BILL NUMBER: S3862
SPONSOR: COMRIE
 
TITLE OF BILL:
An act to amend the insurance law, in relation to requirements for
making of policy loans
 
PURPOSE OR GENERAL IDEA OF BILL:
The practice of churning has become increasingly prevalent in the life
insurance market. In this practice, policyholders are encouraged to
purchase additional life insurance policies by borrowing from the cash
value of, or turning in, existing policies. In many case s, consumers
are not aware of the exact terms of these transactions. This bill seeks
to rectify this problem by requiring that agents fully explain the terms
of these policy .loans to the consumer, and that both the agent and the
insured sign a disclosure which state s that the agent has explained all
of the terms of the loan agreement, and that to the best of their know-
ledge, both parties are in full understanding of these terms.
 
SUMMARY OF PROVISIONS:
Paragraph 8 of subsection (a) of section 3203 of the insurance law is
amended by adding two new subparagraphs (K) and (L). Subparagraph (K)
would require that the insurance agent must fully explain all of the
terms and conditions of the policy loan to the policyholder. Subpara-
graph (L) would require that all terms and conditions of the policy loan
shall be in writing in at least ten point type, and that this disclosure
must be signed by the insured and the agent of the insurer.
 
JUSTIFICATION:
The practice of churning has become increasingly prevalent in the life
insurance industry. Churning occurs when a consumer is persuaded to turn
in, or borrow from the cash value of, an existing life insurance policy
in order to purchase a new policy. to most cases, this practice benefits
the agent and the company selling the policy, and is not in the best
interest of the consumer. This practice is deceptive because the consum-
er may be unwittingly acting against his own best interest, and the
agent may not fully explain to him the origin. of the funds used for the
purchase of the new policy. This bill seek,s to address this problem by
requiring that agents who are involved in these transactions fully
explain all of the terms and conditions of the policy loan to the poli-
cyholder. In addition, both the agent and the policyholder must sign a
disclosure, printed in at least ten point type, which describes the
terms and conditions of these policy loans which are being made for the
purchase of additional policies.
 
PRIOR LEGISLATIVE HISTORY:
2024: S2596 Comrie/ A5393 Cook
2022: S5698 Comrie/ A3385 Cook
Previously Introduced; 2017/18 A.2366.
 
FISCAL IMPLICATIONS:
None.
 
EFFECTIVE DATE:
This act shall take effect on the sixtieth day after it shall have
become a law and shall apply to all policies issued, reviewed or modi-
fied on or after such effective date.