CHAPTER 239
FORMERLY
HOUSE BILL NO. 426
AS AMENDED BY HOUSE AMENDMENT NO. 1 AND SENATE AMENDMENT NO. 1
AN ACT TO AMEND TITLE 18 OF THE DELAWARE CODE RELATING TO DELAWARE INSURANCE LAW PERTAINING TO CORPORATE OWNED LIFE INSURANCE.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:
Section 1. Amend § 702(c), Chapter 7, Title 18, Delaware Code by striking said subsection in its entirety, and substituting in lieu thereof the following:
"(c) (1) There shall be paid a tax at the rate of 1-3/4% on net premiums as shown on reports required to be filed under Subsection (a) on this section.
(2) In lieu of paragraph (1) above, there shall be paid a tax on a graduated basis at the rates set forth in the following table on net premiums per case for employer owned life insurance policies, as defined in § 2704(e)(3) of this title, and trust owned life insurance policies, as defined in § 2704(e)(4) of this title. For purposes of this section, a 'case' is (i) all contracts issued to an employer, a trust established by an employer, or an individual, as appropriate; or (ii) all contracts issued to all employers or trusts that participate in a private placement under federal securities laws and/or purchase with respect to at least 25 lives policies covered by registrations under such laws. Said tax shall be paid on net premiums and other considerations received on account of insurance contracts issued for delivery in this State, except that no premium tax shall be paid with respect to persons resident or located outside of this State upon whom premium tax is paid to the State of residency or location.
Net Premiums Per Case Premium Tax Rate
First $10,000,000 2.0%
$10,000,001 to $24,999,999 1.5%
$25,000,000 to $99,999,999 1.25%
$100,000,000 and over 1.0%
The premium tax rate shall be calculated on the basis of net premiums (upon which taxes are payable to this State) received per case in each calendar year, except that in subsequent calendar years the premium tax rate shall not be higher than the rate established for the preceding year. A reduction in the premium tax rate for subsequent calendar year shall not apply retrospectively to any previous calendar year. The following example illustrates calculation of the tax rates under this section:
The tax imposed by this subsection shall be the only tax imposed by this chapter on employer owned life insurance policies and trust owned life insurance policies.
Section 2. Amend § 2704, Chapter 27, Title 18, Delaware Code by striking subsection "(c)", and "(e)" in their entirety and substituting in lieu thereof the following:
"(c) 'Insurable Interest' as to such personal insurance means that every individual has an insurable interest in the life, body and health of himself and a person has an insurable interest in the life, body and health of other individuals as follows:
(1) In the case of individuals related closely by blood or by law, a substantial interest engendered by love and affection;
(0) In the case of other persons, a lawful and substantial economic interest in having the life, health or bodily safety of the individual insured continue, as distinguished from an interest which would arise only by, or would be enhanced in value by, the death, disablement or injury of the individual insured;
(1) An employer providing life, health, disability, retirement or similar benefits to its employees or the employees of its affiliates, or their dependents or beneficiaries, has an insurable interest in the lives of its employees. The trustee of a trust established by an employer substantially for the benefit of the employer, or for the benefit of some or all of the employees in which such employer has an insurable interest, or the dependents or beneficiaries or such employees, has the same insurable interest in the life of such employees as does the employer;
(2) An individual heretofore or hereafter party to a contract or option for the purchase or sale of an interest in a business partnership or firm or of shares of stock of a corporation or of an interest in such shares, has an insurable interest in the life of each individual party to such contract and for the purpose of such contract only, in addition to any insurable interest which may otherwise exist as to the life of such individual; and
(3) The trustee of a trust established by an individual has an insurable interest in the life of that individual and the same insurable interest in the life of any other individual as does any person who is treated as the owner of such trust for federal income tax purposes. The trustee of a trust has the same insurable interest in the life of any individual as does any person with respect to proceeds of insurance on the life of such individual (or any portion of such proceeds) that are allocable to such person's interest in such trust. If multiple beneficiaries of a trust have an insurable interest in the life of the same individual, the trustee of such trust has the same aggregate insurable interest in such life as such beneficiaries with respect to proceeds of insurance on the life of such individual (or any portion of such proceeds) that are allocable in the aggregate to such beneficiaries' interest in the trust.
(4) A person obligated to make a payment on the death of an individual to or for the benefit of a person who is designated by such individual has an insurable interest in the life of such individual. For purposes of this section, group insurance premiums paid on an experience-rated basis shall be treated as payments for the benefit of the beneficiary of such policy.
(e) As used in this section and in § 2708(4) of this Title, and § 702(c), of this Title, except as provided in § 702(c)(3) of this Title:
(1) The term 'employee' shall include any and all directors, officers, partners, employees and retired employees, and it shall include any other former employees but only for the purpose of replacing existing life insurance policies that will be surrendered in exchange for new life insurance policies in an amount not exceeding the insurance being surrendered, except that the amount of new life insurance may exceed the insurance being surrendered to the extent application of the cash surrender value from the old insurance as a premium under the new life insurance contract requires a larger amount of insurance to qualify as life insurance, and not be treated as a modified endowment contract, for federal income tax purposes.
(2) The term 'employer' shall include corporations, limited liability companies or partnerships, business trusts, and other business entities, including associations of employers, and their affiliates.
(3) An 'employer owned life insurance policy' means an insurance contract for which an insurable interest exists under paragraph (c)(3) of this section, issued for delivery in this State and procured or effected by any employer, or a trust established by an employer, which employer as defined herein, is incorporated, registered or qualified to do business in this State and has at least 50 employees.
(0) A 'trust owned life insurance policy' means an insurance contract for which an insurable interest exists under paragraph (c)(3) or (c)(5) of this section, issued for delivery in this State to a trust established under the laws of this State and having a trustee with its principal place of business in this State.
(1) The term 'trust' includes without limitation a business trust.
(f) The insurable interest of an employer or trustee under this section shall be conveyed automatically to another employer or to the trustee of a trust established by such other employer substantially for its benefit which has acquired by purchase, merger, or otherwise all or part of the first employer's business. An employer or the trustee of a trust established by such employer substantially for its own benefit or substantially for the benefit of its employees or their dependents may exchange any policy of insurance issued to itself or to another employer or the trustee of a trust established by such other employer substantially for its own benefit from which the exchanging employer has acquired by purchase, merger, or otherwise all or part of such other employer's business for a new policy of insurance issued to itself without establishing a new insurable interest at the time of such exchange.
() The insurable interests recognized in this section may exist cumulatively or concurrently as appropriate to the relationships between the individual insured and the person having the interest in such individual's life. The existence of an insurable interest with respect to an employer owned life insurance policy or trust owned life insurance policy shall be governed by this section without regard to an insured's state of residency or location. An employer owned life insurance policy, if delivered to the employer's principal place of business in this State or to its registered agent in this State; or in the case of a policy issued to a trust established by an employer, if delivered to the place of business in Delaware of trustee of said trust; and a trust owned life insurance policy, if delivered to the place of business in Delaware of the trustee of said trust; shall be deemed to have been delivered in this State. The parties to an employer owned life insurance policy may arrange for delivery in this State by means other than the method described in the preceding sentence. An employer owned life insurance policy may be issued on an individual or group basis, and any group policy shall be exempt from Chapter 31 of this title. A group insurance policy issued to an employer for the benefit of persons other than the employer, as permitted by § 3102 of this title, shall not constitute an employer owned life insurance policy."
Section 3. Amend § 2708(4), Chapter 27, Title 18, Delaware Code by striking said paragraph is its entirety and substituting in lieu thereof the following:
"(4) An employer, or the trustee of a trust described in § 2704(c)(3) of this title, may effectuate insurance under an employer owned life insurance policy, as defined in § 2704(e) of this title, upon any employee in whom it has an insurable interest, and the employer or trustee, as the case may be, shall not be required to notify employees of the effectuation of such insurance or obtain their consent. The insurer and any investment sub-advisors shall:
(a) Use best efforts to direct securities transactions relating to such employer owned variable life insurance policies utilizing separate accounts, through a securities agent licensed and located in this State, as opposed to a securities agent licensed and located in another state, unless a better price for the identical security (securities) is available through the securities agent located in that other state."
Approved February 10, 1998