New York Codes, Rules and Regulations › Title 11 - INSURANCE › Chapter III - Policy and Certificate Provisions › Subchapter A - Life, Accident and Health Insurance › Part 53 - Life And Annuity Cost Disclosure And Sales Illustrations › Subpart 53-2 - Disclosure Requirements › Section 53-2.8 - Addendum to life insurance buyer's guide

Current through Register Vol. 46, No. 28, July 10, 2024
Addendum to Life Insurance Buyer's Guide
After you have decided which kind of life insurance fits
						your needs, look for a good buy. Your chances of finding a good buy are better
						if you use two types of index numbers that have been developed to aid in
						shopping for life insurance. One is called the "Surrender Cost Index" and the
						other is the "Net Payment Cost Index." It will be worth your time to try to
						understand how these indexes are used, but in any event, use them only for
						comparing the relative costs of similar policies. LOOK FOR POLICIES WITH LOW
						COST INDEX NUMBERS.
What is Cost?
"Cost" is the difference between what you pay and what
						you get back. If you pay a premium for life insurance and get nothing back,
						your cost for the death protection is the premium. If you pay a premium and get
						something back later on, such as a cash value, your cost is smaller than the
						premium.
The cost of some policies can also be reduced by
						dividends; these are called "participating" policies. Companies may tell you
						what their current dividends are, but the size of future dividends is unknown
						today and cannot be guaranteed. Dividends actually paid are set each year by
						the company.
Some policies do not pay dividends. These are called
						"guaranteed cost" or "nonparticipating" policies. Every feature of a guaranteed
						cost policy is fixed so that you know in advance what your future cost will
						be.
The premiums and cash values of a participating policy
						are guaranteed, but the dividends are not. Premiums for participating policies
						are typically higher than for guaranteed cost policies, but the cost to you may
						be higher or lower, depending on the dividends actually paid. What are Cost
						Indexes?
In order to compare the cost of policies, you need to
						look at:
1. Premiums
2. Cash Values
3. Dividends
Cost Indexes use one or more of these factors to give you
						a convenient way to compare relative costs of similar policies. When you
						compare costs, an adjustment must be made to take into account that money is
						paid and received at different times. It is no enough to just add up the
						premiums you will pay and to subtract the cash values and dividends you expect
						to get back. These indexes take care of the arithmetic for you. Instead of
						having to add, subtract and multiply and divide many numbers yourself, you just
						compare the index numbers which you can get from life insurance agents and
						companies.
1. Life Insurance Surrender
					 Cost Index. This index is useful if you consider the level of the cash values
					 to be of primary importance to you. It helps you compare costs if at some
					 future point in time, such as 10 or 20 years, you were to surrender the policy
					 and take its cash value.
2. Life
					 Insurance Net Payment Cost Index. This index is useful if your main concern is
					 the benefits that are to be paid at your death and if the level of cash values
					 is of secondary importance to you. It helps you compare costs at some future
					 point in time, such as 10 or 20 years, if you continue paying premiums on your
					 policy and do not take its cash value.
There is another number called the Equivalent Level
						Annual Dividend. It shows the part dividends play in determining the cost index
						of a participating policy. Adding a policy's Equivalent Level Annual Dividend
						to its cost index allows you to compare total costs of similar policies before
						deducting dividends. However, if you make any cost comparisons of a
						participating policy with a non-participating policy, remember that the total
						cost of the participating policy will be reduced by dividends, but the cost of
						the non-participating policy will not change.
How Do I Use Cost Indexes?
The most important thing to remember when using cost
						indexes is that a policy with a small index number is generally a better buy
						than a comparable policy with a larger index number. The following rules are
						also important:
(1) Cost comparisons
					 should only be made between similar plans of life insurance. Similar plans are
					 those which provide essentially the same basic benefits and require premium
					 payments for approximately the same period of time. The closer policies are to
					 being identical, the more reliable the cost comparison will be.
(2) Compare index numbers only for the kind
					 of policy, for your age and for the amount you intend to buy. Since no one
					 company offers the lowest cost for all types of insurance at all ages and for
					 all amounts of insurance, it is important that you get the indexes for the
					 actual policy, age and amount which you intend to buy. Just because a Shopper's
					 Guide tells you that one company's policy is a good buy for a particular age
					 and amount, you should not assume that all of that company's policies are
					 equally good buys.
(3) Small
					 differences in index numbers could be offset by other policy features, or
					 differences in the quality of service you may expect from the company or its
					 agent. Therefore, when you find small differences in cost indexes, your choice
					 should be based on something other than cost.
(4) In any event, you will need other
					 information on which to base your purchase decision. Be sure you can afford the
					 premiums, and that you understand its cash values, dividends and death
					 benefits. You should also make a judgment on how well the life insurance
					 company or agent will provide service in the future, to you as a
					 policyholder.
(5) These life
					 insurance cost indexes apply to new policies and should not be used to
					 determine whether you should drop a policy you have already owned for a while,
					 in favor of a new one. If such a replacement is suggested, you should ask for
					 information from the company which issued the old policy before you take
					 action.