N.Y. Comp. Codes R. & Regs. tit. 11, § 42-1.5 – Minimum guaranteed cash surrender value requirements.

(1) This section shall not apply to the following:
1. (i) policies subject to section 4232(b) or 4518 of the Insurance Law;
2. (ii) one year term life insurance coverage funded by dividends or other additional amounts credited to a policy.
(2) The procedures of this section shall apply to fixed premium policies with gross premium scale involving increases and to indeterminate premium policies if either the initial current gross premium scale or the guaranteed gross premium scale involves increases.
(3) In calculations under this section, the gross premium scale may exclude amounts payable as extra premiums to cover impairments or special hazards and also exclude any uniform annual contract charge or policy fee specified in the policy.
(4) For an annually renewable term policy, for which both the initial current gross premium scale and the guaranteed gross premium scale generally increase annually and extend beyond age 90, cash surrender values are not required if required cash values in excess of 2.5 percent of the face amount of insurance at the beginning of any policy year would not develop for an otherwise identical policy terminating at age 90.
(5) In testing for required cash surrender values on policies which are not designed to provide cash surrender values (and therefore no nonforfeiture mortality and interest basis is defined in the policy), the minimum nonforfeiture standards for mortality and interest of section 4221 of the Insurance Law may be used.
(b) Term life policy with increasing (with advancing duration) gross premium scale.
(1) Term life policy for the purpose of this section means any fixed premium or indeterminate premium life insurance policy meeting the requirements of section 42-1.4 of this Subpart and with at least one premium increase with advancing duration, with or without cash values, under which death proceeds are payable upon death occurring during the term period and which does not provide any endowment benefit during or at the end of the term period.
(2) The minimum cash values required for any policy described in paragraph (1) of this subdivision are fixed and determined at issue in accordance with the provisions of section 4221 of the Insurance Law but treating the policy in divisible parts under a series of tests as described below.
1. (i) The minimum cash surrender value required at each duration is the greater of (a) the greatest of the values determined by each of the following tests using the initial current gross premium scale and (b) the greatest of the values determined by each of the following tests using the guaranteed gross premium scale.
2. (ii) The policy coverage period is separated into successive subperiods of level gross premiums. These level subperiods are combined into periods for testing (see Appendix I and II).
  1. (a) Test 1 — period one uses the policy death benefit and gross premium for the first level gross premium subperiod (see Appendix I).
  2. (b) Test 1 — period two uses the policy death benefit and gross premium scale for the first two level gross premium subperiods (see Appendix I).
  3. (c) Test 1 — period t is based on the first t level gross premium subperiods (see Appendix I).
  4. (d) Test 2 uses the same procedure as Test 1 but eliminates the first subperiod and starts at the beginning of subperiod 2. All subperiods and periods are renumbered to one less than used in Test 1.
  5. (e) Test 3 and later continue the process until the mandatory expiry date of the policy.
3. (iii) For each of the above tests, values are computed as though the policy was issued at the beginning of the particular period being tested with the initial expense allowance based on the attained age at the beginning of such test period.
4. (iv) The policy should first be tested for each issue age to determine if cash values are needed in accordance with the above test procedures. If it is determined that no cash value (or present value of any paid-up nonforfeiture benefit) at the beginning of any policy year exceeds two and one-half percent of the amount of insurance at the beginning of the same policy year, or the test periods meet the conditions in subparagraph (v) of this paragraph, under any test, then nonforfeiture values are not required for that issue age. Otherwise, nonforfeiture values are required for that issue age. The policy required minimum cash values are determined using the policy defined nonforfeiture mortality table and interest rate basis and using the test plans determined above that produced the highest values.
5. (v) Policy test periods with level death benefits and with level gross premiums payable over 20 years or less expiring before attained age 71 do not require cash values and do not need to be tested.
(3) Appendixes I and II of this Subpart illustrate the tests for a term policy with issue age 65 male, combined class, level death benefit, final expiry age 90 (employer-employee case where employer is paying the full premium) based on an initial current gross premium scale shown. The policy nonforfeiture is 1980 CSO combined without selection factors, age nearest birthdate, curtate functions, five percent interest.
1. (i) Period 1 of Test 1 produces the highest values at each duration, some of which exceed two and one-half percent of the amount of insurance at the beginning of a policy year. The test period does not meet the requirement of subparagraph (2)(v) of this subdivision. Therefore, for this test, cash values will be required treating the plan as a period 1 plan, using the policy defined nonforfeiture mortality table and interest rate.
2. (ii) Test 2 values in this example use start age 80 (65 + 15) and are shown in Appendix II of this Subpart. None of these Test 2 periods' values exceeds two and one-half percent of the amount of insurance at the beginning of a policy year. Therefore, using Test 2 no period values are needed. If any value exceeded two and one-half percent of the amount of insurance at the beginning of a policy year, then values based on such plan period, to the extent they exceeded the values under Test 1, will be required.
3. (iii) Test 3 and subsequent tests continue the process until the mandatory expiry date of the policy. In the example, no further cash values develop.
4. (iv) The above testing then must be repeated using the guaranteed gross premium scale.
5. (v) If the values using the guaranteed gross premium scale are less than those using the initial current gross premium scale, it would be determined that the minimum cash values are those noted above at the end of Test 1, for period one, on the initial current gross premium scale.
  (c) Whole life policies with increasing (with advancing duration) gross premium scale.
(1) Whole life policy with increasing premium for the purpose of this section means any fixed premium or indeterminate premium policy subject to this section under which death proceeds are payable upon death occurring during the insurance coverage period and which provides an endowment value at any time (most commonly at the end of the insurance coverage period) and under which the gross premium increases at least once with advancing duration. The endowment value cannot be less than 75 percent of the highest scheduled death benefit during the coverage period.
(2) The policy gross premium scale cannot provide for grading (increasing) premium beyond attained age 80. For a joint life last to die policy, the age limitation for grading premiums shall be based on the age of the youngest joint insured. For a joint first to die policy, the age limitation for grading premiums shall be based on the age of the oldest joint insured.
(3) The minimum cash surrender values required for any policy subject to this subdivision are fixed and determined at issue in accordance with section 4221 of the Insurance Law, but treating the policy in divisible parts under a series of tests as described below:
1. (i) The minimum cash values required are the greater of (a) the greatest of the values determined by each of the following Test 1 periods using the initial current gross premium scale and (b) the greatest of the values determined by each of the following Test 1 periods using the guaranteed gross premium scale.
2. (ii) The policy coverage period is separated into successive subperiods of level gross premiums. These level subperiods are combined into periods for testing (see Appendix III).
  1. (a) Test 1 — period one uses the death benefits, endowment benefits, and gross premium scale for the entire period of coverage measured from issue date to maturity date.
  2. (b) Test 1 — period two uses the death benefits, endowment benefits, and gross premium scale for the period of coverage from the end of the first level gross premium subperiod to the maturity date.
  3. (c) Test 1 — period t uses the death benefits, endowment benefits, and gross premium scale for the period of coverage from the end of the (t-1) level gross premium subperiod to the maturity date.
3. (iii) For each of the above tests, values are computed as though the policy was issued at the beginning of the particular period being tested with the initial expense allowance based on the attained age at the beginning of such test period.
4. (iv) All level gross premium subperiods should be tested. The required minimum nonforfeiture cash values are determined using the above test plans and the policy defined nonforfeiture mortality table and interest rate basis.
5. (v) Example:
  1. (a) Appendix III of this Subpart illustrates the Test 1 cash values for a policy with issue age 50 male, non-smoker class, final expiry age 95, maturity value at 95 is $1,000, for the initial current gross premium scale shown. The policy nonforfeiture basis is 1980 CSO non-smoker without selection factors, age nearest birthdate, curtate functions, and five percent interest.
  2. (b) Since period 2 produces the highest values, period 2 values are the required minimum cash values for the test based upon the initial current gross premium scale. However, the above testing must be repeated using the guaranteed gross premium scale. The final values will be the highest of those determined using the initial current gross premium scale and those determined using the guaranteed gross premium scale.
6. (vi) If the highest values at each duration are based upon a single period test, such values shall be deemed in compliance with this Subpart. If the highest values at each duration are based on more than a single period test, the insurer must also demonstrate that such cash value structure is fair, equitable and not misleading.
  (d) Other polices with increasing (with advancing duration) gross premium scale and with an endowment benefit.
  Any term insurance policy with an endowment benefit and any whole life or endowment policy with an endowment value less than 75 percent of the highest scheduled amount of insurance shall be subject to the greater of the values produced by applying subdivision (b) or the values produced by subdivision (c) of this section. In testing any period under subdivision (b), the amount of pure endowment within or at the end of the test period shall be considered.

(a) General.