2008-Nov-01 - Christopher H. Hause

The Application of the Standard Nonforfeiture Law for Life Insurance to Certain Policies Having Intermediate Cash Benefits

At meetings in Washington DC the week of September 21, the NAIC adopted a new model regulation that addresses concerns raised by insurers and regulators regarding life insurance plans with Return of Premium benefits. The intent is to get all companies on a level playing field regarding products with intermediate cash benefits.

The guideline does not apply to variable or non-variable adjustable life policies, or current interest whole life products. Once adopted by each state, the guideline will be effective for all policies filed on or after January 1, 2009, and effective for all policies issued on or after January 1, 2010.

The guideline defines the calculation of minimum cash surrender values for products with intermediate cash benefits, whether the benefit is provided in the base plan or by rider, where the focus is on the period from issue until the last year the intermediate cash benefit is available. It then establishes an overall minimum no less than the greater of the Guideline CCC minimum and minimums calculated using methods described in Sections 3 and 5c of the Standard Nonforfeiture Law where calculations are over the entire potential lifetime of the policy.

The new guideline also clarifies that smoothness testing must be done, and that changes in premiums after policy issue will require recalculation of the minimums required.

If you would like help determining if your Return of Premium policy or rider is in compliance this new actuarial guideline, please feel free to contact us at any time.