, were substituted for the nonforfeiture factors in the calculation of the basic cash value.

  (e) All adjusted premiums and present values referred to in this section shall for a particular policy be calculated on the same mortality and interest bases as are used in demonstrating the policy’s compliance with the other sections of this subchapter. The cash surrender values referred to in this section shall include any endowment benefits provided for by the policy.

  (f) A cash surrender value available other than in the event of default in a premium payment due on a policy anniversary, and the amount of any paid-up nonforfeiture benefit available under the policy in the event of default in a premium payment shall be determined in manners consistent with the manners specified for determining the analogous minimum amounts in sections 3762, 3763, 3764, 3768, and 3770 of this subchapter. The amounts of any cash surrender values and of any paid-up nonforfeiture benefits granted in connection with additional benefits such as those listed subdivisions 3770(1)-(6) of this subchapter shall conform with the principles of this section. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3772. Exceptions

  (a) This subchapter shall not apply to:

  (1) reinsurance;

  (2) group insurance;

  (3) pure endowment;

  (4) an annuity or reversionary annuity contract;

  (5) a term policy of uniform amount, which provides no guaranteed nonforfeiture or endowment benefits, or renewal thereof, of 20 years or less expiring before 71 years of age, for which uniform premiums are payable during the entire term of the policy;

  (6) a term policy of decreasing amount, which provides no guaranteed nonforfeiture or endowment benefits, on which each adjusted premium, calculated as specified in section 3765, 3766, 3767, or 3768 of this subchapter, is less than the adjusted premium so calculated, on a term policy of uniform amount, or renewal thereof, that provides no guaranteed nonforfeiture or endowment benefits, issued at the same age and for the same initial amount of insurance and for a term of 20 years or less expiring before 71 years of age, for which uniform premiums are payable during the entire term of the policy;

  (7) a policy, which provides no guaranteed nonforfeiture or endowment benefits, for which no cash surrender value, if any, or present value of any paid-up nonforfeiture benefit, at the beginning of any policy year, calculated as specified in section 3763, 3764, 3765, 3766, 3767, or 3768 of this subchapter, exceeds two and one-half percent of the amount of insurance at the beginning of the same policy year; nor

  (8) a policy delivered outside this State through an agent or other representative of the company issuing the policy.

  (b) For purposes of determining the applicability of this subchapter, the age at expiry for a joint term life insurance policy shall be the age at expiry of the oldest life. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• § 3773. Effective date; applicability

  After the effective date of this subchapter, any company may file with the Commissioner a written notice of its election to comply with the provisions of this subchapter after a specified date before January 1, 1948. After the filing of such notice, then upon the specified date (which shall be the operative date for the company), this subchapter shall become operative with respect to the policies thereafter issued by the company. If a company makes no such election, the operative date of this subchapter for the company shall be January 1, 1948. (Added 2015, No. 63, § 2, eff. June 17, 2015.)

• Subchapter 004: STANDARD VALUATION LAW

• §§ 3781-3789. Repealed. 2015, No. 63, § 6, effective June 17, 2015.

• Subchapter 004A: STANDARD VALUATION LAW

• § 3791. Title

  This subchapter shall be known as the Standard Valuation Law. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791a. Definitions

  As used in this subchapter:

  (1) “Accident and health insurance” means contracts that incorporate morbidity risk and provide protection against economic loss resulting from accident, sickness, or medical conditions and as may be specified in the Valuation Manual.

  (2) “Appointed actuary” means a qualified actuary who is appointed in accordance with the Valuation Manual to prepare the actuarial opinion required in subsection 3791c(b) of this subchapter.

  (3) “Company” means an entity that:

  (A) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this State and has at least one such policy in force or on claim; or

  (B) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance, or deposit-type contracts in this State.

  (4) “Deposit-type contract” means contracts that do not incorporate mortality or morbidity risks and as may be specified in the Valuation Manual.

  (5) “Life insurance” means contracts that incorporate mortality risk, including annuity and pure endowment contracts, and as may be specified in the Valuation Manual.

  (6) “NAIC” means the National Association of Insurance Commissioners.

  (7) “Policyholder behavior” means any action a policyholder, contract holder, or any other person with the right to elect options, such as a certificate holder, may take under a policy or contract subject to this subchapter including, lapse, withdrawal, transfer, deposit, premium payment, loan, annuitization, or benefit elections prescribed by the policy or contract but excluding events of mortality or morbidity that result in benefits prescribed in their essential aspects by the terms of the policy or contract.

  (8) “Principle-based valuation” means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with section 3791o of this subchapter as specified in the Valuation Manual.

  (9) “Qualified actuary” means an individual who is qualified to sign the applicable statement of actuarial opinion in accordance with the American Academy of Actuaries qualification standards for actuaries signing such statements and who meets the requirements specified in the Valuation Manual.

  (10) “Tail risk” means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude.

  (11) “Valuation Manual” means the manual of valuation instructions adopted by the NAIC as specified in this subchapter or as subsequently amended. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791b. Reserve valuation

  (a)(1) Policies and contracts issued prior to the operative date of the Valuation Manual. The Commissioner shall annually value, or cause to be valued, the reserve liabilities, hereinafter called reserves, for all outstanding life insurance policies and annuity and pure endowment contracts of every life company doing business in this State issued on or after the effective date of July 1, 1968 and prior to the operative date of the Valuation Manual. In calculating reserves, the Commissioner may use group methods and approximate averages for fractions of a year or otherwise. In making a valuation, the Commissioner may use the Department’s actuary or employ an actuary for that purpose, and the reasonable compensation and expenses of the actuary, at a rate approved by the Commissioner, upon demand by the Commissioner supported by an itemized statement of such compensation and expenses, shall be paid by the insurer. In lieu of the valuation of the reserves required of a foreign or alien company, the Commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this subchapter.

  (2) The provisions set forth in sections 3791d-3791m of this subchapter shall apply to all policies and contracts, as appropriate, subject to this subchapter issued on or after July 1, 1968 and prior to the operative date of the Valuation Manual and the provisions set forth in sections 3791n and 3791o of this subchapter shall not apply to any such policies and contracts.

  (3) The minimum standard for the valuation of policies and contracts issued prior to July 1, 1968 shall be that provided by the laws in effect immediately prior to that date.

  (b)(1) Policies and contracts issued on or after the operative date of the Valuation Manual. The Commissioner shall annually value, or cause to be valued, the reserve liabilities, hereinafter called reserves, for all outstanding life insurance contracts, annuity and pure endowment contracts, accident and health contracts, and deposit-type contracts of every company issued on or after the operative date of the Valuation Manual. In making a valuation, the Commissioner may use the Department’s actuary or employ an actuary for that purpose, and the reasonable compensation and expenses of the actuary, at a rate approved by the Commissioner, upon demand by the Commissioner supported by an itemized statement of such compensation and expenses, shall be paid by the insurer. In lieu of the valuation of the reserves required of a foreign or alien company, the Commissioner may accept a valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when the valuation complies with the minimum standard provided in this subchapter.

  (2) The provisions set forth in sections 3791n and 3791o of this subchapter shall apply to all policies and contracts issued on or after the operative date of the Valuation Manual. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791c. Actuarial opinion of reserves

  (a) Actuarial Opinion of Reserves after the Operative Date of the Valuation Manual; General. Every company with outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this State and subject to regulation by the Commissioner shall annually submit the opinion of the appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts are computed appropriately, are based on assumptions that satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of this State. The Valuation Manual will prescribe the specifics of this opinion, including any items deemed to be necessary to its scope.

  (b) Actuarial analysis of reserves and assets supporting reserves. Every company with outstanding life insurance contracts, accident and health insurance contracts, or deposit-type contracts in this State and subject to regulation by the Commissioner, except as exempted in the Valuation Manual, shall also annually include in the opinion required by subsection (a) of this section, an opinion of the same appointed actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified in the Valuation Manual, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company’s obligations under the policies and contracts, including the benefits under and expenses associated with the policies and contracts.

  (c)(1) Requirements for opinions subject to this section. Each opinion required by this section, in a form and substance as specified in the Valuation Manual, and acceptable to the Commissioner, shall be prepared to support each actuarial opinion.

  (2) If the company fails to provide a supporting memorandum at the request of the Commissioner within a period specified in the Valuation Manual or the Commissioner determines that the supporting memorandum provided by the company fails to meet the standards prescribed by the Valuation Manual or is otherwise unacceptable to the Commissioner, the Commissioner may engage a qualified actuary at the expense of the company to review the opinion and the basis for the opinion and prepare the supporting memorandum required by the Commissioner.

  (d)(1) Requirement for all opinions subject to this section. Every opinion shall be in form and substance as specified in the Valuation Manual and acceptable to the Commissioner.

  (2) The opinion shall be submitted with the annual statement reflecting the valuation of such reserve liabilities for each year ending on or after the operative date of the Valuation Manual.

  (3) The opinion shall apply to all policies and contracts subject to subsection (b) of this section, plus other actuarial liabilities as may be specified in the Valuation Manual.

  (4) The opinion shall be based on standards adopted from time to time by the Actuarial Standards Board or its successor, and on such additional standards as may be prescribed in the Valuation Manual.

  (5) In the case of an opinion required to be submitted by a foreign or alien company, the Commissioner may accept the opinion filed by that company with the insurance supervisory official of another state if the Commissioner determines that the opinion reasonably meets the requirements applicable to a company domiciled in this State.

  (6) Except in cases of fraud or willful misconduct, the appointed actuary shall not be liable for damages to any person, other than the company and the Commissioner, for any act, error, omission, decision, or conduct with respect to the appointed actuary’s opinion.

  (7) Disciplinary action by the Commissioner against the company or the appointed actuary shall be defined in rules adopted by the Commissioner. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791d. Computation of minimum standard

  Except as provided in sections 3791e, 3791f, and 3791m of this subchapter, the minimum standard for the valuation of policies and contracts issued prior to the effective date of this subchapter shall be that provided by the laws in effect immediately prior to that date. Except as otherwise provided in sections 3791e, 3791f, and 3791m of this subchapter, the minimum standard for the valuation of all policies and contracts issued on or after July 1, 1968 shall be the Commissioners reserve valuation methods defined in sections 3791g, 3791h, 3791k, and 3791m of this subchapter, three and one-half percent interest, or in the case of life insurance policies and contracts, other than annuity and pure endowment contracts, issued on or after April 12, 1973, four percent interest for policies issued prior to January 1, 1980, five and one-half percent interest for single premium life insurance policies and four and one-half percent interest, and for all other policies issued on and after January 1, 1980, and the following tables:

  (1) For ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in the policies: the Commissioners 1941 Standard Ordinary Mortality Table for policies issued prior to the operative date of section 3766 of this chapter, the Commissioners 1958 Standard Ordinary Mortality Table for policies issued on or after the operative date of section 3766 of this chapter and prior to the operative date of section 3768 of this chapter provided that for any category of policies issued on female risks, all modified net premiums and present values referred to in this subchapter may be calculated according to an age not more than six years younger than the actual age of the insured; and for policies issued on or after the operative date of section 3768 of this chapter:

  (A) the Commissioners 1980 Standard Ordinary Mortality Table;

  (B) at the election of the company for any one or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors; or

  (C) any ordinary mortality table, adopted after 1980 by the NAIC, that is approved by rule adopted by the Commissioner for use in determining the minimum standard of valuation for such policies.

  (2) For industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in the policies: the 1941 Standard Industrial Mortality Table for policies issued prior to the operative date of section 3767 of this chapter, and for policies issued on or after the operative date of section 3767 of this chapter, the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table adopted after 1980 by the NAIC that is approved by rule adopted by the Commissioner for use in determining the minimum standard of valuation for the policies.

  (3) For individual annuity and pure endowment contracts, excluding any disability and accidental death benefits in the policies: the 1937 Standard Annuity Mortality Table, or at the option of the company, the Annuity Mortality Table for 1949, Ultimate, or any modification of either of these tables approved by the Commissioner.

  (4) For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in the policies: the Group Annuity Mortality Table for 1951, a modification of the table approved by the Commissioner, or at the option of the company, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts.

  (5) For total and permanent disability benefits in or supplementary to ordinary policies or contracts: for policies or contracts issued on or after January 1, 1966, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit or any tables of disablement rates and termination rates adopted after 1980 by the NAIC, that are approved by rule adopted by the Commissioner for use in determining the minimum standard of valuation for those policies; for policies or contracts issued on or after January 1, 1961, and prior to January 1, 1966, either those tables or, at the option of the company, the Class 3 Disability Table of 1926; and for policies issued prior to January 1, 1961, the Class 3 Disability Table of 1926. Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance policies.

  (6) For accidental death benefits in or supplementary to policies issued on or after January 1, 1966: the 1959 Accidental Death Benefits Table or any accidental death benefits table adopted after 1980 by the NAIC approved by rule adopted by the Commissioner for use in determining the minimum standard of valuation for those policies, for policies issued on or after January 1, 1961, and prior to January 1, 1966, either that table or, at the option of the company, the Inter-Company Double Indemnity Mortality Table; and for policies issued prior to January 1, 1961, the Inter-Company Double Indemnity Mortality Table. Either table shall be combined with a mortality table for calculating the reserves for life insurance policies.

  (7) For group life insurance, life insurance issued on the substandard basis and other special benefits: tables approved by the Commissioner. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791e. Computation of minimum standard for annuities

  (a) Except as provided in section 3791f of this subchapter, the minimum standard of valuation for individual annuity and pure endowment contracts issued on or after the effective date of this section and for annuities and pure endowments purchased on or after the operative date under group annuity and pure endowment contracts, shall be the Commissioner’s reserve valuation methods defined in sections 3791g and 3791h of this subchapter and the following tables and interest rates:

  (1) for individual annuity and pure endowment contracts issued prior to January 1, 1980, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table, or any modification of this table approved by the Commissioner, and six percent interest for single premium immediate annuity contracts and four percent interest for all other individual annuity and pure endowment contracts;

  (2) for individual single premium immediate annuity contracts issued on or after January 1, 1980, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the NAIC that is approved by rule adopted by the Commissioner for use in determining the minimum standard of valuation for these contracts, or any modification of these tables approved by the Commissioner, and seven and one-half percent interest;

  (3) for individual annuity and pure endowment contracts issued on or after January 1, 1980, other than single premium immediate annuity contracts, excluding any disability and accidental death benefits in those contracts: the 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the NAIC, that is approved by rule adopted by the Commissioner for use in determining the minimum standard of valuation for those contracts, or any modification of these tables approved by the Commissioner, and five and one-half percent interest for single premium deferred annuity and pure endowment contracts and four and one-half percent interest for all other individual annuity and pure endowment contracts;

  (4) for annuities and pure endowments purchased prior to January 1, 1980, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table or any modification of this table approved by the Commissioner, and six percent interest; and

  (5) for annuities and pure endowments purchased on or after January 1, 1980, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under those contracts: the 1971 Group Annuity Mortality Table, or any group annuity mortality table adopted after 1980 by the NAIC approved by rule adopted by the Commissioner for use in determining the minimum standard of valuation for annuities and pure endowments, or any modification of these tables approved by the Commissioner, and seven and one-half percent interest.

  (b) After April 12, 1973, any company may file with the Commissioner a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1979, which shall be the operative date of this section for that company. If a company makes no election, the operative date of this section for that company shall be January 1, 1979. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791f. Computation of minimum standard by calendar year of issue

  (a) The interest rates used in determining the minimum standard for the valuation of the following shall be the calendar year statutory valuation interest rates as defined in this section:

  (1) life insurance policies issued in a particular calendar year, on or after the operative date of section 3768 of this chapter;

  (2) individual annuity and pure endowment contracts issued in a particular calendar year on or after January 1, 1984;

  (3) annuities and pure endowments purchased in a particular calendar year on or after January 1, 1984 under group annuity and pure endowment contracts; and

  (4) the net increase, if any, in a particular calendar year after January 1, 1984 in amounts held under guaranteed interest contracts.

  (b) The calendar year statutory valuation interest rates, I, shall be determined as follows and the results rounded to the nearer one-quarter of one percent:

  (1) For life insurance:

  I = .03 + W(R1 - .03) + W/2(R2 - .09).

  (2) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options:

  	I = .03 + W(R - .03)
  where	R1 is the lesser of R and .09;
  	R2 is the greater of R and .09;
  	R is the reference interest rate defined in this section; and
  	W is the weighting factor defined in this section.

  (3) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on an issue year basis, except as stated in subdivision (2) of this section, the formula for life insurance stated in subdivision (1) of this section shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of 10 years and the formula for single premium immediate annuities stated in subdivision (2) of this section shall apply to annuities and guaranteed interest contracts with guarantee duration of 10 years or less.

  (4) For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities stated in subdivision (2) of this section shall apply.

  (5) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities stated in this section shall apply.

  (6) Notwithstanding any provisions to the contrary in this subsection (b), if the calendar year statutory valuation interest rate for any life insurance policies issued in any calendar year determined without reference to this sentence differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one-half of one percent, the calendar year statutory valuation interest rate for such life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year. For purposes of applying the immediately preceding sentence, the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 1980 (using the reference interest rate defined for 1979) and shall be determined for each subsequent calendar year regardless of when section 3768 of this chapter becomes operative.

  (c) The weighting factors referred to in the formulas stated above are given in the following tables:

  (1) Weighting Factors for Life Insurance:

  	Guarantee Duration	Weighting
  	(Years)	Factors
  	10 or less	.50
  	More than 10, but not more than 20	.45
  	More than 20	.35

  For life insurance, the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates or nonforfeiture values or both which are guaranteed in the original policy.

  (2) Weighting factors for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options.

  (3) Weighting factors for other annuities and for guaranteed interest contracts, except as stated in subdivision (2) of this section, shall be as specified in tables (A), (B), and (C) of this section, according to the rules and definitions in (D), (E), and (F) of this section.

  (A) For annuities and guaranteed interest contracts valued on an issue year basis:

  	Guarantee Duration	Weighting Factor for Plan Type
  	(Years)	A	B	C
  	5 or less:	.80	.60	.50
  	More than 5, but not more
  	than 10:	.75	.60	.50
  	More than 10, but not more
  	than 20:	.65	.50	.45
  	More than 20:	.45	.35	.35

  (B) For annuities and guaranteed interest contracts valued on a change in fund basis, the factors shown in subdivision (A) increased by:

  Plan Type
  A	B	C
  .15	.25	.05

  (C) For annuities and guaranteed interest contracts valued on an issue year basis (other than those with no cash settlement options) which do not guarantee interest on considerations received more than one year after issue or purchase and for annuities and guaranteed interest contracts valued on a change in fund basis which do not guarantee interest rates on consideration received more than 12 months beyond the valuation date, the factors shown in subdivision (A) or derived in subdivision (B) increased by:

  Plan Type
  A	B	C
  .05	.05	.05

  (D) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration in excess of 20 years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guarantee duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence.

  (E) As used in the above tables:

  (i) Plan Type A means that at any time the policyholder may withdraw funds only:

  (I) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company;

  (II) without such adjustment but in installments over five years or more;

  (III) as an immediate life annuity; or

  (IV) no withdrawal permitted.

  (ii) Plan Type B means that, before expiration of the interest rate guarantee, the policyholder may withdraw funds only:

  (I) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company;

  (II) without such adjustment but in installments over five years or more;

  (III) no withdrawal permitted; or

  (IV) at the end of interest rate guarantee, funds may be withdrawn without such adjustment in a single sum or installments over less than five years.

  (iii) Plan Type C means a policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five years either:

  (I) without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company; or

  (II) subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.

  (F) A company may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change in fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options must be valued on an issue year basis. As used in this section, an issue year basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract, and the change in fund basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund.

  (d) The Reference Interest Rate referred to in subsection (b) of this section shall be defined as follows:

  (1) For life insurance, the lesser of the average over a period of 36 months and the average over a period of 12 months, ending on June 30 of the calendar year next preceding the year of issue, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc.

  (2) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the average over a period of 12 months, ending on June 30 of the calendar year of issue or year of purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc.

  (3) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subdivision (2) of this subsection, with guarantee duration in excess of 10 years, the lesser of the average over a period of 36 months and the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Services, Inc.

  (4) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in subdivision (2) of this subsection, with guaranteed duration of 10 years or less, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Services, Inc.

  (5) For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc.

  (6) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, except as stated in subdivision (2) of this subsection, the average over a period of 12 months, ending on June 30 of the calendar year of the change in the fund, of the monthly average of the composite yield on seasoned corporate bonds, as published by Moody’s Investors Service, Inc.

  (7) Alternative Method for Determining Reference Interest Rates. In the event that the monthly average of the composite yield on seasoned corporate bonds is no longer published by Moody’s Investors Service, Inc., or in the event that the NAIC determines that the monthly average of the composite yield on seasoned corporate bonds as published by Moody’s Investors Service, Inc. is no longer appropriate for the determination of the reference interest rate, then an alternative method for determination of the reference interest rate adopted by the NAIC and approved by rule adopted by the Commissioner may be substituted. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791g. Reserve valuation method—life insurance and endowment benefits

  (a) Except as otherwise provided in sections 3791g, 3791h, and 3791m of this subchapter, reserves according to the Commissioner’s reserve valuation method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums shall be the excess, if any, of the present value, at the date of valuation, of the future guaranteed benefits provided for by those policies, over the then present value of any future modified net premiums therefor. The modified net premiums for a policy shall be the uniform percentage of the respective contract premiums for the benefits such that the present value, at the date of issue of the policy, of all modified net premiums shall be equal to the sum of the then present value of the benefits provided for by the policy and the excess of subdivision (1) over subdivision (2) of this subsection, as follows:

  (1) A net level annual premium equal to the present value, at the date of issue, of the benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of the policy on which a premium falls due. However, the net level annual premium shall not exceed the net level annual premium on the 19-year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of the policy.

  (2) A net one-year term premium for the benefits provided for in the first policy year.

  (b) For a life insurance policy issued on or after January 1, 1997, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, the reserve according to the Commissioner’s reserve valuation method as of any policy anniversary occurring on or before the assumed ending date defined as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than the excess premium shall, except as otherwise provided in section 3791k of this subchapter, be the greater of the reserve as of the policy anniversary calculated as described in subsection (a) and the reserve as of the policy anniversary calculated as described in subsection (a) of this section, but with:

  (1) The value defined in subsection (a) of this section being reduced by 15 percent of the amount of such excess first year premium.

  (2) All present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date.

  (3) The policy being assumed to mature on that date as an endowment.

  (4) The cash surrender value provided on that date being considered as an endowment benefit. In making the above comparison, the mortality and interest bases stated in sections 3791d and 3791e of this subchapter shall be used.

  (c) Reserves according to the Commissioner’s reserve valuation method shall be calculated by a method consistent with the principles of the preceding subsections of this section for:

  (1) life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums;

  (2) group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as may be amended;

  (3) disability and accidental death benefits in all policies and contracts; and

  (4) all other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791h. Reserve valuation method—annuity and pure endowment benefits

  (a) This section shall apply to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer, including a partnership or sole proprietorship, or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as may be amended.

  (b) Reserves according to the Commissioner’s annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in the contracts, shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by the contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of the contract, that become payable prior to the end of the respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate, or rates, specified in the contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of the contracts to determine nonforfeiture values. (Added 2015, No. 63, § 1.)

• § 3791i. Minimum reserves

  (a) In no event shall a company’s aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, issued on or after July 1, 1968 be less than the aggregate reserves calculated in accordance with the methods set forth in sections 3791g, 3791h, 3791k, and 3791l of this subchapter and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for the policies.

  (b) In no event shall the aggregate reserves for all policies, contracts, and benefits be less than the aggregate reserves determined by the appointed actuary to be necessary to render the opinion required by section 3791c of this subchapter. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791j. Optional reserve calculation

  (a) Reserves for policies and contracts issued prior to July 1, 1968 may be calculated, at the option of the company, according to any standards that produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by the laws in effect immediately prior to that date.

  (b) Reserves for any category of policies, contracts or benefits established by the Commissioner, issued on or after July 1, 1968 may be calculated, at the option of the company, according to any standards that produce greater aggregate reserves for the category than those calculated according to the minimum standard provided herein, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be greater than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided in the policies or contracts.

  (c) A company, which adopts at any time a standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard provided under this subchapter, may adopt a lower standard of valuation with the approval of the Commissioner, but not lower than the minimum provided herein; provided that, for the purposes of this section, the holding of additional reserves previously determined by the appointed actuary to be necessary to render the opinion required by section 3791c of this subchapter shall not be deemed to be the adoption of a higher standard of valuation. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791k. Reserve calculation—valuation net premium exceeding the gross premium charged

  (a) If in any contract year the gross premium charged by a company on a policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for the policy or contract, or the reserve calculated by the method actually used for the policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this section are those standards stated in sections 3791d and 3791f of this subchapter.

  (b) For a life insurance policy issued on or after January 1, 1987, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for the excess and which provides an endowment benefit or a cash surrender value or a combination in an amount greater than the excess premium, the provisions of this section shall be applied as if the method actually used in calculating the reserve for the policy were the method described in section 3791g of this subchapter, ignoring the subsection 3791g(b) of this subchapter. The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with section 3791g of this subchapter, including the subsection (b) of that section, and the minimum reserve calculated in accordance with this section. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791l. Reserve calculation—indeterminate premium plans

  In the case of a plan of life insurance that provides for future premium determination, the amounts of which are to be determined by the company based on then estimates of future experience, or in the case of a plan of life insurance or annuity that is of such a nature that the minimum reserves cannot be determined by the methods described in sections 3791g, 3791h, and 3791k of this subchapter, the reserves that are held under the plan shall:

  (1) be appropriate in relation to the benefits and the pattern of premiums for that plan; and

  (2) be computed by a method that is consistent with the principles of this Standard Valuation Law, as determined by rules adopted by the Commissioner. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791m. Minimum standard for accident and health insurance contracts

  For accident and health insurance contracts issued on or after the operative date of the Valuation Manual, the standard prescribed in the Valuation Manual is the minimum standard of valuation required under subsection 3791b(b) of this subchapter. For disability, accident and sickness, accident and health insurance contracts issued on or after July 1, 1968 and prior to the operative date of the Valuation Manual the minimum standard of valuation is the standard adopted by the Commissioner by rule. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791n. Valuation manual for policies issued on or after the operative date of the valuation manual

  (a) For policies issued on or after the operative date of the Valuation Manual, the standard prescribed in the Valuation Manual is the minimum standard of valuation required under subsection 3791b(b) of this subchapter, except as provided under subsection (e) or (g) of this section.

  (b) The operative date of the Valuation Manual is January 1 of the first calendar year following the first July 1 as of which all of the following have occurred:

  (1) The Valuation Manual has been adopted by the NAIC by an affirmative vote of at least 42 members, or three-fourths of the members voting, whichever is greater.

  (2) The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by states representing greater than 75 percent of the direct premiums written as reported in the following annual statements submitted for 2008: life, accident and health annual statements; health annual statements; or fraternal annual statements.

  (3) The Standard Valuation Law, as amended by the NAIC in 2009, or legislation including substantially similar terms and provisions, has been enacted by at least 42 of the following 55 jurisdictions: The 50 states of the United States, American Samoa, the American Virgin Islands, the District of Columbia, Guam, and Puerto Rico.

  (c) Unless a change in the Valuation Manual specifies a later effective date, changes to the Valuation Manual shall be effective on January 1 following the date when the change to the Valuation Manual has been adopted by the NAIC by an affirmative vote representing:

  (1) at least three-fourths of the members of the NAIC voting, but not less than a majority of the total membership, and

  (2) members of the NAIC representing jurisdictions totaling greater than 75 percent of the direct premiums written as reported in the following annual statements most recently available prior to the vote in subdivision (1) of this subsection: life, accident and health annual statements, health annual statements, or fraternal annual statements.

  (d) The Valuation Manual must specify all of the following:

  (1) Minimum valuation standards for and definitions of the policies or contracts subject to subsection 3791b(b) of this subchapter. Such minimum valuation standards shall be:

  (A) the Commissioner’s reserve valuation method for life insurance contracts, other than annuity contracts, subject to subsection 3791b(b) of this subchapter;

  (B) the Commissioner’s annuity reserve valuation method for annuity contracts subject to subsection 3791b(b) of this subchapter; and

  (C) minimum reserves for all other policies or contracts subject to subsection 3791b(b) of this subchapter.

  (2) Which policies or contracts or types of policies or contracts that are subject to the requirements of a principle-based valuation in subsection 3791o(a) of this subchapter and the minimum valuation standards consistent with those requirements.

  (3) For policies and contracts subject to a principle-based valuation under section 3791o of this subchapter:

  (A) requirements for the format of reports to the Commissioner under subdivision 3791o(b)(3) of this subchapter and which shall include information necessary to determine if the valuation is appropriate and in compliance with this subchapter;

  (B) assumptions shall be prescribed for risks over which the company does not have significant control or influence; and

  (C) procedures for corporate governance and oversight of the actuarial function, and a process for appropriate waiver or modification of such procedures.

  (4) For policies not subject to a principle-based valuation section 3791o of this subchapter, the minimum valuation standard shall either:

  (A) be consistent with the minimum standard of valuation prior to the operative date of the Valuation Manual; or

  (B) develop reserves that quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring.

  (5) Other requirements including those relating to reserve methods, models for measuring risk, generation of economic scenarios, assumptions, margins, use of company experience, risk measurement, disclosure, certifications, reports, actuarial opinions and memorandum, transition rules, and internal controls.

  (6) The data and form of the data required under section 3791p of this subchapter with whom the data must be submitted, and may specify other requirements including data analyses and reporting of analyses.

  (e) In the absence of a specific valuation requirement or if a specific valuation requirement in the Valuation Manual is not, in the opinion of the Commissioner, in compliance with this subchapter, then the company shall, with respect to such requirements, comply with minimum valuation standards prescribed by the Commissioner by rule.

  (f) The Commissioner may engage a qualified actuary, at the expense of the company, to perform an actuarial examination of the company and opine on the appropriateness of any reserve assumption or method used by the company, or to review and opine on a company’s compliance with any requirement of this subchapter. The Commissioner may rely upon the opinion, regarding provisions contained within this subchapter, of a qualified actuary engaged by the Commissioner of another state, district, or territory of the United States. As used in this subsection, the term “engage” includes employ or contract with.

  (g) The Commissioner may require a company to change any assumption or method that in the opinion of the Commissioner is necessary in order to comply with the requirements of the Valuation Manual or this subchapter; and the company shall adjust the reserves as required by the Commissioner. The Commissioner may take other disciplinary action he or she deems appropriate. (Added 2015, No. 63, § 1.)

• § 3791o. Requirements of a principle-based valuation

  (a) A company must establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the Valuation Manual:

  (1) Quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts. For policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk.

  (2) Incorporate assumptions, risk analysis methods and financial models, and management techniques that are consistent with, but not necessarily identical to, those used within the company’s overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods.

  (3) Incorporate assumptions that are derived in one of the following manners:

  (A) The assumption is prescribed in the Valuation Manual.

  (B) For assumptions that are not prescribed, the assumptions shall:

  (i) be established using the company’s available experience, to the extent it is relevant and statistically credible; or

  (ii) to the extent that company data is not available, relevant, or statistically credible, be established using other relevant, statistically credible experience.

  (4) Provide margins for uncertainty including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.

  (b) A company using a principle-based valuation for one or more policies or contracts subject to this section as specified in the Valuation Manual shall:

  (1) Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the Valuation Manual.

  (2) Provide to the Commissioner and its Board of Directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. Such controls shall be designed to ensure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the Valuation Manual. The certification shall be based on the controls in place as of the end of the preceding calendar year.

  (3) Develop and file with the Commissioner, upon request, a principle-based valuation report that complies with standards prescribed in the Valuation Manual.

  (c) A principle-based valuation may include a prescribed formulaic reserve component. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791p. Experience reporting for policies in force on or after the operative date of the valuation manual

  A company shall submit mortality, morbidity, policyholder behavior, or expense experience and other data as prescribed in the Valuation Manual. (Added 2015, No. 63, § 1.)

• § 3791q. Confidentiality

  (a) As used in this subchapter, “confidential information” means:

  (1) a memorandum in support of an opinion submitted under section 3791c of this subchapter and any other documents, materials, and information including all working papers and copies thereof, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with such memorandum;

  (2) all documents, materials, and other information including all working papers, and copies thereof, created, produced, or obtained by or disclosed to the Commissioner or any other person in the course of an examination made under subsection 3791n(f) of this subchapter; provided, however, that if an examination report or other material prepared in connection with an examination made under chapter 101, subchapter 7 of this title is not held as private and confidential information under such subchapter, an examination report or other material prepared in connection with an examination made under subsection 3791n(f) of this subchapter shall not be “confidential information” to the same extent as if such examination report or other material had been prepared under chapter 101, subchapter 7 of this title;

  (3) any reports, documents, materials, and other information developed by a company in support of, or in connection with, an annual certification by the company under subdivision 3791o(b)(2) of this subchapter evaluating the effectiveness of the company’s internal controls with respect to a principle-based valuation and any other documents, materials, and other information including all working papers, and copies thereof, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with such reports, documents, materials, and other information;

  (4) any principle-based valuation report developed under subdivision 3791o(b)(3) of this subchapter and any other documents, materials, and other information including all working papers and copies thereof, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with such report; and

  (5) any documents, materials, data, and other information submitted by a company under section 3791p of this subchapter ‐collectively, “experience data” ‐and any other documents, materials, data, and other information, including all working papers and copies thereof, created or produced in connection with such experience data, in each case that include any potentially company-identifying or personally identifiable information, that is provided to or obtained by the Commissioner, together with any experience data, and other experience materials, and any other documents, materials, data, and other information including all working papers and copies thereof, created, produced, or obtained by or disclosed to the Commissioner or any other person in connection with such experience materials.

  (b) Except as provided in this section, a company’s confidential information is confidential by law and privileged, and shall be exempt from public inspection and copying under the Public Records Act, shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action; provided, however, that the Commissioner is authorized to use the confidential information in the furtherance of any regulatory or legal action brought against the company as a part of the Commissioner’s official duties.

  (c) Neither the Commissioner nor any person who received confidential information while acting under the authority of the Commissioner shall be permitted or required to testify in any private civil action concerning any confidential information.

  (d) In order to assist in the performance of the Commissioner’s duties, the Commissioner may share confidential information:

  (1) with other state, federal, and international regulatory agencies and with the NAIC and its affiliates and subsidiaries; and

  (2) in the case of confidential information specified in subdivisions (a)(1) and (a)(4) of this section only, with the Actuarial Board for Counseling and Discipline or its successor upon request stating that the confidential information is required for the purpose of professional disciplinary proceedings and with State, federal, and international law enforcement officials; in the case of this subdivision and subdivision (1) of this subsection (d), provided that such recipient agrees, and has the legal authority to agree, to maintain the confidentiality and privileged status of such documents, materials, data, and other information in the same manner and to the same extent as required for the Commissioner.

  (e) The Commissioner may receive documents, materials, data, and other information, including otherwise confidential and privileged documents, materials, data, or information, from the NAIC and its affiliates and subsidiaries, from regulatory or law enforcement officials of other foreign or domestic jurisdictions and from the Actuarial Board for Counseling and Discipline, or its successor, and shall maintain as confidential or privileged any document, material, data, or other information received with notice or the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material, or other information.

  (f) The Commissioner may enter into agreements governing sharing and use of information consistent with subsection (b) of this section.

  (g) No waiver of any applicable privilege or claim of confidentiality in the confidential information shall occur as a result of disclosure to the Commissioner under this section or as a result of sharing as authorized in subdivision (b)(3) of this section.

  (h) A privilege established under the law of any state or jurisdiction that is substantially similar to the privilege established under this subsection (b) of this section shall be available and enforced in any proceeding in, and in any court of, this State.

  (i) As used in this section, “regulatory agency,” “law enforcement agency,” and the NAIC include their employees, agents, consultants, and contractors.

  (j) Notwithstanding any provision in this section to the contrary, any confidential information specified in subdivision (a)(1) or (a)(4) of this section:

  (1) may be subject to subpoena for the purpose of defending an action seeking damages from the appointed actuary submitting the related memorandum in support of an opinion submitted under section 3791c of this subchapter or principle-based valuation report developed under subdivision 3791o(b)(3) of this subchapter by reason of an action required by this subchapter or by rules adopted hereunder;

  (2) may otherwise be released by the Commissioner with the written consent of the company; and

  (3) once any portion of a memorandum in support of an opinion submitted under section 3791c of this subchapter or a principle-based valuation report developed under subdivision 3791o(b)(3) of this subchapter is cited by the company in its marketing or is publicly volunteered to or before a governmental agency other than a state insurance department or is released by the company to the news media, all portions of such memorandum or report shall no longer be confidential. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• § 3791r. Single state exemption

  (a) The Commissioner may exempt specific product forms or product lines of a domestic company that is licensed and doing business only in Vermont from the requirements of section 3791n of this subchapter provided:

  (1) the Commissioner has issued an exemption in writing to the company and has not subsequently revoked the exemption in writing; and

  (2) the company computes reserves using assumptions and methods used prior to the operative date of the Valuation Manual in addition to any requirements established by rule adopted by the Commissioner.

  (b) For any company granted an exemption under this section, sections 3791c-3791m of this subchapter shall be applicable. With respect to any company applying this exemption, any reference to section 3791n found in sections 3791c-3791m of this subchapter shall not be applicable. (Added 2015, No. 63, § 1, eff. June 17, 2015.)

• Subchapter 005: GROUP LIFE INSURANCE

• § 3801. Scope of subchapter—Short title

  This subchapter applies only to group life insurance and may be known and cited as the “Group Life Insurance Law.” (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 1).)

• § 3802. Group contracts must meet group requirements

  (a) No life insurance policy shall be delivered or issued for delivery in this State insuring the lives of more than one individual unless to one of the groups as provided for in sections 3803-3810a of this title, and unless in compliance with the other applicable provisions of this subchapter.

  (b) Subsection (a) of this section shall not apply to life insurance policies:

  (1) insuring only individuals related by blood, civil marriage, or legal adoption; or

  (2) insuring only individuals having a common interest through ownership of a business enterprise, or a substantial legal interest or equity therein, and who are actively engaged in the management thereof; or

  (3) insuring only individuals otherwise having an insurable interest in each other’s lives. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 2); amended 1993, No. 55, § 11, eff. June 3, 1993; 2009, No. 3, § 12a, eff. Sept. 1, 2009.)

• § 3803. Employee groups

  The lives of a group of individuals may be insured under a policy issued to an employer, or to the trustees of a fund established by an employer, which employer or trustees shall be deemed the policyholder, to insure employees of the employer for the benefit of persons other than the employer, subject to the following requirements:

  (1) The employees eligible for insurance under the policy shall be all of the employees of the employer, or all of any class or classes thereof determined by conditions pertaining to their employment. The policy may provide that the term “employees” shall include the employees of one or more subsidiary corporations, and the employees, individual proprietors, and partners of one or more affiliated corporations, proprietors, or partnerships if the business of the employer and of such affiliated corporations, proprietors, or partnerships is under common control through stock ownership, contract, or otherwise. The policy may provide that the term “employees” shall include the individual proprietor or partners if the employer is an individual proprietor or a partnership. The policy may provide that the term “employees” shall include retired employees. No director of a corporate employer shall be eligible for insurance under the policy unless such person is otherwise eligible as a bona fide employee of the corporation, by performing services other than the usual duties of a director. No individual proprietor or partner shall be eligible for insurance under the policy unless he or she is actively engaged in and devotes a substantial part of his or her time to the conduct of the business of the proprietor or partnership. A policy issued to insure the employees of a public body may provide that the term “employees” shall include elected or appointed officials.

  (2) The premium for the policy shall be paid by the policyholder, either wholly from the employer’s funds or funds contributed by him or her, or partly from such funds and partly from funds contributed by the insured employees. No policy may be issued on which the entire premium is to be derived from funds contributed by the insured employees. A policy on which no part of the premium is to be derived from funds contributed by the insured employees must insure all eligible employees, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

  (3) The policy must cover at least two employees at date of issue.

  (4) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the employees or by the employer or trustees. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 3); amended 2005, No. 36, § 7, eff. June 1, 2005; 2009, No. 137 (Adj. Sess.), § 5.)

• § 3804. Labor union groups

  The lives of a group of individuals may be insured under a policy issued to a labor union, which shall be deemed the policyholder, to insure members of such union for the benefit of persons other than the union or any of its officials, representatives, or agents, subject to the following requirements:

  (1) The members eligible for insurance under the policy shall be all of the members of the union, or all of any class or classes thereof determined by conditions pertaining to their employment or to membership in the union, or both.

  (2) The premium for the policy shall be paid by the policyholder, either wholly from the union’s funds, or partly from such funds and partly from funds contributed by the insured members specifically for their insurance. No policy may be issued on which the entire premium is to be derived from funds contributed by the insured members specifically for their insurance. A policy on which part of the premium is to be derived from funds contributed by the insured members specifically for their insurance may be placed in force only if at least 75 percent of the then eligible members excluding any as to whom evidence of individual insurability is not satisfactory to the insurer, elect to make the required contributions. A policy on which no part of the premium is to be derived from funds contributed by the insured members specifically for the insurance must insure all eligible members, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

  (3) The policy must cover at least 10 members at date of issue.

  (4) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the members or by the union. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 4).)

• § 3805. Debtor groups

  The lives of a group of individuals may be insured under a policy issued to a creditor or to the trustees of a fund established by one or more creditors, which creditor or trustees shall be deemed the policyholder, to insure debtors of the creditor or creditors subject to the following requirements:

  (1) The debtors eligible for insurance under the policy shall be all of the debtors of the creditor or creditors or all of any class or classes thereof determined by conditions pertaining to the indebtedness or to the purchase giving rise to the indebtedness. The policy may provide that the term “debtors” shall include the debtors of one or more subsidiary corporations, and the debtors of one or more affiliated corporations, proprietors, or partnerships if the business of the policyholder and of such affiliated corporations, proprietors, or partnerships, is under common control through stock ownership, contract, or otherwise.

  (2) The premium for the policy shall be paid by the policyholder, either from the creditor’s or creditors’ funds, or from charges collected from the insured debtors, or from both. A policy on which part or all of the premium is to be derived from the collection from the insured debtors of identifiable charges not required of uninsured debtors shall not include, in the class or classes of debtors eligible for insurance, debtors under obligations outstanding at its date of issue without evidence of individual insurability unless at least 75 percent of the then eligible debtors elect to pay the required charges. A policy on which no part of the premium is to be derived from the collection of such identifiable charges must insure all eligible debtors, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

  (3) The policy may be issued only if the group of eligible debtors is then receiving new entrants at the rate of at least 100 persons yearly, or may reasonably be expected to receive at least 100 new entrants during the first policy year, and only if the policy reserves to the insurer the right to require evidence of individual insurability if less than 75 percent of the new entrants become insured. The policy may exclude from the classes eligible for insurance classes of debtors determined by age.

  (4) The amount of insurance on the life of any debtor shall at no time exceed the amount owed to the creditor, or creditors or $70,000.00 whichever is less, except that the amount of such insurance on the life of a debtor who has secured a debt by a mortgage on real estate shall at no time exceed $140,000.00, or the amount owed, whichever is less. Where the insurance is in connection with an educational or agricultural credit transaction commitment, the amount owed by the debtor to any creditor may be deemed to include the portion of the loan commitment that has not been advanced by the creditor.

  (5) The insurance shall be payable to the policyholder or creditor. Such payment shall reduce or extinguish the unpaid indebtedness of the debtor to the extent of such payment. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 5); amended 1973, No. 222 (Adj. Sess.), § 3, eff. April 3, 1974; 1989, No. 249 (Adj. Sess.), § 2, eff. June 16, 1990; 2009, No. 42, § 10.)

• § 3806. Licensed lenders; charges for insurance

  In the case of a debtor under section 2201 et seq. of this title the collection of identifiable charges by the lender shall not be deemed a violation of said chapter if:

  (1) The identifiable charge to the debtor is consistent with the actual cost of such insurance to the lender. The identifiable charge to the debtor shall be deemed consistent with the actual cost of the insurance to the lender if the aggregate of all such identifiable charges to all debtors of the same class, determined by conditions pertaining to the debt, is not greater than the premiums charged by the insurer, as computed at the time the charge to the debtor is determined;

  (2) The payment of such identifiable charge is optional with the debtor; and

  (3) Upon discharge of the debt, whether through prepayment, renewal or refinancing, the debtor is paid a pro rata refund of the identifiable charge paid by the debtor computed according to a schedule to be approved by the Commissioner of Financial Regulation. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 6); amended 1989, No. 225 (Adj. Sess.), § 25(b); 1995, No. 180 (Adj. Sess.), § 38(a); 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

• § 3807. Public employee groups

  The lives of a group of individuals may be insured under a policy issued to the departmental head of any department or agency of the State of Vermont, its political subdivisions or to an association of public employees formed for purposes other than obtaining insurance and having, when the policy is placed in force, a membership in the classes eligible for insurance of not less than 75 percent of the number of employees eligible for membership in such classes, which association or departmental head shall be deemed the policyholder, to insure members of such association or public employees for the benefit of persons other than the departmental head, the association or any of its officials, subject to the following requirements:

  (1) The persons eligible for insurance under the policy shall be all of the members of the association or employees of the department, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the association, or both. The policy may provide that the term “employee” shall include retired employees.

  (2) The premium for the policy shall be paid by the policyholder, either from the association’s own funds, or from charges collected from the insured members or employees specifically for the insurance, or from both, or as may otherwise be authorized by existing or future legislation. Any charges collected from the insured members or employees specifically for the insurance, and the dues of the association if they include the cost of insurance, shall be collected through deductions by the employer from salaries of the members or employees. Such deductions from salary may be paid by the employer to the association or directly to the insurer. No policy may be placed in force unless and until at least 75 percent of the then eligible members of the association or employees of the department, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer, have elected to be covered and have authorized their employer to make the required deductions from salary.

  (3) Charges collected from the insured members or employees specifically for the insurance, and the dues of the association if they include the cost of insurance, shall be determined according to each attained age or in not less than four reasonably spaced attained age groups. In no event shall the rate of such dues or charges be level for all members or employees regardless of attained age.

  (4) The policy must cover at least 10 persons at the date of issue.

  (5) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the members, employees, or by the association.

  (6) As used herein, “employees” means employees of the U.S. government, or of any state, or of any political subdivision or instrumentality of any of them.

  (7) This section does not preclude the insuring of public employees under any other applicable provision of this subchapter or law of this State. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 7).)

• § 3808. Trustee groups

  The lives of a group of individuals may be insured under a policy issued to the trustees of a fund established by, adopted by, or participated in by two or more employers, or by one or more labor unions, or by one or more employers and one or more labor unions, which trustees shall be deemed the policyholder, to insure employees of the employers or members of the unions for the benefit of persons other than the employers or the unions, subject to the following requirements:

  (1) No policy may be issued to insure employees of any employer whose eligibility to participate in the fund as an employer arises out of considerations directly related to the employer being a commercial correspondent or business client or patron of another employer, except where such other employer exercises substantial control over the business operations of the participating employers.

  (2) The persons eligible for insurance shall be all of the employees of the employers or all of the members of the unions, or all of any class or classes thereof determined by conditions pertaining to their employment, or to membership in the unions, or to both. The policy may provide that the term “employees” shall include retired employees, former employees, and the individual proprietor or partners if an employer is an individual proprietor or a partnership. No director of a corporate employer shall be eligible for insurance under the policy unless such person is otherwise eligible as a bona fide employee of the corporation by performing services other than the usual duties of a director. No individual proprietor or partner shall be eligible for insurance under the policy unless he or she is actively engaged in and devotes a substantial part of his or her time to the conduct of the business of the proprietor or partnership. The policy may provide that the term “employees” shall include the trustees or their employees, or both, if their duties are principally connected with such trusteeship.

  (3) The premium for the policy shall be paid by the trustees wholly from funds contributed by the employer or employers of the insured persons, or by the union or unions, or by both, or partly from such funds and partly from funds contributed by the insured persons. A policy on which no part of the premium is to be derived from funds contributed by the insured persons specifically for their insurance must insure all eligible persons, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

  (4) The policy must cover at date of issue at least 100 persons; and it must cover an average of not less than three persons per employer unit unless the policy is issued to the trustees of a fund established by employers which have assumed obligations through a collective bargaining agreement and are participating in the fund either pursuant to those obligations with regard to one or more classes of their employees which are encompassed in the collective bargaining agreement or as a method of providing insurance benefits for other classes of their employees, or unless the policy is issued to the trustees of a fund established by one or more labor unions.

  (5) The amount of insurance under the policy must be based upon some plan precluding individual selection either by the insured persons or by the policyholder, employers, or unions. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 8); amended 2009, No. 137 (Adj. Sess.), § 6.)

• § 3809. Association of employers groups

  The lives of a group of individuals may be insured under a policy issued to an association of two or more employers, which association shall be deemed the policyholder, to insure employees of such employers for the benefits of persons other than the association or the employers, subject to the following requirements:

  (1) The policy may be issued only if:

  (A) the association has been in existence for at least five years and was formed for purposes other than obtaining the insurance; and

  (B) the participating employers constitute at date of issue at least fifty percent of the total employers eligible to participate, unless the total number of persons covered at date of issue exceeds 600, in which event such participating employers must constitute at least 25 percent of such total employers, in either case omitting from consideration any employer whose employees are already covered for group life insurance.

  (2) The persons eligible for insurance under the policy shall be all of the employees of the participating employers, or all of any class or classes thereof determined by conditions pertaining to their employment. The policy may provide that the term “employees” shall include the individual proprietor or partners whenever a participating employer is an individual proprietor or a partnership. The policy may provide that the term “employees” shall include retired employees. The policy may provide that the term “employees” shall include the employees of the association to which the policy is issued.

  (3) The premium for the policy shall be paid by the association, either wholly from the association’s funds or funds contributed by the employers, or partly from such funds and partly from funds contributed by the insured employees. No policy may be issued on which the entire premium payable by the policyholder is to be derived from funds contributed by the insured employees. A policy on which part of the premium so payable is to be derived from funds contributed by the insured employees may be placed in force only if at least 75 percent of the then eligible employees of each participating employer, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer, elect to make the required contributions. A policy on which no part of the premiums so payable is to be derived from funds contributed by the insured employees must insure all eligible employees, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

  (4) The policy must cover at least 100 employees at date of issue.

  (5) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the employees or by the policyholder or the employer. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 9).)

• § 3810. Credit union groups

  The lives of a group of individuals may be insured under a policy issued to a credit union or to the trustees of a fund established by one or more credit unions, which credit union or trustees shall be deemed the policyholder to insure members of such credit union or credit unions for the benefit of persons other than the credit union or credit unions or trustees or any of their officials, subject to the following requirements:

  (1) The members eligible for insurance shall be all of the members of the credit union or credit unions, or all of any class or classes thereof determined by conditions pertaining to membership in the credit union or credit unions.

  (2) The premium for the policy shall be paid by the policyholder, either wholly from the funds of the credit union or credit unions, or partly from such funds and partly from funds contributed by the insured members specifically for their insurance, or wholly from funds contributed by the insured members specifically for their insurance. A policy on which all or a part of the premium is to be derived from funds contributed by the insured members specifically for their insurance may be placed in force only if at least 75 percent of the then eligible members of each credit union, excluding any as to whom evidence of insurability is not satisfactory to the insurer, elect to make the required contributions. A policy on which no part of the premium is to be derived from funds contributed by the insured members specifically for their insurance must insure all eligible members, or all except any as to whom evidence of individual insurability is not satisfactory to the insurer.

  (3) The policy must cover at least 25 members at date of issue.

  (4) The amounts of insurance under the policy must be based upon some plan precluding individual selection either by the members or by the credit union or credit unions. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 10).)

• § 3810a. Associations and discretionary groups

  (a) The lives of a group of individuals may be insured under a policy issued to an association, or to the trustees of a fund established or maintained for the benefit of members of an association, which association or trustees shall be deemed the policyholder, to insure members of such association for the benefit of persons other than the association, trustees, or their officials, subject to the following requirements:

  (1) The association shall have a minimum of 100 members at the time of incorporation or formation if it has been incorporated or formed outside this State, and a minimum of 25 members at the time of incorporation or formation if it has been incorporated or formed in this State.

  (2) The association shall have been organized and maintained in good faith for purposes other than that of obtaining insurance.

  (3) The association shall have been in active existence for at least five years.

  (4) The association shall have articles of association and bylaws which provide that:

  (A) the association holds regular meetings not less than annually to further purposes of the members;

  (B) the association collects dues or solicits contributions from members; and

  (C) the members have voting privileges and representation on the governing board and committees.

  (5)(A) The premium for the policy shall be paid from funds contributed by the association, or by members, or by both, or from funds contributed by the covered persons or from both the covered persons and the association members.

  (B) Except as provided in subdivision (5)(C) of this subsection, a policy on which no part of the premium is to be derived from funds contributed by the covered persons specifically for the insurance must insure all eligible persons, except those who reject such coverage in writing.

  (C) An insurer may exclude or limit the coverage on any person as to whom evidence of individual insurability is not satisfactory to the insurer.

  (6) The amount of insurance under the policy must be based upon some plan precluding anti-selection either by the members or the association.

  (b) The lives of a group of individuals may be insured under a policy issued to any other group determined in the discretion of the Commissioner to be substantially similar to those described in this chapter.

  (c) The lives of individuals insured under a group policy authorized by this subchapter may continue to be insured following termination of employment, membership, or other affiliation of the individual with the group under a portability group approved by the Commissioner, provided that the group policy complies with all the applicable requirements of this subchapter. (Added 1993, No. 55, § 9, eff. June 3, 1993; amended 2009, No. 137 (Adj. Sess.), § 7.)

• § 3811. Dependents’ coverage

  Any group life policy issued under section 3803 (employee groups) or 3804 (labor union groups) or 3807 (public employee groups) or 3808 (trustee groups) or 3809 (employer association groups) or 3810a (associations and discretionary groups) of this title may be extended to insure the employees or members against loss due to the death of their spouses and children, or any class or classes thereof, subject to the following requirements:

  (1) The premium for the insurance shall be paid by the policyholder, either from the employer’s, union’s, or association’s funds or funds contributed by them or from funds contributed by the insured employees or members, or from both. If any part of the premium is to be derived from funds contributed by the insured employees or members, the insurance with respect to spouses and children may be placed in force only if at least 75 percent of the then eligible employees or members who then have eligible dependents, excluding any as to whose family members evidence of insurability is not satisfactory to the insurer, elected to make the required contribution. If no part of the premium is to be derived from funds contributed by the employees or members, all eligible employees or members, excluding any as to whose family members evidence of insurability is not satisfactory to the insurer, must be insured with respect to their spouses and children.

  (2) The amounts of insurance must be based upon some plan precluding individual selection either by the employees or members or by the policyholder, employer, or union, and shall not exceed the amount of insurance available to the employee or member with respect to any spouse or child.

  (3) Upon termination of the insurance with respect to the members of the family of any employee or member by reason of the employee’s or member’s termination of employment, termination of membership in the class or classes eligible for coverage under the policy, or death, the spouse shall be entitled to have issued by the insurer, without evidence of insurability, an individual policy of life insurance, without disability or other supplementary benefits, providing application for the individual policy shall be made, and the first premium paid to the insurer, within 31 days after such termination, subject to the requirements of subdivisions 3820(1), (2), and (3) of this title. If any group policy terminates or is amended so as to terminate the insurance of any class of employees or members and the employee or member is entitled to have issued an individual policy, under section 3821 of this title, the spouse shall also be entitled to have issued by the insurer an individual policy, subject to the conditions and limitations provided above and in section 3821 of this title. If the spouse dies within the period during which he or she would have been entitled to have an individual policy issued in accordance with this provision, the amount of life insurance which he or she would have been entitled to have issued under such individual policy shall be payable as a claim under the group policy, whether or not application for the individual policy or the payment of the first premium therefor has been made.

  (4) Notwithstanding section 3819 of this title, only one certificate need be issued for delivery to an insured person if a statement concerning any dependent’s coverage is included in such certificate. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 11); amended 1987, No. 136 (Adj. Sess.), eff. April 8, 1988; 1993, No. 55, § 12, eff. June 3, 1993.)

• § 3812. Provisions required in group contracts

  No policy of group life insurance shall be delivered in this State unless it contains in substance the provisions set forth in sections 3813 through 3822 of this title or provisions which in the opinion of the Commissioner are more favorable to the persons insured, or at least as favorable to the persons insured and more favorable to the policyholder; except, however, that:

  (1) Sections 3818 to 3822 inclusive shall not apply to policies issued to a creditor to insure debtors of such creditor.

  (2) The standard provisions required for individual life insurance policies shall not apply to group life insurance policies.

  (3) If the group life insurance policy is on a plan of insurance other than the term plan, it shall contain a nonforfeiture provision or provisions which in the opinion of the commissioner is or are equitable to the insured persons and to the policyholder, but nothing herein shall be construed to require that group life insurance policies contain the same nonforfeiture provisions as are required for individual life insurance policies. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 12).)

• § 3813. Grace period

  The group life insurance policy shall contain a provision that the policyholder is entitled to a grace period of 31 days for the payment of any premium due except the first, during which grace period the death benefit coverage shall continue in force, unless the policyholder shall have given the insurer written notice of discontinuance in advance of the date of discontinuance and in accordance with the terms of the policy. The policy may provide that the policyholder shall be liable to the insurer for the payment of a pro rata premium for the time the policy was in force during such grace period. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 13).)

• § 3814. Incontestability

  The group life insurance policy shall contain a provision that the validity of the policy shall not be contested, except for nonpayment of premium, after it has been in force for two years from its date of issue; and that no statement made by any person insured under the policy relating to his or her insurability shall be used in contesting the validity of the insurance with respect to which such statement was made after such insurance has been in force prior to the contest for a period of two years during such person’s lifetime nor unless it is contained in a written instrument signed by him or her. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 14).)

• § 3815. Application; statements deemed representations

  The group life insurance policy shall contain a provision that a copy of the application, if any, of the policyholder shall be attached to the policy when issued and become a part of the contract; that all statements made by the policyholder or by the persons insured shall be deemed representations and not warranties, and that no statement made by any person insured shall be used in any contest unless a copy of the instrument containing the statement is or has been furnished to such person or to his beneficiary. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 15).)

• § 3816. Insurability

  The group life insurance policy shall contain a provision setting forth the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of his or her coverage. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 16).)

• § 3817. Misstatement of age

  The group life insurance policy shall contain a provision specifying an equitable adjustment of premiums or of benefits or of both to be made in the event the age of a person insured has been misstated, such provision to contain a clear statement of the method of adjustment to be used. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 17).)

• § 3818. Payment of benefits

  The group life insurance policy shall contain a provision that any sum becoming due by reason of the death of the person insured shall be payable to the beneficiary designated by the person insured, subject to the provisions of the policy in the event there is no designated beneficiary as to all or any part of such sum living at the death of the person insured, and subject to any right reserved by the insurer in the policy and set forth in the certificate to pay at its option a part of such sum not exceeding $500.00 to any person appearing to the insurer to be equitably entitled thereto by reason of having incurred funeral or other expenses incident to the last illness or death of the person insured. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 18).)

• § 3819. Certificate

  The group life insurance policy shall contain a provision that the insurer will issue to the policyholder for delivery to each person insured an individual certificate setting forth a statement as to the insurance protection to which he or she is entitled, to whom the insurance benefits are payable and the rights and conditions set forth in sections 3820, 3821, and 3822 of this title. (1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 19).)

• § 3820. Conversion on termination of eligibility

  There shall be a provision that if the insurance or any portion of it, on a person covered under the policy ceases because of termination of employment or of membership in the class or classes eligible for coverage under the policy, such person shall be entitled to have issued to him or her by the insurer, without evidence of insurability, an individual policy of life insurance without disability or other supplementary benefits, provided application for the individual policy shall be made, and the first premium paid to the insurer, within 31 days after such termination, and provided further that:

  (1) The individual policy shall, at the option of such person, be on any one of the forms, except term insurance, then customarily issued by the insurer at the age and for the amount applied for.

  (2) The individual policy shall be in an amount not in excess of the amount of life insurance which ceases because of such termination less the amount of any life insurance for which such person is or becomes eligible under the same or any other group policy within 31 days after such termination, provided that any amount of insurance which shall have matured on or before the date of such termination as an endowment payable to the person insured, whether in one sum or in installments or in the form of an annuity, shall not, for the purposes of this provision, be included in the amount which is considered to cease because of such termination.

  (3) The premium on the individual policy shall be at the insurer’s then customary rate applicable to the form and amount of the individual policy, to the class of risk to which such person then belongs, and to his or her age attained on the effective date of the individual policy. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 20).)

• § 3821. Conversion on termination of policy

  The group life insurance policy shall contain a provision that if the group policy terminates or is amended so as to terminate the insurance of any class of insured persons, every person insured thereunder at the date of such termination whose insurance terminates and who has been so insured for at least five years prior to such termination date shall be entitled to have issued to him or her by the insurer an individual policy of life insurance, subject to the same conditions and limitations as are provided by section 3820 of this title except that the group policy may provide that the amount of such individual policy shall not exceed the smaller of:

  (1) the amount of the person’s life insurance protection ceasing because of the termination or amendment of the group policy, less the amount of any life insurance for which he or she is or becomes eligible under any group policy issued or reinstated by the same or another insurer within 31 days after such termination; or

  (2) $2,000.00. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 21).)

• § 3822. Death pending conversion

  The group life insurance policy shall contain a provision that if a person insured under the policy dies during the period within which he or she would have been entitled to have an individual policy issued to him or her in accordance with section 3820 or 3821 of this title and before such an individual policy shall have become effective, the amount of life insurance which he or she would have been entitled to have issued to him or her under such individual policy shall be payable as a claim under the group policy, whether or not application for the individual policy or the payment of the first premium therefor has been made. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 22).)

• § 3823. Notice as to conversion right

  If any individual insured under a group life insurance policy hereafter delivered in this State becomes entitled under the terms of such policy to have an individual policy of life insurance issued to him or her without evidence of insurability, subject to making of application and payment of the first premium within the period specified in such policy, and if such individual is not given notice of the existence of such right at least 15 days prior to the expiration date of such period, then, in such event the individual shall have an additional period within which to exercise such right, but nothing herein contained shall be construed to continue any insurance beyond the period provided in such policy. This additional period shall expire 15 days next after the individual is given such notice but in no event shall such additional period extend beyond 60 days next after the expiration date of the period provided in such policy. Written notice presented to the individual or mailed by the policyholder to the last known address of the individual or mailed by the insurer to the last known address of the individual as furnished by the policyholder shall constitute notice for the purpose of this section. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 23).)

• § 3824. Readjustment of premium

  Any group life insurance contract may provide for a readjustment of the premium rate based upon the experience thereunder. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 24).)

• § 3825. Application of dividends, rate reductions

  If a policy dividend is hereafter declared or a reduction in rate is hereafter made or continued for the first or any subsequent year of insurance under any policy of group life insurance heretofore or hereafter issued to any policyholder, the excess, if any, of the aggregate dividends or rate reductions under such policy and all other group insurance policies of the policyholder over the aggregate expenditure for insurance under such policies made from funds contributed by the policyholder, or by an employer of insured persons, or by a union or association to which the insured persons belong, including expenditures made in connection with administration of such policies, shall be applied by the policyholder for the sole benefit of insured employees or members. (Added 1967, No. 344 (Adj. Sess.), § 1 (ch. 2, subch. 6, § 25).)

• Subchapter 005A: VIATICAL SETTLEMENTS

• §§ 3826-3834. Repealed. 2009, No. 53, § 5, eff. January 1, 2010.

• Subchapter 005B: LIFE SETTLEMENTS

• § 3835. Definitions

  As used in this subchapter:

  (1) “Advertising” means any written, electronic, or printed communication or any communication by means of recorded telephone messages or that is transmitted on radio, television, the Internet, or similar communications media, including film strips, motion pictures, and videos, that are published, disseminated, circulated, or placed directly before the public in this State for the purpose of creating an interest in or inducing a person to sell, assign, devise, bequest, or transfer the death benefit or ownership of a life insurance policy pursuant to a life settlement contract.

  (2) “Business of life settlements” means an activity involved in, but not limited to, the offering, soliciting, negotiating, procuring, effectuating, financing, monitoring, tracking, administering, underwriting, selling, transferring, assigning, pledging, hypothecating, or in any other manner acquiring an interest in a life insurance policy by means of a life settlement contract.

  (3) “Chronically ill” means:

  (A) being unable to perform at least two activities of daily living, including eating, toileting, transferring, bathing, dressing, or continence;

  (B) requiring substantial supervision to protect the individual from threats to health and safety due to intellectual disability; or

  (C) having a level of disability similar to that described in subdivision (A) of this subdivision (3) as determined by the appropriate administrator of a state or federal public disability insurance or benefit program.

  (4) “Commissioner” means the Commissioner of Financial Regulation.

  (5)(A) “Financing entity” means an insurance underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a life settlement provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a life settlement contract, but:

  (i) whose principal activity related to the transaction is providing funds to effect the life settlement or purchase of one or more policies subject to a life settlement contract; and

  (ii) who has an agreement with one or more licensed life settlement providers to finance the acquisition of life settlement contracts.

  (B) “Financing entity” does not include a life settlement purchaser.

  (C) “Financing entity” includes an accredited investor as defined by Rule 501 as promulgated under the Federal Securities Act of 1933, as amended.

  (6) “Fraudulent life settlement act” includes:

  (A) acts or omissions committed by any person who knowingly or who reasonably should know and, for the purpose of depriving another of property or for pecuniary gain, commits or permits its employees or its agents to engage in acts, including:

  (i) presenting, causing to be presented, or preparing with knowledge or belief that it will be presented to or by a life settlement provider, life settlement broker, financing entity, insurer, insurance producer, or any other person false material information or concealing material information, as part of, in support of, or concerning a fact material to one or more of the following:

  (I) an application for the issuance of a life settlement contract or insurance policy;

  (II) the underwriting of a life settlement contract or insurance policy;

  (III) a claim for payment or benefit pursuant to a life settlement contract or insurance policy;

  (IV) premiums paid on an insurance policy;

  (V) payments and changes in ownership or beneficiary made in accordance with the terms of a life settlement contract or insurance policy;

  (VI) the reinstatement or conversion of an insurance policy;

  (VII) the solicitation, offer, effectuation, or sale of a life settlement contract or insurance policy;

  (VIII) the issuance of written evidence of a life settlement contract or insurance; or

  (IX) a financing transaction; and

  (ii) employing any plan, financial structure, device, scheme, or artifice to defraud related to policies subject to a life settlement contract.

  (B) any person in the furtherance of a fraudulent settlement act or to prevent the detection of a fraudulent settlement act committing or permitting its employees or its agents to:

  (i) remove, conceal, alter, destroy, or sequester from the Commissioner the assets or records of a licensee or other person engaged in the business of life settlements;

  (ii) misrepresent or conceal the financial condition of a licensee, financing entity, insurer, or other person;

  (iii) transact the business of life settlements in violation of laws requiring a license, certificate of authority, or other legal authority for the transaction of the business of life settlements; or

  (iv) file with the Commissioner or the equivalent chief insurance regulatory official of another jurisdiction a document that contains false information or that otherwise conceals information about a material fact from the Commissioner;

  (C) embezzlement, theft, misappropriation, or conversion of monies, funds, premiums, credits, or other property of a life settlement provider, insurer, insured, policy owner, insurance policy owner, or any other person engaged in the business of life settlements or insurance;

  (D) recklessly entering into, negotiating, brokering, or otherwise dealing in a life settlement contract, the subject of which is a life insurance policy that was obtained by presenting false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information concerning any fact material to the policy, where the person or the persons intended to commit a fraudulent settlement act with respect to the policy’s issuer, the life settlement provider, or the owner;

  (E) facilitating the change of state of ownership of a policy or certificate or the state of residency of a policy owner to a state or jurisdiction that does not have a law similar to this subchapter for the express purposes of evading or avoiding the provisions of this subchapter;

  (F) attempting to commit, assisting, aiding, or abetting in the commission of or conspiracy to commit the acts or omissions specified in this subdivision (6).

  (7) “Life insurance producer” means any person licensed in this State as a resident or nonresident insurance producer who has received qualification to sell life insurance coverage or a life line of coverage pursuant to chapter 131 of this title.

  (8) “Life settlement broker” means a natural person who is working exclusively on behalf of a policy owner and, for a fee, commission, or other valuable consideration, offers or attempts to negotiate life settlement contracts between an owner and one or more life settlement providers. Notwithstanding the manner in which the life settlement broker is compensated, a life settlement broker is deemed to represent only the policy owner and not the insurer or the life settlement provider and to owe a fiduciary duty to the policy owner to act according to the policy owner’s instructions and in the best interest of the policy owner. The term does not include an attorney or a certified public accountant who is retained to represent the policy owner and whose compensation is not paid directly or indirectly by the life settlement provider or purchaser.

  (9)(A) “Life settlement contract” means a written agreement between a policy owner and a life settlement provider or any affiliate of the life settlement provider establishing the terms under which compensation or anything of value is or will be paid, which compensation or value is less than the expected death benefits of the policy, in return for the policy owner’s present or future assignment, transfer, sale, devise, or bequest of the death benefit or ownership of any portion of the insurance policy or certificate of insurance.

  (B) “Life settlement contract” includes a premium finance loan made for a life insurance policy by a lender to a policy owner on, before, or after the date of issuance of the policy where:

  (i) the policy owner or the insured receives on the date of the premium finance loan a guarantee of a future life settlement value of the policy; or

  (ii) the policy owner or the insured agrees on the date of the premium finance loan to sell the policy or any portion of its death benefit on any date following the issuance of the policy.

  (C) “Life settlement contract” does not include:

  (i) a policy loan or accelerated death benefit made by the insurer pursuant to the policy’s terms;

  (ii) loan proceeds that are used solely to pay:

  (I) premiums for the policy;

  (II) the costs of the loan, including, without limitation, interest, arrangement fees, utilization fees and similar fees, closing costs, legal fees and expenses, trustee fees and expenses, and third party collateral provider fees and expenses, including fees payable to letter of credit issuers;

  (iii) a loan made by a bank or other licensed financial institution in which the lender takes an interest in a life insurance policy solely to secure repayment of a loan or, if there is a default on the loan and the policy is transferred, the transfer of such a policy by the lender, provided that the default itself is not pursuant to an agreement or understanding with any other person for the purpose of evading regulation under this subchapter;

  (iv) a loan made by a lender that does not violate chapter 143 of this title, provided that the premium finance loan is not described in subdivision (B) of this subdivision (9);

  (v) an agreement where all the parties are closely related to the insured by blood or law; or have a lawful substantial economic interest in the continued life, health, and bodily safety of the person insured, or are trusts established primarily for the benefit of such parties;

  (vi) any designation, consent, or agreement by an insured who is an employee of an employer in connection with the purchase by the employer, or trust established by the employer, of life insurance on the life of the employee;

  (vii) a bona fide business succession planning arrangement:

  (I) between two or more shareholders in a corporation or between a corporation and one or more of its shareholders or one or more trusts established by its shareholders;

  (II) between two or more partners in a partnership or between a partnership and one or more of its partners or one or more trusts established by its partners; or

  (III) between two or more members in a limited liability company or between a limited liability company and one or more of its members or one or more trusts established by its members;

  (viii) an agreement entered into by a service recipient, or a trust established by the service recipient and a service provider, or a trust established by the service provider who performs significant services for the service recipient’s trade or business; or

  (ix) any other contract, transaction, or arrangement exempted from the definition of life settlement contract by the Commissioner by rule or order based on a determination that the contract, transaction, or arrangement is not of the type intended to be regulated by this subchapter.

  (10) “Life settlement investment agent” means a person who is an appointed or contracted agent of a licensed life settlement provider who solicits or arranges the funding for the purchase of a life settlement by a life settlement purchaser and who is acting on behalf of a life settlement provider.

  (11)(A) “Life settlement provider” means a person other than a policy owner that solicits, enters into, or effectuates a life settlement contract with a policy owner resident in this State.

  (B) “Life settlement provider” does not include:

  (i) a bank, savings bank, savings and loan association, credit union, or other licensed lending institution that takes an assignment of a life insurance policy solely as collateral for a loan;

  (ii) a premium finance company making premium finance loans and exempted by the Commissioner from the licensing requirement under the premium finance laws that takes an assignment of a life insurance policy solely as collateral for a loan;

  (iii) the issuer of the life insurance policy;

  (iv) an authorized or eligible insurer that provides stop loss coverage or financial guaranty insurance to a life settlement provider, purchaser, financing entity, special purpose entity, or related provider trust;

  (v) a financing entity;

  (vi) a special purpose entity;

  (vii) a related provider trust;

  (viii) a life settlement purchaser; or

  (ix) any other person that the Commissioner determines by rule or order is not the type of person intended to be covered by the definition of life settlement provider.

  (12)(A) “Life settlement purchaser” means a person who provides a sum of money as consideration for a life insurance policy or an interest in the death benefits of a life insurance policy, or a person who owns or acquires or is entitled to a beneficial interest in a trust that owns a life settlement contract or is the beneficiary of a life insurance policy that has been or will be the subject of a life settlement contract, for the purpose of deriving an economic benefit.

  (B) “Life settlement purchaser” does not include:

  (i) an accredited investor or qualified institutional buyer as defined, respectively, in Rule 501(a) or Rule 144A promulgated under the Federal Securities Act of 1933, as amended;

  (ii) a financing entity;

  (iii) a special purpose entity; or

  (iv) a related provider trust.

  (13) “Policy” means an individual or group policy, group certificate, contract, or arrangement of life insurance owned by a resident of this State, regardless of whether delivered or issued for delivery in this State.

  (14)(A) “Policy owner” means the owner of a life insurance policy or a certificate holder under a group policy who resides in this State and enters or seeks to enter into a life settlement contract. For the purposes of this subchapter, a policy owner shall not be limited to an owner of a life insurance policy or a certificate holder under a group policy insuring the life of an individual with a terminal or chronic illness or condition. If there is more than one policy owner on a single policy and the policy owners are residents of different states, the transaction shall be governed by the law of the state in which the policy owner having the largest percentage ownership resides or, if the policy owners hold equal ownership, the state of residence of one policy owner agreed upon in writing by all the policy owners.

  (B) “Policy owner” does not include a:

  (i) qualified institutional buyer as defined in Rule 144A promulgated under the Federal Securities Act of 1933, as amended;

  (ii) a financing entity;

  (iii) a special purpose entity;

  (iv) a related provider trust;

  (v) a purchaser of a purchased policy.

  (15) “Purchased policy” means a life insurance policy or certificate that has been acquired by a life settlement provider pursuant to a life settlement contract.

  (16) “Related provider trust” means a titling trust or other trust established by a licensed life settlement provider or a financing entity for the sole purpose of holding the ownership or beneficial interest in purchased policies in connection with a financing transaction. The trust shall have a written agreement with the licensed life settlement provider under which the licensed life settlement provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files related to life settlement transactions available to the Commissioner as if those records and files were maintained directly by the licensed life settlement provider.

  (17) “Special purpose entity” means a corporation, partnership, trust, limited liability company, or other similar entity formed solely to provide either directly or indirectly access to institutional capital markets:

  (A) for a financing entity or licensed life settlement provider; or

  (B)(i) in connection with a transaction in which the securities in the special purposes entity are acquired by the owner or by “qualified institutional buyers” as defined in Rule 144A promulgated under the Securities Act of 1933, as amended, and in which the securities are sold in compliance with 9 V.S.A. chapter 150 (the Vermont Uniform Securities Act) and the orders and rules adopted or issued thereunder; or

  (ii) in connection with a transaction in which the securities pay a fixed rate of return commensurate with established asset-backed institutional capital markets and in which the securities are sold in compliance with 9 V.S.A. chapter 150 (the Vermont Uniform Securities Act) and the orders and rules adopted or issued thereunder.

  (18) “Stranger-originated life insurance,” or “STOLI,” means an act or acts, practice or an arrangement to initiate a life insurance policy in the name of a resident of this State for the benefit of a third party who, at the time of policy origination, has no insurable interest under the laws of this State in the life of the insured. STOLI practices include cases in which life insurance is purchased with resources or guarantees from or through a person or entity who, at the time of policy inception, could not lawfully initiate the policy himself, herself, or itself and where, at the time of policy inception, there is an arrangement or agreement, whether verbal or written, to directly or indirectly transfer the ownership of the policy or the policy benefits to a third party. Trusts that are created to give the appearance of insurable interest and are used to initiate policies for investors violate insurable interest laws and the prohibition against wagering on life. STOLI arrangements do not include those practices set forth in subdivision (9)(C) of this section.

  (19) “Terminally ill” means having an illness or sickness that can reasonably be expected to result in death in 24 months or less.

  (20) “Viator” means any person who owns, controls, or has rights to the benefits or values of a life insurance policy or who owns, is covered by, controls, or has rights to the benefits or values of a group policy, either of which insures the life of a person who is terminally or chronically ill or has a life-threatening illness or condition and who enters into an agreement under which the life settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the assignment, transfer, sale, devise, or bequest of the death benefit or ownership of the insurance policy or certificate to the life settlement provider. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010; amended 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012; 2013, No. 96 (Adj. Sess.), § 16.)

• § 3836. License and bond requirements

  (a) Life settlement providers.

  (1) No person shall operate as a life settlement provider without first obtaining a license from the Commissioner.

  (2) Application for a life settlement provider license shall be made to the Commissioner by the applicant on a form prescribed by the Commissioner, and the application shall be accompanied by an application fee of $50.00 and a license fee of $400.00.

  (3) Licenses may be renewed from year to year on a date prescribed by the Commissioner of the odd-numbered year next following the date of issuance upon payment of a biennial renewal fee of $400.00. Failure to pay the fee by the renewal date shall result in expiration of the license.

  (4) The applicant shall provide information on forms required by the Commissioner. The Commissioner shall have authority at any time to require the applicant to disclose fully the identity of all stockholders, partners, officers, members, and employees, and the Commissioner may, in the exercise of the Commissioner’s discretion, refuse to issue a license in the name of a legal entity if not satisfied that any officer, employee, stockholder, partner, or member thereof who may materially influence the applicant’s conduct meets the standards of this subchapter.

  (5) Upon the filing of an application and the payment of the license fee, the Commissioner shall make an investigation of each applicant and issue a license if the Commissioner finds that the applicant:

  (A) Has provided a detailed and sound plan of operation.

  (B) Is competent and trustworthy and intends to act in good faith in the capacity involved by the license applied for.

  (C) Has a good business reputation and has had experience, training, or education so as to be qualified in the business for which the license is applied for.

  (D) Has demonstrated evidence of financial responsibility in a format and in substance as prescribed by the Commissioner through a surety bond executed and issued by an insurer authorized to issue surety bonds in this State in the amount set forth below, or a letter of credit in the amount set forth below on a form and in a manner approved by the Commissioner, or such other amount as the Commissioner may require. The Commissioner may ask for evidence of financial responsibility at any time the Commissioner deems necessary. Any surety bond or letter of credit issued pursuant to this subdivision shall be solely in the favor of this state and shall specifically authorize recovery by the Commissioner on behalf of any person in this State who sustained damages as the result of erroneous acts, failure to act, conviction of fraud, or conviction of unfair practices by the life settlement provider. The minimum amount of the bond or letter of credit shall be based on the annual aggregate life settlement payments attributable to the licensee to policy owners in Vermont, as follows. The Commissioner may adjust by rule the ranges established below if necessary to be consistent with the aggregate payment data filed in annual statements pursuant to section 3839 of this title:

  (i) $0.00 to $1,000,000.00, a bond or letter of credit not less than $50,000.00;

  (ii) $1,000,000.01 to $15,000,000.00, a bond or letter of credit not less than $100,000.00;

  (iii) $15,000,000.00 or more, a bond or letter of credit not less than $150,000.00.

  (E) Has provided an anti-fraud plan that meets the requirements of section 3847 of this subchapter.

  (6) The Commissioner shall not issue a license to a nonresident applicant unless a written designation of an agent for service of process is filed and maintained with the Secretary of State or the applicant has filed with the Commissioner the applicant’s written irrevocable consent that any action against the applicant may be commenced against the applicant by service of process on the Secretary of State, in accordance with 11 V.S.A. § 1633.

  (7) A life settlement provider shall provide to the Commissioner new or revised information about officers, stockholders holding 10 percent or more, partners, directors, members, or designated employees within 30 days of the change.

  (b) Life settlement broker.

  (1) A person shall not operate as a life settlement broker without first obtaining a license from the Commissioner.

  (2) A person licensed as an attorney or certified public accountant who is retained to represent the policy owner and whose compensation is not paid directly or indirectly by the life settlement provider may negotiate life settlement contracts on behalf of the policy owner without having to obtain a license as a life settlement broker.

  (3) Application for a life settlement broker license shall be made to the Commissioner by the applicant on a form prescribed by the Commissioner, and the application shall be accompanied by an application fee of $30.00 and a license fee of $100.00.

  (4) Licenses may be renewed by the Commissioner on the even-numbered year next following the date of issuance upon payment of a biennial renewal fee of $100.00. Failure to pay the fee by the renewal date shall result in expiration of the license.

  (5) The applicant shall provide information on forms required by the Commissioner.

  (6) Upon the filing of an application and the payment of the license fee, the Commissioner shall make an investigation of each applicant and issue a license if the Commissioner finds that the applicant:

  (A) Is competent and trustworthy.

  (B) Has a good business reputation and has had at least two years’ prior experience as a licensed life insurance producer.

  (C) Has demonstrated evidence of financial responsibility in a format and in substance as prescribed by the Commissioner through a surety bond executed and issued by an insurer authorized to issue surety bonds in this State in the amount set forth below, or a letter of credit in the amount set forth below on a form and in a manner approved by the Commissioner, or such other amount as the Commissioner may require. The Commissioner may ask for evidence of financial responsibility at any time the Commissioner deems necessary. Any surety bond or letter of credit issued pursuant to this subdivision shall be solely in the favor of this State and shall specifically authorize recovery by the Commissioner on behalf of any person in this State who sustained damages as the result of erroneous acts, failure to act, conviction of fraud, or conviction of unfair practices by the life settlement broker. The minimum amount of the bond or letter of credit shall be based on the annual aggregate life settlement payments attributable to the licensee to policy owners in Vermont, as follows. The Commissioner may adjust by rule the ranges established below if necessary to be consistent with the aggregate payment data filed in annual statements pursuant to section 3839 of this title:

  (i) $0.00 to $2,000,000.00, a bond or letter of credit not less than $25,000.00;

  (ii) $2,000,000.01 to $5,000,000.00, a bond or letter of credit not less than $50,000.00;

  (iii) $5,000,000.01 to $15,000,000.00, a bond or letter of credit not less than $75,000.00; and

  (iv) $15,000,000.01 and more, a bond or letter of credit not less than $100,000.00.

  (7) The Commissioner shall not issue a license to a nonresident applicant unless a written designation of an agent for service of process is filed and maintained with the Commissioner or the applicant has filed with the Commissioner the applicant’s written irrevocable consent that any action against the applicant may be commenced against the applicant by service of process on the Secretary of State, in accordance with 11 V.S.A. § 1633.

  (8) An individual licensed as a life settlement broker shall complete on a biennial basis an additional 15 hours of life insurance producer training related to life settlements and life settlement transactions as determined by the Commissioner. Such additional training requirements shall be approved for education under section 4800a of this title. Any person failing to meet the requirements of this subsection shall be subject to the penalties imposed by the Commissioner.

  (9) No life settlement broker may charge or receive a fee, a commission, or other valuable consideration in excess of two percent of the amount paid by the life settlement company to the policy owner on a policy that is the subject of the life settlement broker’s services. Upon the written request of the life settlement broker and after conferring with the policy owner, the Commissioner may approve another rate of compensation as reasonable and appropriate under highly unusual circumstances.

  (c) The insurer that issued the policy subject to a life settlement shall not be responsible for any act or omission of a life settlement broker or life settlement provider arising out of or in connection with the life settlement transaction unless the insurer receives compensation for the placement of a life settlement contract from the life settlement provider or life settlement broker in connection with the life settlement contract. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3837. License revocation and denial

  (a) Life settlement providers. The Commissioner may suspend or revoke and may refuse to issue or renew the license of a life settlement provider if the Commissioner finds that:

  (1) there was any material misrepresentation in the application for the license;

  (2) the licensee or any officer, partner, member, or key management personnel have been convicted of fraudulent or dishonest practices or are subject to a civil judicial adjudication under federal, foreign, or State law or to an administrative action issued by any jurisdiction showing the licensee or any officer, partner, member, or key management personnel to be untrustworthy or incompetent;

  (3) the licensee demonstrates a pattern of unreasonable payments to policy owners;

  (4) the licensee or any officer, partner, member, or key management personnel have been found guilty of or have pleaded guilty or nolo contendere to any felony or to a misdemeanor involving fraud or moral turpitude, regardless of whether a judgment of conviction has been entered by the court;

  (5) the licensee has entered into any life settlement contract that has not been approved pursuant to this subchapter;

  (6) the licensee has failed to honor contractual obligations set out in a life settlement contract;

  (7) the licensee no longer meets the requirements for initial licensure;

  (8) the licensee has assigned, transferred, or pledged a policy subject to a life settlement contract to a person other than a life settlement provider licensed in this state, an accredited investor or qualified institutional buyer as defined respectively in Rule 501(a) or Rule 144A promulgated under the Federal Securities Act of 1933, as amended, a financing entity, a special purpose entity, or a related provider trust;

  (9) the licensee or any officer, partner, member, or key management personnel has violated any provision of this subchapter or a rule adopted or order issued under this subchapter;

  (10) the licensee or any officer, partner, member, or key management personnel have violated any provision of 9 V.S.A. chapter 150 (the Vermont Uniform Securities Act); or

  (11) the licensee has, in the conduct of his or her affairs, used fraudulent, coercive, or dishonest practices or has shown himself or herself to be incompetent, untrustworthy or financially irresponsible.

  (b) Life settlement brokers. The Commissioner may refuse to issue or renew or may suspend or revoke the license of a life settlement broker if the Commissioner finds that:

  (1) there was any material misrepresentation in the application for the license;

  (2) the licensee has been convicted of fraudulent or dishonest practices or is subject to a civil judicial adjudication under federal, foreign, or State law or to an administrative action issued by any jurisdiction showing the licensee or any officer, partner, member, or key management personnel to be untrustworthy or incompetent;

  (3) the licensee has been found guilty of or has pleaded guilty or nolo contendere to any felony or to a misdemeanor involving fraud, dishonesty, breach of trust, or moral turpitude, regardless of whether a judgment of conviction has been entered by the court;

  (4) the licensee no longer meets the requirements for initial licensure;

  (5) the licensee has engaged in any one or more of the acts or conditions set forth in subsection 4804(a) of this title;

  (6) the licensee has violated any provision of this subchapter or a rule adopted or order issued under this subchapter;

  (7) the licensee or any officer, partner, member, or key management personnel have violated any provision of 9 V.S.A. chapter 150 (the Vermont Uniform Securities Act); or

  (8) the licensee has otherwise engaged in bad-faith conduct with one or more policy owners. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3838. Approval of life settlement contracts, disclosure statements, and related forms

  (a) A person shall not use a life settlement contract form or related form or provide to a policy owner in this State any of the disclosure statement forms required by subsections 3841(a), (b), and (c) of this title unless such forms are first filed with and approved by the Commissioner. Related forms include the statement of attending physician required by subdivision 3843(a)(1)(A) of this title; the medical records release form required by subdivision 3843(a)(1)(B) of this title; the policy owner’s statement of understanding form required by subdivision 3843(a)(5) of this title; any application form to be used by the policy owner to request a life settlement; any advertising material that the Commissioner, in his or her discretion, requires to be filed; and such other forms as the Commissioner may prescribe by rule or order.

  (b) The Commissioner shall disapprove a life settlement contract form, disclosure statement form, or related form if, in the Commissioner’s judgment, the contract or provisions contained therein fail to meet the requirements of sections 3841, 3843, 3846, and subsection 3847(b) of this title or are unreasonable, contrary to the interests of the public, or otherwise misleading or unfair to the policy owner. Any notice of disapproval of such form shall state the grounds therefore and shall state that a hearing will be granted within 20 days upon request of the filer who requests a hearing within 30 days of the date of the notice of disapproval.

  (c) Any life settlement contract form, disclosure statement form, or related form filed with the Commissioner shall be deemed approved if it has not been disapproved within 60 days of the filing. The Commissioner may extend by not more than 30 additional days the period within which affirmative approval or disapproval of any such form may be given by notifying the life settlement provider or life settlement broker of such extension before expiration of the initial 60-day period.

  (d) The Commissioner may at any time, after notice and for cause shown, withdraw approval of a previously approved contract form, disclosure statement form, or related form. Any order of the Commissioner withdrawing a previous approval shall state the grounds therefor in such detail as reasonably to inform the filer thereof. Any such withdrawal of a previously approved form shall be effective at the expiration of such period not less than 30 days after the giving of notice of withdrawal as the commissioner shall in such notice prescribe. Any demand for a hearing relative to the Commissioner’s withdrawal of approval of a form which has been received by the Commissioner prior to the effective date of such withdrawal shall stay such action pending the hearing thereon.

  (e) The forms required to be filed by this section shall be filed in a manner prescribed by the Commissioner. Filings shall be accompanied by payment to the Commissioner of a nonrefundable fee of $50.00 for each form submitted. (Added 2009, No. 53, § 1, eff. Jan. 2010.)

• § 3839. Reporting requirements and privacy

  (a) Each life settlement provider shall file with the Commissioner on or before March 1 of each year an annual statement containing such information as the Commissioner may prescribe by rule or order. Information relating to life settlement transactions shall be limited to only those transactions where the policy owner is a resident of this State. Upon proper request by the filer, the Commissioner shall keep confidential trade secret information exempt from public inspection and copying under 1 V.S.A. § 317(c)(9). The annual statement shall not contain individually identifiable life settlement transaction information, but such information shall be provided to the Commissioner pursuant to section 3840 of this title. If available to the provider because of the provider’s business relationship or affiliation with one or more life settlement purchasers, the annual statement shall also include such information as the Commissioner may prescribe by rule or by order concerning life settlement purchase agreements or similar investment contracts entered into by residents of this State.

  (b) A life settlement provider, life settlement broker, insurance company, life insurance producer, information bureau, rating agency or company, or any other person with actual knowledge of an insured’s or a policy owner’s identity shall be subject to the department’s Regulation No. IH-2001-I “Privacy of Consumer Financial and Health Information,” as amended. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010; amended 2015, No. 29, § 8.)

• § 3840. Investigations and examinations

  (a) The Commissioner, in addition to all powers granted pursuant to chapter 1 of this title, may examine the business and affairs of any licensee or applicant for a license whenever he or she deems it to be prudent for the protection of policyholders or the public. The Commissioner shall have the authority to examine any person and to order the production of any records, books, files or other information reasonably necessary to ascertain whether the licensee or applicant is acting or has acted in violation of the law or otherwise contrary to the interests of the public. The expenses incurred in conducting any examination shall be paid by the licensee or applicant.

  (b) A person required to be licensed by this subchapter shall for five years following the death of the insured retain copies of all:

  (1) proposed, offered, or executed contracts, purchase agreements, underwriting documents, policy forms, and applications from the date of the proposal, offer, or execution of the contract or purchase agreement, whichever is later;

  (2) all checks, drafts, or other evidence and documentation related to the payment, transfer, deposit, or release of funds from the date of the transaction; and

  (3) all other records and documents related to the requirements of this subchapter.

  (c) Except as otherwise provided in this subchapter, all examination reports, working papers, recorded information, documents and copies thereof produced by, obtained by, or disclosed to the Commissioner or any other person in the course of an examination or investigation made under this subchapter or in the course of analysis or investigation by the Commissioner of the financial condition or market conduct of a licensee shall be confidential by law and privileged, shall not be subject to disclosure as a public record under 1 V.S.A. § 317, shall not be subject to subpoena, and shall not be subject to discovery or admissible in evidence in any private civil action. The Commissioner is authorized to use the documents, materials, or other information in the furtherance of any regulatory or legal action brought as part of the Commissioner’s official duties.

  (d) The expense incurred in conducting any examination shall be paid by the licensee or applicant. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3841. Disclosure to policy owner

  (a) With each application for a life settlement, a life settlement provider or a life settlement broker shall provide the policy owner with at least the following disclosures not less than 10 days prior to the time the application for the life settlement contract is signed by all parties. The disclosures shall be provided in a separate document that is signed by the policy owner and the life settlement provider or life settlement broker and shall include the following information:

  (1) There are possible alternatives to life settlement contracts, including any accelerated death benefits or policy loans offered under the policy owner’s life insurance policy.

  (2) That a life settlement broker represents exclusively the policy owner and not the insurer or the life settlement provider and owes a fiduciary duty to the policy owner, including a duty to act according to the policy owner’s instructions and in the best interest of the policy owner.

  (3) Some or all of the proceeds of the life settlement may be taxable under federal income tax and state franchise and income tax laws, and assistance should be sought from a professional tax advisor.

  (4) Proceeds of the life settlement could be subject to the claims of creditors.

  (5) Receipt of the proceeds of a life settlement may adversely affect the policy owner’s eligibility for Medicaid or other government benefits or entitlements, and advice should be obtained from the appropriate government agencies.

  (6) The policy owner has the right to rescind a life settlement contract before 30 calendar days after the date upon which the life settlement contract is executed by all parties. Rescission, if exercised by the policy owner, is effective only if both notice of the rescission is given and the policy owner repays all proceeds and any premiums, loans, and loan interest paid on account of the life settlement within the rescission period. If the insured dies during the rescission period, the life settlement contract shall be deemed to have been rescinded, subject to repayment by the policy owner or the policy owner’s estate of all life settlement proceeds and any premiums, loans, and loan interest on the life settlement within 60 days of the insured’s death.

  (7) Funds will be sent to the policy owner within three business days after the life settlement provider has received the insurer or group administrator’s written acknowledgment that ownership of the policy or interest in the certificate has been transferred and that the beneficiary has been designated.

  (8) Entering into a life settlement contract may cause other rights or benefits, including conversion rights and waiver of premium benefits that may exist under the policy or certificate, to be forfeited by the policy owner. Assistance should be sought from an independent, qualified professional with experience in these matters.

  (9) Disclosure to a policy owner shall include distribution of a brochure approved by the Commissioner describing the process of life settlements.

  (10) The disclosure document shall contain the following language: “All medical, financial, or personal information solicited or obtained by a life settlement provider or life settlement broker about an insured, including the insured’s identity or the identity of family members, a spouse or party to a civil union or a significant other may be disclosed as necessary to effect the life settlement between the policy owner and the life settlement provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase who may not be obligated to protect and keep the information confidential. You may be asked to renew your permission to share information every two years.”

  (11) Following execution of a life settlement contract, the insured may be contacted for the purpose of determining the insured’s health status and to confirm the insured’s residential or business street address and telephone number, or as otherwise provided in this subchapter. This contact shall be limited to once every three months if the insured has a life expectancy of six months or more, and no more than once every two months if the insured has a life expectancy of six months or less. All such contracts shall be made only by a life settlement provider licensed in the state in which the policy owner resided at the time of the life settlement or by the authorized representative of such duly licensed life settlement provider.

  (12) No broker shall have a financial relationship or affiliation with a life settlement provider unless the broker fully discloses such relationship or affiliation, and the manner and amount of the broker’s compensation. A broker shall not participate in or form a financial arrangement or affiliation with a life settlement provider if such arrangement or affiliation conflicts with the broker’s fiduciary duty to the policy owner.

  (b)(1) A life settlement provider shall provide the policy owner with at least the following disclosures no later than 10 days before the date the life settlement contract is signed by all parties. The disclosures shall be conspicuously displayed in the life settlement contract or in a separate document signed by the policy owner and provide the following information:

  (A) unless previously disclosed under subsection (a) of this section, the affiliation, if any, between the life settlement provider and the issuer of the insurance policy to be subject to the life settlement contract;

  (B) the name, business address, and telephone number of the life settlement provider;

  (C) any affiliations or contractual arrangements between the life settlement provider and the life settlement purchaser.

  (2) If an insurance policy subject to a life settlement contract has been issued as a joint policy or involves family riders or any coverage of a life other than the insured under the policy to be subject to a life settlement contract, the policy owner or owners shall be informed of the possible loss of coverage on the other lives under the policy and shall be advised to consult with his or her or their insurance producer or the insurer issuing the policy for advice on the proposed life settlement.

  (3) The document shall state the dollar amount of the current death benefit payable to the life settlement provider under the policy or certificate. The life settlement provider shall also disclose the availability, if known, of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate, and the extent to which the policy owner’s interest in those benefits will be transferred as a result of the life settlement contract.

  (4) The document shall state whether the funds will be escrowed with an independent third party or placed in trust during the transfer process. If an escrow account is used, the document shall provide the name, business address, and telephone number of the independent third party escrow agent. If a trust account is used, the document shall identify the state or federally chartered institution. The document shall state that the policy owner may inspect or receive copies of the relevant escrow or trust agreements or documents.

  (c) A life settlement broker shall provide the policy owner with at least the following disclosures no later than 10 days before the date the life settlement contract is signed by all parties. The disclosures shall be conspicuously displayed in the life settlement contract or in a separate document signed by the policy owner and provide the following information:

  (1) the name, business address, and telephone number of the life settlement broker;

  (2) a full, complete, and accurate description of all offers, counteroffers, acceptances, and rejections relating to the proposed life settlement contract;

  (3) a written disclosure of any affiliations or contractual arrangements between the life settlement broker and any person making an offer in connection with the proposed life settlement contracts;

  (4) the amount and method of calculating the broker’s compensation, which term includes anything of value paid or given to a life settlement broker for the placement of a policy; and

  (5) where any portion of the life settlement broker’s compensation, as defined in subdivision (4) of this subsection, is taken from a proposed life settlement offer, a disclosure of the total amount of the life settlement offer and the percentage of the life settlement offer constituted by the life settlement broker’s compensation.

  (d) If the life settlement provider transfers ownership or changes the beneficiary of the insurance policy, the provider shall communicate in writing the change in ownership or beneficiary to the insured within 20 days after the change. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• Subchapter 006: VARIABLE ANNUITIES-SEPARATE ACCOUNTS

• §§ 3841-3854. Repealed. 1971, No. 106, § 6, eff. April 22, 1971.

• § 3842. Disclosure to insurer

  Thirty days prior to the execution of a life settlement contract or the execution or other affirmation of an agreement or arrangement to enter into a life settlement contract, a life settlement provider shall provide notice to the insurer that issued or has assumed the policy, provided the contract, agreement or arrangement is executed or otherwise affirmed prior to, or during the first five years after issuance of a policy. The notice shall contain information identifying the policy and the policy owner, if applicable, and a copy of the proposed life settlement contract. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3843. General rules

  (a)(1) A life settlement provider entering into a life settlement contract shall first obtain:

  (A) if the policy owner is the insured, a written statement from a licensed attending physician that the policy owner is of sound mind and under no constraint or undue influence to enter into a life settlement contract; and

  (B) if the medical records of the insured are intended or required to be released in connection with a proposed life settlement transaction, a document in which the insured consents to the release of his or her medical records to a licensed life settlement provider, life settlement broker, the insurance company that issued the life insurance policy covering the life of the insured, and any other person to whom the medical records will be released.

  (2) Within 20 days after a policy owner executes documents necessary to transfer any rights under an insurance policy or within 20 days of entering any agreement, option, promise, or any other form of understanding, expressed or implied, to subject the policy to a life settlement contract, the life settlement provider shall give written notice to the insurer that issued that insurance policy that the policy has or will become a policy subject to a life settlement contract. The notice shall be accompanied by the documents required by subdivision (3) of this subsection.

  (3) The life settlement provider shall deliver a copy of the medical release required under subdivision (1)(B) of this subsection, a copy of the policy owner’s application for the life settlement contract, the notice required under subdivision (2) of this subsection, and a request for verification of coverage to the insurer that issued the life policy that is the subject of the life settlement transaction. A form for verification of coverage approved by the Commissioner shall be used.

  (4) The insurer shall respond to a request for verification of coverage submitted on an approved form by a life settlement provider or life settlement broker within 30 calendar days of the date the request is received and shall indicate whether, based on the medical evidence and documents provided, the insurer intends to pursue an investigation at this time regarding the validity of the insurance contract or possible insurance or life settlement fraud. The insurer shall accept a request for verification of coverage made on a form approved by the Commissioner. The insurer shall accept an original or facsimile or electronic copy of such request and any accompanying authorization signed by the policy owner. Failure by the insurer to meet its obligations under this subsection shall be a violation of sections 3844 and 3848 of this title.

  (5) Prior to or at the time of execution of the life settlement contract, the life settlement provider shall obtain a witnessed document in which the policy owner consents to the life settlement contract, represents that the policy owner has a full and complete understanding of the life settlement contract and of the benefits of the life insurance policy, acknowledges that he or she is entering into the life settlement contract freely and voluntarily, has received the disclosures required in section 3841 of this title and, for persons with a terminal or chronic illness or condition, acknowledges that the insured has a terminal or chronic illness and that the terminal or chronic illness or condition was diagnosed after the life insurance policy was issued.

  (6) If a life settlement broker performs any of these activities required of the life settlement provider, the provider is deemed to have fulfilled such requirement.

  (b) All medical information solicited or obtained by any licensee shall be subject to the applicable provisions of state law relating to confidentiality of medical information and to the department’s Regulation No. IH-2001-I, Privacy of Consumer Financial and Health Information.

  (c) All life settlement contracts entered into in this State shall provide the policy owner with an absolute right to rescind the contract before 30 calendar days after the date upon which the life settlement contract is executed by all parties. Rescission by the policy owner may be conditioned upon the policy owner’s both giving notice and repaying to the life settlement provider within the rescission period all proceeds of the settlement and any premiums, loans, and loan interest paid by or on behalf of the life settlement provider in connection with or as a consequence of the life settlement. If the insured dies during the rescission period, the life settlement contract shall be deemed to have been rescinded, subject to repayment to the life settlement provider or purchaser of all life settlement proceeds and any premiums, loans, and loan interest that have been paid by the life settlement provider or purchaser, which shall be paid within 60 calendar days of the death of the insured. In the event of any rescission, if the life settlement provider has paid commissions or other compensation to a life settlement broker in connection with the rescinded transaction, the life settlement broker shall refund all such commissions and compensation to the life settlement provider within five business days following receipt of written demand from the life settlement provider, which demand shall be accompanied by either the policy owner’s notice of rescission if rescinded at the election of the policy owner or notice of the death of the insured if rescinded by reason of the death of the insured within the applicable rescission period.

  (d) The life settlement provider shall instruct the policy owner to send the executed documents required to effect the change in ownership, assignment, or change in beneficiary directly to an independent escrow agent. Within three business days after the date the escrow agent receives the document (or from the date the life settlement provider receives the documents, if the policy owner erroneously provides the documents directly to the provider), the provider shall pay or transfer the proceeds of the life settlement into an escrow or trust account maintained in a state- or federally chartered financial institution whose deposits are insured by the Federal Deposit Insurance Corporation. Upon payment of the settlement proceeds into the escrow account, the escrow agent shall deliver the original change in ownership, assignment, or change in beneficiary forms to the life settlement provider or related provider trust or other designated representative of the life settlement provider. Upon the escrow agent’s receipt of the acknowledgment of the properly completed transfer of ownership, assignment, or designation of beneficiary from the insurance company, the escrow agent shall pay the settlement proceeds to the policy owner.

  (e) Failure to tender consideration to the policy owner for the life settlement contract within the time set forth in the disclosure pursuant to subdivision 3841(a)(7) of this title renders the life settlement contract voidable by the policy owner for lack of consideration until the time consideration is tendered to and accepted by the policy owner. Funds shall be deemed sent by a life settlement provider to a policy owner as of the date that the escrow agent either releases funds for wire transfer to the policy owner or places a check for delivery to the policy owner via the U. S. Postal Service or another nationally recognized delivery service.

  (f) Contacts with the insured for the purpose of determining the health status of the insured by the life settlement provider or life settlement broker after the life settlement has occurred shall only be made by the life settlement provider or broker licensed in this State or its authorized representatives and shall be limited to once every three months for insureds with a life expectancy of more than six months and to no more than once every two months for insureds with a life expectancy of six months or less. The provider or broker shall explain the procedure for these contacts at the time the life settlement contract is entered into. The limitations set forth in this subsection shall not apply to any contacts with an insured for reasons other than determining the insured’s health status. Life settlement providers and life settlement brokers shall be responsible for the actions of their authorized representatives.

  (g)(1) In order to assure that terminally ill policy owners receive a reasonable return for entering into a life settlement contract, the following shall be minimum payouts; provided that upon request of the policy owner the Commissioner may waive the requirements of this subdivision:

  	Terminally Ill Policy Owner’s Remaining Life Expectancy At Time of Settlement	Minimum Percentage of Expected Death Benefit (Net of Loans and Any Cash Surrender Value) to be Received by the Terminally Ill Policy Owner
  	Less than 6 months	85%
  	At least 6, but less than 12 months	80%
  	At least 12, but less than 18 months	75%
  	At least 18, but less than 24 months	70%
  	At least 24, but less than 36 months	60%

  (2) The expected death benefit is the death benefit provided under the terms of the policy subject to the life settlement contract, assuming the death of the insured were to occur on the date the life settlement contract is signed.

  (3) The payout shall be increased by 100 percent of any net cash surrender value of the insurance at the time the life settlement contract is issued.

  (4) Payouts may be reduced by the minimum premium, including premiums payable for additional benefits retained at the option of the terminally ill policy owner, if any, required to keep the contract in force for the duration of the terminally ill policy owner’s remaining life expectancy. Other than this allowable reduction in payout, there shall be no other retention for expenses or broker’s fees. At the time of settlement, the life settlement provider shall place in trust a sum equal to the amount the payout was reduced for future premiums. Sums placed in trust under this section shall only be reduced by the life settlement provider upon payment of policy premiums as they come due. If the terminally ill policy owner dies with a sum held in trust under this section, the sum remaining in trust shall become the property of the life settlement provider.

  (5) If the life settlement provider becomes insolvent or is the subject of a bankruptcy or other insolvency proceeding during the life of the terminally ill policy owner whose policy had riders retained, the life settlement provider shall notify the terminally ill policy owner and other insureds of the insolvency or initiation of insolvency proceedings. Persons with an interest in the continuation of riders retained may pay any premiums required to keep riders retained in force.

  (6) In computing the minimum percentage of expected death benefit (net of loans and cash surrender value) the death benefit value of any accidental death benefit rider shall not be included. There shall be no minimum percentage payment required for the transfer of an accidental death benefit rider to the life settlement company.

  (7) Life expectancy shall be determined by a physician selected by the terminally ill policy owner, on the basis of medical records. The physician selected will send life expectancy information to the life settlement provider. If the life settlement provider disagrees with the life expectancy estimate of the physician selected by the terminally ill policy owner, the terminally ill policy owner will select a second physician to make an estimate of life expectancy, based on medical records. The second physician’s decision shall be final. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3844. Prohibited practices

  (a) It is a violation of this subchapter for any person to:

  (1) Commit any fraudulent life settlement acts.

  (2) Enter into any practice, agreement, arrangement, or transaction which results in or is intended to result in the issuance of stranger-originated life insurance or STOLI.

  (3) Enter, within a five-year period commencing with the date of issuance of the insurance policy or certificate, into a life settlement contract unless the policy owner certifies to the life settlement provider that one or more of the following conditions have commenced or occurred after the date of issuance of the insurance policy or certificate and within the five-year period:

  (A) The policy was issued upon the policy owner’s exercise of conversion rights arising out of a group or individual policy, provided the total of the time covered under the conversion policy plus the time covered under the prior policy is at least 60 months. The time covered under a group policy shall be calculated without regard to any change in insurance carriers, provided the coverage has been continuous and under the same group sponsorship.

  (B) The policy owner submits independent evidence to the life settlement provider that one or more of the following conditions have commenced or occurred after the date of issuance of the insurance policy or certificate and within the five-year period:

  (i) the policy owner or insured is terminally or chronically ill;

  (ii) the policy owner’s spouse dies;

  (iii) the policy owner divorces his or her spouse;

  (iv) the policy owner retires from full-time employment;

  (v) the policy owner becomes physically or mentally disabled and a physician determines that the disability prevents the policy owner from maintaining full-time employment;

  (vi) a final order, judgment, or decree is entered by a court of competent jurisdiction, on the application of a creditor of the policy owner, adjudicating the policy owner bankrupt or insolvent or approving a petition seeking reorganization of the policy owner or appointing a receiver, trustee, or liquidator to all or a substantial part of the policy owner’s assets; or

  (vii) the policy owner has suffered a significant economic reversal, as demonstrated by a 50 percent decline in the policy owner’s annual adjusted gross income, or by a 50 percent decline in the policy owner’s net worth, or as demonstrated by other facts and circumstances approved by the Commissioner.

  (C) The policy owner enters into a life settlement contract more than two years after the date of issuance of a policy and, with respect to the policy, at all times prior to the date that is two years after policy issuance, the following conditions are met:

  (i) policy premiums have been funded exclusively with unencumbered assets, including an interest in the life insurance policy being financed only to the extent of its net cash surrender value, provided by or with full recourse liability incurred by the insured or a person described in subdivision 3835(9)(C)(v) of this title;

  (ii) there is no agreement or understanding with any other person to guarantee any such liability or to purchase or stand ready to purchase the policy, including through an assumption or forgiveness of the loan; and

  (iii) a life settlement provider or a life settlement broker has not conducted a life expectancy evaluation of the insured in connection with a proposed settlement of the policy, and the insured has not undergone a life expectancy evaluation for settlement in connection with the issuance of the policy.

  (b) Copies of the independent evidence described in subdivision (a)(3)(B) of this section and documents required by section 3842 of this title shall be submitted to the insurer when the life settlement provider or other party entering into a life settlement contract with a policy owner submits a request to the insurer for verification of coverage. The copies shall be accompanied by a letter of attestation from the life settlement provider that the copies are true and correct copies of the documents received by the life settlement provider.

  (c) No insurer may, as a condition of responding to a request for verification of coverage or effecting the transfer of a policy pursuant to a life settlement contract, require that the policy owner, insured, life settlement provider, or life settlement broker sign any forms or disclosures of consent or waiver that have not been expressly approved by the Commissioner for use in connection with life settlement contracts in this State.

  (d) Upon receipt of a properly completed request for change of ownership or beneficiary of a policy, the insurer shall respond in writing within 30 calendar days with written acknowledgment confirming that the change has been effected or specifying the reasons why the requested change cannot be processed. The insurer shall not unreasonably delay effecting change of ownership or beneficiary and shall not otherwise seek to interfere with any life settlement contract lawfully entered into in this state.

  (e) It shall be a violation of this section to enter into a life settlement contract in reliance on the conditions established in subdivision (a)(3)(B) of this section if such condition commenced or occurred prior to the issuance of the insurance policy or certificate.

  (f) The Commissioner shall adopt rules regulating the marketing and solicitation of life settlement products. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3845. Prohibited practices and conflicts of interest

  (a) With respect to any life settlement contract or insurance policy, no life settlement broker shall solicit an offer from, effectuate a life settlement with, or make a sale to any life settlement provider, financing entity, or related provider trust that is controlling, controlled by, or under common control with such life settlement broker.

  (b) No broker shall have a financial relationship or affiliation with a life settlement provider unless the broker fully discloses such relationship or affiliation. A broker shall not participate in or form a financial arrangement or affiliation with a life settlement provider if such arrangement or affiliation conflicts with the broker’s fiduciary duty to the policy owner.

  (c) With respect to any life settlement contract or insurance policy, no life settlement provider shall knowingly enter into a life settlement contract with a policy owner if, in connection with such life settlement contract, anything of value will be paid to a life settlement broker that is controlling, controlled by, or under common control with such life settlement provider, the life settlement purchaser, life settlement investment agent, a financing entity, or a related provider trust that is involved in such life settlement contract.

  (d) A violation of subsection (a), (b), or (c) of this section shall be deemed a fraudulent life settlement act.

  (e) No life settlement provider shall enter into a life settlement contract unless the life settlement promotional, advertising, and marketing materials, as may be prescribed by regulation, have been filed with the Commissioner. In no event shall any marketing materials expressly reference that the insurance is “free” for any period of time. The inclusion of any reference in the marketing materials that would cause a policy owner to reasonably believe that the insurance is free for any period of time shall be considered a violation of this subchapter.

  (f) No life insurance producer, insurance company, life settlement broker, or life settlement provider shall make any statement or representation to the applicant or policyholder in connection with the sale or financing of a life insurance policy to the effect that the insurance is free or without cost to the policyholder for any period of time unless provided in the policy. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3846. Advertising for life settlements

  (a) No person engaged in the business of life settlements shall make, issue, circulate, or cause to be made, issued, or circulated, or placed before the public, in a newspaper, magazine, or other publication, in the form of a notice, circular, pamphlet, letter, or poster or over any radio station or television station, or by Internet, or in any other way, any estimate, illustration, circular, statement, sales presentation, omission, or comparison, which:

  (1) Misrepresents or fails to adequately disclose the benefits, advantages, conditions, exclusions, limitations, or terms of any life settlement contract.

  (2) Uses any name or title of any life settlement contract or class of life settlement contracts misrepresenting the true nature thereof.

  (3) Is a misrepresentation for the purpose of inducing or tending to induce a policy owner to enter into a life settlement contract in violation of the provisions of this chapter.

  (4) Is inaccurate, untruthful, deceptive or misleading in fact or by implication. The form and content of an advertisement of a life settlement contract shall be sufficiently complete and clear so as to avoid deception. It shall not have the capacity or tendency to mislead or deceive. Whether an advertisement has the capacity or tendency to mislead or deceive shall be determined from the overall impression that the advertisement may be reasonably expected to create upon a person of average education or intelligence within the segment of the public to which it is directed.

  (5) Directly or indirectly markets, advertises, solicits, or otherwise promotes the purchase of a policy for the purpose or, or with an emphasis on entering into a life settlement contract.

  (6) Uses the word “free,” “no cost,” “without cost,” “no additional cost,” “at no extra cost,” or words of similar import in the marketing, advertising, soliciting, or otherwise promoting of the purchase of a policy.

  (b) Every life settlement licensee shall establish and at all times maintain a system of control over the content, form, and method of dissemination of all advertisements of its contracts, products, and services. All advertisements, regardless of who wrote, created, designed, or presented them, shall be the responsibility of the life settlement licensees as well as the individual who created or presented the advertisement. A system of control shall include regular routine notification, at least once a year, to agents and others authorized by the life settlement licensee who disseminate advertisements of the requirements and procedures for approval by the life settlement licensee prior to the use of any advertisements not furnished by the life settlement licensee.

  (c) The name of the life settlement licensee shall be clearly identified in all advertisements about the licensee or its life settlement contract, products, or services, and if any specific life settlement contract is advertised, the life settlement contract shall be identified either by form number or some other appropriate description. If an application is part of the advertisement, the name of the life settlement provider shall be shown on the application.

  (d) If the advertising emphasizes the dollar amounts available to policy owners, the advertising shall disclose the average purchase price as a percent of face value obtained by policy owners contracting with the licensee during the past six months.

  (e) The fact that the life settlement contract offered is made available for inspection prior to consummation of the sale, or that an offer is made to refund the payment if the policy owner is not satisfied, or that the life settlement contract includes a “free look” period that satisfies or exceeds legal requirements does not remedy any inaccurate, untruthful, deceptive or misleading statements. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3847. Fraud prevention and control

  (a)(1) A person shall not commit a fraudulent life settlement act.

  (2) A person shall not knowingly or with reason to know interfere with the enforcement of the provisions of this subchapter or investigations of suspected or actual violations of this subchapter.

  (3) It shall be a violation of this subchapter for a person in the business of life settlements who with knowledge or who reasonably should know to permit any person convicted of a felony involving dishonesty or breach of trust to participate in the business of life settlements.

  (b)(1) Life settlement contracts and applications for life settlements, regardless of the form of transmission, shall contain the following statement or a substantially similar statement:

  “Any person who knowingly presents false information in an application for insurance or life settlement contract may be guilty of a crime and may be subject to fines and confinement in prison.”

  (2) The lack of a statement as required in subdivision (1) of this subsection does not constitute a defense in any prosecution for a fraudulent life settlement act.

  (c)(1) Any person engaged in the business of life settlements having knowledge or a reasonable suspicion that a fraudulent life settlement act is being, will be, or has been committed shall immediately provide to the Commissioner such information as required and in a manner prescribed by the Commissioner by rule or order.

  (2) Any other person having knowledge or a reasonable belief that a fraudulent life settlement act is being, will be, or has been committed may provide to the Commissioner such information required and in a manner prescribed by the Commissioner by order or rule.

  (d)(1) No civil liability shall be imposed on and no cause of action shall arise from a person’s furnishing information concerning suspected, anticipated, or completed fraudulent life settlement acts or suspected or completed fraudulent insurance acts if the information is provided to or received from:

  (A) the Commissioner or the Commissioner’s employees, agents, or representatives;

  (B) federal, State, or local law enforcement or regulatory officials or their employees, agents, or representatives;

  (C) a person involved in the prevention and detection of fraudulent viatical settlement acts or that person’s agents, employees, or representatives;

  (D) the National Association of Insurance Commissioners, the Financial Industry Regulatory Authority (FINRA), the North American Securities Administrators Association (NASAA), or their employees, agents, or representatives, or another regulatory body overseeing life insurance, life settlements, or securities or investment fraud; or

  (E) the life insurer that issued the life insurance policy covering the life of the insured.

  (2) Subdivision (1) of this subsection shall not apply to statements made with actual malice. In an action brought against a person for filing a report or furnishing other information concerning a fraudulent life settlement act, the party bringing the action shall plead specifically any allegation that subdivision (1) of this subsection does not apply because the person filing the report or furnishing the information did so with actual malice.

  (3) A person furnishing information as identified in subdivision (1) of this subsection shall be entitled to an award of attorney’s fees and costs if he or she is the prevailing party in a civil cause of action for libel, slander, or any other relevant tort arising out of activities in carrying out the provisions of this subchapter and if the party bringing the action was not substantially justified in doing so. For the purposes of this section, a proceeding is “substantially justified” if it had a reasonable basis in law or fact at the time that it was initiated. However, such an award does not apply to any person furnishing information concerning his or her own fraudulent life settlement acts.

  (4) This section does not abrogate or modify common law or statutory privileges or immunities enjoyed by a person described in subdivision (1) of this subsection.

  (5) Confidentiality.

  (A) The documents and evidence provided pursuant to this subsection or obtained by the Commissioner in an investigation of suspected or actual fraudulent life settlement acts shall be privileged and confidential and shall not be a public record and shall not be subject to discovery or subpoena in any private civil action.

  (B) Subdivision (A) of this subdivision does not prohibit release by the Commissioner of documents and evidence obtained in an investigation of suspected or actual fraudulent life settlement acts:

  (i) in administrative or judicial proceedings to enforce laws administered by the Commissioner;

  (ii) to federal, state, or local law enforcement or regulatory agencies, to an organization established for the purpose of detecting and preventing fraudulent viatical settlement acts, or to the National Association of Insurance Commissioners; or

  (iii) at the discretion of the Commissioner, to a person in the business of life settlements that is aggrieved by a fraudulent life settlement act.

  (C) Release of documents and evidence under subdivision (B) of this subdivision does not abrogate or modify the privilege granted in subdivision (A) of this subdivision.

  (6) This subchapter shall not:

  (A) preempt the authority or relieve the duty of other law enforcement or regulatory agencies to investigate, examine, and prosecute suspected violations of law;

  (B) prevent or prohibit a person from disclosing voluntarily or otherwise information concerning life settlement fraud to a law enforcement or regulatory agency other than the Department of Financial Regulation; or

  (C) limit the powers granted elsewhere by the laws of this State to the Commissioner or an insurance fraud unit to investigate and examine possible violations of law and to take appropriate action against wrongdoers.

  (7)(A) Life settlement providers shall have in place antifraud initiatives reasonably calculated to detect, prosecute, and prevent fraudulent life settlement acts. The Commissioner may, at his or her discretion, order or a licensee may request and the Commissioner may grant such modifications of the required initiatives listed in subdivision (B) of this subdivision (7) as necessary to ensure an effective antifraud program. The modifications may be more or less restrictive than the required initiatives so long as the modifications may reasonably be expected to accomplish the purpose of this section.

  (B) Antifraud initiatives shall include:

  (i) The use of fraud investigators, who may be life settlement provider employees or independent contractors.

  (ii) An antifraud plan, which shall be submitted to the Department at the request of the Commissioner. The antifraud plan shall include:

  (I) a description of the procedures for detecting and investigating possible fraudulent life settlement acts and procedures for resolving material inconsistencies between medical records and insurance applications;

  (II) a description of the procedures for reporting possible fraudulent life settlement acts to the Commissioner;

  (III) a description of the plan for antifraud education and training of underwriters and other personnel; and

  (IV) a description or chart outlining the organizational arrangement of the antifraud personnel who are responsible for the investigation and reporting of possible fraudulent life settlement acts and investigating unresolved material inconsistencies between medical records and insurance applications.

  (e) Antifraud plans submitted to the Commissioner shall be privileged and confidential and shall not be a public record and shall not be subject to discovery or subpoena in a civil or criminal action. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010; amended 2011, No. 78 (Adj. Sess.), § 2, eff. April 2, 2012.)

• § 3848. Civil remedies, penalties, and enforcement

  In addition to any other civil and administrative remedies, penalties, and enforcement authority provided for by law:

  (1) A violation of this subchapter or of a rule or order adopted or issued under this subchapter, including the commission of a fraudulent life settlement act, shall constitute an unfair trade practice under chapter 129 of this title (Insurance Trade Practices) and shall be subject to the remedies, penalties, and enforcement authority provided for in chapter 129 of this title. The Commissioner may report any violation of this subchapter to the Attorney General, who may prosecute therefor if he or she deems desirable.

  (2) The Commissioner may issue a cease and desist order upon a person that violates any provision of this subchapter, any rule or order adopted or issued by the Commissioner, or any written agreement with a licensee entered into with the Commissioner.

  (3) When the Commissioner finds that an activity in violation of this subchapter or of a rule or order adopted or issued by the Commissioner presents an immediate danger to the public that requires an immediate final order, the Commissioner may issue an emergency cease and desist order reciting with particularity the facts underlying the findings. The emergency cease and desist order is effective immediately upon service of a copy of the order on the respondent and remains effective for 90 days. If the Commissioner begins nonemergency cease and desist proceedings, the emergency cease and desist order remains effective absent a petition by the respondent and an order by a Superior Court of Washington County vacating the Commissioner’s emergency order.

  (4) A Commissioner’s order under this subsection may require a person found to be in violation of this subchapter to make restitution to persons aggrieved by violations of this subchapter or to take further actions necessary to remedy violations of this subchapter. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3849. Adoption of rules

  The Commissioner may:

  (1) Adopt rules necessary to carry out the purposes of this subchapter.

  (2) Establish standards for evaluating reasonableness of payments under life settlement contracts for persons who are terminally or chronically ill. This authority includes the regulation of discount rates used to determine the amount paid in exchange for assignment, transfer, sale, devise, or bequest of a benefit under a life insurance policy insuring the life of a person who is chronically or terminally ill.

  (3) Adopt rules governing the relationships and responsibilities of insurers, life settlement providers, and life settlement brokers during life settlement transaction. (Added 2009, No. 53, § 1, eff. Jan. 1, 2010.)

• § 3855. Establishment of accounts

  (a) A domestic life insurer may establish one or more separate accounts and may allocate thereto amounts, including without limitation proceeds applied under optional modes of settlement or under dividend options, to provide for life insurance or annuities, and benefits incidental thereto, payable in fixed or variable amounts, or both, subject to the following:

  (1) The income, gains, and losses, realized or unrealized, from assets allocated to a separate account shall be credited to or charged against the account, without regard to other income, gains or losses of the company.

  (2) Except as may be provided with respect to reserves for guaranteed benefits and funds referred to in subdivision (3) of this subsection:

  (A) amounts allocated to any separate account and accumulations thereon may be invested and reinvested without regard to any requirements or limitations prescribed by the laws of this State governing the investments of domestic insurers;

  (B) the investments in such separate account or accounts may not be taken into account in applying the investment limitations otherwise applicable to the investments of the company; and

  (C) uniform investment policies shall not be required for each of the separate accounts established by a life insurer.

  (3) Except with the approval of the Commissioner and under such conditions as to investments and other matters as he or she may prescribe, which shall recognize the guaranteed nature of the benefits provided, reserves for benefits guaranteed as to dollar amount and duration and funds guaranteed as to principal amount or stated rate of interest may not be maintained in a separate account.

  (4) Unless otherwise approved by the Commissioner, assets allocated to a separate account shall be valued at their market value on the date of valuation, or if there is no readily available market, then as provided under the terms of the contract or the rules or other written agreement applicable to such separate account; provided, that unless otherwise approved by the Commissioner, the portion of any of the assets of such separate account equal to the insurer’s reserve liability with regard to the guaranteed benefits and funds referred to in subdivision (3) of this subsection shall be valued in accordance with the rules otherwise applicable to the insurer’s assets.

  (5) Amounts allocated to a separate account in the exercise of the power granted by this subchapter are owned by the insurer, and the insurer may not be, nor hold itself out to be, a trustee with respect to such amounts, if and to the extent so provided under the applicable contracts, that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account shall not be chargeable with liabilities arising out of any other business the insurer may conduct.

  (6) No sale, exchange, or other transfer of assets may be made by such insurer between any of its separate accounts or between any other investment account and one or more of its separate accounts unless, in case of a transfer into a separate account, such transfer is made solely to establish the account or to support the operation of the contracts with respect to the separate account to which the transfer is made, and unless such transfer, whether into or from a separate account is made by a transfer of cash, or by a transfer of securities having a readily determinable market value, provided that such transfer of securities is approved by the Commissioner. The Commissioner may approve other transfers among such accounts if, in his or her opinion, such transfers would not be inequitable.

  (7) To the extent such insurer deems it necessary to comply with any applicable federal or state laws, such insurer, with respect to any separate account, including without limitation any separate account which is a management investment company or a unit investment trust, may provide for persons having an interest therein appropriate voting and other rights and special procedures for the conduct of the business of such account, including without limitation special rights and procedures relating to investment policy, investment advisory services, selection of independent public accountants, and the selection of a committee, the members of which need not be otherwise affiliated with such company, to manage the business of such account.

  (b) The corporate charter of every domestic life insurance company is deemed amended to authorize it to do anything which is herein provided. (Added 1971, No. 106 § 1, eff. April 22, 1971.)

• § 3856. Required contents of policy

  Any contract providing benefits payable in variable amounts delivered or issued for delivery in this State shall contain a statement of the essential features of the procedures to be followed by the insurer in determining the dollar amount of such variable benefits. Any such contract under which the benefits vary to reflect investment experience, including a group contract and any certificate in evidence of variable benefits issued thereunder, shall state that such dollar amount will so vary and shall contain on its first page a statement to the effect that the benefits thereunder are on a variable basis. (Added 1971, No. 106, § 2, eff. April 22, 1971.)

• § 3857. Licensing

  (a) No company shall deliver or issue for delivery within this State variable contracts unless it is licensed or organized to do a life insurance or annuity business in this State, and the Commissioner is satisfied that its condition or method of operation in connection with the issuance of such contracts will not render its operation hazardous to the public or its policyholders in this state. In this connection, the Commissioner shall consider among other things:

  (1) the history and financial condition of the company;

  (2) the character, responsibility and fitness of the officers and directors of the company; and

  (3) the law and regulation under which the company is authorized in the state of domicile to issue variable contracts.

  (b) If the company is a subsidiary of an admitted life insurer, or affiliated with such insurer through common management or ownership, it may be deemed by the Commissioner to have met the provisions of this section if either it or the parent or the affiliated insurer meets the requirements hereof. (Added 1971, No. 106, § 3, eff. April 22, 1971.)

• § 3858. Powers of Commissioner

  Notwithstanding any other provision of law, the Commissioner has sole authority to regulate the issuance and sale of variable contracts and to issue such reasonable rules and regulations as may be appropriate to carry out the purposes and provisions of this subchapter. (Added 1971, No. 106, § 4, eff. April 22, 1971.)

• § 3859. Grace; reinstatement; nonforfeiture

  (a) Except for subdivisions 3731(2), (7), (8), and (9), sections 3760-3773, inclusive, section 3813 of this title in the case of a variable life insurance policy, and section 3750 of this title in the case of a variable annuity contract, and except as otherwise provided in this subchapter, all pertinent provisions of this title apply to separate accounts and contracts relating thereto. Any individual variable life insurance contract delivered or issued for delivery in this State shall contain grace, reinstatement, and nonforfeiture provisions appropriate to such a contract. Any group variable life insurance contract delivered or issued for delivery in this State shall contain grace provisions appropriate to such a contract.

  (b) The reserve liability for variable contracts shall be established in accordance with actuarial procedures that recognize the variable nature of the benefits provided and any mortality guarantees. (Added 1971, No. 106, § 5, eff. April 22, 1971; amended 1981, No. 43, § 11, eff. April 21, 1981; 2019, No. 103 (Adj. Sess.), § 21.)