Policy Loans

  • 1976 – SOA – Policy Loans, Society of Actuaries – 26p
    • 1. The Problems.
    • 2. Legal Considerations.
    • 3. Allocation of Investment Income.
    • 4. Basic Pricing Options.
    • 5. Sales Problems.
    • 6. Policyholder Considerations.
  • 1982 0612 – NP – Omaha World-Herald – Plan Uses Life Insurance Loans – Called ‘Idle Assets’, by By Linda Brenners-Stulberg, The Chicago Sun-Times  —  [BonkNote]
  • Chris H. McElvaine: …I heard another policyholder at the annual meeting mention that he has taken advantage of his 6% policy loan provision.
    • He has reinvested that money with the same company in an RRSP five-year interest certificate bearing a phenomenal rate of interest. Apparently he has been doing this for 4 or 5 years.
    • My question to Mr. McLeod as President of the organization is “Why has he not informed me as a policyholder that I could do this?”
  • Charles C. McCleod, Actuarial Vice-President with Manufacturers Life – This question has been asked of many insurance companies over the last few years.
    • The reason, of course, is that the companies cannot afford to do so. 

1981 – SOA – Current Topics: Canadian Insurance, rsa81v7n411 – Society of Actuaries – 26p

  • In drawing a line between insurance policy loans and consumer finance, the NAIC argued that whole life policy loans do not make insurance companies ECOA “creditors.”
  • The insurance companies do not extend, renew, or continue credit; nor do they arrange for such transactions.
  • Rather, despite the use of the word “loan,” a policy loan is in substance an advance payment of the policy’s cash surrender value.
  • It more closely resembles a structured temporary conversion from one type of asset into cash, particularly because if a policyholder does not repay the loan, the insurance company’s recourse is simply to reduce the policy benefits by the outstanding balance of the loan.

2017 0105 – Carlton Fields / Mondaq – NAIC Draws Line In CFPB Sandbox – mondaq.com/unitedstates/insurance-laws-and-products/557644/naic-draws-line-in-cfpb-sandbox

  • Q Well, the focus on income payments, what he would get after retirement —
  • A You mean policy loans is what we’re talking about.
  • Q All right. The letter refers to income payments, correct?
  • A Um hum. Yes.
  • Q Is there any reference there to policy loans?
  • A No. But that’s what they were.

—  Transcript of Testimony of James Barrett, Agent

2009 – LC – National Security Systems  vs. Robert L. Iola, Jr. – Case 3:00-cv-06293-AET-TJB, Document 375, Filed 12/03/09 Page 91 of 117

  • 1965 – AP – Life Insurance Policy Loans: The Emergency Fund Concept, by Glenn L. Wood, The Journal of Risk and Insurance, Vol. 31, No. 3 (Sep., 1964), pp. 411-420 (10 pages), Published By: American Risk and Insurance Association – <JSTOR> – <WishList> 
  • 1976 – SOA – Policy Loans, rsa76v2n42 – Society of Actuaries – 26p
  • 1977 – SOA – Policy Loans and Equity, tsa77v294 – Society of Actuaries – 120p
  • 1984 0131 – GOV (Senate) – Tax Treatment of Life Insurance Products and Policyholders – [PDF-345p-GooglePlay]
  • 2009 – AP – The Demand for Life Insurance Policy Loans, by Liebenberg, Carson, Hoyt – 25p-ssrn.com-link
  • Life insurance companies are also in danger of a major acceleration of loans on outstanding policies at well below market cost of funds if short-term interest rates, especially for money market funds, continue at approximately twice the rate at which most individual policy loan contracts are written.

(p11) – Statement of Alan Greenspan, Townsend-Greenspan & Co., Inc., New York, N.Y.,  [Bonk: Alan Greenspan = 1987-2006 – Chair of the Federal Reserve]

1981 – GOV (JEC) – The 1981 Economic Report of the President, Part 1 – [PDF-215p]

  •  1977 – SOA – Policy Loans and Equity, Society of Actuaries – 120p
    • The purpose of this paper is to bring up to date the actuarial literature on policy loans.
    • A brief history of policy loans is given, followed by a description of the “policy loan problem” as it is being experienced by many companies today.
    • The third section lists a variety of possible solutions, with varying degrees of feasibility and effectiveness.
    • Two of those solutions are then explored in greater depth, illustrating how the dividend distribution formulas might be modified to meet the problem.
  • John C. Angle: I would like to begin by reciting for you one case example.
  • Most of you are probably aware that the net worth of savings and loans in the United States have declined by 7% during the first 7 months of this year, at the rate of 1% a month.
  • An examination of the assets of these institutions shows that almost 9% of their assets consist of advances from the Federal Home Loan Bank at interest rates of 16-20% and that they also have significant holdings of negotiated rate certificates of deposit or repurchase agreements.
  • The Board of Directors of the Guardian Life includes three economists, all three of whom sit on the boards of mutual savings banks in New York.
  • As they go from a meeting of a particular savings bank to our Board, they carry with them a concern over our ability to meet immediate demands for our individual life policy cash values which are not yet encumbered by policy loans.

1981 – SOA – The Impact of Inflation on Insurance and Annuity Reserve Valuation: The C-3 Risk, Society of Actuaries – 44p

  • In drawing a line between insurance policy loans and consumer finance, the NAIC argued that whole life policy loans do not make insurance companies ECOA “creditors.”
  • The insurance companies do not extend, renew, or continue credit; nor do they arrange for such transactions.
  • Rather, despite the use of the word “loan,” a policy loan is in substance an advance payment of the policy’s cash surrender value.
  • It more closely resembles a structured temporary conversion from one type of asset into cash, particularly because if a policyholder does not repay the loan, the insurance company’s recourse is simply to reduce the policy benefits by the outstanding balance of the loan.

2017 0105 – Carlton Fields / Mondaq – NAIC Draws Line In CFPB Sandbox – mondaq.com/unitedstates/insurance-laws-and-products/557644/naic-draws-line-in-cfpb-sandbox

  • Dr. LUBIN. May I just raise a question before you continue? It is quite evident that for the year 1938 the most profitable investment an insurance company could make was a loan to a policyholder.
  • Mr. Howe. With respect to the gross rate; yes.
  • Dr. LUBIN. And these funds that were loaned to the policyholders, I take it, are part of the reserves that were set apart, and in a sense is his own money?
  • Mr. Howe. There is an argument about whether it is his own money.
  • Dr. LUBIN. Although legally it may be not his, in a sense it is a sum set aside against his policy?
  • Mr. Howe. It is money which he paid in originally as premiums, less expense.
  • Dr. LUBIN. And which in the event he does not pay the loan is deducted from the policy?
  • Mr. Howe. That is right.  (p14808)

PART 28 – Life Insurance – Operating Results and Investments – [1072p-archive.org]

  • 1938-1941 – GOV (Senate) – TNEC – Temporary National Economic Committee, Joseph C. O’Mahoney (D-WY)  —  [BonkNote]
  • After the introduction of indexation, this was no longer a problem except for some “tricks”
  • e.g.,  At one point, indexation was only semi-annual and not monthly, so people took policy loans one day after the indexation day and repaid the loan prior to the next indexation day.
    • They made a lot of money out of these transactions.

—  Dr. Kahane, not a member of the Society, is Associate Professor and director of the insurance center at Tel Aviv University.

1982 – SOA – The Experience of Living Under Sustained Inflation, rsa82v8n19 – Society of Actuaries – 18p