Section 4220. Life insurance and annuities; nonforfeiture benefits under defaulted contracts

(a) (1) This section  shall  apply  only  to  those  policies  and  contracts issued prior to the operative date specified in
  section four thousand two hundred twenty-one of this article.
    (2) Except as otherwise provided in this  chapter,  in  the  event  of
  default  in  payment  of a premium or a note therefor or any interest on
  such note, after three full years' premiums have been paid on  a  policy
  of  life  insurance  issued  by a domestic insurance company on or after
  January first, nineteen hundred forty, such company, upon  surrender  of
  such  policy  within the period of three months from the due date of the
  payment in default, shall pay to the  person  entitled  thereto  a  cash
  surrender  value  not  less than the excess, if any, of subparagraph (A)
  over subparagraph (B) as follows:
    (A) The reserve on the policy at  the  due  date  of  the  premium  in
  default  (including  the  reserve  for any paid-up additions thereto and
  excluding the reserve for any additional benefits in the event of  death
  by  accident  or  for  benefits  in  the  event  of  total and permanent
  disability or for any continuous instalment payments to the  beneficiary
  or  to  the insured and the beneficiary incidental to the life insurance
  benefit), determined on the  basis,  in  accordance  with  section  four
  thousand two hundred seventeen of this article, specified in the policy,
  and in addition to such reserve, the amount of any dividends standing to
  the credit of the policy;
    (B)  the  sum  of  any  indebtedness  to  the  company  on the policy,
  including interest due or accrued, and a surrender charge equal  to  two
  and  one-half  per  centum  of the face amount of such policy and of any
  paid-up additions thereto, and if the policy be surrendered  within  the
  period  above specified and after the expiration of the grace period, if
  any, following the due date of the payment in default, then there may be
  added to the sum to be deducted the value of any extended term insurance
  granted (determined as hereinafter specified) during the period  between
  the  expiration  of  the  grace  period and the date of surrender of the
  policy.
    (3) The person entitled to such cash surrender value may, upon  demand
  therefor  within  three  months  after  the  due  date of the payment in
  default, elect to receive in lieu of such cash  surrender  value  either
  extended  term  insurance (including pure endowment benefits, if any) or
  reduced paid-up insurance under the policy, for a term, in the  case  of
  extended  term  insurance,  and  for  an  amount, in the case of reduced
  paid-up insurance, which, in either case, shall be not  less  than  that
  provided by applying such cash surrender value at the date of default to
  provide  such  extended term or paid-up insurance, computed at net rates
  at the attained insurance age of the insured and on the same basis  used
  for  the  computation  of  such cash surrender value, except that in the
  case of policies issued on a substandard basis or policies for which the
  reserves are computed upon the American Men Ultimate Table of Mortality,
  the term of such extended  insurance  may  be  computed  upon  rates  of
  mortality  not greater than one hundred thirty per centum of those shown
  by the table specified in the policy for the computation of the reserve.
  The period of extended term insurance shall date from the  due  date  of
  the premium in default. Reduced paid-up insurance shall be participating
  if the policy be participating.
    (4)  The  amount of the extended term insurance shall be not less than
  the amount of life insurance under the policy as expressed in the policy
  with the approval of the superintendent (including any paid-up additions
  thereto and excluding any additional benefits on  account  of  death  by
  accident  or any continuous instalment payments to the beneficiary or to
  the insured  and  the  beneficiary  incidental  to  the  life  insurance

  benefit),  decreased by the amount of any indebtedness to the company on
  the policy, including interest due  or  accrued.  In  the  case  of  any
  endowment  life  insurance  policy,  if the sum used to provide extended
  term  insurance  shall be more than sufficient to continue the insurance
  to the end of the endowment period, the excess shall be used to  provide
  a pure endowment benefit at the end of the endowment period.
    (5)  Extended term insurance and reduced paid-up insurance may exclude
  additional benefits in the event of death by accident  and  benefits  in
  the event of total and permanent disability, and extended term insurance
  may be without participation in surplus and without the right to loans.
    (6)  If no other option expressed in the policy be so selected by such
  person within three months after the due date of the premium in default,
  the amount of such nonforfeiture value shall be applied to continue  the
  insurance  in  force  from  the  due  date  of the premium in default as
  extended term insurance as hereinbefore provided.
    (7) The policy shall specify the reserve  basis  used  in  determining
  nonforfeiture benefits and cash surrender values.
    (8) This subsection shall not apply to any pure endowment, annuity, or
  reversionary annuity contract, nor to any term insurance of thirty years
  or less.
    (9)  In  the  case  of  ordinary or industrial life insurance policies
  issued on a substandard basis the  company  shall  not  be  required  to
  provide extended term insurance as a nonforfeiture benefit.
    (10) That the company must provide, to any policyowner who so requests
  in  writing,  within  twenty  business  days  from  the date the written
  request is received by the company, a statement of  the  cash  surrender
  value of the policy.
    (b)  (1)  Every  contract issued after January first, nineteen hundred
  forty, by any domestic life  insurance  company  which  provides  for  a
  deferred  annuity on the life of the insured or of the annuitant, or for
  a pure endowment contract, except  a  contract  paid  for  by  a  single
  premium,  shall  provide that if the contract after having been in force
  for three full years, shall by  its  terms  lapse  or  become  defaulted
  because  any stipulated payment to the company shall not have been made,
  the reserve on such contract, computed according to the standard adopted
  by such company pursuant to section four thousand two hundred  seventeen
  of this article, shall, after deducting a surrender charge not to exceed
  the  limits hereinafter specified, and after deducting the amount of the
  unpaid balance, including interest due or accrued, on any loans on  such
  contract by the company, be applied as a net single premium according to
  such  standard,  for the purchase of a paid-up annuity or pure endowment
  contract, which shall be payable by the company under the same terms and
  conditions, except as to amount, as the original contract.
    (2) The surrender charge to be  deducted  pursuant  to  paragraph  one
  hereof shall not exceed the greater of the following amounts:
    (A)  thirty-five  percent  of  the  gross  annual  stipulated  payment
  required by the holder of such contract by the terms thereof; or
    (B) twenty-five dollars per one hundred dollars a year income provided
  by the contract at the normal retirement age.
    (3) If such contract provides for a cash surrender value at the option
  of the holder of such contract and in lieu of such  paid-up  annuity  or
  pure endowment contract, such cash surrender value shall be an amount at
  least  equal  to  such  net  single  premium and shall be payable to the
  holder of such contract upon demand therefor and the surrender  of  such
  contract within ninety days after the date of lapse or default.
    (4)  The paid-up annuity or pure endowment contract prescribed by this
  section shall not include additional benefits in the event of accidental
  death or benefits in the event of total and permanent disability and, at

  the option of the  insurer,  may  be  without  future  participation  in
  surplus and without the right to loans.
    (c) The company may provide in any policy or contract that the payment
  of any cash surrender value may be deferred for not exceeding six months
  after  demand  therefor  with  surrender  of  the  policy or contract as
  provided above, and the amount payable shall bear  interest  during  any
  such deferred period of thirty days or more at the rate specified in the
  policy for the computation of the reserve.
    (d) The surrender value and other nonforfeiture benefits of any lapsed
  or  defaulted policy of life insurance or annuity contract issued by any
  domestic life insurance company before January first,  nineteen  hundred
  forty  shall  be determined in accordance with the law applicable at the
  date of issuance of such policy or contract.
    (e) No foreign or alien life insurance company shall deliver or  issue
  for  delivery  in this state any policy of life insurance or any annuity
  or pure  endowment  contract  which  does  not  contain  the  provisions
  required  by  subsection  (a)  or  (b)  hereof,  as  the case may be, or
  provisions which, in the opinion of the  superintendent,  are  at  least
  equally favorable to policyholders.