CHAPTER 63
INSURANCE DEPARTMENT
VALUATION AND NON-FORFEITURE BENEFITS OF
LIFE INSURANCE POLICIES
AN ACT TO AMEND CHAPTER 20 OF THE REVISED CODE OF DELAWARE, 1935, ENTITLED "INSURANCE DEPARTMENT", IN REFERENCE TO VALUATION AND NON-FORFEITURE BENEFITS OF LIFE INSURANCE POLICIES.
Be it enacted by the Senate and House of Representatives of the State of Delaware in General Assembly met:
Section 1. That Chapter 20, of the Revised Code of the State of Delaware, be and the same is hereby amended by striking out all of 493. Sec. 32 thereof and inserting in lieu thereof the following:
493. Sec. 32. (a) The Insurance 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 insurance company doing business in this state, and may certify the amount of any such reserves, specifying the mortality table or tables, rate or rates of interest and methods (net level premium method or other) used in the calculation of such reserves. In calculating such reserves, he may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves herein required of any foreign or alien company, he may accept any valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when such valuation complies with the minimum standard herein provided and if the official of such state or jurisdiction accepts as sufficient and valid for all legal purposes the certificate of valuation of the Insurance Commissioner when such certificate states the valuation to have been made in a specified manner according to which the aggregate reserves would be at least as large as if they had been computed in the manner prescribed by the law of that state or jurisdiction.
The Insurance Commissioner may vary the standards of interest and mortality in the case of alien companies as to contracts issued by such companies in other countries than the United States, and in particular cases of invalid lives and other extra hazards.
Any such company which at any time shall have adopted any standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard herein provided may, with the approval of the Insurance Commissioner, adopt any lower standard of valuation, but not lower than the minimum herein provided.
Provided, that this section shall not apply to organizations operating on the assessment plan.
(b) The provisions of this subsection shall apply to only those policies and contracts issued before the operative date of 496-B. Sec. 35-B, the Standard Non-forfeiture Law.
The legal minimum standard for the valuation of life insurance contracts issued before the first day of January, 1932, shall be the method and basis of valuation heretofore applied by this State in the valuation of such contracts, and for life insurance contracts issued on and after said date shall be the one year preliminary term method of valuation, except as hereinafter modified, on the basis of the American Experience Table of Mortality with interest at three and one-half per centum per annum.
If the premium charged for term insurance under a limited payment life preliminary term policy providing for the payment of all premiums thereon in less than twenty years from the date of the policy, or under an endowment preliminary term policy, exceeds that charged for like insurance under twenty payment life preliminary term policies of the same company, the reserve thereon at the end of any year, including first, shall not be less than the reserve on a twenty payment life preliminary term policy issued in the same year and at the same age, together with an amount which shall be equivalent to the accumulation of a net level premium sufficient to provide for a pure endowment at the end of the premium payment period, equal to the difference between the value at the end of such period of such a twenty payment life preliminary term policy and the full net level premium reserve at such time of such a limited payment life or endowment policy. The premium payment period is the period during which premiums are concurrently payable, under such twenty payment life preliminary term policy and such limited payment life or endowment policy.
Policies issued on the preliminary term method shall contain a clause specifying that the reserve thereon shall be computed in accordance with the modified preliminary term method of valuation provided for herein.
The legal minimum standard for the valuation of annuities issued on and after the first day of January, 1932, shall be McClintock's "Table of Mortality Among Annuitants" with interest at four per centum per annum, but annuities deferred ten or more years and written in connection with life insurance shall be valued on the same basis as that used in computing the consideration or premiums therefor, or upon any higher standard at the option of the company.
Reserves for all such policies and contracts may be calculated, at the option of the company, according to any standards which produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by this subsection.
(c) The provisions of this subsection shall apply to only those policies and contracts issued on or after the operative date of 496-B. Sec. 35-B, the Standard Non-forfeiture Law.
(1). The minimum standard for the valuation of all such policies and contracts shall be the Commissioners' reserve valuation method defined in Paragraph (2), three and one-half per cent (3-1/2%) interest, and the following tables :
(1) For all Ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in such policies,--the Commissioners' 1941 Standard Ordinary Mortality Table.
(ii) For all Industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in such policies,--the 1941 Standard Industrial Mortality Table.
(iii) For Annuity and Pure Endowment contracts, excluding any disability and accidental death benefits in such policies,--the 1937 Standard Annuity Mortality Table.
(iv) For Total and Permanent Disability benefits in or supplementary to Ordinary policies or contracts--Class (3) Disability Table (1926) which, for active lives, shall be combined with a mortality table permitted for calculating the reserves for life insurance policies.
(v) For Accidental Death benefits in or supplementary to policies--the Inter-Company Double Indemnity Mortality Table combined with a mortality table permitted for calculating the reserves for life insurance policies.
(vi) For Group Life insurance, life insurance issued on the substandard basis and other special benefits--such tables as may be approved by the Insurance Commissioner.
(2). Reserves according to the Commissioners' 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 such future guaranteed benefits provided for by such policies, over the then present value of any future modified net premiums therefor. The modified net premiums for any such policy shall be such uniform percentage of the respective contract premiums for such benefits that the present value, at the date of issue of the policy, of all such modified net premiums shall be equal to the sum of the then present value of such benefits provided for by the policy and the excess of (A) over (B), as follows:
(A) A net level annual premium equal to the present value, at the date of issue, of such 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 such policy on which a premium falls due; provided, however, that such net level annual premium shall not exceed the net level annual premium on the nineteen year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such policy.
(A) A net one year term premium for such benefits provided for in the first policy year.
Reserves according to the Commissioners' reserve valuation method for (a) life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums, (b) annuity and pure endowment contracts, (c) disability and accidental death benefits in all policies and contracts, and (d) all other benefits, except life insurance and endowment benefits in life insurance policies, shall be calculated by a method consistent with the principles of this paragraph (2).
(3). In no event shall a company's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, be less than the aggregate reserves calculated in accordance with the method set forth in Paragraph (2) and the mortality table or tables and rate or rates of interest used in calculating non-forfeiture benefits for such policies.
(4). Reserves for any category of policies, contracts or benefits as established by the Insurance Commissioner, may be calculated, at the option of the company, according to any standards which produce greater aggregate reserves for such category than those calculated according to the minimum standard herein provided, but the rate or rates of interest used shall not be higher than the corresponding rate or rates of interest used in calculating any non-forfeiture benefits provided for therein. Provided, however, that reserves for participating life insurance policies may, with the consent of the Insurance Commissioner, be calculated according to a rate of interest lower than the rate of interest used in calculating the non-forfeiture benefits in such policies, with the further proviso that if such lower rate differs from the rate used in the calculation of the non-forfeiture benefits by more than one-half per cent (1/2%) the company issuing such policies shall file with the Insurance Commissioner a plan providing for such equitable increases, if any, in the cash surrender values and non-forfeiture benefits in such policies as the Insurance Commissioner shall approve.
(5). If the gross premium charged by any life insurance company on any policy or contract is less than the net premium for the policy or contract according to the mortality table, rate of interest and method used in calculating the reserve thereon, there shall be maintained on such policy or contract a deficiency reserve in addition to all other reserves required by law. For each such policy or contract the deficiency reserve shall be the present value, according to such standard, of an annuity of the difference between such net premium and the premium charged for such policy or contract, running for the remainder of the premium-paying period.
Section 2. That Section 35 (relating to provisions required in life insurance policies) of Chapter 20 of the Revised Code of the State of Delaware, 1935, being Code Section 496 of said Code, be and the same is hereby amended by substituting the following new provisions (6), (7) and (8) for the corresponding provisions now appearing in said section:
(6). A provision that after the policy has been in force three full years, the company at any time, while the policy is in force, will advance, on proper assignment or pledge of the policy and on the sole security thereof, at a specified rate of interest, a sum equal to, or at the option of the insured less than the amount required by 496-C. Sec. 35-C under the conditions specified thereby; and that the company may deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year. This provision shall not be required in term insurance, nor shall it apply to temporary insurance or pure endowment insurance, issued or granted in exchange for lapsed or surrendered policies. The policy may further provide that if the interest on the loan is not paid when due, it shall be added to the existing loan, and shall bear interest at the same rate.
(0). A provision for non-forfeiture benefits, specifying the options to which the policyholder is entitled, in accordance with the requirements of 496-A. Sec. 35-A or 496-B. Sec. 35-B. This provision shall not be required in term insurance of twenty years or less.
(1). A provision for cash surrender values in accordance with the requirements of 496-A. Sec. 35-A or 496-B. Sec. 35-B. This provision shall not be required in term insurance of twenty years or less.
Section 3. That Chapter 20, of the Revised Code of the State of Delaware, 1935, be and the same is hereby amended by adding the following new section to be known as 496-A. Sec. 35-A :
496-A. Sec. 35-A. Non-Forfeiture Benefits in Policies Issued Before the Operative Date of 496-B. Sec. 35-B.: From and after January 1, 1932, and before the operative date of 496-B. Sec. 35-B, no policy of life insurance other than industrial insurance, annuities and pure endowments with or without return of premiums or of premiums and interest and other than term insurance of twenty years or less shall be issued or delivered in this State or be issued by a life insurance company organized under the laws of this State, unless the same shall contain in substance a provision that in event of default in premium payments, after premiums shall have been paid for three years, the insured shall be entitled to a stipulated form of insurance, effective from the due date of the defaulted premium, the net value of which shall be at least equal to the reserve at the date of default on the policy and on dividend additions thereto, if any, exclusive of the reserve on account of return premium insurance and on total and permanent disability and additional accidental death benefits (the policy to specify the mortality table and rate of interest adopted for computing such reserve), less a specified percentage (not more than two and one-half) of the amount insured by the policy and of existing dividend additions thereto, if any, and less any existing indebtedness to the company on or secured by the policy : Provided a company may, in lieu of the provision herein permitted for the deduction from the reserve of a sum not more than two and one-half per centurn of the amount insured by the policy, and of any dividend additions thereto, insert in the policy a provision that one-fifth of said reserve may be deducted, or may provide therein that a deduction may be made of said two and one-half percent= or one-fifth of said reserve, at the option of the company : Provided further, that the policy may be surrendered to the company at its home office within one month of the due date of defaulted premium for a specific cash value at least equal to the sum which would otherwise be available for the purchase of insurance as aforesaid; and provided, further, that the company may defer payment for not more than six months after the application therefor is made.
Provided further, that a provision may also be inserted in the policy that in event of default in a premium payment before such options become available the reserve on any dividend additions then in force may at the option of the company be paid in cash or applied as a net premium to the purchase of paid-up term insurance for any amount not in excess of the face of the original policy.
Section 4. That Chapter 20, of the Revised Code of the State of Delaware, 1935, be and the same is hereby amended by adding the following new section to be known as 496-B. Sec. 35-B:
496-B. Sec. 35-B. Standard Non-Forfeiture Law.
(a) In the case of policies issued on or after the operative date of this section, as defined in Subsection (g), no policy of life insurance, except as stated in Subsection (f), shall be issued or delivered in this State unless it shall contain in substance the following provisions, or corresponding provisions which in the opinion of the Insurance Commissioner are at least as favorable to the defaulting or surrendering policyholder :
(1) That, in the event of default in any premium payment, the company will grant, upon proper request not later than sixty days after the due date of the premium in default, a paid-up non-forfeiture benefit on a plan stipulated in the policy, effective as of such due date, of such value as may be hereinafter specified.
(2) That, upon surrender of the policy within sixty 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 will pay, in lieu of any paid-up non-forfeiture benefit, a cash surrender value of such amount as may be hereinafter specified.
(3) That a specified paid-up non-forfeiture benefit shall become effective as specified in the policy unless the person entitled to make such election elects another available option not later than sixty days after the due date of the premium in default.
(4) That, if the policy shall have become paid-up by completion of all premium payments or if it is continued under any paid-up non-forfeiture benefit which 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 will pay, upon surrender of the policy within thirty days after any policy anniversary, a cash surrender value of such amount as may be hereinafter specified.
(5) A statement of the mortality table and interest rate used in calculating the cash surrender values and the paid-up non-forfeiture benefits available under the policy, together with a table showing the cash surrender value, if any, and paid-up non-forfeiture benefit, if any, available under the policy on each policy anniversary either during the first twenty 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 statement of the method to be used in calculating the cash surrender value and the paid-up non-forfeiture benefit available under the policy on any policy anniversary with an explanation of the manner in which the cash surrender values and the paid-up non-forfeiture benefits are altered by the existence of any paid-up additions credited to the policy or any indebtedness to the company on the policy.
Any of the foregoing provisions or portions thereof not applicable by reason of the plan of insurance may, to the extent inapplicable, be omitted from the policy.
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.
(b) 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 Subsection (a), shall be an amount not less than the excess, if any, of the present value, on such anniversary, of the future guaranteed benefits which would have been provided for by the policy, including any existing paid-up additions, if there had been no default, over the sum of (A) the then present value of the adjusted premiums as defined in Subsection (d), corresponding to premiums which would have fallen due on and after such anniversary, and (B) the amount of any indebtedness to the company on the policy. Any cash surrender value available within thirty days after any policy anniversary under any policy paid-up by completion of all premium payments or any policy continued under any paid-up non-forfeiture benefit, whether or not required by Subsection (a), shall be an amount not less than the present value, on such 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.
(c) Any paid-up non-forfeiture benefit available under the policy in the event of default in a premium payment due on any policy anniversary shall be such that its present value as of such 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 which would have been required by this section in the absence of the condition that premiums shall have been paid for at least a specified period.
(d) 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 that the present value, at the date of issue of the policy, of all such adjusted premiums shall be equal to the sum of (i) the then present value of the future guaranteed benefits provided for by the policy; (ii) two per cent 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 ; (iii) forty per cent of the adjusted premium for the first policy year ; (iv) twenty-five per cent 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. Provided, however, that in applying the percentages specified in (iii) and (iv) above, no adjusted premium shall be deemed to exceed four per cent (4%) of the amount of insurance or level amount equivalent thereto. The date of issue of a policy for the purpose of this subsection shall be the date as of which the rated age of the insured is determined.
In the case of a policy providing an amount of insurance varying with duration of the policy, the equivalent level amount thereof for the purpose of this subsection 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.
All adjusted premiums and present values referred to in this section shall be calculated on the basis of the Commissioners' 1941 Standard Ordinary Mortality Table for Ordinary insurance and the 1941 Standard Industrial Mortality Table for Industrial
insurance and the rate of interest, not exceeding three and one-half per cent (3-1/2%) per annum, specified in the policy for calculating cash surrender values and paid-up non-forfeiture benefits. Provided, however, that in calculating the present value of any paid-up term insurance with accompanying pure endowment, if any, offered as a non-forfeiture benefit, the rates of mortality assumed may be not more than one hundred and thirty per cent (130%) of the rates of mortality according to such applicable table. Provided, further, that for insurance issued on a substandard basis, the calculation 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 Insurance Commissioner.
(e) Any cash surrender value and any paid-up non-forfeiture benefit, available under the 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 Subsections (b), (c) and (d) 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 be not less than the dividends used to provide such additions. Notwithstanding the provisions of Subsection (b), additional 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 decreasing term insurance benefits provided by a rider or supplemental policy provision to which, if issued as a separate policy, this section would not apply, and (5) as other policy benefits additional to life insurance and endowment benefits, and premiums for all such additional benefits, shall be disregarded in ascertaining cash surrender values and non-forfeiture benefits required by this section, and no such additional benefits shall be required to be included in any paid-up non-forfeiture benefits.
(f) This section shall not apply to any reinsurance, group insurance, pure endowment, annuity or reversionary annuity contract, nor to any term policy of uniform amount, or renewal thereof, of fifteen years or less expiring before age sixty-six, for which uniform premiums are payable during the entire term of the policy, nor to any term policy of decreasing amount on which each adjusted premium, calculated as specified in Subsection (d), is less than the adjusted premium so calculated, on such fifteen year term policy issued at the same age and for the same initial amount of insurance, nor to any policy which shall be delivered outside this State through an agent or other representative of the company issuing the policy.
(g) After the effective date of this Act, any company may file with the Insurance Commissioner a written notice of its election to comply with the provisions of this section after a specified date before January first, nineteen hundred and forty-eight. After the filing of such notice, then upon such specified date (which shall be the operative date for such company), this after issued by such company. If a company makes no such section shall become opeartive with respect to the policies there-election, the operative date of this section for such company shall be January first, nineteen hundred and forty-eight.
Section 5. That Chapter 20, of the Revised Code of the State of Delaware, 1935, be and the same is hereby amended by adding the following new section to be known as 496-C, Sec. 35-C:
496-C. Sec. 35-C. Loan Provisions in Policies. (a) In the case of policies issued after January 1, 1932 and prior to the operative date of 496-B. Sec. 35-B, the loan value referred to in Paragraph (6) of 496. Sec. 35 shall be the reserve at the end of the current policy year on the policy and on the dividend additions thereto, if any, exclusive of the reserve on account of return premium insurance and of total and permanent disability and additional accidental death benefits, less a sum not more than (i) two and one-half per centum of the amount insured by the
policy and of any dividend additions thereto or, at the option of the company, (ii) one-fifth of said reserve. Such policies may provide that such loan may be deferred for not exceeding six months after the application therefor is made.
(b) In the case of policies issued on or after the operative date of 496-B. Sec. 35-B (the Standard Non-forfeiture Law) the loan value referred to in Paragraph (6) of 496. Sec. 35 shall be the cash surrender value as required by 496-B. Sec. 35-B. The company shall reserve the right to defer such loan, except when made to pay premiums, for six months after the application therefor is made.
Section 6. That Section 45 (relating to registered policies and bonds of domestic companies) of Chapter 20, of the Revised Code of the State of Delaware, 1935, being Code Section 506 of said Code, be and the same is hereby amended by substituting for the third, fourth and fifth paragraphs thereof the following three paragraphs:
The Insurance Commissioner shall prepare and keep such records of all "registered" policies and bonds as will enable him to ascertain the reserve required thereon at any time according to the method and basis of valuation prescribed in 493. Sec. 32. Upon sufficient proof, attested by the President or Vice-President and Secretary of a company which shall have issued such "registered" policies or bonds, that any of them have been commuted or terminated, the Insurance Commissioner shall commute or cancel them upon his records. On the Thirty-first day of December in every year, or within sixty days thereafter, the Insurance Commissioner shall cause the registered policies and bonds in force in each company to be carefully valued and the net reserve thereon ascertained according to the method and basis of valuation prescribed in 493. Sec. 32, and he shall thereupon furnish a certificate of the aggregate amount of such reserve to the respective companies, The Insurance Commissioner may employ a competent actuary to make such computation, who shall be paid by the company for which the services are rendered, or the Insurance Commissioner may accept the computations of any of the companies upon such proof as he may determine.
Each company which shall have made the deposit so provided for, shall make additional deposits from time to time, as the Insurance Commissioner may prescribe, in amounts of not less than Five Thousand Dollars, and of such securities as domestic life insurance companies are authorized by law to invest in, so that the market or amortized value of the securities on deposit shall always at least equal the net reserve required by the method and basis of valuation prescribed in 493. Sec. 32, on all the registered policies and bonds in force in said company.
The Insurance Commissioner shall keep a careful record of the securities deposited by each company, and when furnishing the annual certificates of value, he shall enter thereon the amount and value of the securities deposited by such company. If at any time it shall appear from such certificates or otherwise that the value of the securities held on deposit is less than the reserve required by the method and basis of valuation prescribed in 493. Sec. 32 on all the registered policies and bonds in force in such company, it shall not be lawful for the Insurance Commissioner to execute certificates on any additional policies or bonds of such company, until it shall have made good the deficit. If any company fails or neglects to make good such deficit for sixty days it shall be deemed insolvent and shall be proceeded against in the manner provided by law in such cases.
Section 7. All acts and parts of acts inconsistent with the provisions of this Act are hereby repealed. This Act shall take effect from its passage.