· requires that a new form, entitled Definition of Replacement be completed and signed by every applicant wether or not a replacement all occur,

- broadens the definition of a replacement (both internal and external) and narrows its exemptions, thus increasing the number of situations in which a replacement is deemed to exist,

· requires vou to obtain infon-nation from the company whose policy is being replaced and to use that information to complete a new Disclosure Statement form, which must be delivered to and signed by the client, before you take an application in a replacement situation, and

- imposes important other new responsibilities on insurers and agents in connection with replacement transactions.

This brochure is intended to provide an overview of the new rules and your responsibilities.  It also sets forth the procedures that must be followed for all New York life and annuitv'applications subn-dtted on or after November 10, 1998.  More information, including the new forms that you will need and instructions, will be available in the Compliance Drawer of Equipedia by late October.

The new regulation expands the definition of replacement.  Under the new rule, a replacement occurs if a new life or annuity contract is purchased and any of the following occurs or is expected to occur with regard to an existing contract:

- the contract is allowed to lapse,
- the contract is surrendered (in whole or part, including surrender of di-,-idend additions or
    accumulations),
- a non-forfeiture option is exercised,
- the contract is reissued with a release of dividends or cash value,
· values are withdrawn (in any amount),
- benefits are reduced under the contract,
· a policy loan is taken out (in any amount),
- the contract is pledged as collateral, or

The new regulation expands the definition of replacement.  Under the new rule, a replacement occurs if a new life or annuity contract is purchased and any of the following occurs or is expected to occur with regard to an existing contract:

- premium payments are stopped or reduced.

Significant changes from the old rule include the elimination of the 1150% threshold" for loans, surrenders and withdrawals.  Under the old regulation, surrendering or borrowing dividends or cash value was viewed as a replacement only when 50% of the tabular cash -Value was affected.  Now a replacement occurs ff any loan, surrender or withdrawal occurs.  Also new is the provision covering reduction or e tion of pren-dum payments on an existing contract.

If you are in doubt about whether a specific action may be deemed a replacement, you should first review the Definition of Replacement form which is available on Agent Workstation.  If vou are still in doubt, follow the procedures listed below under "ADDITIONAL Ii\TORMATION."

The new regulation has narrowed the number of exemptions that apply to the definition of replacement.  The new rule exempts the following from the definition of replacement:

· the exercise of a conversion privilege (but only if the new contract is issued by the sanx insurer as the old contract),

· replacement of nonrenewable, nonconvertible term insurance with 5 years or less to its expiration,
sales in which the new coverage is provided under a group insurance program but only if neither the agent nor the insurer directly solicits the certfficateholder for the new coverage and no portion of the premium or consideration is bome, directly or indirecdv, bv the certificateholder, or an individual life or annuity contract if the cost is bome totauy by the employer or an association.

Significant changes from the old rule include the elimination of exemptions for certain sales to tax qualified plans.  The new rule also narrows the group insurance exemptions bv requiring the full cost of the insurance or annuity contract be paid by the emplover or an association for the exemption to apply.

The new regulation modifies the current replacement forms that must be used and adds two new ones.  These forms will be posted on Workstation by late October.

* A new form entitled Definition of Replacement must be submitted with all' Iffe and annuity applications (whether or not a replacement is involved) and must be signed by the agent and applicant.  This form was added to ensure that the applicant understands the meaning of a replacement before answering any questions relating to it.

* Another new form, entitled, CIient Replacement Information  Authorization Form, must be obtained whenever any question on the Definition of Replacement form is answered "yes." This form is required to list aU existing Iffe insurance policies or annuity contracts proposed to be replaced together with their policy or contract numbers.  It, too, must be signed bv the client.

* The Important Notice to Policyholder form has also been modified to add  a new 60 day "free look" period.  The applicant must now acknowledge receipt of the form by signing it.

* The Disclosure Statement has been revised to require more detailed  information, some of which must be obtained from the replaced company.  As discussed below, this wiH complicate the completion of the form.  Also, note that the Disclosure Statement must now be completed when an annuity is beinc, replaced in addition to Iffe policy replacements.  Finally, if a contract is issued other than "as applied for," you must provide the applicant with a revised Disclosure Statement which the applicant must acknowledge buy signing a copy.

Sales Material Must be Submitted.  The new regulation also requires you to submit sales materials (including the illustration) used to solicit the replacement together with the application.  If a contract is issued other than "as applied for," you must also provide a-nv supplement sales materials (including a conforming illustration) to Equitable.  Note that Equitable must promptly forward all such sales material used in connection .vith a replacement sale to the insurer that issued the existing contract.  As discussed below, by late October, Equitable vrill post on Workstation additional fon-ns and procedures to be used and followed to satisfy this requirement.

The onlv exceptions a-re (1) sales of Equitable's Retirement Income Account (RIA) and Momentum products and (2) if all premiums are paid by the employer, contracts sold either under a emplover-sponsored program or on a split dollar basis.

The text of New York's new Regulation 60 and the new replacement fon-ns needed to comply can be found on Agent Workstation in the Comphance drawer of Equipedia begin late October.  Questions regarding possible replacement situations should be addressed to vour Regional Compliance Director if your Regional Compliance Director cannot answer your question, he/she will obtain the answer for
you from the home office.

Inaccuracies or deficiencies in the necessary forms must be corrected wi@ 10 days or the application must be rejected.  Equitable is required to notify the replaced insurer of the replacement and fumish copies of any sales material used and a completed Disclosure Statement within 10 days of receiving the application.  Since it is expected that such materials wiU be closely scrutinized, you should carefully complete and review them prior to subn-dssion.

The new regulation requi-res that the replacing company allow a 60 day free look on the replacement @,,ith certain limitations.  The replaced company must reinstate the replaced policy/contract to the extent possible within this 60 day period ff the applicant submits prooll- that the new policy has been canceled, requests reinstatement of the old contract, and pays any premiums that are due.

1. Take or give any deceptive or misleading information in the Disclosure Statement or in any proposal, including the sales material used in the replacement sale;

2. in completing the application, fail to ask the applicant the pertinent questions relating to the probability of replacement;

3. incorrectly record an answer;

4. suggest that a client answer the question(s) with respect to replacement negatively in order to prevent notice to the insurer being replaced; or

5. otherwise suggest that a client circumvent the procedures or controls established under the regulation. (e.g., such as n-dsstating the state in which the application was taken or by any other means).

Although policyholders have the right to replace existing policies after stating that they did not intend to, the New York Insurance Departrnent and Equitable wiU consider pattems of such action ' by owners involving the same agent(s) to be an indication that replacement was intended.

Penalties

Violation of the provisions of this act can lead to monetary fines and/or the suspension or revocation of your license and can also subject you to discipline under Equitable's procedures.
 
 

5

MANDATORY PROCEDURES
FOR ALL NEW YORK STATE INSURANCE AND ANNUITY SALES
(EFFECTIVE NOVEMBER 10, 1998)
 
 

T'he following procedures apply to aU applications subn-dtted on or after November 10, 1998 for new hfe insurance policies and annuity contracts purchased and delivered (or issued for delivery) in New York State.
 
 

Step I - Before you take ANTY insurance or annuity application, fill out the new "Def'im'tion of Replacement" form.

Before any application for a Iffe insurance or annuity contract purchased or issued for delivery in New York is signed, you must have the client complete a Definition of Replacement fon-n.  You and the applicant should sign two completed copies of this form and you must leave a copy of the form with the applicant. (Note, this requirement does not appiv to (1) sales of Equitable's RIA or Momentum products or (2) if all pren-dums are pai@ by the employer, contracts sold under either a employerowned program or on a spht dollar basis).
 
 

Step 2 - Determine if the proposed transaction is a replacement.

If none of the six questions on the Definition of Replacement form are answered "yes", the transaction is not a replacement.  In @s case, if the client wishes to purchase the proposed insurance or annuity, you may take an application and submit it in the usual manner.  You do not need to complete any of the ottier steps below.  However, you must submit the Definition of Replacement form with the applicatioil If the compl-ted and signed Definition of Replacementforin does not accompany the applicatio?i, the application will not be processed.
 
 

ff the any of the six questions on the Definition of Replacement form are answered "yes", the transaction must be treated as a replacement and you should proceed to Step 3.
 
 

Step 3 - Determine if the proposed transaction is an intemal or extemal replacement

An extemal replacement is one in which the existing coverage being affected is not an Equitable/EVLICO/EIuitable of Colorado policy or contract.  If the proposed transaction is an external replacement, proceed to the section marked "FOR EXTERNAL REPLACEN@-NTS ONLY".
 
 

An intemal replacement is one in which the existing coverage being affected is an Equitable/EVLICO/Equitable of Colorado policy or contract.  If the proposed transaction is an inter-r@ replacement, proceed to the section marked "FOR INTERNAL REPLACEN@-NTS ONLY."
 
 

6

For External Replacements Only

Step 4 - Complete the Client Replacement Information Authorization Form.

You cannot have the client sign an application at this time. Instead, obtain a list of all existing life insurance policies or annuity contracts proposed to be replaced together with their policv or contract numbers.  List this infon-nation on the Client Replacement Information Authorization Form and have the client sign this form.
 
 

Step 5 - Fax the Client Replacement Information Authorization Form to the Service Center.

If the Equitable product that you are proposing to sell is a Iffe insurance policy, the completed Client Replacement @ormation Authorization Form should be faxed to the New York Ser-vice Center, regardless of which Lffe Service Center processes your new business, at (212) 641 - 7050 or 7051.
 
 

ff the Equitable product that you are proposing to sell is an annuity contract, the completed Client Replacement Information Authorization Form should be faxed to the Annui@, Center at (201) 583-2990.
 
 

Step 6 - Await processing by the Service Center.

The Client Replacement Information Authorization Form enables the Service Center to obtain infon-nation from the "replaced comp@ " in order for you to @ y
complete the mandatory Disclosure Statement.  Neither tills Disclosure Statement nor the application can be signed by the client until d-Lis information is received from the replaced company or the replaced company fails to provide this information after being requested to do so.  TypicaUy, the process of obtaining infon-nation from the other compan-,- will take a minimum of 21 days to complete.
 
 

DO NOT CALL THIF- SERVICE CENTER TO CHIECK ON THE STATUS OF @S PROCESSING UN@L AT LEAST 30 DAYS HAVE ELAPSED FROM @ DATE OF YOUR FAX OF @ CLIENT REPLACEMENT INFORMATION AUTHORIZATION FORM TO @ SERVICE CENTER
 
 

Step 7 - Complete the Disclosure Statement.

The Anriuitv Ser-,-ice Center or the New York Service Center wiU fax you the information necessary for you to complete the Disclosure Statement once it is received from the replaced company.  If the replaced company does not provide this infon-nation to the Service Center within the required time period, the Service Center will notifv vou so you can complete the Disclosure Statement using good faith approximations based on the information available.
 
 

7

Step 8 - Revisit the client and explain the replacement

If the client stdl @%-ishes to purchase a policy or contract involving a replacement, during the appointment, ,.ou must:

a. Present and explain the completed Disclosure Statement and Important Notice Regarding Replacement form to the client.

b. Obtain the client's signature on two copies of the Disclosure Statement and Important Notice Regarding Replacement.  Leave one copy of the form with the client.

Then and only then, you may have the client sign the application.  Remember, the replacement question on the application and the illustration signature page must be answered "yes" and @ details must be provided in the space provided on the application (i.e., identification of policy or policies to be replaced and details regarding the type of change(s) to be made to each).  In addition, you must:

c. Complete Equitable's Sales Material Used in Replacement Transaction fon-n and attach any individu@ed sales material used in the sale of the proposed life insurance policy or annuity contract.

Step 9 - Forward application and complete package of replacement documents to whichever Service Center processes your new business

In order for an application to be processed, you must forward aU of the following documents to whichever Life Service Center processes your lff& new business (for Iffe replacements) or the Annuity Service Center (for annuity replacements):

a. The signed application (containing the list of policies or contracts proposed to be replaced) a-nd proposal (illustration),
 
 

b. the completed and signed Definition of Replacement form,

c. the signed Important Notice Regarding Replacement,

d. the completed Equitable's Sales Materials Used in a Replacement form and any individualized sales material used in the sale,
 
 

e. the fully completed and signed Disclosure Statement, and

f. the signed Client Replacement Information Authorization Form that was sent to you by the service center.
 
 

NY Insurance Regulations Prohibit Equitable From Processing
Applications That Do Not Contain All Of The Information And
Documentation Discussed Above
 

8

For Internal Replacements Only
Step 4 - Complete the Disclosure Statement

You wiU need to complete the Disclosure Statement with the relevant infon-nation concen-dng the Equitable/EVLICO/Equitable of Colorado policies or contracts proposed to be replaced.
 
 

Step 5 - Explain the replacement to the client

a. Present and explain the completed Disclosure Statement and Important Notice Regardin- Replacement form to the client.

b. ff the client sfie wishes to purchase a policy or contract involving a replacement, during the appointment, you must obtain the client's signature on the two copies of the Disclosure Statement and Important Notice Regarding Replacement.  Leave one copy of the fon-n with the chent.

Then and only then, you may have the client sign the application.  Remember, the replacement question on the application and the fflustration signature page must each be answered "ves" a-nd full details must be provided in the space provided on the application (i.e., identification of policy or policies to be replaced and details regarding the type of chanae(s) to be made to each).  In addition, you must:

0
 
 

c. Complete Equitable's Sales Material Used in Replacement Transaction form and attach any individualized sales material used -in the sale of the proposed life insurance policy or annuity contract.

Step 6 - Forward application and complete package of replacement
documents to whichever Service Center processes your new business

In order for an application to be processed, you must forward all of the following documents to whichever Life Service Center processes your life new business (for Iffe replacements) or the Annultv Service Center (for mmuitv replacements):

I
 
 

a. The signed application (containing the list of policies or contracts proposed to be replaced) and proposal (illustration),
 
 

b. the completed ard signed Definition of Replacement form,

c. the signed Important Notice Regarding Replacement,

d. the completed Ec,,litable's Sales Materials Used in a Replacement form and an@- individualize sales material used in the sale, and
 
 

e. the fully completed and signed Disclosure Statement.
NY Insurance Regulations Prohibit Equitable From Processing
Applications That Do Not Contain All Of The Information And
Documentation Discussed Above
 

9

----- ------------------ .... ------- -- ----------@ @ THE

EQUITABLE AGENT INFORMATION GUIDE
 
 

* *THIS DO CUMENT IS COMPLL4NCE RELATED

December I 1, 1996
No. 96-80
 
 

Subject: **Replacements

Summary: Enhanced monitoring capabilities are i nstituted to ensure all insurance and annuity replacements comply with replacement rules.
 
 

Key Points:
· All life insurance and annuity sales which involve the replacement of, or change to, any existing policy or contract must be fully disclosed on the application and comply with state replacement rules and suitability requirements.
· Agents must ensure that: 1) the replacement is disclosed on the application, 2) all applicable state replacement requirements have been complied with; and 3) the advantages and disadvantages of the @saction have been fully explained and the transaction is suitable to the client.
*   Am explanation of each of these requirements is included.
 
 

In recent years, much regulatory and media attention has been focused on replacement practices including, among other things, the withdrawal, transfer or borrowing of cash values in existing insurance policies or annuity contracts to purchase new policies or contracts.
 
 

Equitable has long emphasized the importance of continuing the benefits of existing life insurance policies and annuity contracts.  However, in particular cases it may be appropriate and in the best interests of a client to replace or change existing coverage or to transfer some or all annuity contract values to another contract.  In other cases, the disadvantages to the client may outweigh the benefits of the new policy or contract.  As a result, in connection with any proposed replacement, Agents must ensure that:
 
 

· the replacement is properly and completely disclosed on the application;
*   all applicable state replacement requirements have been complied with; and
· the advantaces and disadvantages of the proposed transaction have been fully explained to the client and the transaction is suitable for the client.
 
 

Set forth below is a discussion of each of these requirements.
 
 

Proper Completion of Application

As required by applicable la@,, applications for Equitable and EVLICO insurance and annuity
products contain questions designed to elicit whether any existing policy or contract has been,

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or is intended to be, replaced or changed.  A similar question is also contained in the replacement certification section of the illustration acknowledgment page for life insurance illustrations.  A 'yes" answer to the replacement question on the application and on the illustration acknowledgment page is required if any of the following have occurred or are expected to occur in the future with respect to any e@ting coverage, regardless of the amount of the transaction :
 
 

· Surrender (in whole or in part, including face-amount reductions)
· Cancellation
0   Loan
· Withdrawal
· Transfer of values out of the contract
· Use of dividends to pay premiums
0   Lapse
 
 

Again,anyoftheforegoing,regardlessofamount andregardiessofwhetherthetransaction falls within the definition of replacement under applicable insurance law , requires a "Yes" answer to the replacement questions on the application and the illustration acknowledgment page.  It should be noted that a "yes" answer will not necessarily impact the payment of commissions (see " Replacement Compensation Policies " below).  However, in order not to delay the payment of commissions, the details of any such transaction must be provided on the application and in the Agent's Report.  At a minimum, Agents must indicate on the application:
 
 

· Which existing policy/,policies or contract(s) will be affected
· HoA, the policy or contract will be affected (i.e., surrender, cancellation, borrowed against, etc.)
0   The amount of any loan, withdrawal, or transfer
 
 

Compliance with State Replacement Law Requirements

If the purchase of a new policy or contract results in the surrender or cancellation of any existing policy or contract, or involves the borrowing, withdrawal, transfer of values, or use of dividendsftom any existing policy or contract , it may be deemed to be a replacement under applicable state insurance law.  The definition of replacement varies from state to state.  It is the Agent's responsibility to know the rules of every state in which he/sbe is licensed.  These rules are contained on @'orkstation in the Compliance drawer of Equipedia. Agents must comply witb applicable state law and provide aU required disclosures in connection with any transaction which constitutes a replacement under the law which applies.
 
 

Compliance with Disclosure and Suitability Requirements

In addition to complying with applicable state replacement law, Agents must be mindful of disclosure and sultabilirv requirements whenever they are involved in a transaction that has resulted or will result in . the replacement or change of an existing policy or contract.  Agents

-3-

are responsible for communicating to a client the information that the client needs in order to determine whether the replacement of an existing policy or contract is in bis/her best interest.  Agents must fully explain the advantages and disadvantages of the proposed transaction.  Although it is often easy to find the advantages, disadvantages may include, among other things, the impact of-.
 
 

For the old policy or contract
=> Surrender charges
Tax consequences, and

For policies that will remain in-force, ongoing premium and/or interest costs

For the new policy or contract
=> Start-up or other charges
=> Potentially higher mortality charges => New contestability periods => New surrender charge schedules => Inter-vening adverse changes in health
 
 

As a result of these and other factors, a sale which involves the replacement of or any change to an existing policy or contract (including changes resulting from borrowing cash value or changing dividend options, among others), can raise particular suitability issues.  It is the Agent's responsibility to make sure every sale involving the replacement or change of an existing policy or contract is appropriate in light of the client's existing life insurance policies and annuity contracts, as well as his/her financial situation, needs and objectives.  Agents must take particular care to obtain from the client and document in the client file the basis upon whicfi thev have determined that such transaction is suitable.

I
 
 

Replacement ConWensation Policies

Equitable's published compensation policies provide for full or partial compensation for some transactions that may constitute a "replacement" under state law.  However, it is important to note that even if a particular transaction would qualify for full or partial Agent compensation under our compensation rules:
 
 

· it still must be fully disclosed on the application (see Proper Completion of Application, above) and
· it must be suitable for the client,
 
 

EnhanceaMonitoring Capabilities

Equitable is enhancing its monitoring capabilities to ensure compliance with the foregoing.  Agents who do not comply with all of the above requirements will be subject to disciplinary action.

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Additional Information
Replacement compliance was discussed in detail in the semi-annual Compliance ENN broadcast, which aired on November 12, 1996.  This broadcast is a component of Equitable's 1997 mandatory continuing education program and must be viewed by all Agents and Managers.  Videotape copies of the ENN broadcast are available at each agency.

Questions regarding the proper completion of the application, applicability of state replacement rules to a particular transaction, or replacement compensation policies can be directed to the New-Business Manager in your Service Center.  Questions regarding the applicability of replacement rules may also be directed to Divisional Counsel Gregory Reid at 212-554-1020, or, in his absence, the Divisional Counsel for your agency.
 
 

Release Approved by:
Michael S. Martin, CLU, CHFC
Senior Vice President