The Office of General Counsel issued the following opinion on November 19, 2003, representing the position of the New York State Insurance Department.
Re: Cancellation of Credit Life or Credit Disability Policy and Calculation of Unearned Premiums
What New York Insurance Law or Regulation outlines the method to be used in calculating the amount of unearned premiums that should be returned to an insured after cancellation of a credit life or credit disability policy obtained as part of a retail instalment agreement?
With regard to credit life or credit disability policies obtained under such circumstances, N.Y. Comp. Codes R. & Regs. tit. 11, § 185.8, (Regulation 27-A) (2001) outlines the method insurers may use when calculating unearned premium refunds.
The inquirers company is licensed by the Banking Department pursuant to the retail instalment sales act and the question here does not involve a premium finance agreement. The inquirer asks what New York Insurance Law or Regulation specifies the formula to be used for calculating unearned premiums when an insured cancels a credit life or credit disability policy.
N.Y. Comp. Codes R. & Regs. tit. 11, Part 185, (Regulation 27-A) (2001), deals with Credit Life and Credit Accident and Health Insurance.1 The inquirer asks what method is used in New York for calculating unearned premium refunds when a credit life/disability insurance policy is cancelled. N.Y. Comp. Codes R. & Regs. tit. 11, § 185.8, (Regulation 27-A) (2001) provides, in pertinent part, as follows:
(a) Each individual policy of credit life insurance and credit accident and health insurance on which the premium is paid by the debtor and each certificate or statement of group insurance for which an identifiable charge is made to the debtor shall provide that, in the event of termination of the insurance prior to the scheduled maturity date of the indebtedness, any refund of premium or identifiable charge due shall be paid or credited promptly to the debtor.
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(c) In the case of credit life or accident and health insurance, a refund of premium or identifiable charge shall be made for any portion of premium or charge actually charged to the debtor which provides coverage for any period of insurance ending beyond any one of the following:
(1) the date on which termination of insurance becomes effective;
(2) in the case of monthly installment, the installment due date nearest the date of termination;
(3) the date based on a procedure allowed by the Banking Law and used for determining any unearned interest on the loan; or
(4) the date based on any other procedure filed by the insurer and approved by the superintendent.
. For each period of insurance for which a refund is due, such refund shall be equal to the premium for the portion of the period of insurance after the termination date. The premium for each such period of insurance shall be calculated using the same assumptions that were used to calculate the premium or identifiable charge. Each insurer shall file for approval and include in the policy appropriate formulas and/or factors for refund, or reference to such formulas and/or factors as are on file with the superintendent. No refund or credit is required if the amount is less than one dollar.
However, N.Y. Comp. Codes R. & Regs. tit. 11, § 185.8(d) (Regulation 27-A) (2003) provides:
(d) An insurer may file for approval alternative methods of calculating refunds, which will be approved by the superintendent if they produce results comparable to the refund produced by the method described in subdivision (c) of this section.
Note that notwithstanding the method outlined in subsection (c), subsection (d) permits insurers to file with the Superintendent, for approval, alternative methods of calculating refunds. Many insurers have utilized such alternative methods of calculating refunds. If there are questions about a specific insurers filing and rates, please contact:
New York State Insurance Department
One Commerce Plaza
Albany, New York 12257
This opinion is limited to an interpretation of the Insurance Law. No opinion is herein given with regard to other laws or regulations that may affect the outcome of this issue.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.
1 See also, N.Y. Comp. Codes R. & Regs. tit. 11, §187.7, (Regulation 27-C) (1995), which addresses premium refunds in relation to credit unemployment insurance.