Article 4.--GENERAL PROVISIONS RELATING TO LIFE INSURANCE COMPANIES
40-428.Standard nonforfeiture law.(a) In the case of policies issued on or after the operative date ofthis section, as defined in subsection (d-1), (d-2), (d-3) or(i), no policy of life insurance, except as stated in subsection(h) shall bedelivered or issued for delivery in this state unless it shall contain insubstance thefollowing provisions, or corresponding provisions which in the opinionof the commissioner of insurance are at least as favorable to thedefaulting or surrendering policyholder as are the minimum requirementshereinafter specified and are essentially in compliance with subsection(g) of this section.
(i) In the event of default in any premium payment, thecompany will grant, upon proper request not later than60 days after the due date of the premium in default, a paid-up nonforfeiturebenefit on a plan stipulated in the policy, effective as of such duedate, of such amount as may be hereinafter specified.
In lieu of such stipulated paid-up nonforfeiture benefit, the company maysubstitute, upon proper request not later than 60 days after the due dateof the premium in default, an actuarially equivalent alternative paid-upnonforfeiture benefit which provides a greater amount or longer period ofdeath benefits or, if applicable, a greater amount or earlier payment ofendowment benefits.
(ii) Upon surrender of the policy within 60 days afterthe due date of any premium payment in default after premiums have beenpaid for at least three full years in the case of ordinary insuranceor five full years in the case of industrial insurance, the companywill pay, in lieu of any paid-up nonforfeiture benefit, a cash surrendervalue of such amount as may be hereinafter specified.
(iii) A specified paid-up nonforfeiture benefit shall becomeeffective as specified in the policy unless the person entitled to makesuch election elects another available option not later than60 days after the due date of the premium in default.
(iv) If the policy shall have become paid-up by completion ofall premium payments or if it is continued under any paid-upnonforfeiture benefit which became effective on or after the thirdpolicy anniversary in the case of ordinary insurance or the fifth policyanniversary in the case of industrial insurance, the company will pay,upon surrender of the policy within 30 days after any policy anniversary,a cash surrender value of such amount as may be hereinafterspecified.
(v) In the case of policies which cause on a basis guaranteed in the policyunscheduled changes in benefits or premiums, or which provide an optionfor changes in benefits or premiums other than a change to a new policy,a statement of the mortality table, interest rate, and method usedin calculating cash surrender values and the paid-up nonforfeiture benefitsavailable under the policy. In the case of all other policies, a statementof the mortality table and interest rate used incalculating the cash surrender values and the paid-up nonforfeiturebenefits available under the policy, together with a table showing thecash surrender value, if any, and paid-up nonforfeiture benefit, if any,available under the policy on each policy anniversary either during thefirst 20 policy years or during the term of the policy,whichever is shorter, such values and benefits to be calculated upon theassumption that there are no dividends or paid-up additions credited tothe policy and that there is no indebtedness to the company on thepolicy.
(vi) A statement that the cash surrender values and the paid-upnonforfeiture benefits available under the policy are not less than theminimum values and benefits required by or pursuant to any statute ofthe state in which the policy is delivered; and an explanation of themanner in which the cash surrender values and the paid-up nonforfeiturebenefits are altered by the existence of any paid-up additions creditedto the policy or any indebtedness to the company on the policy; if adetailed statement of the method of computation of the values andbenefits shown in the policy is not stated therein, a statement thatsuch method of computation has been filed with the insurance supervisoryofficial of the state in which the policy is delivered; and, a statementof the method to be used in calculating the cash surrender value andpaid-up nonforfeiture benefit available under the policy on any policyanniversary beyond the last anniversary for which such values andbenefits are consecutively shown in the policy.
Any of the foregoing provisions or portions thereof not applicable byreason of the plan of insurance may, to the extent inapplicable, beomitted from the policy with the consent of the insurance commissioner.
The company shall reserve the right to defer the payment of any cashsurrender value for a period of six months after demand thereforwith surrender of the policy.During such period of deferment, any interest or dividends that wouldaccrue in the absence of a surrender of the policy shall continue toaccrue until such surrender value is paid.
(b) Any cash surrender value available under the policy in the eventof default in a premium payment due on any policy anniversary, whetheror not required by subsection (a), shall be an amount not less than theexcess, if any, of the present value, on such anniversary, of the futureguaranteed 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: (i) The then present value of the adjusted premiums asdefined in subsections (d), (d-1), (d-2) and (d-3), corresponding to premiumswhich would have fallen due on and after such anniversary; and (ii) theamount of any indebtedness to the company on the policy.
For any policy issued on or after the operative date of subsection (d-3)as defined therein, which provides supplemental life insurance or annuitybenefits at the option of the insured and for an identifiable additionalpremium by rider or supplemental policy provision, the cash surrender valuereferred to in the first paragraph of this subsection shall be an amountnot less than the sum of the cash surrender value as defined in such paragraphfor an otherwise similar policy issued at the same age without such rideror supplemental policy provision and the cash surrender value as definedin such paragraph for a policy which provides only the benefits otherwiseprovided by such rider or supplemental policy provision.
For any family policy issued on or after the operative date of subsection(d-3) as defined therein, which defines a primary insured and provides terminsurance on the life of the spouse of the primary insured expiring beforethe spouse's age 71, the cash surrender value referred to in the firstparagraphof this subsection shall be an amount not less than the sum of the cashsurrender value as defined in such paragraph for an otherwise similar policyissued at the same age without such term insurance on the life of the spouseand the cash surrender value as defined in such paragraph for a policy whichprovides only the benefits otherwise provided by such term insurance onthe life of the spouse.
Any cash surrender value available within 30 days after any policyanniversary under any policy paid-up by completion of all premiumpayments or any policy continued under any paid-up nonforfeiturebenefit, whether or not required by subsection (a), shall be an amountnot less than the present value, on such anniversary, of the futureguaranteed benefits provided for by the policy, including any existingpaid-up additions, decreased by any indebtedness to the company on thepolicy.
(c) Any paid-up nonforfeiture benefit available under the policy inthe event of default in a premium payment due on any policy anniversaryshall be such that its present value as of such anniversary shall be atleast equal to the cash surrender value then provided for by the policy,or, if none is provided for, that cash surrender value which would havebeen required by this section in the absence of the condition thatpremiums shall have been paid for at least a specified period.
(d) This subsection (d) shall not apply to policies issued on and afterthe operative date of subsection (d-3), as defined therein. Except as providedin the third paragraph of this subsection, the adjusted premiums for anypolicy shall be calculated on an annual basis and shall be such uniformpercentage of the respective premiumsspecified in the policy for each policy year, excluding amounts statedin 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 suchadjusted premiums shall be equal to the sum of: (i) The then presentvalue of the future guaranteed benefits provided for by the policy; (ii)two percent of the amount of insurance, if the insurance be uniformin amount, or of the equivalent uniform amount, as hereinafter defined,if the amount of insurance varies with duration of the policy; (iii)forty percent of the adjusted premium for the first policy year;(iv) twenty-five percent of either the adjusted premium for thefirst policy year or the adjusted premium for a whole life policy of thesame uniform or equivalent uniform amount with uniform premiums for thewhole life issued at the same age for the same amount of insurance,whichever is less. In applying the percentages specified in (iii) and(iv) above, no adjusted premium shall be deemed to exceed 4% of the amountof insurance or uniform amount equivalent thereto.The date of issue of a policy for the purpose of this subsection shallbe 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 withduration of the policy, the equivalent uniform amount thereof for thepurpose of this subsection shall be deemed to be the uniform amount ofinsurance provided by an otherwise similar policy, containing the sameendowment benefit or benefits, if any, issued at the same age and forthe same term, the amount of which does not vary with duration and thebenefits under which have the same present value at the date of issue asthe benefits under the policy. In the case of a policy issued at an ageless than 10 years the equivalent uniform amount of insurance may be basedupon the amount of insurance after age 10.
The adjusted premiums for any policy providing term insurancebenefits by rider or supplemental policy provision shall be equal to (a)the adjusted premiums for an otherwise similar policy issued at the sameage without such term insurance benefits, increased, during the periodfor which premiums for such term insurance benefits are payable, by (b)the adjusted premiums for such term insurance, the foregoing items (a)and (b) being calculated separately and as specified in the first twoparagraphs of this subsection except that, for the purposes of (ii),(iii) and (iv) of the first such paragraph, the amount of insurance orequivalent uniform amount of insurance used in the calculation of theadjusted premiums referred to in (b) shall be equal to the excess of thecorresponding amount determined for the entire policy over the amountused in the calculation of the adjusted premiums in (a).
Except as otherwise provided in subsections (d-1) and (d-2), alladjusted premiums and present values referred to in this section shallfor all policies of ordinary insurance be calculated on the basis of thecommissioners' 1941 standard ordinary mortality table. For any categoryof ordinary insurance issued on female risks, adjusted premiums andpresent values may be calculated, according to an age not more thanthree years younger than the actual age of the insured. Suchcalculations for all policies of industrial insurance shall be made onthe basis of the 1941 standard industrial mortality table. Allcalculations shall be made on the basis of the rate of interest, notexceeding 3 1/2% per annum, specified in the policy for calculating cashsurrender values and paid-upnonforfeiture benefits. In calculating the present value of any paid-upterm insurance with accompanying pure endowment, if any, offered as anonforfeiture benefit, the rates of mortality assumed may be not morethan 130% of the rates of mortality according to such applicable table.If the rate of mortality usedexceeds 100% the rate shall be stated in thepolicy. For insurance issued on a substandard basis, the calculation ofany such adjusted premiums and present values may be based on such othertable of mortality as may be specified by the company and approved bythe commissioner of insurance.
(d-1) This subsection (d-1) shall not apply to ordinary policies issuedon or after the operative date of subsection (d-3), as defined therein.In the case of ordinary policies issued on or after theoperative date of this subsection (d-1) as defined herein, all adjustedpremiums, as defined in subsection (d), and present values referred toin this section shall be calculated on the basis of the commissioners'1958 standard ordinary mortality table and the rate of interestspecified in the policy for calculating cash surrender values andpaid-up nonforfeiture benefits. Such rate of interest shall not exceed3 1/2%per annum, except that a rate of interest not exceeding 4% per annum maybe used for policies issued on or after July 1, 1973, and prior to July 1,1978, anda rate of interest not exceeding5 1/2% per annum may be used for policies issued on or after July 1, 1978,except that for any single premium whole life or endowment insurance policy arate of interest not exceeding6 1/2% per annum may be used. For any category of ordinary insurance issuedonfemale risks, adjusted premiums and present values may be calculatedaccording to an age not more than six years younger than the actualage of the insured. In calculating the present value of any paid-up terminsurance with accompanying pure endowment, if any, offered as anonforfeiture benefit, the rates of mortality assumed may be not morethan those shown in the commissioners' 1958 extended term insurancetable. For insurance issued on a substandard basis, the calculation ofany such adjusted premiums and present values may be based on such othertable of mortality as may be specified by the company and approved bythe commissioner.
After the effective date of this subsection (d-1), any company mayfile with the commissioner a written notice of its election to complywith the provisions of this subsection after a specified date. After thefiling of such notice, then upon such specified date (which shall be theoperative date of this subsection for such company), this subsectionshall become operative with respect to the ordinary policies thereafterissued by such company. Any company, having filed such notice ofelection to comply with this subsection, and desiring to withdraw fromsuch election as to future policies may file with the commissioner ofinsurance a written notice of such withdrawal after a specified date,and of its intention to value all its future policies in accordance withthe provisions of law applicable to the basis used prior to suchelection and to provide nonforfeiture benefits and cash surrender valuesin future policies as required for the basis used prior to suchelection.
(d-2) This subsection (d-2) shall not apply to industrial policies issuedon or after the operative date of subsection (d-3), as defined therein.In the case of industrial policies issued on or after theoperative date of this subsection (d-2) as defined herein, all adjustedpremiums and present values referred to in this section shall becalculated on the basis of the commissioners' 1961 standard industrialmortality table and the rate of interest specified in the policy forcalculating cash surrender values and paid-up nonforfeiture benefits.Such rate of interest shall not exceed 3 1/2% per annum, except that arate of interest notexceeding 4% per annum may be used for policies issued on or after July1, 1973, and prior to July 1, 1978, and a rate of interest not exceeding5 1/2% per annum may be used for policies issued on or after July 1, 1978,except that for any single premiumwhole life or endowment insurance policy a rate of interest notexceeding 6 1/2% per annum may be used. In calculating the present valueof any paid-up term insurance withaccompanying pure endowment, if any, offered as a nonforfeiture benefit,the rates of mortality assumed may be not more than those shown in thecommissioners' 1961 industrial extended term insurance table. Forinsurance issued on a substandard basis, the calculations of suchadjusted premiums and present values may be based on such other table ofmortality as may be specified by the company and approved by thecommissioner.
After the effective date of this subsection (d-2), any company mayfile with the commissioner a written notice of its election to complywith the provisions of this subsection after a specified date. After thefiling of such notice, then upon such specified date (which shall be theoperative date of this subsection for such company), this subsectionshall become operative with respect to the industrial policiesthereafter issued by such company. Any company having filed such noticeof election to comply with this subsection, and desiring to withdrawfrom such election as to future policies may file with the commissionerof insurance a written notice of such withdrawal after a specified date,and of its intention to value all its future policies in accordance withprovisions of law applicable to the basis used prior to such electionsand to provide nonforfeiture benefits and cash surrender values infuture policies as required for the basis used prior to such election.
(d-3) (1) This subsection shall apply to all policies issued on or afterthe operative date of this subsection (d-3), as defined herein. Except asprovided in the seventh paragraph of this subsection, the adjusted premiumsfor any policy shall be calculated on an annual basis and shall be suchuniform percentage of the respective premiums specified in the policy foreach policy year, excluding amounts payable as extra premiums to coverimpairmentsor special hazards and also excluding any uniform annual contract chargeor policy fee specified in the policy in a statement of the method to beused in calculating the cash surrender values and paid-up nonforfeiturebenefits, that the present value, at the date of issue of the policy, ofall adjusted premiums shall be equal to the sum of: (i) The then presentvalue of the future guaranteed benefits provided for by the policy; (ii)one percent of either the amount of insurance, if the insurance be uniformin amount, or the average amount of insurance at the beginning of each ofthe first 10 policy years; and (iii) one hundred twenty-five percent ofthe nonforfeiture net level premium as hereinafter defined. In applyingthe percentage specified in (iii) above,no nonforfeiture net level premium shall be deemed to exceed 4% of eitherthe amount of insurance, if the insurance be uniform in amount, or the averageamount 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 subsection shall bethe date as of which the rated age of the insured is determined.
(2) The nonforfeiture net level premium shall be equal to the presentvalue, at the date of issue of the policy, of the guaranteed benefits providedfor by the policy divided by the present value, at the date of issue ofthe policy, of an annuity of one per annum payable on the date of issueof the policy and on each anniversary of such policy on which a premium fallsdue.
(3) In the case of policies which cause on a basis guaranteed in the policyunscheduled changes in benefits or premiums, or which provide anoption for changes in benefits or premiums other than a change to a newpolicy, the adjusted premiums and present values shall initially be calculatedon the assumption that future benefits and premiums do not change from thosestipulated at the date of issue of the policy. At the time of any such changein the benefits or premiums the future adjusted premiums, nonforfeiture netlevel premiums and present values shall be recalculated on the assumptionthat future benefits and premiums do not change from those stipulated bythe policy immediately after the change.
(4) Except as otherwise provided in the seventh paragraph of this subsection,the recalculated future adjusted premiums for any such policy shall be suchuniform percentage of the respective future premiums specified in the policyfor each policy year, excluding amounts payable as extra premiums to coverimpairments and special hazards, and also excluding any uniform annual contractcharge or policy fee specified in the policy in a statement of the methodto be used in calculating the cash surrender values and paid-up nonforfeiturebenefits, that the present value, at the time of change to the newly definedbenefits or premiums, of all such future adjusted premiums shall be equalto the excess of (A) the sum of (i) the then present value of the then futureguaranteed benefits provided for by the policy and (ii) the additional expenseallowance, if any, over (B) the then cash surrender value, if any, or presentvalue of any paid-up nonforfeiture benefit under the policy.
(5) The additional expense allowance, at the time of the change to thenewly defined benefits or premiums, shall be the sum of: (i) One percentof the excess, if positive, of the average amount of insurance at the beginningof each of the first 10 policy years subsequent to the change over the averageamount of insurance prior to the change at the beginning of each of thefirst 10 policy years subsequent to the time of the most recent previouschange, or, if there has been no previous change, the date of issue of thepolicy; and (ii) one hundred twenty-five percent of the increase, if positive,in the nonforfeiture net level premium.
(6) The recalculated nonforfeiture net level premium shall be equal tothe result obtained by dividing (A) by (B) where (A) equals the sum of:(i) The nonforfeiture net level premium applicable prior to the change timesthe present value of an annuity of one per annum payable on each anniversaryof the policy on or subsequent to the date of the change on which a premiumwould have fallen due had the change not occurred; and (ii) the presentvalue of the increase in future guaranteed benefits provided for by the policy, and
(B) Equals the present value of an annuity of one per annum payable oneach anniversary of the policy on or subsequent to the date of change onwhich a premium falls due.
(7) Notwithstanding any other provisions of this subsection to thecontrary, in the case of a policy issued on a substandard basis which providesreduced graded amounts of insurance so that, in each policy year, such policyhas the same tabular mortality cost as an otherwise similar policy issuedon the standard basis which provides higher uniform amounts of insurance,adjusted premiums and present values for such substandard policy may becalculated as if it were issued to provide such higher uniform amounts ofinsurance on the standard basis.
(8) All adjusted premiums and present values referred to in this sectionshall for all policies of ordinary insurance be calculated on the basisof: (i) The commissioners' 1980 standard ordinary mortality table; or (ii)at the election of the company for any one or more specified plans of lifeinsurance, the commissioners' 1980 standard ordinary mortality table withten-year select mortality factors; shall for all policies of industrialinsurance be calculated on the basis of the commissioners' 1961 standardindustrial mortality table; and shall for all policies issued in a particularcalendar year be calculated on the basis of a rate of interest not exceedingthe nonforfeiture interest rate as defined in this subsection for policiesissued in that calendar year. Except:
(A) At the option of the company, calculations for all policies issuedin a particular calendar year may be made on the basis of a rate of interestnot exceeding the nonforfeiture interest rate, as defined in this subsection,for policies issued in the immediately preceding calendar year.
(B) Under any paid-up nonforfeiture benefit, including any paid-up dividendadditions, any cash surrender value available, whether or not required bysubsection (a), shall be calculated on the basis of the mortality tableand rate of interest used in determining the amount of such paid-upnonforfeiturebenefit and paid-up dividend additions, if any.
(C) A company may calculate the amount of any guaranteed paid-up nonforfeiturebenefit including any paid-up additions under the policy on the basis ofan interest rate no lower than that specified in the policy for calculatingcash surrender values.
(D) In calculating the present value of any paid-up term insurance withaccompanying 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 andnot more than the commissioners' 1961 industrial extended term insurancetable for policies of industrial insurance.
(E) For insurance issued on a substandard basis, the calculation of anysuch adjusted premiums and present values may be based on appropriate modificationsof the aforementioned tables.
(F) Any ordinary mortality tables, adopted after 1980 by the nationalassociation of insurance commissioners, that are approved by regulationpromulgated by the commissioner for use in determining the minimumnonforfeiturestandard may be substituted for the commissioners' 1980 standard ordinarymortality table with or without ten-year select mortality factors or forthe commissioners' 1980 extended term insurance table.
(G) Any industrial mortality tables, adopted after 1980 by the nationalassociation of insurance commissioners, that are approved by regulationpromulgated by the commissioner for use in determining the minimumnonforfeiturestandard may be substituted for the commissioners' 1961 standard industrialmortality table or the commissioners' 1961 industrial extended term insurancetable.
(9) The nonforfeiture interest rate per annum for any policy issued ina particular calendar year shall be equal to 125% of the calendar yearstatutory valuation interest rate for such policy as defined in the standardvaluation law, rounded to the nearer 1/4%.
(10) Notwithstanding any other provision of this code to the contrary,any refiling of nonforfeiture values or their methods of computation forany previously approved policy form which involves only a change in theinterest rate or mortality table used to compute nonforfeiture values shallnot require refiling of any other provisions of that policy form.
(11) After the effective date of this subsection (d-3), any company mayfile with the commissioner a written notice of its election to comply withthe provisions of this subsection after a specified date before January1, 1989, which shall be the operative date of this subsection for such company.If a company makes no such election, the operative date of this subsectionfor such company shall be January 1, 1989.
(e) In the case of any plan of life insurance which provides for futurepremium determination, the amounts of which are to be determined by theinsurance company based on then estimates of future experience, or in thecase of any plan of life insurance which is of such a nature that minimumvalues cannot be determined by the methods described in subsections (a),(b), (c), (d), (d-1), (d-2) or (d-3) herein, then:
(1) The commissioner must be satisfied that the benefits provided underthe plan are substantially as favorable to policyholders and insureds asthe minimum benefits otherwise required by subsections (a), (b), (c), (d),(d-1), (d-2) or (d-3) herein;
(2) the commissioner must be satisfied that the benefits and the patternof premiums of that plan are not such as to mislead prospective policyholdersor insureds;
(3) the cash surrender values and paid-up nonforfeiture benefits providedby such plan must not be less than the minimum values and benefits requiredfor the plan computed by a method consistent with the principles of thisstandard nonforfeiture law, as determined by regulations promulgated bythe commissioner.
(f) Any cash surrender value and any paid-up nonforfeiturebenefit, available under any such policy in the event of default in the paymentof any premium due at any time other than on the policy anniversary,shall be calculated with allowance for the lapse of time and the paymentof fractional premiums beyond the beginning of the policy year in whichthe default occurs. All values referred to in subsections (b), (c), (d),(d-1), (d-2) and (d-3) may be calculated upon the assumption that any deathbenefit is payable at the end of the policy year of death. The net valueof any paid-up additions, other than paid-up term additions, shall benot less than the amounts used to provide such additions.Notwithstanding the provisions of subsection (b), additional benefitspayable: (i) In the event of death or dismemberment by accident oraccidental means; (ii) in the event of total and permanent disability;(iii) as reversionary annuity or deferred reversionary annuity benefits;(iv) as term insurance benefits provided by a rider or supplementalpolicy provision to which, if issued as a separate policy, this sectionwould not apply; (v) as term insurance on the life of a child or on thelives of children provided in a policy on the life of a parent of achild, if such term insurance expires before the child's age is 26, is uniformin amount after the child's age is one, and has not become paid-up by reasonof the death of a parent of thechild; and (vi) as other policy benefits additional to life insuranceand endowment benefits, and premiums for all such additional benefits,shall be disregarded in ascertaining cash surrender values andnonforfeiture benefits required by this section, and no such additionalbenefits shall be required to be included in any paid-up nonforfeiturebenefits.
(g) This subsection, in addition to all other applicable subsections ofthis section, shall apply to all policies issued on or after January 1,1986. Any cash surrender value available under the policy in the eventof default in a premium payment due on any policy anniversary shall be inan amount which does not differ by more than .2% of either the amount ofinsurance, if the insurance be uniform in amount, or the average amountof insurance at the beginning of each of the first 10 policy years, fromthe sum of: (a) The greater of zero and the basic cash value hereinafterspecified; and (b) the present value of any existing paid-up additions lessthe amount of any indebtedness to the company under the policy.
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 bythe policy, excluding any existing paid-up additions and before deductionof any indebtedness to the company, if there had been no default, less thethen present value of the nonforfeiture factors, as hereinafter defined,corresponding to premiums which would have fallen due on and after suchanniversary. The effects on the basic cash value of supplemental life insuranceor annuity benefits or of family coverage, as described in subsection (b)or (d), whichever is applicable, shall be the same as are the effects specifiedin subsection (b) or (d), whichever is applicable on the cash surrendervalues defined in that subsection.
The nonforfeiture factor for each policy year shall be an amount equalto a percentage of the adjusted premium for the policy year, as definedin subsection (d) or (d-3), whichever is applicable. Except as is requiredby the next succeeding sentence of this paragraph, such percentage:
(a) Must be the same percentage for each policy year between the secondpolicy anniversary and the later of: (i) The fifth policy anniversary; and(ii) the first policy anniversary at which there is available under thepolicy a cash surrender value in an amount, before including any paid-upadditions and before deducting any indebtedness, of at least .2% of eitherthe amount of insurance, if the insurance be uniform in amount, or the averageamount of insurance at the beginning of each of the first 10 policy years; and
(b) must be such that no percentage after the later of the two policyanniversaries specified in the preceding item (a) may apply to fewer thanfive consecutive policy years.
No basic cash value may be less than the value which would be obtainedif the adjusted premiums for the policy, as defined in subsection (d) or(d-3), whichever is applicable, were substituted for the nonforfeiture factorsin the calculation of the basic cash value.
All adjusted premiums and present values referred to in this subsectionshall for a particular policy be calculated on the same mortality and interestbases as are used in demonstrating the policy's compliance with the othersections of this act. The cash surrender values referred to in this subsectionshall include any endowment benefits provided for by the policy.
Any cash surrender value available other than in the event of default ina premium payment due on a policy anniversary, and the amount of any paid-upnonforfeiture benefit available under the policy in the event of defaultin a premium payment shall be determined in manners consistent with themanners specified for determining the analogous minimum amounts in subsections(a), (b), (c), (d-3), and (f). The amounts of any cash surrender valuesand of any paid-up nonforfeiture benefits granted in connection with additionalbenefits such as those listed as items (i) through (vi) in subsection (f)shall conform with the principles of this subsection (g).
(h) This section shall not apply to any of the following: (1) Reinsurance;(2) groupinsurance; (3) pure endowment; (4) annuity or reversionary annuity contract;(5) term policy of uniform amount, which provides no guaranteed nonforfeitureor endowment benefits, or renewal thereof, of 20 years or less expiring beforeage 71,for which uniform premiums are payable during the entire term of thepolicy; (6) term policy of decreasing amount, which provides no guaranteednonforfeiture or endowment benefits, on which each adjusted premiumcalculated as specified in subsections (d), (d-1), (d-2) and (d-3), is lessthan the adjusted premium so calculated, on a term policy of uniform amount,or renewal thereof, which provides no guaranteed nonforfeiture or endowmentbenefits, issued at the same age and for the same initial amount of insuranceand for a term of 20 years or less expiring before age 71, for which uniformpremiums are payable during the entire term of the policy; (7) policy, whichprovides no guaranteed nonforfeiture or endowment benefits, for which nocash surrender value, if any, or present value of any paid-up nonforfeiture benefit, atthe beginning of any policyyear, calculated as specified in subsections (b), (c), (d), (d-1), (d-2)and (d-3), exceeds 2 1/2% of the amount of insurance at the beginningof the same policy year; nor (8) policy which shall be delivered outsidethis state through an agent or other representative of the company issuing thepolicy.
For purposes of determining the applicability of this section, the ageat expiry for a joint term life insurance policy shall be the age at expiryof the oldest life.
(i) After the effective date of this act, any company may file with thecommissioner of insurance a written notice of its election to complywith the provisions of this section other than as provided insubsections (d-1), (d-2), (d-3), (e) and (g) after a specified date. After thefiling ofsuch notice, then upon such specified date (which shall be the operativedate for such company) such provisions shall become operative withrespect to all policies thereafter issued by such company.
(j) Any company, having filed written notices as provided in thepreceding subsection (i), and desiring to withdraw from such election asto future policies may file with the commissioner of insurance a writtennotice of such withdrawal after a specified date, and of its intentionto value all its future policies in accordance with the provisions ofsubsection (b) of K.S.A. 40-409, and amendments thereto, and to providenonforfeiture benefits and cash surrender values in future policies inaccordancewith K.S.A. 40-427. After the filing of such withdrawal notice, then uponsuch specified date, subsection (b) of K.S.A. 40-409, and amendments thereto,and K.S.A. 40-427 shall become operative with respect to all policiesthereafterissued by such company in this state.
History: L. 1947, ch. 277, § 4; L. 1957, ch. 280, § 2;L. 1959,ch. 213, § 2; L. 1965, ch. 302, § 2; L. 1973, ch. 193, §2; L.1978, ch. 175, § 2; L. 1982, ch. 202, § 2;L. 2008, ch. 134, § 1; July 1.
Article 4.--GENERAL PROVISIONS RELATING TO LIFE INSURANCE COMPANIES
40-428.Standard nonforfeiture law.(a) In the case of policies issued on or after the operative date ofthis section, as defined in subsection (d-1), (d-2), (d-3) or(i), no policy of life insurance, except as stated in subsection(h) shall bedelivered or issued for delivery in this state unless it shall contain insubstance thefollowing provisions, or corresponding provisions which in the opinionof the commissioner of insurance are at least as favorable to thedefaulting or surrendering policyholder as are the minimum requirementshereinafter specified and are essentially in compliance with subsection(g) of this section.
(i) In the event of default in any premium payment, thecompany will grant, upon proper request not later than60 days after the due date of the premium in default, a paid-up nonforfeiturebenefit on a plan stipulated in the policy, effective as of such duedate, of such amount as may be hereinafter specified.
In lieu of such stipulated paid-up nonforfeiture benefit, the company maysubstitute, upon proper request not later than 60 days after the due dateof the premium in default, an actuarially equivalent alternative paid-upnonforfeiture benefit which provides a greater amount or longer period ofdeath benefits or, if applicable, a greater amount or earlier payment ofendowment benefits.
(ii) Upon surrender of the policy within 60 days afterthe due date of any premium payment in default after premiums have beenpaid for at least three full years in the case of ordinary insuranceor five full years in the case of industrial insurance, the companywill pay, in lieu of any paid-up nonforfeiture benefit, a cash surrendervalue of such amount as may be hereinafter specified.
(iii) A specified paid-up nonforfeiture benefit shall becomeeffective as specified in the policy unless the person entitled to makesuch election elects another available option not later than60 days after the due date of the premium in default.
(iv) If the policy shall have become paid-up by completion ofall premium payments or if it is continued under any paid-upnonforfeiture benefit which became effective on or after the thirdpolicy anniversary in the case of ordinary insurance or the fifth policyanniversary in the case of industrial insurance, the company will pay,upon surrender of the policy within 30 days after any policy anniversary,a cash surrender value of such amount as may be hereinafterspecified.
(v) In the case of policies which cause on a basis guaranteed in the policyunscheduled changes in benefits or premiums, or which provide an optionfor changes in benefits or premiums other than a change to a new policy,a statement of the mortality table, interest rate, and method usedin calculating cash surrender values and the paid-up nonforfeiture benefitsavailable under the policy. In the case of all other policies, a statementof the mortality table and interest rate used incalculating the cash surrender values and the paid-up nonforfeiturebenefits available under the policy, together with a table showing thecash surrender value, if any, and paid-up nonforfeiture benefit, if any,available under the policy on each policy anniversary either during thefirst 20 policy years or during the term of the policy,whichever is shorter, such values and benefits to be calculated upon theassumption that there are no dividends or paid-up additions credited tothe policy and that there is no indebtedness to the company on thepolicy.
(vi) A statement that the cash surrender values and the paid-upnonforfeiture benefits available under the policy are not less than theminimum values and benefits required by or pursuant to any statute ofthe state in which the policy is delivered; and an explanation of themanner in which the cash surrender values and the paid-up nonforfeiturebenefits are altered by the existence of any paid-up additions creditedto the policy or any indebtedness to the company on the policy; if adetailed statement of the method of computation of the values andbenefits shown in the policy is not stated therein, a statement thatsuch method of computation has been filed with the insurance supervisoryofficial of the state in which the policy is delivered; and, a statementof the method to be used in calculating the cash surrender value andpaid-up nonforfeiture benefit available under the policy on any policyanniversary beyond the last anniversary for which such values andbenefits are consecutively shown in the policy.
Any of the foregoing provisions or portions thereof not applicable byreason of the plan of insurance may, to the extent inapplicable, beomitted from the policy with the consent of the insurance commissioner.
The company shall reserve the right to defer the payment of any cashsurrender value for a period of six months after demand thereforwith surrender of the policy.During such period of deferment, any interest or dividends that wouldaccrue in the absence of a surrender of the policy shall continue toaccrue until such surrender value is paid.
(b) Any cash surrender value available under the policy in the eventof default in a premium payment due on any policy anniversary, whetheror not required by subsection (a), shall be an amount not less than theexcess, if any, of the present value, on such anniversary, of the futureguaranteed 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: (i) The then present value of the adjusted premiums asdefined in subsections (d), (d-1), (d-2) and (d-3), corresponding to premiumswhich would have fallen due on and after such anniversary; and (ii) theamount of any indebtedness to the company on the policy.
For any policy issued on or after the operative date of subsection (d-3)as defined therein, which provides supplemental life insurance or annuitybenefits at the option of the insured and for an identifiable additionalpremium by rider or supplemental policy provision, the cash surrender valuereferred to in the first paragraph of this subsection shall be an amountnot less than the sum of the cash surrender value as defined in such paragraphfor an otherwise similar policy issued at the same age without such rideror supplemental policy provision and the cash surrender value as definedin such paragraph for a policy which provides only the benefits otherwiseprovided by such rider or supplemental policy provision.
For any family policy issued on or after the operative date of subsection(d-3) as defined therein, which defines a primary insured and provides terminsurance on the life of the spouse of the primary insured expiring beforethe spouse's age 71, the cash surrender value referred to in the firstparagraphof this subsection shall be an amount not less than the sum of the cashsurrender value as defined in such paragraph for an otherwise similar policyissued at the same age without such term insurance on the life of the spouseand the cash surrender value as defined in such paragraph for a policy whichprovides only the benefits otherwise provided by such term insurance onthe life of the spouse.
Any cash surrender value available within 30 days after any policyanniversary under any policy paid-up by completion of all premiumpayments or any policy continued under any paid-up nonforfeiturebenefit, whether or not required by subsection (a), shall be an amountnot less than the present value, on such anniversary, of the futureguaranteed benefits provided for by the policy, including any existingpaid-up additions, decreased by any indebtedness to the company on thepolicy.
(c) Any paid-up nonforfeiture benefit available under the policy inthe event of default in a premium payment due on any policy anniversaryshall be such that its present value as of such anniversary shall be atleast equal to the cash surrender value then provided for by the policy,or, if none is provided for, that cash surrender value which would havebeen required by this section in the absence of the condition thatpremiums shall have been paid for at least a specified period.
(d) This subsection (d) shall not apply to policies issued on and afterthe operative date of subsection (d-3), as defined therein. Except as providedin the third paragraph of this subsection, the adjusted premiums for anypolicy shall be calculated on an annual basis and shall be such uniformpercentage of the respective premiumsspecified in the policy for each policy year, excluding amounts statedin 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 suchadjusted premiums shall be equal to the sum of: (i) The then presentvalue of the future guaranteed benefits provided for by the policy; (ii)two percent of the amount of insurance, if the insurance be uniformin amount, or of the equivalent uniform amount, as hereinafter defined,if the amount of insurance varies with duration of the policy; (iii)forty percent of the adjusted premium for the first policy year;(iv) twenty-five percent of either the adjusted premium for thefirst policy year or the adjusted premium for a whole life policy of thesame uniform or equivalent uniform amount with uniform premiums for thewhole life issued at the same age for the same amount of insurance,whichever is less. In applying the percentages specified in (iii) and(iv) above, no adjusted premium shall be deemed to exceed 4% of the amountof insurance or uniform amount equivalent thereto.The date of issue of a policy for the purpose of this subsection shallbe 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 withduration of the policy, the equivalent uniform amount thereof for thepurpose of this subsection shall be deemed to be the uniform amount ofinsurance provided by an otherwise similar policy, containing the sameendowment benefit or benefits, if any, issued at the same age and forthe same term, the amount of which does not vary with duration and thebenefits under which have the same present value at the date of issue asthe benefits under the policy. In the case of a policy issued at an ageless than 10 years the equivalent uniform amount of insurance may be basedupon the amount of insurance after age 10.
The adjusted premiums for any policy providing term insurancebenefits by rider or supplemental policy provision shall be equal to (a)the adjusted premiums for an otherwise similar policy issued at the sameage without such term insurance benefits, increased, during the periodfor which premiums for such term insurance benefits are payable, by (b)the adjusted premiums for such term insurance, the foregoing items (a)and (b) being calculated separately and as specified in the first twoparagraphs of this subsection except that, for the purposes of (ii),(iii) and (iv) of the first such paragraph, the amount of insurance orequivalent uniform amount of insurance used in the calculation of theadjusted premiums referred to in (b) shall be equal to the excess of thecorresponding amount determined for the entire policy over the amountused in the calculation of the adjusted premiums in (a).
Except as otherwise provided in subsections (d-1) and (d-2), alladjusted premiums and present values referred to in this section shallfor all policies of ordinary insurance be calculated on the basis of thecommissioners' 1941 standard ordinary mortality table. For any categoryof ordinary insurance issued on female risks, adjusted premiums andpresent values may be calculated, according to an age not more thanthree years younger than the actual age of the insured. Suchcalculations for all policies of industrial insurance shall be made onthe basis of the 1941 standard industrial mortality table. Allcalculations shall be made on the basis of the rate of interest, notexceeding 3 1/2% per annum, specified in the policy for calculating cashsurrender values and paid-upnonforfeiture benefits. In calculating the present value of any paid-upterm insurance with accompanying pure endowment, if any, offered as anonforfeiture benefit, the rates of mortality assumed may be not morethan 130% of the rates of mortality according to such applicable table.If the rate of mortality usedexceeds 100% the rate shall be stated in thepolicy. For insurance issued on a substandard basis, the calculation ofany such adjusted premiums and present values may be based on such othertable of mortality as may be specified by the company and approved bythe commissioner of insurance.
(d-1) This subsection (d-1) shall not apply to ordinary policies issuedon or after the operative date of subsection (d-3), as defined therein.In the case of ordinary policies issued on or after theoperative date of this subsection (d-1) as defined herein, all adjustedpremiums, as defined in subsection (d), and present values referred toin this section shall be calculated on the basis of the commissioners'1958 standard ordinary mortality table and the rate of interestspecified in the policy for calculating cash surrender values andpaid-up nonforfeiture benefits. Such rate of interest shall not exceed3 1/2%per annum, except that a rate of interest not exceeding 4% per annum maybe used for policies issued on or after July 1, 1973, and prior to July 1,1978, anda rate of interest not exceeding5 1/2% per annum may be used for policies issued on or after July 1, 1978,except that for any single premium whole life or endowment insurance policy arate of interest not exceeding6 1/2% per annum may be used. For any category of ordinary insurance issuedonfemale risks, adjusted premiums and present values may be calculatedaccording to an age not more than six years younger than the actualage of the insured. In calculating the present value of any paid-up terminsurance with accompanying pure endowment, if any, offered as anonforfeiture benefit, the rates of mortality assumed may be not morethan those shown in the commissioners' 1958 extended term insurancetable. For insurance issued on a substandard basis, the calculation ofany such adjusted premiums and present values may be based on such othertable of mortality as may be specified by the company and approved bythe commissioner.
After the effective date of this subsection (d-1), any company mayfile with the commissioner a written notice of its election to complywith the provisions of this subsection after a specified date. After thefiling of such notice, then upon such specified date (which shall be theoperative date of this subsection for such company), this subsectionshall become operative with respect to the ordinary policies thereafterissued by such company. Any company, having filed such notice ofelection to comply with this subsection, and desiring to withdraw fromsuch election as to future policies may file with the commissioner ofinsurance a written notice of such withdrawal after a specified date,and of its intention to value all its future policies in accordance withthe provisions of law applicable to the basis used prior to suchelection and to provide nonforfeiture benefits and cash surrender valuesin future policies as required for the basis used prior to suchelection.
(d-2) This subsection (d-2) shall not apply to industrial policies issuedon or after the operative date of subsection (d-3), as defined therein.In the case of industrial policies issued on or after theoperative date of this subsection (d-2) as defined herein, all adjustedpremiums and present values referred to in this section shall becalculated on the basis of the commissioners' 1961 standard industrialmortality table and the rate of interest specified in the policy forcalculating cash surrender values and paid-up nonforfeiture benefits.Such rate of interest shall not exceed 3 1/2% per annum, except that arate of interest notexceeding 4% per annum may be used for policies issued on or after July1, 1973, and prior to July 1, 1978, and a rate of interest not exceeding5 1/2% per annum may be used for policies issued on or after July 1, 1978,except that for any single premiumwhole life or endowment insurance policy a rate of interest notexceeding 6 1/2% per annum may be used. In calculating the present valueof any paid-up term insurance withaccompanying pure endowment, if any, offered as a nonforfeiture benefit,the rates of mortality assumed may be not more than those shown in thecommissioners' 1961 industrial extended term insurance table. Forinsurance issued on a substandard basis, the calculations of suchadjusted premiums and present values may be based on such other table ofmortality as may be specified by the company and approved by thecommissioner.
After the effective date of this subsection (d-2), any company mayfile with the commissioner a written notice of its election to complywith the provisions of this subsection after a specified date. After thefiling of such notice, then upon such specified date (which shall be theoperative date of this subsection for such company), this subsectionshall become operative with respect to the industrial policiesthereafter issued by such company. Any company having filed such noticeof election to comply with this subsection, and desiring to withdrawfrom such election as to future policies may file with the commissionerof insurance a written notice of such withdrawal after a specified date,and of its intention to value all its future policies in accordance withprovisions of law applicable to the basis used prior to such electionsand to provide nonforfeiture benefits and cash surrender values infuture policies as required for the basis used prior to such election.
(d-3) (1) This subsection shall apply to all policies issued on or afterthe operative date of this subsection (d-3), as defined herein. Except asprovided in the seventh paragraph of this subsection, the adjusted premiumsfor any policy shall be calculated on an annual basis and shall be suchuniform percentage of the respective premiums specified in the policy foreach policy year, excluding amounts payable as extra premiums to coverimpairmentsor special hazards and also excluding any uniform annual contract chargeor policy fee specified in the policy in a statement of the method to beused in calculating the cash surrender values and paid-up nonforfeiturebenefits, that the present value, at the date of issue of the policy, ofall adjusted premiums shall be equal to the sum of: (i) The then presentvalue of the future guaranteed benefits provided for by the policy; (ii)one percent of either the amount of insurance, if the insurance be uniformin amount, or the average amount of insurance at the beginning of each ofthe first 10 policy years; and (iii) one hundred twenty-five percent ofthe nonforfeiture net level premium as hereinafter defined. In applyingthe percentage specified in (iii) above,no nonforfeiture net level premium shall be deemed to exceed 4% of eitherthe amount of insurance, if the insurance be uniform in amount, or the averageamount 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 subsection shall bethe date as of which the rated age of the insured is determined.
(2) The nonforfeiture net level premium shall be equal to the presentvalue, at the date of issue of the policy, of the guaranteed benefits providedfor by the policy divided by the present value, at the date of issue ofthe policy, of an annuity of one per annum payable on the date of issueof the policy and on each anniversary of such policy on which a premium fallsdue.
(3) In the case of policies which cause on a basis guaranteed in the policyunscheduled changes in benefits or premiums, or which provide anoption for changes in benefits or premiums other than a change to a newpolicy, the adjusted premiums and present values shall initially be calculatedon the assumption that future benefits and premiums do not change from thosestipulated at the date of issue of the policy. At the time of any such changein the benefits or premiums the future adjusted premiums, nonforfeiture netlevel premiums and present values shall be recalculated on the assumptionthat future benefits and premiums do not change from those stipulated bythe policy immediately after the change.
(4) Except as otherwise provided in the seventh paragraph of this subsection,the recalculated future adjusted premiums for any such policy shall be suchuniform percentage of the respective future premiums specified in the policyfor each policy year, excluding amounts payable as extra premiums to coverimpairments and special hazards, and also excluding any uniform annual contractcharge or policy fee specified in the policy in a statement of the methodto be used in calculating the cash surrender values and paid-up nonforfeiturebenefits, that the present value, at the time of change to the newly definedbenefits or premiums, of all such future adjusted premiums shall be equalto the excess of (A) the sum of (i) the then present value of the then futureguaranteed benefits provided for by the policy and (ii) the additional expenseallowance, if any, over (B) the then cash surrender value, if any, or presentvalue of any paid-up nonforfeiture benefit under the policy.
(5) The additional expense allowance, at the time of the change to thenewly defined benefits or premiums, shall be the sum of: (i) One percentof the excess, if positive, of the average amount of insurance at the beginningof each of the first 10 policy years subsequent to the change over the averageamount of insurance prior to the change at the beginning of each of thefirst 10 policy years subsequent to the time of the most recent previouschange, or, if there has been no previous change, the date of issue of thepolicy; and (ii) one hundred twenty-five percent of the increase, if positive,in the nonforfeiture net level premium.
(6) The recalculated nonforfeiture net level premium shall be equal tothe result obtained by dividing (A) by (B) where (A) equals the sum of:(i) The nonforfeiture net level premium applicable prior to the change timesthe present value of an annuity of one per annum payable on each anniversaryof the policy on or subsequent to the date of the change on which a premiumwould have fallen due had the change not occurred; and (ii) the presentvalue of the increase in future guaranteed benefits provided for by the policy, and
(B) Equals the present value of an annuity of one per annum payable oneach anniversary of the policy on or subsequent to the date of change onwhich a premium falls due.
(7) Notwithstanding any other provisions of this subsection to thecontrary, in the case of a policy issued on a substandard basis which providesreduced graded amounts of insurance so that, in each policy year, such policyhas the same tabular mortality cost as an otherwise similar policy issuedon the standard basis which provides higher uniform amounts of insurance,adjusted premiums and present values for such substandard policy may becalculated as if it were issued to provide such higher uniform amounts ofinsurance on the standard basis.
(8) All adjusted premiums and present values referred to in this sectionshall for all policies of ordinary insurance be calculated on the basisof: (i) The commissioners' 1980 standard ordinary mortality table; or (ii)at the election of the company for any one or more specified plans of lifeinsurance, the commissioners' 1980 standard ordinary mortality table withten-year select mortality factors; shall for all policies of industrialinsurance be calculated on the basis of the commissioners' 1961 standardindustrial mortality table; and shall for all policies issued in a particularcalendar year be calculated on the basis of a rate of interest not exceedingthe nonforfeiture interest rate as defined in this subsection for policiesissued in that calendar year. Except:
(A) At the option of the company, calculations for all policies issuedin a particular calendar year may be made on the basis of a rate of interestnot exceeding the nonforfeiture interest rate, as defined in this subsection,for policies issued in the immediately preceding calendar year.
(B) Under any paid-up nonforfeiture benefit, including any paid-up dividendadditions, any cash surrender value available, whether or not required bysubsection (a), shall be calculated on the basis of the mortality tableand rate of interest used in determining the amount of such paid-upnonforfeiturebenefit and paid-up dividend additions, if any.
(C) A company may calculate the amount of any guaranteed paid-up nonforfeiturebenefit including any paid-up additions under the policy on the basis ofan interest rate no lower than that specified in the policy for calculatingcash surrender values.
(D) In calculating the present value of any paid-up term insurance withaccompanying 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 andnot more than the commissioners' 1961 industrial extended term insurancetable for policies of industrial insurance.
(E) For insurance issued on a substandard basis, the calculation of anysuch adjusted premiums and present values may be based on appropriate modificationsof the aforementioned tables.
(F) Any ordinary mortality tables, adopted after 1980 by the nationalassociation of insurance commissioners, that are approved by regulationpromulgated by the commissioner for use in determining the minimumnonforfeiturestandard may be substituted for the commissioners' 1980 standard ordinarymortality table with or without ten-year select mortality factors or forthe commissioners' 1980 extended term insurance table.
(G) Any industrial mortality tables, adopted after 1980 by the nationalassociation of insurance commissioners, that are approved by regulationpromulgated by the commissioner for use in determining the minimumnonforfeiturestandard may be substituted for the commissioners' 1961 standard industrialmortality table or the commissioners' 1961 industrial extended term insurancetable.
(9) The nonforfeiture interest rate per annum for any policy issued ina particular calendar year shall be equal to 125% of the calendar yearstatutory valuation interest rate for such policy as defined in the standardvaluation law, rounded to the nearer 1/4%.
(10) Notwithstanding any other provision of this code to the contrary,any refiling of nonforfeiture values or their methods of computation forany previously approved policy form which involves only a change in theinterest rate or mortality table used to compute nonforfeiture values shallnot require refiling of any other provisions of that policy form.
(11) After the effective date of this subsection (d-3), any company mayfile with the commissioner a written notice of its election to comply withthe provisions of this subsection after a specified date before January1, 1989, which shall be the operative date of this subsection for such company.If a company makes no such election, the operative date of this subsectionfor such company shall be January 1, 1989.
(e) In the case of any plan of life insurance which provides for futurepremium determination, the amounts of which are to be determined by theinsurance company based on then estimates of future experience, or in thecase of any plan of life insurance which is of such a nature that minimumvalues cannot be determined by the methods described in subsections (a),(b), (c), (d), (d-1), (d-2) or (d-3) herein, then:
(1) The commissioner must be satisfied that the benefits provided underthe plan are substantially as favorable to policyholders and insureds asthe minimum benefits otherwise required by subsections (a), (b), (c), (d),(d-1), (d-2) or (d-3) herein;
(2) the commissioner must be satisfied that the benefits and the patternof premiums of that plan are not such as to mislead prospective policyholdersor insureds;
(3) the cash surrender values and paid-up nonforfeiture benefits providedby such plan must not be less than the minimum values and benefits requiredfor the plan computed by a method consistent with the principles of thisstandard nonforfeiture law, as determined by regulations promulgated bythe commissioner.
(f) Any cash surrender value and any paid-up nonforfeiturebenefit, available under any such policy in the event of default in the paymentof any premium due at any time other than on the policy anniversary,shall be calculated with allowance for the lapse of time and the paymentof fractional premiums beyond the beginning of the policy year in whichthe default occurs. All values referred to in subsections (b), (c), (d),(d-1), (d-2) and (d-3) may be calculated upon the assumption that any deathbenefit is payable at the end of the policy year of death. The net valueof any paid-up additions, other than paid-up term additions, shall benot less than the amounts used to provide such additions.Notwithstanding the provisions of subsection (b), additional benefitspayable: (i) In the event of death or dismemberment by accident oraccidental means; (ii) in the event of total and permanent disability;(iii) as reversionary annuity or deferred reversionary annuity benefits;(iv) as term insurance benefits provided by a rider or supplementalpolicy provision to which, if issued as a separate policy, this sectionwould not apply; (v) as term insurance on the life of a child or on thelives of children provided in a policy on the life of a parent of achild, if such term insurance expires before the child's age is 26, is uniformin amount after the child's age is one, and has not become paid-up by reasonof the death of a parent of thechild; and (vi) as other policy benefits additional to life insuranceand endowment benefits, and premiums for all such additional benefits,shall be disregarded in ascertaining cash surrender values andnonforfeiture benefits required by this section, and no such additionalbenefits shall be required to be included in any paid-up nonforfeiturebenefits.
(g) This subsection, in addition to all other applicable subsections ofthis section, shall apply to all policies issued on or after January 1,1986. Any cash surrender value available under the policy in the eventof default in a premium payment due on any policy anniversary shall be inan amount which does not differ by more than .2% of either the amount ofinsurance, if the insurance be uniform in amount, or the average amountof insurance at the beginning of each of the first 10 policy years, fromthe sum of: (a) The greater of zero and the basic cash value hereinafterspecified; and (b) the present value of any existing paid-up additions lessthe amount of any indebtedness to the company under the policy.
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 bythe policy, excluding any existing paid-up additions and before deductionof any indebtedness to the company, if there had been no default, less thethen present value of the nonforfeiture factors, as hereinafter defined,corresponding to premiums which would have fallen due on and after suchanniversary. The effects on the basic cash value of supplemental life insuranceor annuity benefits or of family coverage, as described in subsection (b)or (d), whichever is applicable, shall be the same as are the effects specifiedin subsection (b) or (d), whichever is applicable on the cash surrendervalues defined in that subsection.
The nonforfeiture factor for each policy year shall be an amount equalto a percentage of the adjusted premium for the policy year, as definedin subsection (d) or (d-3), whichever is applicable. Except as is requiredby the next succeeding sentence of this paragraph, such percentage:
(a) Must be the same percentage for each policy year between the secondpolicy anniversary and the later of: (i) The fifth policy anniversary; and(ii) the first policy anniversary at which there is available under thepolicy a cash surrender value in an amount, before including any paid-upadditions and before deducting any indebtedness, of at least .2% of eitherthe amount of insurance, if the insurance be uniform in amount, or the averageamount of insurance at the beginning of each of the first 10 policy years; and
(b) must be such that no percentage after the later of the two policyanniversaries specified in the preceding item (a) may apply to fewer thanfive consecutive policy years.
No basic cash value may be less than the value which would be obtainedif the adjusted premiums for the policy, as defined in subsection (d) or(d-3), whichever is applicable, were substituted for the nonforfeiture factorsin the calculation of the basic cash value.
All adjusted premiums and present values referred to in this subsectionshall for a particular policy be calculated on the same mortality and interestbases as are used in demonstrating the policy's compliance with the othersections of this act. The cash surrender values referred to in this subsectionshall include any endowment benefits provided for by the policy.
Any cash surrender value available other than in the event of default ina premium payment due on a policy anniversary, and the amount of any paid-upnonforfeiture benefit available under the policy in the event of defaultin a premium payment shall be determined in manners consistent with themanners specified for determining the analogous minimum amounts in subsections(a), (b), (c), (d-3), and (f). The amounts of any cash surrender valuesand of any paid-up nonforfeiture benefits granted in connection with additionalbenefits such as those listed as items (i) through (vi) in subsection (f)shall conform with the principles of this subsection (g).
(h) This section shall not apply to any of the following: (1) Reinsurance;(2) groupinsurance; (3) pure endowment; (4) annuity or reversionary annuity contract;(5) term policy of uniform amount, which provides no guaranteed nonforfeitureor endowment benefits, or renewal thereof, of 20 years or less expiring beforeage 71,for which uniform premiums are payable during the entire term of thepolicy; (6) term policy of decreasing amount, which provides no guaranteednonforfeiture or endowment benefits, on which each adjusted premiumcalculated as specified in subsections (d), (d-1), (d-2) and (d-3), is lessthan the adjusted premium so calculated, on a term policy of uniform amount,or renewal thereof, which provides no guaranteed nonforfeiture or endowmentbenefits, issued at the same age and for the same initial amount of insuranceand for a term of 20 years or less expiring before age 71, for which uniformpremiums are payable during the entire term of the policy; (7) policy, whichprovides no guaranteed nonforfeiture or endowment benefits, for which nocash surrender value, if any, or present value of any paid-up nonforfeiture benefit, atthe beginning of any policyyear, calculated as specified in subsections (b), (c), (d), (d-1), (d-2)and (d-3), exceeds 2 1/2% of the amount of insurance at the beginningof the same policy year; nor (8) policy which shall be delivered outsidethis state through an agent or other representative of the company issuing thepolicy.
For purposes of determining the applicability of this section, the ageat expiry for a joint term life insurance policy shall be the age at expiryof the oldest life.
(i) After the effective date of this act, any company may file with thecommissioner of insurance a written notice of its election to complywith the provisions of this section other than as provided insubsections (d-1), (d-2), (d-3), (e) and (g) after a specified date. After thefiling ofsuch notice, then upon such specified date (which shall be the operativedate for such company) such provisions shall become operative withrespect to all policies thereafter issued by such company.
(j) Any company, having filed written notices as provided in thepreceding subsection (i), and desiring to withdraw from such election asto future policies may file with the commissioner of insurance a writtennotice of such withdrawal after a specified date, and of its intentionto value all its future policies in accordance with the provisions ofsubsection (b) of K.S.A. 40-409, and amendments thereto, and to providenonforfeiture benefits and cash surrender values in future policies inaccordancewith K.S.A. 40-427. After the filing of such withdrawal notice, then uponsuch specified date, subsection (b) of K.S.A. 40-409, and amendments thereto,and K.S.A. 40-427 shall become operative with respect to all policiesthereafterissued by such company in this state.
History: L. 1947, ch. 277, § 4; L. 1957, ch. 280, § 2;L. 1959,ch. 213, § 2; L. 1965, ch. 302, § 2; L. 1973, ch. 193, §2; L.1978, ch. 175, § 2; L. 1982, ch. 202, § 2;L. 2008, ch. 134, § 1; July 1.
Article 4.--GENERAL PROVISIONS RELATING TO LIFE INSURANCE COMPANIES
40-428.Standard nonforfeiture law.(a) In the case of policies issued on or after the operative date ofthis section, as defined in subsection (d-1), (d-2), (d-3) or(i), no policy of life insurance, except as stated in subsection(h) shall bedelivered or issued for delivery in this state unless it shall contain insubstance thefollowing provisions, or corresponding provisions which in the opinionof the commissioner of insurance are at least as favorable to thedefaulting or surrendering policyholder as are the minimum requirementshereinafter specified and are essentially in compliance with subsection(g) of this section.
(i) In the event of default in any premium payment, thecompany will grant, upon proper request not later than60 days after the due date of the premium in default, a paid-up nonforfeiturebenefit on a plan stipulated in the policy, effective as of such duedate, of such amount as may be hereinafter specified.
In lieu of such stipulated paid-up nonforfeiture benefit, the company maysubstitute, upon proper request not later than 60 days after the due dateof the premium in default, an actuarially equivalent alternative paid-upnonforfeiture benefit which provides a greater amount or longer period ofdeath benefits or, if applicable, a greater amount or earlier payment ofendowment benefits.
(ii) Upon surrender of the policy within 60 days afterthe due date of any premium payment in default after premiums have beenpaid for at least three full years in the case of ordinary insuranceor five full years in the case of industrial insurance, the companywill pay, in lieu of any paid-up nonforfeiture benefit, a cash surrendervalue of such amount as may be hereinafter specified.
(iii) A specified paid-up nonforfeiture benefit shall becomeeffective as specified in the policy unless the person entitled to makesuch election elects another available option not later than60 days after the due date of the premium in default.
(iv) If the policy shall have become paid-up by completion ofall premium payments or if it is continued under any paid-upnonforfeiture benefit which became effective on or after the thirdpolicy anniversary in the case of ordinary insurance or the fifth policyanniversary in the case of industrial insurance, the company will pay,upon surrender of the policy within 30 days after any policy anniversary,a cash surrender value of such amount as may be hereinafterspecified.
(v) In the case of policies which cause on a basis guaranteed in the policyunscheduled changes in benefits or premiums, or which provide an optionfor changes in benefits or premiums other than a change to a new policy,a statement of the mortality table, interest rate, and method usedin calculating cash surrender values and the paid-up nonforfeiture benefitsavailable under the policy. In the case of all other policies, a statementof the mortality table and interest rate used incalculating the cash surrender values and the paid-up nonforfeiturebenefits available under the policy, together with a table showing thecash surrender value, if any, and paid-up nonforfeiture benefit, if any,available under the policy on each policy anniversary either during thefirst 20 policy years or during the term of the policy,whichever is shorter, such values and benefits to be calculated upon theassumption that there are no dividends or paid-up additions credited tothe policy and that there is no indebtedness to the company on thepolicy.
(vi) A statement that the cash surrender values and the paid-upnonforfeiture benefits available under the policy are not less than theminimum values and benefits required by or pursuant to any statute ofthe state in which the policy is delivered; and an explanation of themanner in which the cash surrender values and the paid-up nonforfeiturebenefits are altered by the existence of any paid-up additions creditedto the policy or any indebtedness to the company on the policy; if adetailed statement of the method of computation of the values andbenefits shown in the policy is not stated therein, a statement thatsuch method of computation has been filed with the insurance supervisoryofficial of the state in which the policy is delivered; and, a statementof the method to be used in calculating the cash surrender value andpaid-up nonforfeiture benefit available under the policy on any policyanniversary beyond the last anniversary for which such values andbenefits are consecutively shown in the policy.
Any of the foregoing provisions or portions thereof not applicable byreason of the plan of insurance may, to the extent inapplicable, beomitted from the policy with the consent of the insurance commissioner.
The company shall reserve the right to defer the payment of any cashsurrender value for a period of six months after demand thereforwith surrender of the policy.During such period of deferment, any interest or dividends that wouldaccrue in the absence of a surrender of the policy shall continue toaccrue until such surrender value is paid.
(b) Any cash surrender value available under the policy in the eventof default in a premium payment due on any policy anniversary, whetheror not required by subsection (a), shall be an amount not less than theexcess, if any, of the present value, on such anniversary, of the futureguaranteed 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: (i) The then present value of the adjusted premiums asdefined in subsections (d), (d-1), (d-2) and (d-3), corresponding to premiumswhich would have fallen due on and after such anniversary; and (ii) theamount of any indebtedness to the company on the policy.
For any policy issued on or after the operative date of subsection (d-3)as defined therein, which provides supplemental life insurance or annuitybenefits at the option of the insured and for an identifiable additionalpremium by rider or supplemental policy provision, the cash surrender valuereferred to in the first paragraph of this subsection shall be an amountnot less than the sum of the cash surrender value as defined in such paragraphfor an otherwise similar policy issued at the same age without such rideror supplemental policy provision and the cash surrender value as definedin such paragraph for a policy which provides only the benefits otherwiseprovided by such rider or supplemental policy provision.
For any family policy issued on or after the operative date of subsection(d-3) as defined therein, which defines a primary insured and provides terminsurance on the life of the spouse of the primary insured expiring beforethe spouse's age 71, the cash surrender value referred to in the firstparagraphof this subsection shall be an amount not less than the sum of the cashsurrender value as defined in such paragraph for an otherwise similar policyissued at the same age without such term insurance on the life of the spouseand the cash surrender value as defined in such paragraph for a policy whichprovides only the benefits otherwise provided by such term insurance onthe life of the spouse.
Any cash surrender value available within 30 days after any policyanniversary under any policy paid-up by completion of all premiumpayments or any policy continued under any paid-up nonforfeiturebenefit, whether or not required by subsection (a), shall be an amountnot less than the present value, on such anniversary, of the futureguaranteed benefits provided for by the policy, including any existingpaid-up additions, decreased by any indebtedness to the company on thepolicy.
(c) Any paid-up nonforfeiture benefit available under the policy inthe event of default in a premium payment due on any policy anniversaryshall be such that its present value as of such anniversary shall be atleast equal to the cash surrender value then provided for by the policy,or, if none is provided for, that cash surrender value which would havebeen required by this section in the absence of the condition thatpremiums shall have been paid for at least a specified period.
(d) This subsection (d) shall not apply to policies issued on and afterthe operative date of subsection (d-3), as defined therein. Except as providedin the third paragraph of this subsection, the adjusted premiums for anypolicy shall be calculated on an annual basis and shall be such uniformpercentage of the respective premiumsspecified in the policy for each policy year, excluding amounts statedin 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 suchadjusted premiums shall be equal to the sum of: (i) The then presentvalue of the future guaranteed benefits provided for by the policy; (ii)two percent of the amount of insurance, if the insurance be uniformin amount, or of the equivalent uniform amount, as hereinafter defined,if the amount of insurance varies with duration of the policy; (iii)forty percent of the adjusted premium for the first policy year;(iv) twenty-five percent of either the adjusted premium for thefirst policy year or the adjusted premium for a whole life policy of thesame uniform or equivalent uniform amount with uniform premiums for thewhole life issued at the same age for the same amount of insurance,whichever is less. In applying the percentages specified in (iii) and(iv) above, no adjusted premium shall be deemed to exceed 4% of the amountof insurance or uniform amount equivalent thereto.The date of issue of a policy for the purpose of this subsection shallbe 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 withduration of the policy, the equivalent uniform amount thereof for thepurpose of this subsection shall be deemed to be the uniform amount ofinsurance provided by an otherwise similar policy, containing the sameendowment benefit or benefits, if any, issued at the same age and forthe same term, the amount of which does not vary with duration and thebenefits under which have the same present value at the date of issue asthe benefits under the policy. In the case of a policy issued at an ageless than 10 years the equivalent uniform amount of insurance may be basedupon the amount of insurance after age 10.
The adjusted premiums for any policy providing term insurancebenefits by rider or supplemental policy provision shall be equal to (a)the adjusted premiums for an otherwise similar policy issued at the sameage without such term insurance benefits, increased, during the periodfor which premiums for such term insurance benefits are payable, by (b)the adjusted premiums for such term insurance, the foregoing items (a)and (b) being calculated separately and as specified in the first twoparagraphs of this subsection except that, for the purposes of (ii),(iii) and (iv) of the first such paragraph, the amount of insurance orequivalent uniform amount of insurance used in the calculation of theadjusted premiums referred to in (b) shall be equal to the excess of thecorresponding amount determined for the entire policy over the amountused in the calculation of the adjusted premiums in (a).
Except as otherwise provided in subsections (d-1) and (d-2), alladjusted premiums and present values referred to in this section shallfor all policies of ordinary insurance be calculated on the basis of thecommissioners' 1941 standard ordinary mortality table. For any categoryof ordinary insurance issued on female risks, adjusted premiums andpresent values may be calculated, according to an age not more thanthree years younger than the actual age of the insured. Suchcalculations for all policies of industrial insurance shall be made onthe basis of the 1941 standard industrial mortality table. Allcalculations shall be made on the basis of the rate of interest, notexceeding 3 1/2% per annum, specified in the policy for calculating cashsurrender values and paid-upnonforfeiture benefits. In calculating the present value of any paid-upterm insurance with accompanying pure endowment, if any, offered as anonforfeiture benefit, the rates of mortality assumed may be not morethan 130% of the rates of mortality according to such applicable table.If the rate of mortality usedexceeds 100% the rate shall be stated in thepolicy. For insurance issued on a substandard basis, the calculation ofany such adjusted premiums and present values may be based on such othertable of mortality as may be specified by the company and approved bythe commissioner of insurance.
(d-1) This subsection (d-1) shall not apply to ordinary policies issuedon or after the operative date of subsection (d-3), as defined therein.In the case of ordinary policies issued on or after theoperative date of this subsection (d-1) as defined herein, all adjustedpremiums, as defined in subsection (d), and present values referred toin this section shall be calculated on the basis of the commissioners'1958 standard ordinary mortality table and the rate of interestspecified in the policy for calculating cash surrender values andpaid-up nonforfeiture benefits. Such rate of interest shall not exceed3 1/2%per annum, except that a rate of interest not exceeding 4% per annum maybe used for policies issued on or after July 1, 1973, and prior to July 1,1978, anda rate of interest not exceeding5 1/2% per annum may be used for policies issued on or after July 1, 1978,except that for any single premium whole life or endowment insurance policy arate of interest not exceeding6 1/2% per annum may be used. For any category of ordinary insurance issuedonfemale risks, adjusted premiums and present values may be calculatedaccording to an age not more than six years younger than the actualage of the insured. In calculating the present value of any paid-up terminsurance with accompanying pure endowment, if any, offered as anonforfeiture benefit, the rates of mortality assumed may be not morethan those shown in the commissioners' 1958 extended term insurancetable. For insurance issued on a substandard basis, the calculation ofany such adjusted premiums and present values may be based on such othertable of mortality as may be specified by the company and approved bythe commissioner.
After the effective date of this subsection (d-1), any company mayfile with the commissioner a written notice of its election to complywith the provisions of this subsection after a specified date. After thefiling of such notice, then upon such specified date (which shall be theoperative date of this subsection for such company), this subsectionshall become operative with respect to the ordinary policies thereafterissued by such company. Any company, having filed such notice ofelection to comply with this subsection, and desiring to withdraw fromsuch election as to future policies may file with the commissioner ofinsurance a written notice of such withdrawal after a specified date,and of its intention to value all its future policies in accordance withthe provisions of law applicable to the basis used prior to suchelection and to provide nonforfeiture benefits and cash surrender valuesin future policies as required for the basis used prior to suchelection.
(d-2) This subsection (d-2) shall not apply to industrial policies issuedon or after the operative date of subsection (d-3), as defined therein.In the case of industrial policies issued on or after theoperative date of this subsection (d-2) as defined herein, all adjustedpremiums and present values referred to in this section shall becalculated on the basis of the commissioners' 1961 standard industrialmortality table and the rate of interest specified in the policy forcalculating cash surrender values and paid-up nonforfeiture benefits.Such rate of interest shall not exceed 3 1/2% per annum, except that arate of interest notexceeding 4% per annum may be used for policies issued on or after July1, 1973, and prior to July 1, 1978, and a rate of interest not exceeding5 1/2% per annum may be used for policies issued on or after July 1, 1978,except that for any single premiumwhole life or endowment insurance policy a rate of interest notexceeding 6 1/2% per annum may be used. In calculating the present valueof any paid-up term insurance withaccompanying pure endowment, if any, offered as a nonforfeiture benefit,the rates of mortality assumed may be not more than those shown in thecommissioners' 1961 industrial extended term insurance table. Forinsurance issued on a substandard basis, the calculations of suchadjusted premiums and present values may be based on such other table ofmortality as may be specified by the company and approved by thecommissioner.
After the effective date of this subsection (d-2), any company mayfile with the commissioner a written notice of its election to complywith the provisions of this subsection after a specified date. After thefiling of such notice, then upon such specified date (which shall be theoperative date of this subsection for such company), this subsectionshall become operative with respect to the industrial policiesthereafter issued by such company. Any company having filed such noticeof election to comply with this subsection, and desiring to withdrawfrom such election as to future policies may file with the commissionerof insurance a written notice of such withdrawal after a specified date,and of its intention to value all its future policies in accordance withprovisions of law applicable to the basis used prior to such electionsand to provide nonforfeiture benefits and cash surrender values infuture policies as required for the basis used prior to such election.
(d-3) (1) This subsection shall apply to all policies issued on or afterthe operative date of this subsection (d-3), as defined herein. Except asprovided in the seventh paragraph of this subsection, the adjusted premiumsfor any policy shall be calculated on an annual basis and shall be suchuniform percentage of the respective premiums specified in the policy foreach policy year, excluding amounts payable as extra premiums to coverimpairmentsor special hazards and also excluding any uniform annual contract chargeor policy fee specified in the policy in a statement of the method to beused in calculating the cash surrender values and paid-up nonforfeiturebenefits, that the present value, at the date of issue of the policy, ofall adjusted premiums shall be equal to the sum of: (i) The then presentvalue of the future guaranteed benefits provided for by the policy; (ii)one percent of either the amount of insurance, if the insurance be uniformin amount, or the average amount of insurance at the beginning of each ofthe first 10 policy years; and (iii) one hundred twenty-five percent ofthe nonforfeiture net level premium as hereinafter defined. In applyingthe percentage specified in (iii) above,no nonforfeiture net level premium shall be deemed to exceed 4% of eitherthe amount of insurance, if the insurance be uniform in amount, or the averageamount 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 subsection shall bethe date as of which the rated age of the insured is determined.
(2) The nonforfeiture net level premium shall be equal to the presentvalue, at the date of issue of the policy, of the guaranteed benefits providedfor by the policy divided by the present value, at the date of issue ofthe policy, of an annuity of one per annum payable on the date of issueof the policy and on each anniversary of such policy on which a premium fallsdue.
(3) In the case of policies which cause on a basis guaranteed in the policyunscheduled changes in benefits or premiums, or which provide anoption for changes in benefits or premiums other than a change to a newpolicy, the adjusted premiums and present values shall initially be calculatedon the assumption that future benefits and premiums do not change from thosestipulated at the date of issue of the policy. At the time of any such changein the benefits or premiums the future adjusted premiums, nonforfeiture netlevel premiums and present values shall be recalculated on the assumptionthat future benefits and premiums do not change from those stipulated bythe policy immediately after the change.
(4) Except as otherwise provided in the seventh paragraph of this subsection,the recalculated future adjusted premiums for any such policy shall be suchuniform percentage of the respective future premiums specified in the policyfor each policy year, excluding amounts payable as extra premiums to coverimpairments and special hazards, and also excluding any uniform annual contractcharge or policy fee specified in the policy in a statement of the methodto be used in calculating the cash surrender values and paid-up nonforfeiturebenefits, that the present value, at the time of change to the newly definedbenefits or premiums, of all such future adjusted premiums shall be equalto the excess of (A) the sum of (i) the then present value of the then futureguaranteed benefits provided for by the policy and (ii) the additional expenseallowance, if any, over (B) the then cash surrender value, if any, or presentvalue of any paid-up nonforfeiture benefit under the policy.
(5) The additional expense allowance, at the time of the change to thenewly defined benefits or premiums, shall be the sum of: (i) One percentof the excess, if positive, of the average amount of insurance at the beginningof each of the first 10 policy years subsequent to the change over the averageamount of insurance prior to the change at the beginning of each of thefirst 10 policy years subsequent to the time of the most recent previouschange, or, if there has been no previous change, the date of issue of thepolicy; and (ii) one hundred twenty-five percent of the increase, if positive,in the nonforfeiture net level premium.
(6) The recalculated nonforfeiture net level premium shall be equal tothe result obtained by dividing (A) by (B) where (A) equals the sum of:(i) The nonforfeiture net level premium applicable prior to the change timesthe present value of an annuity of one per annum payable on each anniversaryof the policy on or subsequent to the date of the change on which a premiumwould have fallen due had the change not occurred; and (ii) the presentvalue of the increase in future guaranteed benefits provided for by the policy, and
(B) Equals the present value of an annuity of one per annum payable oneach anniversary of the policy on or subsequent to the date of change onwhich a premium falls due.
(7) Notwithstanding any other provisions of this subsection to thecontrary, in the case of a policy issued on a substandard basis which providesreduced graded amounts of insurance so that, in each policy year, such policyhas the same tabular mortality cost as an otherwise similar policy issuedon the standard basis which provides higher uniform amounts of insurance,adjusted premiums and present values for such substandard policy may becalculated as if it were issued to provide such higher uniform amounts ofinsurance on the standard basis.
(8) All adjusted premiums and present values referred to in this sectionshall for all policies of ordinary insurance be calculated on the basisof: (i) The commissioners' 1980 standard ordinary mortality table; or (ii)at the election of the company for any one or more specified plans of lifeinsurance, the commissioners' 1980 standard ordinary mortality table withten-year select mortality factors; shall for all policies of industrialinsurance be calculated on the basis of the commissioners' 1961 standardindustrial mortality table; and shall for all policies issued in a particularcalendar year be calculated on the basis of a rate of interest not exceedingthe nonforfeiture interest rate as defined in this subsection for policiesissued in that calendar year. Except:
(A) At the option of the company, calculations for all policies issuedin a particular calendar year may be made on the basis of a rate of interestnot exceeding the nonforfeiture interest rate, as defined in this subsection,for policies issued in the immediately preceding calendar year.
(B) Under any paid-up nonforfeiture benefit, including any paid-up dividendadditions, any cash surrender value available, whether or not required bysubsection (a), shall be calculated on the basis of the mortality tableand rate of interest used in determining the amount of such paid-upnonforfeiturebenefit and paid-up dividend additions, if any.
(C) A company may calculate the amount of any guaranteed paid-up nonforfeiturebenefit including any paid-up additions under the policy on the basis ofan interest rate no lower than that specified in the policy for calculatingcash surrender values.
(D) In calculating the present value of any paid-up term insurance withaccompanying 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 andnot more than the commissioners' 1961 industrial extended term insurancetable for policies of industrial insurance.
(E) For insurance issued on a substandard basis, the calculation of anysuch adjusted premiums and present values may be based on appropriate modificationsof the aforementioned tables.
(F) Any ordinary mortality tables, adopted after 1980 by the nationalassociation of insurance commissioners, that are approved by regulationpromulgated by the commissioner for use in determining the minimumnonforfeiturestandard may be substituted for the commissioners' 1980 standard ordinarymortality table with or without ten-year select mortality factors or forthe commissioners' 1980 extended term insurance table.
(G) Any industrial mortality tables, adopted after 1980 by the nationalassociation of insurance commissioners, that are approved by regulationpromulgated by the commissioner for use in determining the minimumnonforfeiturestandard may be substituted for the commissioners' 1961 standard industrialmortality table or the commissioners' 1961 industrial extended term insurancetable.
(9) The nonforfeiture interest rate per annum for any policy issued ina particular calendar year shall be equal to 125% of the calendar yearstatutory valuation interest rate for such policy as defined in the standardvaluation law, rounded to the nearer 1/4%.
(10) Notwithstanding any other provision of this code to the contrary,any refiling of nonforfeiture values or their methods of computation forany previously approved policy form which involves only a change in theinterest rate or mortality table used to compute nonforfeiture values shallnot require refiling of any other provisions of that policy form.
(11) After the effective date of this subsection (d-3), any company mayfile with the commissioner a written notice of its election to comply withthe provisions of this subsection after a specified date before January1, 1989, which shall be the operative date of this subsection for such company.If a company makes no such election, the operative date of this subsectionfor such company shall be January 1, 1989.
(e) In the case of any plan of life insurance which provides for futurepremium determination, the amounts of which are to be determined by theinsurance company based on then estimates of future experience, or in thecase of any plan of life insurance which is of such a nature that minimumvalues cannot be determined by the methods described in subsections (a),(b), (c), (d), (d-1), (d-2) or (d-3) herein, then:
(1) The commissioner must be satisfied that the benefits provided underthe plan are substantially as favorable to policyholders and insureds asthe minimum benefits otherwise required by subsections (a), (b), (c), (d),(d-1), (d-2) or (d-3) herein;
(2) the commissioner must be satisfied that the benefits and the patternof premiums of that plan are not such as to mislead prospective policyholdersor insureds;
(3) the cash surrender values and paid-up nonforfeiture benefits providedby such plan must not be less than the minimum values and benefits requiredfor the plan computed by a method consistent with the principles of thisstandard nonforfeiture law, as determined by regulations promulgated bythe commissioner.
(f) Any cash surrender value and any paid-up nonforfeiturebenefit, available under any such policy in the event of default in the paymentof any premium due at any time other than on the policy anniversary,shall be calculated with allowance for the lapse of time and the paymentof fractional premiums beyond the beginning of the policy year in whichthe default occurs. All values referred to in subsections (b), (c), (d),(d-1), (d-2) and (d-3) may be calculated upon the assumption that any deathbenefit is payable at the end of the policy year of death. The net valueof any paid-up additions, other than paid-up term additions, shall benot less than the amounts used to provide such additions.Notwithstanding the provisions of subsection (b), additional benefitspayable: (i) In the event of death or dismemberment by accident oraccidental means; (ii) in the event of total and permanent disability;(iii) as reversionary annuity or deferred reversionary annuity benefits;(iv) as term insurance benefits provided by a rider or supplementalpolicy provision to which, if issued as a separate policy, this sectionwould not apply; (v) as term insurance on the life of a child or on thelives of children provided in a policy on the life of a parent of achild, if such term insurance expires before the child's age is 26, is uniformin amount after the child's age is one, and has not become paid-up by reasonof the death of a parent of thechild; and (vi) as other policy benefits additional to life insuranceand endowment benefits, and premiums for all such additional benefits,shall be disregarded in ascertaining cash surrender values andnonforfeiture benefits required by this section, and no such additionalbenefits shall be required to be included in any paid-up nonforfeiturebenefits.
(g) This subsection, in addition to all other applicable subsections ofthis section, shall apply to all policies issued on or after January 1,1986. Any cash surrender value available under the policy in the eventof default in a premium payment due on any policy anniversary shall be inan amount which does not differ by more than .2% of either the amount ofinsurance, if the insurance be uniform in amount, or the average amountof insurance at the beginning of each of the first 10 policy years, fromthe sum of: (a) The greater of zero and the basic cash value hereinafterspecified; and (b) the present value of any existing paid-up additions lessthe amount of any indebtedness to the company under the policy.
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 bythe policy, excluding any existing paid-up additions and before deductionof any indebtedness to the company, if there had been no default, less thethen present value of the nonforfeiture factors, as hereinafter defined,corresponding to premiums which would have fallen due on and after suchanniversary. The effects on the basic cash value of supplemental life insuranceor annuity benefits or of family coverage, as described in subsection (b)or (d), whichever is applicable, shall be the same as are the effects specifiedin subsection (b) or (d), whichever is applicable on the cash surrendervalues defined in that subsection.
The nonforfeiture factor for each policy year shall be an amount equalto a percentage of the adjusted premium for the policy year, as definedin subsection (d) or (d-3), whichever is applicable. Except as is requiredby the next succeeding sentence of this paragraph, such percentage:
(a) Must be the same percentage for each policy year between the secondpolicy anniversary and the later of: (i) The fifth policy anniversary; and(ii) the first policy anniversary at which there is available under thepolicy a cash surrender value in an amount, before including any paid-upadditions and before deducting any indebtedness, of at least .2% of eitherthe amount of insurance, if the insurance be uniform in amount, or the averageamount of insurance at the beginning of each of the first 10 policy years; and
(b) must be such that no percentage after the later of the two policyanniversaries specified in the preceding item (a) may apply to fewer thanfive consecutive policy years.
No basic cash value may be less than the value which would be obtainedif the adjusted premiums for the policy, as defined in subsection (d) or(d-3), whichever is applicable, were substituted for the nonforfeiture factorsin the calculation of the basic cash value.
All adjusted premiums and present values referred to in this subsectionshall for a particular policy be calculated on the same mortality and interestbases as are used in demonstrating the policy's compliance with the othersections of this act. The cash surrender values referred to in this subsectionshall include any endowment benefits provided for by the policy.
Any cash surrender value available other than in the event of default ina premium payment due on a policy anniversary, and the amount of any paid-upnonforfeiture benefit available under the policy in the event of defaultin a premium payment shall be determined in manners consistent with themanners specified for determining the analogous minimum amounts in subsections(a), (b), (c), (d-3), and (f). The amounts of any cash surrender valuesand of any paid-up nonforfeiture benefits granted in connection with additionalbenefits such as those listed as items (i) through (vi) in subsection (f)shall conform with the principles of this subsection (g).
(h) This section shall not apply to any of the following: (1) Reinsurance;(2) groupinsurance; (3) pure endowment; (4) annuity or reversionary annuity contract;(5) term policy of uniform amount, which provides no guaranteed nonforfeitureor endowment benefits, or renewal thereof, of 20 years or less expiring beforeage 71,for which uniform premiums are payable during the entire term of thepolicy; (6) term policy of decreasing amount, which provides no guaranteednonforfeiture or endowment benefits, on which each adjusted premiumcalculated as specified in subsections (d), (d-1), (d-2) and (d-3), is lessthan the adjusted premium so calculated, on a term policy of uniform amount,or renewal thereof, which provides no guaranteed nonforfeiture or endowmentbenefits, issued at the same age and for the same initial amount of insuranceand for a term of 20 years or less expiring before age 71, for which uniformpremiums are payable during the entire term of the policy; (7) policy, whichprovides no guaranteed nonforfeiture or endowment benefits, for which nocash surrender value, if any, or present value of any paid-up nonforfeiture benefit, atthe beginning of any policyyear, calculated as specified in subsections (b), (c), (d), (d-1), (d-2)and (d-3), exceeds 2 1/2% of the amount of insurance at the beginningof the same policy year; nor (8) policy which shall be delivered outsidethis state through an agent or other representative of the company issuing thepolicy.
For purposes of determining the applicability of this section, the ageat expiry for a joint term life insurance policy shall be the age at expiryof the oldest life.
(i) After the effective date of this act, any company may file with thecommissioner of insurance a written notice of its election to complywith the provisions of this section other than as provided insubsections (d-1), (d-2), (d-3), (e) and (g) after a specified date. After thefiling ofsuch notice, then upon such specified date (which shall be the operativedate for such company) such provisions shall become operative withrespect to all policies thereafter issued by such company.
(j) Any company, having filed written notices as provided in thepreceding subsection (i), and desiring to withdraw from such election asto future policies may file with the commissioner of insurance a writtennotice of such withdrawal after a specified date, and of its intentionto value all its future policies in accordance with the provisions ofsubsection (b) of K.S.A. 40-409, and amendments thereto, and to providenonforfeiture benefits and cash surrender values in future policies inaccordancewith K.S.A. 40-427. After the filing of such withdrawal notice, then uponsuch specified date, subsection (b) of K.S.A. 40-409, and amendments thereto,and K.S.A. 40-427 shall become operative with respect to all policiesthereafterissued by such company in this state.
History: L. 1947, ch. 277, § 4; L. 1957, ch. 280, § 2;L. 1959,ch. 213, § 2; L. 1965, ch. 302, § 2; L. 1973, ch. 193, §2; L.1978, ch. 175, § 2; L. 1982, ch. 202, § 2;L. 2008, ch. 134, § 1; July 1.
