20-1231

20-1231. Standard nonforfeiture law for life
insurance

A. This section may be cited as the standard nonforfeiture law for life insurance.

B. Nonforfeiture provisions--Life. In the case of policies issued on or after the
operative date of this section as defined in subsection J of this section, no policy of
life insurance, except as set forth in subsection I of this section, shall be delivered
or issued for delivery in this state unless it contains in substance the following
provisions, or corresponding provisions which in the opinion of the director 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 subsection
H of this section:

1. That in the event of default in any premium payment, the insurer will grant,
upon proper request not later than sixty 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 such due date, of such amount as is specified by this section. Instead of the
stipulated paid-up nonforfeiture benefit, the insurer may substitute, upon proper request
not later than sixty days after the due date of the premium in default, an actuarially
equivalent alternative paid-up nonforfeiture benefit which provides a greater amount or
longer period of death benefits or, if applicable, a greater amount or earlier payment of
endowment benefits.

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, and five full years in the case of industrial insurance,
the insurer will pay, in lieu of any paid-up nonforfeiture benefit, a cash surrender
value of such amount as is specified by this section.

3. That a specified paid-up nonforfeiture 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 has become paid up by completion of all premiums payments, or
if it is continued under any paid-up nonforfeiture 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 insurer will pay, upon surrender of
the policy within thirty days after any policy anniversary, a cash surrender value of
such amount as is specified by this section.

5. 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, 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
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
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 insurer on the
policy.

6. A 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 this state, 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
insurer 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 paid-up nonforfeiture benefit available under the policy on any
policy anniversary beyond the last anniversary for which such values and benefits are
consecutively shown in the policy.

C. Any of the provisions or portions of the provisions set forth in subsection B,
paragraphs 1 through 6 of this section which are not applicable by reason of the plan of
insurance may, to the extent inapplicable, be omitted from the policy. The insurer 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. Cash surrender value--Life.

1. Any cash surrender value available under the policy in the event of default in
the premium payment due on any policy anniversary, whether or not required by subsection
B of this section, 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 the then present value of the adjusted premiums as defined in
subsection F of this section and in section 20-1231.01, corresponding to premiums which
would have fallen due on and after such anniversary, and the amount of any indebtedness
to the insurer on account of or secured by the policy.

2. For any policy issued on or after the operative date as provided in section
20-1231.01 which 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 paragraph 1 of this subsection is in
an amount not less than the sum of the cash surrender value as defined in such paragraph
for an otherwise similar policy issued at the same age without such rider or supplemental
policy provision and the cash surrender value as defined in such paragraph for a policy
which provides only the benefits otherwise provided by such rider or supplemental policy
provision.

3. For any family policy issued on or after the operative date as provided in
section 20-1231.01 which defines a primary insured and provides term insurance on the
life of the spouse of the primary insured expiring before the spouse's age seventy-one,
the cash surrender value referred to in paragraph 1 of this subsection is in an amount
not less than the sum of the cash surrender value as defined in that paragraph 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 that paragraph for a policy which
provides only the benefits otherwise provided by term insurance on the life of the
spouse.

4. 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 nonforfeiture benefits, whether or not required by subsection
B of this section, 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 insurer on account of or
secured by the policy.

E. Paid-up nonforfeiture benefits--Life. Any paid-up nonforfeiture benefit
available under the policy in the event of default in the 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 conditions that premiums shall have been paid for at least a
specified period.

F. The adjusted premiums--Life.

1. Paragraphs 1 through 4 and paragraph 5, subdivision (a) of this subsection do
not apply to policies issued on or after the operative date as provided in section
20-1231.01. Except as provided in paragraph 3 of this subsection, 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 extra premiums on a substandard policy, 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 per cent of the amount of the insurance if the insurance is uniform in
amount, or of the equivalent uniform amount, as defined by this section, if the amount of
insurance varies with the duration of the policy.

(c) Forty per cent of the adjusted premium for the first policy year.

(d) 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.

2. In applying the percentages specified in subdivisions (c) and (d) of paragraph 1
of this subsection, no adjusted premiums shall be deemed to exceed four per cent of the
amount of insurance or uniform amount equivalent thereto. When the plan or term of a
policy has been changed, either by request of the insured or automatically in accordance
with the provisions of the policy, the date of inception of the changed policy for the
purposes of determining a nonforfeiture benefit or cash surrender value shall be the date
as of which the age of the insured is determined for the purposes of the changed policy.

3. The adjusted premiums for any policy providing term insurance benefits by rider
or supplemental policy provisions shall be equal to the sum of:

(a) The adjusted premiums for an otherwise similar policy issued at the same age
without such term insurance benefits.

(b) The adjusted premiums for such term insurance benefits during the period for
which premiums for such term insurance benefits are payable. Such subdivisions (a) and
(b) shall be calculated separately and as specified in paragraphs 1 and 2 of this
subsection except that, for the purposes of subdivisions (b), (c) and (d) of paragraph 1
of this subsection, the amount of insurance or equivalent uniform amount of insurance
used in the calculation of the adjusted premiums referred to in this subdivision 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 (a) of this
paragraph.

4. In the case of a policy providing an amount of insurance varying with the
duration of the policy, the equivalent uniform amount thereof for the purpose of
paragraphs 1, 2 and 3 of this subsection shall be deemed to be the uniform 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 date of issue as the benefits under the policy, but in the case of a policy for a
varying amount of insurance issued on the life of a child under age ten, the equivalent
uniform amount may be computed as though the amount of insurance provided by the policy
prior to the attainment of age ten were the amount provided by the policy at age ten.

5. Tables for calculating adjusted premiums shall be as follows:

(a) Except as otherwise provided in subdivisions (b) and (d) of this paragraph, all
adjusted premiums and present values referred to in this section 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 an age
not in excess of three years younger than the actual age of the insured. 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 per cent per annum, specified in
the policy for calculating cash surrender values and paid-up nonforfeiture benefits, but
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 one hundred thirty per cent of the rates of mortality according to such
applicable table. 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 insurer and approved by the director.

(b) This subdivision does not apply to ordinary policies issued on or after the
operative date as provided in section 20-1231.01. In the case of ordinary policies
issued on or after the operative date defined in subdivision (c) of this paragraph, all
adjusted premiums and present values referred to in this section 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 per cent per annum except that a rate of interest not exceeding four per cent
per annum may be used for policies issued on or after July 1, 1974 and prior to January
1, 1979, and a rate of interest not exceeding five and one-half per cent per annum may be
used for policies issued on or after January 1, 1979, except that for any single premium
whole life or endowment insurance policy a rate of interest not exceeding six and
one-half per cent per annum may be used, and provided that:

(i) For any category of ordinary insurance issued on female risks, adjusted
premiums and present values may be calculated according to an age not in excess of six
years younger than the actual age of the insured.

(ii) 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 in excess of those shown in the commissioners 1958 extended
term insurance table.

(iii) 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 insurer and approved by the director.

(c) Any insurer may file with the director a written notice of its election to
comply with the provisions of subdivision (b) of this paragraph, either as to designated
ordinary policies or as to all ordinary policies issued by it, after a specified date
before January 1, 1966. After the filing of such notice, then upon such specified date,
which shall be the operative date of such subdivision (b) as to such policies for such
insurer, such subdivision (b) shall become operative with respect to such policies
thereafter issued by such insurer. If an insurer makes no such election, or so elects to
have such subdivision (b) apply as to certain of its ordinary policies only, the
operative date thereof as to all of the ordinary policies issued by such insurer, other
than those policies as to which the insurer has elected an earlier operative date, shall
be January 1, 1966.

(d) This subdivision does not apply to industrial policies issued on or after the
operative date provided in section 20-1231.01. In the case of industrial policies issued
on or after the operative date of this subdivision as defined herein, all adjusted
premiums and present values referred to in this subdivision 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 per cent per annum except that a rate of interest not exceeding four per cent
per annum may be used for policies issued on or after July 1, 1974 and prior to January
1, 1979, and a rate of interest not exceeding five and one-half per cent per annum may be
used for policies issued on or after January 1, 1979, except that for any single premium
whole life or endowment insurance policy a rate of interest not exceeding six and
one-half per cent per annum may be used. But, 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 and, 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 insurer and
approved by the director. After the effective date of this subdivision, an insurer may
file with the director a written notice of its election to comply with the provisions of
this subdivision, either as to designated industrial policies or as to all industrial
policies issued by it, after a specified date before January 1, 1968. After the filing
of such notice, then upon such specified date, which shall be the operative date of this
subdivision for such insurer, this subdivision shall become operative with respect to the
industrial policies thereafter issued by such insurer. If an insurer makes no such
election, the operative date of this subdivision for such insurer shall be January 1,
1968.

(e) For any plan of life insurance which provides for future premium determination,
the amounts of which are to be determined by the insurer based on then estimates of
future experience, or for any plan of life insurance which is of such a nature that
minimum values cannot be determined by the methods described in subsection B, C, D or E
of this section, paragraph 1 of this subsection, subdivision (b), (c) or (d) of this
paragraph or section 20-1231.01, then:

(i) The director 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 subsection B, C, D or E of this section, paragraph 1 of this
subsection, subdivision (b), (c) or (d) of this paragraph or section 20-1231.01.

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

(iii) The cash surrender values and paid-up nonforfeiture benefits provided by the
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 rules adopted by the director.

G. Calculation of values--Life.

1. Any cash surrender value and any paid-up nonforfeiture 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 D, E and F of this section and section 20-1231.01 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 amounts used to provide such additions.

2. Notwithstanding such provisions of subsection D of this section, additional
benefits payable and premiums for all such additional benefits shall be disregarded in
ascertaining cash surrender values and nonforfeiture benefits required by this section,
and no such additional benefits shall be required to be included in any paid-up
nonforfeiture benefits:

(a) In the event of death or dismemberment by accident or accidental means.

(b) In the event of total and permanent disability.

(c) As reversionary annuity or deferred reversionary annuity benefits.

(d) As term insurance benefits provided by a rider or supplemental policy provision
to which, if issued as a separate policy, this section would not apply.

(e) As term insurance on the life of 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's age is twenty-six, is uniform in amount after the child's age is one, and has
not become paid-up by reason of the death of a parent of the child.

(f) As other policy benefits additional to life insurance and endowment benefits.

H. This subsection, in addition to all other applicable subsections of this
section, applies to all policies issued on or after January 1, 1986:

1. 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 per cent of either the amount of insurance, if the
insurance is uniform in amount, or the average amount of insurance at the beginning of
each of the first ten policy years, from the sum of:

(a) The greater of zero and the basic cash value hereinafter specified.

(b) The present value of any existing paid-up additions less the amount of any
indebtedness to the insurer under the policy.

2. 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
insurer, if there had been no default, less the then present value of the nonforfeiture
factors, corresponding to premiums which would have fallen due on and after such
anniversary, except that the effects on the basic cash value of supplemental life
insurance or annuity benefits or of family coverage, as described in subsection D or F of
this section, whichever is applicable, shall be the same as are the effects specified in
subsection D or F of this section, whichever is applicable, on the cash surrender values
defined in that subsection.

3. 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 subsection F of
this section or section 20-1231.01, whichever is applicable. Except as is required by the
next succeeding sentence of this paragraph, such percentage:

(a) Must be the same percentage for each policy year between the second policy
anniversary and the latter of:

(i) The fifth policy anniversary.

(ii) 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 per cent of either the amount
of insurance, if the insurance is uniform in amount, or the average amount of insurance
at the beginning of each of the first ten policy years.

(b) Must be such that no percentage after the later of the two policy anniversaries
specified in subdivision (a) may apply to fewer than five consecutive policy years.

4. No basic cash value may be less than the value which would be obtained if the
adjusted premiums for the policy, as defined in subsection F of this section or section
20-1231.01, whichever is applicable, were substituted for the nonforfeiture factors in
the calculation of the basic cash value.

5. All adjusted premiums and present values referred to in this subsection 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 subsections of this
section. The cash surrender values referred to in this subsection shall include any
endowment benefits provided for by the policy.

6. Any 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 subsections B, C, D, E and G of this section and section 20-1231.01.
The amounts of any cash surrender values and of any paid-up nonforfeiture benefits
granted in connection with additional benefits such as those listed in subsection G,
paragraph 2 of this section shall conform with the principles of this subsection.

I. Exceptions. This section and section 20-1231.01 do not apply to any of the
following:

1. Reinsurance.

2. Group insurance.

3. Pure endowment.

4. Annuity or reversionary annuity contract.

5. A term policy of uniform amount which provides no guaranteed nonforfeiture or
endowment benefits, or renewal thereof, of twenty years or less expiring before age
seventy-one, 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
subsection F of this section and section 20-1231.01, is less than the adjusted premiums
so calculated on a term policy of uniform amount, or renewal thereof, which 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 twenty years or less expiring before age
seventy-one, for which uniform premiums are payable during the entire term of the policy.

7. Any policy which is delivered outside this state through an insurance producer
or other representative of the insurer issuing the policy.

8. 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 subsections D, E
and F of this section and section 20-1231.01, exceeds two and one-half per cent of the
amount of insurance at the beginning of the same policy year. For the purposes of
determining the applicability of this section, the age at expiry for a joint term life
insurance policy is the age at expiry of the oldest life.

J. Operative date. Except as is otherwise provided in subsection F of this
section, after January 1, 1955, any insurer may file with the director a written notice
of its election to comply with the provisions of this section after a specified date
before July 1, 1956. After the filing of such notice, then upon such specified date,
which shall be the operative date for such insurer, this section shall become operative
with respect to the policies thereafter issued by the insurer. If an insurer makes no
such election, the operative date of this section for the insurer shall be July 1, 1956.