2010 California Code
Insurance Code
Chapter 5.6. Life Insurance Cost Indexes

INSURANCE CODE
SECTION 10509.970-10509.975



10509.970.  It is the purpose of this chapter to assure prospective
purchasers of life insurance that, when a presentation is made
showing or comparing the cost of life insurance over a period of
years which does not recognize the time value of money, it shall be
accompanied by a presentation which recognizes the time value of
money.



10509.971.  (a) If, in connection with the selling of life insurance
to which this chapter applies, an agent or insurer makes a
presentation showing or comparing the cost of life insurance over a
period of years which does not recognize the time value of money, the
agent or insurer shall at the same time present the Life Insurance
Surrender Cost Index and the Life Insurance Net Payment Cost Index
which shall be calculated for both a 10-year and a 20-year period.
   (b) An agent or insurer may use any other system or form of
presentation for comparing the cost of life insurance over a period
of years which recognizes the time value of money, including the Life
Insurance Surrender Cost Index and the Life Insurance Net Payment
Cost Index computed at an interest rate other than 5 percent.
   (c) If the Life Insurance Surrender Cost Index or the Life
Insurance Net Payment Cost Index is used, it need not be provided for
a period which extends beyond the end of the premium payment period
for the plan. The Life Insurance Surrender Cost Index and the Life
Insurance Net Payment Cost Index shall be accompanied by an
explanation substantially to the effect that the Life Insurance
Surrender Cost Index and the Life Insurance Net Payment Cost Index
are measures of the relative cost of similar plans of insurance, and
that a low index number represents a lower cost than a higher index
number.


10509.972.  (a) The Life Insurance Surrender Cost Index for level
premium plans of insurance shall be calculated by applying the steps
in the following paragraphs:
   (1) Select either a 10-year or a 20-year period, commencing with
the first year of the policy, over which the analysis is to be made.
   (2) Determine the cash surrender value, and terminal dividend, if
any, available at the end of the period selected.
   (3) For participating policies, accumulate the annual cash
dividends at 5 percent interest compounded annually to the end of the
period selected and add this accumulation to the amount in paragraph
(2).
   (4) Divide the amount in paragraph (3), or the amount in paragraph
(2) for nonparticipating policies, by an interest factor that
converts it into a level annual amount accruing over the period
selected in paragraph (1). If the period is 10 years, this factor is
13.207, and if the period is 20 years, the factor is 34.719.
   (5) Subtract the amount in paragraph (4) from the annual premium
payable.
   (6) Divide the amount in paragraph (5) by the number of thousands
of the amount of insurance to arrive at the Life Insurance Surrender
Cost Index.
   (b) The Life Insurance Surrender Cost Index for plans of insurance
with premiums which are not level shall be calculated as follows:
   (1) Select either a 10-year or a 20-year period, commencing with
the first year of the policy, over which the analysis is to be made.
   (2) Determine the cash surrender value, and terminal dividend, if
any, available at the end of the period selected.
   (3) For participating policies, accumulate the annual cash
dividends at 5 percent interest compounded annually to the end of the
period selected and add this accumulation to the amount in paragraph
(2).
   (4) Divide the amount in paragraph (3), or the amount in paragraph
(2) for nonparticipating policies, by an interest factor that
converts it into a level annual amount accruing over the period
selected in paragraph (1). If the period is 10 years, this factor is
13.207, and if the period is 20 years, the factor is 34.719.
   (5) Subtract the amount in paragraph (4) from the equivalent level
premium determined by accumulating the annual premium payable at 5
percent interest compounded annually to the end of the period in
paragraph (1) and dividing the result by the factor stated in
paragraph (4).
   (6) Divide the amount in paragraph (5) by the number of thousands
of the amount of insurance to arrive at the Life Insurance Surrender
Cost Index.
   (c) For plans of insurance where the amount of insurance is not
level, the amount of insurance in paragraph (6) of subdivision (a)
and paragraph (6) of subdivision (b) shall be calculated as follows:
   (1) Accumulate the amount payable upon death, regardless of the
cause of death, at the beginning of each policy year at 5 percent
interest compounded annually to the end of the period selected in
paragraph (1) of subdivision (a) or paragraph (1) of subdivision (b).
   (2) Divide the amount in paragraph (1) by an interest factor that
converts it into a level amount of insurance that, if paid at the
beginning of each year, would accrue to the amount of paragraph (1)
over the period selected in paragraph (1) of subdivision (a) or
paragraph (1) of subdivision (b). If this period is 10 years, this
factor is 13.207, and if the period is 20 years, the factor is
34.719.
   (d) The Life Insurance Net Payment Cost Index is calculated in the
same manner as the comparable Life Insurance Surrender Cost Index
except that the cash surrender value and any terminal dividend are
set at zero.



10509.973.  Any comparison must be used with caution and should not
be emphasized to the point that actual premiums and policy benefits
are overshadowed. Only similar plans of insurance should be compared.
Any dividend or nonguaranteed element used in calculating the Life
Insurance Surrender Cost Index or the Life Insurance Net Payment Cost
Index shall be based on nonguaranteed elements calculated according
to the standards required in Chapter 5.5 (commencing with Section
10509.950). With respect to participating policies, care must be
taken to describe the policy dividend as a refund or return of part
of the premium paid, which is not guaranteed and which is dependent
on the investment earnings, mortality experience, and expense
experience of the insurer.



10509.974.  (a) Except as provided in subdivision (b), this chapter
shall apply to any solicitation, negotiation, or procurement of life
insurance occurring within this state.
   (b) This chapter shall not apply to:
   (1) Variable life insurance.
   (2) Individual and group annuity contracts.
   (3) Credit life insurance.
   (4) Life insurance policies with no illustrated death benefits on
any individual exceeding ten thousand dollars ($10,000).
   (5) Franchise life insurance.
   (6) Group term life insurance.
   (7) Life insurance policies issued in connection with pension and
welfare plans as defined by and subject to the federal Employee
Retirement Income Security Act (29 U.S.C. Sec. 1001 and following),
as amended.



10509.975.  (a) A life insurer shall provide to all prospective
insureds a buyer's guide prior to accepting the applicant's initial
premium or premium deposit. However, if the policy for which
application is made contains an unconditional refund provision of at
least 10 days, the buyer's guide shall be delivered with the policy
or prior to delivery of the policy.
   (b) For the purposes of this chapter, a buyer's guide is a
document that contains, and is limited to, the current buyer's guide
recommended for use by the National Association of Insurance
Commissioners.



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