Group Life Under Scrutiny in NY
Group Life policies and practices are currently under review by the NY Insurance Department. NY has long been concerned about conversion rights and how certificate holders receive notification of their right to convert. I have seen this raised several times on exam and now the Department is taking an active and more systemic approach to looking at this and other issues related to group life. It is anticipated that over the coming months there will be new positions and policy form requirements announced. In the meantime, the outline drafted in 2002 remains the best resource for determining NYSID interpretations of the group life statutes.
Anyone who has ever read section 3220(a)(6) of the NYIL will find it is one of the most dense sections of the Insurance Law. It goes on and on, using very complex sentence structures that work more to obscure the meaning than to clarify it. When drafting group life products, it is essential to consult the Department's outline, www.ins.state.ny.us/acrobat/trrgptot.pdf, for clarification of their interpretations of this section. Some of the key interpretations include:
1) A company's entire portfolio of customarily offered individual policies must be made available upon conversion. A company may not have a single policy that is used solely for conversion purposes.
2) If the election period is extended due to a failure to receive the notice of the right to convert, payment of the death benefit under the group life policy is also extended. That means the death benefit could be extended for 134 days. Many policies attempt to cap this at 31 days.
3) There is a right to one year of preliminary term coverage prior to conversion to a permanent policy. If however, the conversion is the result of a total and permanent disability, conversion to a term policy can continue beyond that one year preliminary period.
In addition to these, there are complicated issues with respect to conversions for reductions in coverage and conversions by dependents. These interpretations and others may change as the Department's review proceeds. Those companies who are in this line of business, are well-advised to watch for developments as this could be a time in which there are significant changes.
