New York Laws
Article 42 - Life Insurance Companies and Accident and Health Insurance Companies and Legal Services Insurance Companies
4228 - Life Insurance and Annuity Business; Limitations of Expenses.

(b) For purposes of this section:
(1) "Advance" and "loan" shall have the following meanings: "advance"
means any amount paid to an agent, up to an amount not exceeding the
value of three months' expected compensation payments, that is expected
to be repaid within the next twelve months through reductions in future
compensation. "Loan" means any payment to an agent, other than an
advance, that is expected to be repaid from future compensation. An
amount paid to an agent in an annualization as defined in this
subsection is not an advance or loan.
(2) "Agent" shall have the meaning ascribed in section two thousand
one hundred one of this chapter and "broker" shall have the meaning
ascribed in section two thousand one hundred four of this chapter.
(3) "Annualization" means: with respect to any amounts paid to an
agent or broker, the paying or crediting to an agent or broker at the
beginning of a policy year compensation or other payments based on all
or a portion of the amount of premiums scheduled to be received by the
company with respect to such policy year; with respect to the
calculation of any limits of payment or expense prescribed in this
section, the calculation of such limit is based on the assumption that a
company receives, at the beginning of a policy year, all or a portion of
the amount of premiums scheduled to be received by the company with
respect to such policy year.
(4) "Benchmark gross level premium", is calculated as of the issue
date of a policy, or as of any subsequent date on which the face amount
of the policy, or the types or amounts of supplemental benefits provided
under the policy, are increased, whether by addition of a rider or
otherwise, at the request of the policy owner. The benchmark gross level
premium is calculated as one hundred twenty-five percent of the net
level premium for a whole life insurance policy with level premiums
payable during the life of the insured, with payments starting on the
same date and for the same face amount as the policy for which the
benchmark gross level premium is being computed, based on three and

one-half percent interest and male aggregate (smoker and non-smoker
combined), Commissioners 1980 Standard Ordinary Mortality Table,
ultimate mortality, age last birthday and immediate payment of death
claims, further adjusted as follows:
(A) An amount of one hundred dollars shall be added to the benchmark
gross level premium for a policy; however, this amount shall not be
added to the benchmark gross level premium for a rider.
(B) The benchmark gross level premium for a policy providing
supplemental insurance benefits, whether by rider or otherwise, shall be
increased (i) if the company makes an additional premium charge for such
benefits, by the amount of such premium charge, and (ii) if the company
does not make an additional premium charge for such benefits, by one
hundred twenty-five percent of the amount of the levelized annual cost
of insurance charge for such benefits; such levelized charge is to be
based on the actual schedule of charges applicable to the policy at the
time with respect to which the calculation is made, levelized using the
mortality table and interest rate defined in this section.
(C) The benchmark gross level premium for a policy in which the
guaranteed table of mortality charges exceeds the Commissioners 1980
Standard Ordinary Mortality Table for male smokers for age last birthday
may be appropriately adjusted to reflect any excess of the amount of the
benchmark gross level premium computed based on the actual mortality
guarantees of the policy over the benchmark gross level premium computed
based on the Commissioners 1980 Standard Ordinary Mortality Table for
male smokers for age last birthday; however, if the company makes an
additional premium charge because the insured is a substandard risk, the
company may, instead, increase the amount of the benchmark gross level
premium by the amount of such charge.
(D) The benchmark gross level premium for a policy providing life
insurance benefits, other than supplemental benefits, for more than one
person shall be adjusted to reflect the joint mortality status of the
insured lives, consistent with the nature of the life insurance coverage
provided by the policy, using the mortality table and interest rates
defined in this section.
(E) The benchmark gross level premium for a policy, including all of
its riders and benefits, is the sum of the benchmark gross level premium
for the policy and the benchmark gross level premium for each rider,
each adjusted as provided in subparagraphs (A), (B), (C) and (D) of this
paragraph.
(F) The benchmark gross level premium for a policy with premiums
payable more frequently than annually shall be the benchmark gross level
premium based on annual premium payments, adjusted by the company's
actual adjustment factors for the actual mode of premium payment.
(5) "Commission" means a payment to an agent or broker, as
compensation for the sale or service of a specific policy or contract,
based upon a percentage of the premium or consideration for that policy
or contract.
(6) A "compensation arrangement" means any arrangement by a company
for compensating its agents or brokers on business that includes any of
the following:
(A) A commission that, for any policy or contract in policy or
contract years two through four, exceeds the limit set forth in
paragraph two, three or four, whichever is applicable, of subsection (d)
of this section for that year or, with respect to any year after the
fourth policy or contract year that exceeds the limit set forth in
paragraph two, three or four of subsection (d) of this section for the
fourth policy or contract year;
(B) A fund-based compensation arrangement that, for any policy or
contract year, exceeds two percent of the fund annually in any of the
policy's or contract's first four years;
(C) Any plan providing for a training allowance subsidy pursuant to
the provisions of subparagraphs (A) through (F) of paragraph three of
subsection (e) of this section;
(D) Any plan of agent or broker compensation other than
commission-based and fund-based compensation pursuant to paragraph two
of subsection (e) of this section; and
(E) Any plan involving the payment of an expense allowance, other than
plans under which the company provides no goods and services to the
recipient of the expense allowance payments and the expense allowance
payments are described as percentages of qualifying first year premium,
excess premium, single consideration, or periodic consideration, or any
of them, and none of the percentages exceeds the corresponding
percentages set forth in paragraph five of subsection (d) of this
section.
(7) "Contract" means an individual annuity contract. A rider to a
contract will be treated as a separate policy or contract for all
purposes hereunder, unless otherwise specified. The determination of a
policy or contract type is done separately for each policy, contract and
rider.
(8) "Debit life insurance" means all life insurance with premiums
payable monthly or more frequently, normally collectible by an agency
force organized to make systematic house to house collections of
premiums.
(9) "Effective date" means the first day of January next succeeding
the date on which this section shall have become a law.
(10) "Excess premiums" are premiums in the first policy year that
exceed the benchmark gross level premium.
(11) "Expense allowance" is a payment to an agent or broker in lieu of
reimbursement for expenses incurred in connection with the sale or
servicing of the company's policies or contracts.
(12) "Filing" shall mean the delivery of information by a company to
the superintendent or his designee concerning plans under which a
company makes payments to its agents and to brokers.
(13) "Fund" is a policy or contract accumulation account or any other
similar policy or contract value at a particular time, before
application of any surrender charges and market value adjustments, if
any, whether or not it is immediately available to the owner of a policy
or contract. At the option of the company "fund" may mean the company's
statutory reserve for the policy or contract.
(14) "General agent" is an agent who is appointed directly by a
company, other than a local salaried representative of such company, who
recruits, trains or supervises other agents or who has the right to
appoint agents.
(15) "Goods and services" as used in this section shall refer to (A)
reimbursements to an agent or broker for vouchered expenses made or
incurred in connection with the production or servicing of policies or
contracts on behalf of the company and (B) similar expenses assumed
directly by the company. These expenses do not include those that the
company incurs for the recruitment, training, supervision or management
of such agent, nor the cost of security benefits provided to such agent,
nor those expenses described in item (iv) of subparagraph (D) of
paragraph two of subsection (c) of this section.
(16) A "periodic premium policy" or "periodic consideration contract"
is any policy or contract, respectively, other than a single premium

policy or single consideration contract. The determination of a policy
or contract type is done separately for each policy or contract.
(17) "Periodic premiums" and "periodic considerations" are premiums
and considerations, respectively, recorded by a company for a policy or
contract other than single premiums and single considerations.
(18) "Policy" means an individual life insurance policy. A rider to a
policy will be treated as a separate policy or contract for all purposes
hereunder, unless otherwise specified. The determination of a policy or
contract type is done separately for each policy, contract and rider.
(19) "Premiums" and "considerations" include all amounts (including
amounts for supplementary benefits) recorded for a policy or contract,
except dividends applied to purchase additional insurance under the same
policy, as well as amounts meeting the requirements of subparagraphs (B)
and (C) of paragraph twenty-five of this subsection. Premiums and
considerations include all amounts so recorded that arise from the
application of values inherent in a policy or contract, such as dividend
deposits, any excess of actual policy or contract cash values over
guaranteed cash values, dividend additions, premiums paid in advance,
and policy loans.
(20) A "qualified annuity contract" is an annuity defined by the
Internal Revenue Code sections 401, 403 or 457, and any other similar
annuities defined by the superintendent.
(21) "Qualifying first year premiums" are premiums under each policy,
including all of its riders and benefits, which are:
(A) in the first policy year, premiums recorded, including the entire
amount of a premium recorded in the first policy year of a conversion of
a term policy or rider to a permanent policy up to the benchmark gross
level premium for the policy, including all of its riders and benefits;
or
(B) in any year after the first, premiums recorded up to the benchmark
gross level premium for the current face amount of the policy, including
all of its riders and benefits, less the total previous qualifying first
year premiums, but not less than zero; or
(C) all premiums recorded up to the benchmark gross level premium to
renew a policy on more favorable terms than those guaranteed in the
policy when such renewal is subject to new underwriting and a new
contestable period.
(22) "Recorded" shall mean the crediting of an amount to the company's
premium or consideration accounts for purposes of the company's
statutory annual statement.
(23) "Renewal premiums" are all periodic premiums other than
qualifying first year premiums or excess premiums.
(24) A "security benefit" is any benefit provided to an agent that is
both (A) provided under an employee benefit plan, as defined in the
Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et
seq. and (B) either (i) a benefit under an employee benefit plan that
qualifies as such under the relevant sections of the Internal Revenue
Code and regulations thereunder that require compliance with standards
of non-discrimination in benefit coverage and eligibility, or (ii) a
benefit that does not permit an agent to obtain a cash payment other
than at the time of death, permanent and total disability, or
retirement. "Permanent and total disability" as used herein shall mean
any condition caused by injury or disease that prevents the agent from
performing substantially all of the work normally performed by the
agent. If the definition of "employee benefit plan" under the Employee
Retirement Income Security Act of 1974 is repealed, replaced or
significantly amended, the superintendent shall promulgate a regulation
establishing a definition for the purposes of this section. Benefits

that would meet the requirements of subparagraph (A) or (B) of this
paragraph but for the fact that the agent covered under such benefits is
an independent contractor rather than an employee are security benefits.
(25) "Single considerations" are:
(A) all amounts (including amounts for supplementary benefits)
recorded as single considerations or single deposits for contracts; or
(B) contract values that are applied under the same contract at the
later of (i) the end of a surrender charge period or (ii) five years
after issuance of the contract or, if a previous such application of
contract values has occurred, five years after such application, when
such application results in new sales loads or surrender charges; or
(C) settlement option proceeds generated from the death of an
individual or maturity of a policy or contract that are applied to
purchase a new contract or that are applied to the purchase of annuity
benefits under the existing contract.
(26) "Single premiums" are:
(A) all amounts (including amounts for supplementary benefits)
recorded as single premiums for policies, except dividends applied to
purchase additional insurance under the same policy; or
(B) policy values that are applied under the same policy at the later
of (i) the end of a surrender charge period or (ii) five years after
issuance of the policy or, if a previous such application of policy
values has occurred, five years after such application, when such
application results in new sales loads or surrender charges.
(27) A "single premium policy" or "single consideration contract" is a
policy or contract that, according to its terms, provides for the
payment of a single premium or consideration at time of purchase and no
subsequent premiums or considerations during the life of the policy or
contract. The determination of a policy or contract type is done
separately for each policy, contract and rider.
(28) "Supplemental benefits" are any benefits provided as part of a
policy or contract, whether by rider or otherwise, excluding life
insurance coverage on named insureds under the policy.
(29) "Training allowance subsidy" is the excess of the amount that is
paid to an agent under a training allowance plan over the amount that
would be paid in commissions and expense allowance to an experienced
agent, in the same sales force, producing the same sales of policies and
contracts.
(c)(1) No company shall pay or incur in any calendar year total
selling expenses as calculated hereunder in excess of its total selling
expense limit referred to in paragraph four of this subsection, except
that the total selling expense limit shall not apply to a company in any
calendar year in which the company does not sell any policies or
contracts subject to this section.
(2) Total selling expenses shall include the following expenses
incurred directly or indirectly by the company, without regard to
whether they are incurred in the company's home office or in a field or
regional office:
(A) commissions;
(B) the increase during the year in the amount of outstanding advances
and loans to agents, including any accrued and unpaid interest thereon,
and including amounts charged off by the company, however, if such
amount is negative, it shall be treated as a reduction of the amount of
total selling expenses;
(C) the expense of direct solicitation advertising that either
includes an application or solicits a response to obtain an application
for a policy or contract regulated under this section;
(D) distribution, marketing and sales support expenses directly
related to the procurement of new business, which includes but is not
limited to:
(i) recruiting and training of agents, including related
recordkeeping;
(ii) sales management and supervision;
(iii) clerical functions in sales offices; and
(iv) sales support functions, including but not limited to advanced
underwriting support, proposals, illustrations, competition aids and
related systems and equipment, including personal computers, owned by
the company and used in the sales process;
(E) any expense allowance paid to the agent or broker by the company
or any expenses of the agent, agency or broker, assumed or reimbursed by
the company;
(F) the expenses of sales conferences, training meetings and awards
paid for by the company; and
(G) all other compensation paid to or expense incurred on behalf of
active and retired agents and brokers, including the cost of any
security benefits.
(3) Total selling expenses shall not include expenses related to the
following activities and the compensation of individuals working
full-time on the following activities and other activities not included
within paragraph two of this subsection, even if they are working in a
sales office:
(A) development and maintenance of products, systems and software;
(B) medical examinations and inspections of proposed risks;
(C) underwriting;
(D) policy issue;
(E) policy conservation;
(F) premium billing and collection;
(G) policy administration;
(H) claim administration and management;
(I) investment management;
(J) statutory and regulatory filing and compliance;
(K) overall company management and direction;
(L) taxes, licenses and fees; and
(M) all other activities not related to selling.
(4) The total selling expense limit shall be the sum of the amounts
determined pursuant to subparagraphs (A), (B), (C), (D), (E), (F), (G),
(H), (I) and (J) of this paragraph, except as any of those subparagraphs
may be adjusted pursuant to the provisions of subparagraph (K) of this
paragraph.
(A) For each life insurance policy, fifty-five percent of the
qualifying first year premium.
(B) Five percent of excess premiums, single premiums and all
considerations.
(C) One hundred ten percent of the sum of the amount determined
pursuant to subparagraphs (A) and (B) of this paragraph.
(D) For all new life insurance paid for during the year, other than
term insurance for less than one year, for which any premium is paid
during the year, one dollar for each one thousand dollars of such
insurance. New life insurance paid for shall include:
(i) life insurance on new policies paid for during the calendar year;
(ii) life insurance on term conversions during the calendar year to
permanent life insurance;
(iii) life insurance on policies which were renewed under more
favorable terms than those guaranteed in the policy, subject to new
underwriting requirements and new contestable period; and
(iv) increases in the death benefit of life insurance during the
calendar year, other than those provided for in the policy, on policies
in force.
(E) Seventy dollars for each new policy, other than policies for term
insurance for less than one year, and for each new contract paid for
during such year. For purposes of this subparagraph, riders will not be
considered as separate policies or contracts. New policies paid for
during the year shall include policies referred to in items (i), (ii)
and (iii) of subparagraph (D) of this paragraph.
(F) Twelve percent of renewal premiums.
(G) Fifteen cents for each one thousand dollars of face amount of
policies in force at the end of such year.
(H) The sum of the amounts below:
(i) one dollar for each one thousand dollars of the first one billion
dollars of life insurance in force;
(ii) fifty cents for each one thousand dollars of the next one billion
dollars of life insurance in force;
(iii) five one-hundredths of one percent of the first one billion
dollars of annuity reserves; and
(iv) two and one-half of one hundredths of one percent of the next one
billion dollars of annuity reserves.
(I) For each agent who qualifies under paragraph three of subsection
(e) of this section, thirty thousand dollars for each such agent
appointed to represent the company during the year, twenty thousand
dollars for each such agent who was initially appointed during the
immediately preceding year and is still contracted with the company on
January first of the current year, and ten thousand dollars for each
such agent who was initially appointed during the second preceding year
and is still contracted with the company on January first of the current
year.
(J) The excess, if any, of the total selling expense limit over the
total selling expenses for the immediately preceding calendar year;
however, such excess shall not exceed five percent of the total selling
expense limit for such preceding calendar year, calculated without
regard to the effect of this subparagraph.
(K) For a company that makes commitments to pay compensation to agents
or brokers or to incur other agent-related or broker-related expense
with respect to policies or contracts in their renewal years:
(i) with respect to policies, if such commitment includes compensation
or other agent-related or broker-related expense expressed as a
percentage of premium and if it exceeds twelve percent of premium with
respect to any policy year after the first, the company may, at its
option reduce the amount of the limit calculated pursuant to
subparagraph (A) of this paragraph in the calendar year in which such
policies are sold and increase the amount of the limit calculated
pursuant to subparagraph (F) of this paragraph in subsequent calendar
years;
(ii) with respect to policies, if such commitment includes
compensation or other agent-related or broker-related expense expressed
as a percentage of the policy fund with respect to the second or any
later policy year, the company may, at its option reduce the amount of
the limit calculated pursuant to subparagraph (F) of this paragraph in
subsequent calendar years and add, in such subsequent calendar years, an
amount based on the reserves of such policies;
(iii) with respect to contracts, if such commitment includes
compensation or other agent-related or broker-related expense expressed
as a percentage of the contract fund with respect to any contract year,
the company may, at its option, reduce the amount of the limit

calculated pursuant to subparagraph (B) of this paragraph in the
calendar year in which such contracts are sold and add, in such calendar
year and subsequent calendar years, an amount based on the reserves of
such contracts.
(L) Such adjustment shall:
(i) in the case of item (i) of subparagraph (K) of this paragraph, be
based on the relationship that a reduction of three percent of premiums
in the amount of the limit calculated pursuant to subparagraph (A) of
this paragraph in the year of sale is equivalent to an increase of one
percent of premiums in the amount of the limit calculated pursuant to
subparagraph (F) of this paragraph if the commitment applies to all
later policy years;
(ii) in the case of item (ii) of subparagraph (K) of this paragraph,
be based on the relationship that a reduction of one percent of premiums
in the amount of the limit calculated pursuant to subparagraph (F) of
this paragraph in all later policy years is equivalent to an increase in
the limit of fifteen one-hundredths of one percent of policy reserves if
the commitment applies to all later policy years;
(iii) in the case of item (iii) of subparagraph (K) of this paragraph,
be based on the relationship that a reduction of one-half of one percent
of considerations in the amount of the limit calculated pursuant to
subparagraph (B) of this paragraph in the year of sale is equivalent to
an increase in the limit of fifteen one-hundredths of one percent of
contract reserves if the commitment applies to all contract years.
The superintendent shall by regulation describe the bases for
adjustments in other situations, consistent with these relationships.
Reasonable use of averaging methods shall be allowed. In particular, the
regulation shall provide that a company shall approximate the percentage
of its policies, contracts, premiums, and reserves with respect to which
it has opted to make such adjustments, and shall derive adjustment
factors such that, when such factors are applied to all of its business
issued or in force, they will approximate the results that would be
obtained if more precise calculations were made.
(5) A company may make arrangements, such as entering into agent
contracts, incurring expenses, and generally organizing its activities,
in such a manner that some or all of its expenses are applicable
partially to policies and contracts subject to this section and
partially to other business or to other companies with which it has
business arrangements and, in such cases, the company shall determine
the portion of such expenses subject to this subsection by using an
equitable basis of allocation, consistent with the company's allocation
methodology for annual statement reporting.
(d) A company may pay agents and brokers as it sees fit for the sale
and service of policies and contracts. However:
(1) No company shall pay or permit to be paid to an agent or broker a
commission in excess of the sum of (A) fifty-five percent of any
qualifying first year premium and (B) seven percent of any excess
premium; or to a general agent with respect to business not personally
produced by such general agent, a commission in excess of the sum of (C)
sixty-three percent of any qualifying first year premium and (D) eight
percent of any excess premium.
(2) Except as provided in paragraph four of this subsection, no
company shall pay or permit to be paid to an agent or broker commission
in excess of seven percent of any single consideration or any periodic
consideration received in the first four contract years; or to a general
agent, on business not personally produced by such general agent, a
commission in excess of eight percent of any single consideration or any
periodic consideration.
(3) No company shall pay or permit to be paid to an agent or broker a
commission in excess of twenty-two percent of renewal premiums for the
second policy year, twenty percent of renewal premiums for the third
policy year, or eighteen percent of renewal premiums for the fourth
policy year; or to a general agent on business not personally produced
by such general agent, a commission in excess of twenty-seven percent of
renewal premiums in the second policy year, twenty-three percent of
renewal premiums in the third policy and twenty percent of renewal
premiums in the fourth policy year.
(4) Notwithstanding the limitations set forth in paragraph two of this
subsection, with respect to a qualified annuity contract, no company
shall pay or permit to be paid to an agent or broker a commission in
excess of fourteen and one-half percent of periodic considerations
incurred in the first contract year and four and one-half percent of
periodic considerations incurred respectively in each of three contract
years following the first, or to a general agent on business not
personally produced by the general agent, a commission in excess of
sixteen percent of periodic considerations incurred in the first
contract year and six percent of periodic considerations incurred
respectively in each of the three contract years following the first.
(5) With respect to premiums and considerations recorded within a
period of twelve consecutive months on business written by any agent or
broker, no company shall pay or permit to be paid to an agent or broker
expense allowance greater than the excess, if any, of the sum of:
(A) ninety-one percent of all qualifying first year premiums; and
(B) with respect to qualified annuity contracts, fourteen and one-half
percent of periodic considerations incurred in the first contract year;
and
(C) seven percent of any excess premiums, single considerations and
periodic considerations, other than those addressed in subparagraph (B)
of this paragraph, incurred in the first four contract years,
over the sum of commissions paid pursuant to paragraphs one, two and
four of this subsection, and the value of any goods and services
provided to such agent or broker by the company. With respect to
premiums and considerations recorded within a period of twelve
consecutive months on business written under the supervision of any
general agent, no company shall pay or permit to be paid to a general
agent, on business not personally produced by such general agent,
expense allowances greater than the excess, if any of the sum of
(D) ninety-nine percent of all qualifying first year premiums; and
(E) with respect to qualified annuity contracts, sixteen percent of
periodic considerations incurred in the first contract year; and
(F) eight and one-half percent of any excess premiums, single
considerations and periodic considerations, other than those addressed
in subparagraph (E) of this paragraph, incurred in the first four
contract years,
over the sum of commissions paid pursuant to paragraphs one, two and
four of this subsection, and any goods and services provided to such
general agent by the company. The company may, in implementing this
subsection, use reasonable estimation techniques in arriving at the
amount of goods and services, including but not limited to the
estimation of the average value of goods and services provided to a
group of agents or brokers to whom similar goods and services are
provided.
(e) Notwithstanding any limitations set forth in subsection (d) of
this section:
(1) (A) A company may compensate an agent or broker wholly or in part
upon a plan that bases compensation on the fund underlying the policy or

contract. For policies other than single premium policies, a company may
pay up to three-tenths of one percent of the fund in each of policy
years two through four for each one percent of premium by which the
commission paid to the agent or broker in such policy years is less than
the percentages set forth in paragraph three of subsection (d) of this
section. For single premium policies and all contracts, a company may
pay up to three-tenths of one percent of the fund in each of policy or
contract years one through four for each one percent by which the sum of
commissions and expense allowance paid to the agent or broker in policy
or contract years one through four is less than the percentages set
forth in subparagraph (C) or (D) of paragraph five of subsection (d) of
this section, whichever is applicable.
(B) Any company may compensate an agent or broker on a plan of
fund-based compensation using translations other than those set forth in
subparagraph (A) of this paragraph, provided that the translation
factors are equivalent to those set forth therein, based on reasonable
and consistent assumptions as to mortality, policy or contract
persistency and interest.
(2) (A) A company may compensate an agent or broker pursuant to a plan
of agent compensation that consists wholly or partly of elements other
than commission-based compensation and fund-based compensation.
(B) When a company implements such a plan, it must be able to
demonstrate, after the plan has been in operation for two years, that an
agent or broker being compensated under the plan and meeting its
requirements for continuation in the plan will receive no more
compensation under the plan, over the period of a projected career, than
could have been earned under a plan consisting entirely of commissions
and expense allowance, each limited as described in subsection (d) of
this section. In making this demonstration, the company may take into
account commission compensation that would have been paid, under its
renewal commission plans, with respect to policies and contracts in
their fifth and later policy and contract years.
(C) To the extent that an agent being compensated under such plan is
eligible to receive a training allowance under the provisions of
paragraph three of this subsection, the comparison in subparagraph (B)
of this paragraph shall take into account, as well, the amount of
training allowance subsidy that could have been paid to such agent.
(D) To the extent that an agent or broker being compensated under such
plan is assigned servicing responsibilities for policies or contracts
that have been in force for more than four years, the comparison in
subparagraph (B) of this paragraph shall take into account, as well, the
renewal commissions that the company pays with respect to such policies
and contracts.
(E) The comparison in subparagraph (B) of this paragraph shall be
based on reasonable assumptions as to mortality, policy or contract
persistency, and interest and agent or broker sales.
(F) If a company employs one or more salaried employees whose
principal function is other than the sale of new policies or contracts
and other than the supervision of agents or agencies, and if no more
than twenty-five percent of the compensation of such employees is
related to sales results, the compensation of such employees is not
subject to the provisions of this subsection or subsection (d) of this
section, notwithstanding that they may be licensed as life insurance
agents.
(G) If a company compensates an agent or broker within the limits in
subsection (d) of this section, and that agent or broker retains as
assistants other agents or brokers who are compensated by the agent or
broker on the basis of a plan of compensation other than commissions,

such arrangement between such agent or broker and that agent's or
broker's assistant is not subject to the provisions of this subsection
and subsection (d) of this section.
(3)(A) A company may pay reasonable training allowance subsidies to
agents pursuant to a plan of agent compensation, provided that such
agents are full-time agents of the company and the principal business
activity of such agents is the solicitation of policies and contracts
primarily but not necessarily exclusively for the company, and its
affiliates, and such agents are not simultaneously receiving training
allowance from any other life insurance company.
(B) Agents receiving training allowance subsidies may also receive
expense allowance payments.
(C) An agent is eligible to receive such a training allowance subsidy,
provided (i) such agent has earned less than twenty thousand dollars
from the sale of policies and contracts cumulatively during the three
years prior to such agent's appointment, or (ii) less than twenty-five
percent of such agent's earned income has been received from the sale of
policies and contracts during each of the three years prior to
appointment.
(D) An agent receiving such training allowance subsidies may not
receive, on a cumulative basis, for an agent in the first year of such
subsidies, the greater of twenty-eight thousand dollars and sixty
percent of the first year commission limit, and for an agent in the
second year of such subsidies, the greater of forty-four thousand
dollars and sixty percent of the first year commission limit in the
first year and forty percent of the first year commission limit in the
second year, and for an agent in the third year of such subsidies, the
greater of fifty-four thousand dollars and sixty percent of the first
year commission limit in the first year and forty percent of the first
year commission limit in the second year, and twenty percent of the
first year commission limit for the third year, and for an agent in the
fourth year of such subsidies, the greater of sixty thousand dollars and
sixty percent of the first year commission limit in the first year and
forty percent of the first year commission limit in the second year,
twenty percent of the first year commission limit in the third year, and
ten percent of the first year commission limit in the fourth year.
(E) With respect to any agent eligible to receive training allowance
subsidy who has earned at least sixty-six thousand dollars of income
during either of the two calendar years immediately preceding
commencement of receipt of training allowance subsidies, a company may
pay additional training allowance subsidies of one thousand dollars to
such agent during each of the first two years of his receipt of training
allowance subsidies for every two thousand dollars of such earned income
in excess of sixty-six thousand dollars, provided that the cumulative
training allowance subsidy does not exceed forty-five thousand dollars
in such agent's first year of receipt of training allowance subsidy and
provided further that the agent receives not greater than sixty thousand
dollars in total training allowance subsidies.
(F) For purposes of this paragraph, the period of time that a person
worked for a company under a company-sponsored training program and was
not acting as an agent for that company shall not be counted as time
spent receiving training allowance subsidies, and any salary paid by the
company to that person during that time shall not count toward the
cumulative maximum training allowance subsidy.
(G) The superintendent shall periodically adjust the cumulative
maximum training allowance subsidy limits set forth in this paragraph.
The superintendent may also, at any time, approve training allowance

subsidies with cumulative maximum amounts that exceed the limits set
forth in this paragraph.
(H) A company may, upon approval of the superintendent, establish a
plan for training allowance subsidies for which the conditions of
eligibility or the amounts or periods of subsidy, of any of these,
differ from those set forth in this subsection. The superintendent shall
approve such a plan, subject to such conditions as he may prescribe, if
he finds that it is likely to meet the objective of developing new
agents for the sale of policies or contracts or both in a cost-effective
manner.
(4) A company may pay additional compensation to a general agent
pursuant to a plan of agent compensation for a period not exceeding ten
years; provided, however, that if such general agent has had prior
service as a general agent or agency manager, with any life insurance
company or companies, whether as an individual, partner or officer of a
corporation, and such prior service was for a period of less than five
years, additional compensation may be paid only during the balance of
such five years, but if such prior service was of five years duration or
more, then no additional compensation may be paid; provided, further,
that the company shall not permit to be paid expense allowances to
agents under his supervision on business written while such additional
compensation is paid in excess of those permitted to agents pursuant to
paragraph five of subsection (d) of this section. For the purposes of
this paragraph only, service as a general agent or agency manager shall
not include service as an assistant general manager, assistant agency
manager, agency supervisor, or service in a similar position regardless
of its title. The additional compensation in the sixth year of the
period shall not be in excess of twenty percent of the first year
commission limit of the business of the agency, sixteen percent in the
seventh year of the period, twelve percent in the eighth year of the
period, eight percent in the ninth year of the period and four percent
in the tenth year of the period, and shall not be payable pursuant to a
plan of agent compensation on any business personally obtained by such
general agent.
(5) The cost of all security benefits provided to agents shall not be
included in applying the limits established in subsection (d) of this
section.
(6) A company, including any person, firm or corporation on its behalf
or under any agreement with it, may pay or award, or permit to be paid
or awarded, prizes and awards to agents and brokers pursuant to a plan
of agent or broker compensation, provided that no single prize or award
may exceed a value of two hundred fifty dollars, and that the total
value of such prizes and awards paid or awarded to any agent or broker
within a calendar year may not exceed one thousand dollars.
Notwithstanding the foregoing, a company may also pay or award not more
frequently than monthly a prize or award valued at not more than
twenty-five dollars. The costs of all such prizes and awards shall not
be included in applying the limits established in subsection (d) of this
section. The superintendent may authorize higher limits on the value of
prizes and awards than those set forth herein.
(7) A company may conduct agent conventions, conferences and business
meetings, and no portion of the expenses associated with agent
conventions, conferences or business meetings, nor the value thereof,
will be considered to be a prize or award, or additional commissions or
compensation, or a payment pursuant to an expense allowance plan, a
direct payment of an expense or an assumption of any expense for
purposes of paragraph five of subsection (d) of this section, or any
other type of compensation or payment described in this subsection or

subsection (d) of this section, if, for conventions, conferences or
business meetings held in the United States, a company's expenses for
same meet the Internal Revenue Code's current standard for ordinary and
necessary business expenses and
(A) are not includable in the recipient's gross income for federal
income tax purposes, and
(B) represent reasonable allowances for agents' incidental ordinary
and necessary business expenses associated with the convention,
conference or business meeting, such as meals, local transportation and
similar items, and for conventions, conferences and business meetings
held outside the United States, a company's expenses for same would have
met those current standards if the convention, conference or business
meeting was held within the United States. The expenses paid by a
company shall be included in the limit established in subsection (c) of
this section. Any portion of such expenses paid by a company that do not
comply with this paragraph must be considered to be compensation
hereunder and, if not recovered from the recipient, charged against the
limits of subsection (d) of this section in the year the expense is
incurred.
(8) A company that, with respect to any policy or contract year, pays
an agent or broker with respect to the business of that agent or broker
a commission based on a percentage lower than the percentage set forth
in paragraph one, two, three or four of subsection (d) of this section,
whichever is appropriate, for such policy or contract year may, with
respect to any later policy or contract year of the same policy or
contract, pay the agent or broker (or a successor agent or broker to
whom the policy or contract has been assigned) a commission based on a
higher percentage than the percentage set forth in paragraph two, three
or four of subsection (d) of this section, whichever is appropriate, for
such later policy or contract year, to the extent that the total of the
percentages on which actual commissions were calculated in the preceding
policy or contract years was lower than the total of the percentages set
forth in paragraph one, two, three or four of subsection (d) of this
section, whichever is appropriate, for such preceding policy or contract
years.
(9) (A) A company may make an advance to any of its agents pursuant to
a plan of agent compensation. A company may, but is not required to,
charge interest on outstanding advances.
(B) A company may make a loan to any of its agents pursuant to a plan
of agent compensation. The maximum amount of any loan shall not exceed
the expected compensation of the agent over the next twelve months. A
company shall charge interest on loans at a rate not less than a rate
consistent with current short-term borrowing rates. If the interest rate
charged on a loan is less than a rate consistent with current short-term
borrowing rates, the amount by which the interest actually charged is
lower than the interest that would have been charged based on a rate
consistent with current short-term borrowing rates, the difference will
be subject to the limits of either paragraph one, two, four or five of
subsection (d) of this section.
(C) A company shall secure adequate collateral for any advance or loan
to an agent; such collateral shall, as a minimum, consist of any
compensation earned by the agent from sales of new policies or
contracts.
(10) (A) If a broker or an agent who is not a general agent performs
services for a company other than those related to the sale or servicing
of a policy or contract, or if a general agent performs services for a
company other than those related to the sale or servicing of a policy or
contract, or the recruiting, training or supervision of agents, the

company may compensate the broker or agent for the performance of such
services. Such payments are not subject to the limits in subsection (d)
of this section. No company shall pay or cause to be paid to any broker
or agent for the services described herein, any amounts that exceed the
reasonable value of the services performed.
(B) If an agent of a company also performs the duties of a local
salaried representative of such company, the company may compensate the
agent within the limits of this section with respect to policies or
contracts sold or serviced by such agent for which agent compensation is
subject to the limits of this section, and may also compensate such
agent for services performed as a local salaried representative of the
company; however, such compensation as a local salaried representative
shall not include any compensation with respect to policies or contracts
sold or serviced by such agent.
(11) If a company pays an agent or a general agent for the production
of policies or contracts issued by the company, the company shall not be
required to monitor for compliance with this section the payments and
allowances paid by such agent or general agent to any agent or general
agent with respect to such policies or contracts if the agent or general
agent receiving such payments:
(A) receives no company-provided security benefits;
(B) does not receive additional compensation as permitted by paragraph
four of this subsection, compensation or expense allowance from a paying
entity that itself is receiving additional compensation from the company
as permitted by paragraph four of this subsection;
(C) receives no prizes or awards from the company; and
(D) is not eligible to qualify for attendance at company-sponsored
agent conventions, conferences, or business meetings based on the amount
of business produced by such agent or general agent.
(12) A company that, with respect to premiums and considerations
recorded within a period of twelve consecutive months on policies or
contracts written by any agent or broker pursuant to a plan of agent or
broker compensation, pays an agent, general agent or broker an amount of
expense allowance smaller than the limiting amount defined in paragraph
five of subsection (d) of this section, may pay the agent, general agent
or broker, in any later twelve month period or periods, the amount by
which the amount of expense allowance paid in the prior period was less
than the limiting amount, provided such agent, general agent or broker
still is engaged in selling or servicing the company's policies or
contracts pursuant to one of the company's compensation or expense
allowance plans. Such subsequent payments may be made in addition to any
expense allowance payments for which the agent, general agent or broker
is otherwise eligible within the limits of paragraph five of subsection
(d) of this section for such subsequent period.
(13) Notwithstanding any limitation or restriction imposed by this
section, the superintendent may approve compensation arrangements for
any company to permit it to compensate its agents or brokers, or any of
them, in whole or in part, upon any plan other than those described in
this section, provided that the aggregate limits imposed in subsection
(c) of this section are not exceeded and that the limits in subsection
(d) of this section are generally observed over policy years and agent
careers.
(14) A company may, but is not required to, use annualization in
calculating any of the limits set forth in this section.
(f) (1) Filing requirements for agent and broker compensation plans
are as follows:
(A) A company shall make annual information filings with respect to
any newly-introduced plans or changes under which the company makes

payments to agents or brokers if such plans are commission plans for
which the commission percentages are, in all policy or contract years,
no greater than the commission percentages set forth in paragraphs one,
two, three and four of subsection (d) of this section, expense allowance
plans other than those meeting the definition of a compensation
arrangement, plans subject to the provisions of paragraph one of
subsection (e) of this section under which compensation is not in excess
of two percent of the fund annually in any of the first four policy or
contract years, or plans subject to the provisions of paragraph four of
subsection (e) of this section. These filings shall consist of a summary
of information in enough detail to generally describe the filing
content, and shall be made not later than the last day of February next
following the year in which such plans were placed in use or changed.
The first such filing shall be due not later than the last day of
February following the end of the year which includes the effective date
of this section.
(B) Filings are required on or before the effective date of any
changes to compensation arrangements as defined in this section, or to
plans described in paragraphs one and two of subsection (g) of this
section. These filings shall consist of a summary of information in
enough detail to generally describe the filing's contents. A company may
implement such compensation arrangements immediately upon filing same.
If the superintendent notifies the company within ninety days of the
receipt of the filing, that in his opinion the compensation arrangement
described in such filing is not permitted under the law, and if the
company within sixty days of the superintendent's notice, is not able to
satisfy the superintendent's concern, with or without modifying the
plan, the superintendent may order the company to cease using the plan.
The company may request a formal hearing, but the plan that is the
subject of the hearing may not be used unless and until permitted as a
result of the hearing.
(C) Filings for prior approval of the superintendent are required
before plans described in subparagraph (B) of paragraph one,
subparagraph (H) of paragraph three and paragraphs twelve and thirteen
of subsection (e) of this section can be used. The filings will consist
of descriptive information, including assumptions and techniques when
applicable, in enough detail for the superintendent's review. Plans not
approved or disapproved by the superintendent within ninety days
following their filing will be deemed approved.
(D) For plans described under subparagraphs (A), (B), (C) and (D) of
paragraph two of subsection (e) of this section, if the plan is still to
be used six months after the end of the two year period described in
subparagraph (B) of paragraph two of subsection (e) of this section, the
company must, within six months after the end of the two year period,
make a filing with the superintendent and obtain his approval for the
continued use of the plan.
(E) All filings and related correspondence shall be proprietary and
confidential, and not disclosed by the superintendent.
Changes whose effect is to reduce or not increase the compensation
payable to every individual covered by the arrangement in each and every
year, need not be filed with the superintendent, but must be maintained
in the company's records for at least six years.
(2) The annual statement schedule for reporting compliance with
subsection (c) of this section shall be signed by a knowledgeable
officer of the company. The signing of the schedule shall be deemed
confirmation by the officer that the officer has performed a personal
review of the information included and responses provided to the
interrogatories. The signature is to be preceded by the following

statement: "I have reviewed the sources of total selling expenses and,
to the best of my knowledge and belief, on the basis of the projected
experience over the next three years based on reasonable assumptions,
including changes currently being contemplated, the company's expenses
will not exceed the limit imposed thereon by New York Insurance Law
Section 4228." If the officer cannot attest to the final clause of this
statement, the officer must disclose the year or years in which expenses
are expected to exceed the limit and the amount by which the limit is
expected to be exceeded.
(3) Any company that exceeds the limit in subsection (c) of this
section in any year shall:
(A) File a plan of action with the superintendent by June thirtieth of
the following year, which shall:
(i) describe actions the company will take promptly to bring expenses
into compliance; and
(ii) demonstrate how the company will meet the limit in the second
year following the year the company first exceeded the limit and will
remain under the limit in the next subsequent year;
(B) Monitor the company's progress under such plan of action and
immediately notify the superintendent if at any time it appears that
compliance will not be accomplished as planned; and
(C) Report the company's interim progress during the period described
in item (ii) of subparagraph (A) of this paragraph as frequently as the
superintendent may request.
(4) (A) If the superintendent finds that any plan of action filed
pursuant to paragraph three of this subsection will not cause the
company to comply with the limit in subsection (c) of this section, or
that the company is not itself complying with the provisions of such a
plan of action, the superintendent may impose controls on the company's
activities, such as limitations on recruiting or production incentives,
or a requirement that projections of experience anticipated for
compensation arrangements be submitted to the superintendent prior to
the introduction of new, or changes to existing, compensation
arrangements, until such company meets that limit.
(B) In addition to the actions set forth in subparagraph (A) of this
paragraph, and upon finding that a company's actions constitute a
willful violation of the provisions of subsection (c) of this section,
the superintendent is authorized to impose a fine on the company in an
amount not to exceed the lesser of one million dollars or one-half of
one percent of the company's total selling expense limit for the most
recent calendar year, and the superintendent may impose controls as
described in subparagraph (A) of this paragraph until the completion of
a year in which the company meets the limit in subsection (c) of this
section. For purposes of determining the amount of the fine in any one
proceeding, each day or each act of a continuing willful violation shall
not be deemed a separate and distinct violation.
(C) Any action under subparagraph (A) of this paragraph or any fine or
penalty under subparagraph (B) of this paragraph shall be ordered by the
superintendent only after notice and hearing.
(5) Any company making one or more payments that exceed any limit in
subsection (d) of this section that is unable to recover such excess
payments shall notify the superintendent within thirty days of the date
that it learns or realizes that it exceeded the limit; however, if the
company recovers such excess payments prior to the required notification
date, it need not make such notification. At that time, the company
shall report the reason the company exceeded the limit, the number of
agents and brokers to whom payments in excess of the limit were made,
and the amount of money paid in excess of the limit, and shall describe

the actions the company will take promptly to prevent any further
instances of it exceeding this limit.
(A) If the superintendent finds that the company is not taking the
actions it described to prevent any further instances of exceeding a
limit in subsection (d) of this section, the superintendent may require
that the company file for prior approval future changes to compensation
arrangements and plans, for a period not to exceed one year.
(B) In addition to the actions set forth in the preceding
subparagraph, and upon finding that a company's actions constitute a
willful violation of the provisions of subsection (d) of this section,
the superintendent is authorized to impose a fine on the company in an
amount not to exceed the lesser of one thousand dollars per violation or
three times the amount of any overpayments that are found to constitute
a willful violation.
(C) Any action under subparagraph (A) of this paragraph or any fine or
penalty under subparagraph (B) of this paragraph shall be ordered by the
superintendent only after notice and hearing.
(g) The following rules shall apply, beginning on the effective date
of this section, for the periods of time indicated in this subsection:
(1) With respect to commissions paid by the company to an agent
subsequent to the fourth policy or contract year on business in force on
the effective date of this subsection, any increase in such commission
within four years of the effective date of this subsection, provided the
increase is contingent upon the volume of new business written by such
agent, in excess of one percent of periodic premiums and considerations
incurred in each such year with respect to such business in force on the
effective date of this subsection, shall be treated as expense allowance
payments in determining the maximum amount of expense allowance that can
be paid to such an agent in that year.
(2) With respect to fund-based compensation paid by the company to an
agent subsequent to the fourth policy or contract year on business in
force on the effective date of this subsection, any increase in such
fund-based compensation within four years of the effective date of this
subsection, provided the increase is contingent upon the volume of new
business written by such agent, in excess of three-tenths of one percent
annually of the funds of such policies or contracts, shall be treated as
expense allowance payments in determining the maximum amount of expense
allowance that can be paid to such agent in that year.
(3) Any company that, as of any part of the year before the effective
date of this subsection, was using a plan approved by the superintendent
for any plan of renewal commissions, including such plan that, in whole
or in part, conditions the payment of such commissions upon the
efficiency of service of the agent receiving the commissions or upon the
amount and quality of the business renewed under his supervision, may,
notwithstanding the limits of paragraph three of subsection (d) of this
section, continue to employ such plan, consistent with the terms of its
approval, for a period of four years after the effective date of this
subsection.
(4) A company may, for a period of one year after the effective date
of this subsection, continue to employ any plan of compensation,
including any expense allowance plan, that it was using as of the
effective date, unless the superintendent shall determine that such plan
was not approvable at the time it was placed in effect.
(5) For the first year after the effective date, the total selling
expense limit described in subsection (c) of this section shall be
increased by five percent of the sum of the amounts determined pursuant
to subparagraphs (A), (B), (C), (D), (E), (F), (G), (H), and (I) of
paragraph four of subsection (c) of this section.
(h) No company shall offer for sale any life insurance policy form or
annuity contract form covered by this section or any debit life
insurance policy form which shall not appear to be self-supporting on
reasonable assumptions as to interest, mortality, persistency, taxes,
agents' and brokers' survival and expenses resulting from the sale of
the policy or contract form. For all such forms offered for sale in this
state, and for all forms filed for use outside this state by domestic
life insurance companies, a statement that the requirements of this
subsection have been met, signed by an actuary who is a member in good
standing of the American Academy of Actuaries and meets the requirements
prescribed by the superintendent by regulation shall be submitted with
each such life insurance policy or annuity contract form filed pursuant
to paragraph one or six of subsection (b) of section three thousand two
hundred one of this chapter. A demonstration supporting each such
statement, signed by an actuary meeting such qualifications, shall be
retained in the company's home office, while such form is being offered
in this state and for a period of six years thereafter and be available
for inspection. The superintendent shall promulgate a regulation
establishing the guidelines applicable to such demonstration.

Structure New York Laws