Policy Overview / Cover page / Narrative

Policy Overview / Policy Summary / Cover page / Narrative Summary

Policy Overview Ideas

[George Coleman]... said that the NAIC had formed a resource group last November to assist and recommend changes.
- The resource group recommended a cover page to the illustration to include essential information about the illustrated policy.

-- George Coleman, Prudential, ACLI, TRG-Technical Resource Group for the NAIC (Industry Advisory Group - Illustrations)

1993-3, NAIC Proc.

The Universal Life Insurance (A) Task Force - The regulation would address appropriate issues of regulatory concerns, including the following:
- 4. The manner in which prospective purchasers of such plans are fairly and accurately appraised of the nature of such plans....

1982 - NAIC Proc. II 359-360 - ULMR - Universal Life Model Regulation - MDL-585 - Citations --- [BonkNote]

Birny Birnbaum (CEJ) - Policy Overview only applies when the consumer is shopping for the policy.
Michael Lovendusky, ACLI - Neither model was intended to generate Buying Guides or to relieve consumers of their own individual responsibilities to understand the product that they are spending their hard-earned money to buy after all.
- And what has happened most recently is that.. And indeed in the most recent development …there are examples of companies attempting to develop completely Dynamic services and policies opportunities for their customers to purchase and to elect a variety of options.
  - And that the options themselves might be changed over time, dynamically, at the will of the purchaser with perhaps his or her financial advisor.
  - And so, one must I think wonder we're actually whistling into the winds of change here by attempting to make these summaries and overviews more static and less dynamic.

2018 1009 - NAIC (LIIIWG), Life Insurance Illustrations Working Group - [Bonk: Not in NAIC Proceedings]

EXAMPLES BELOW:
- Academic
- ACLI (American Council of Life Insurers)
- Actuarial
- Legal Cases
- NAIC
  - Model Regs - ULMR
    - R ratio
    - Guaranteed Maturity Premium
    - Guideline Level Premium
  - Working Groups
  - Advisory Groups
- Society of Actuaries

In essence, the model regulation assumes that at issue, all universal life policies are permanent plans.
The r-ratio is meant to measure the extent to which the policy is on track" as a permanent plan.
- [Bonk: model regulation = Universal Life Model Regulation]

2018 - Book - Statutory Valuation of Individual Life and Annuity Contracts | 5^th Edition, by Donna Claire, Lombardi and Summers

C. Universal Life
- From the beginning, a necessity for successful marketing of universal life has been the ability of the seller to illustrate the performance of a policy tailored (within policy limits) to the needs and resources of the prospective purchaser.
- The agent and prospect have the ability to choose almost any pattern of benefits and premiums.
- No longer is the sale limited to one of several fixed plans of insurance from a ratebook. Each one is different.
- Any system of policy illustrations will have some limitations on this flexibility. (p151)

1991-1992 - SOA - Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries - 142p

1990-1A, NAIC Proceedings - NAIC / LIMRA - Universal Life Disclosure Form Focus Group Summary, Consumer Issues Disclosure Working Group - NAIC --- [BonkNote] --- 10p
1993 - NAIC - Policy Information for Applicant - Universal Life Policy - 3p
- Life Insurance Disclosure Model Regulation - Appendix D
- Located in: 1993 0525 - GOV (Senate) - When Will Policyholders Be Given The Truth About Life Insurance?, Senator Howard Metzenbaum (D-OH) --- [BonkNote]

1970s

(p117-120).. Exhibit Il which shows that, in the last fifty years, no less than 21 different attempts have been made to solve this problem.
Furthermore, enacting a federal statute on life insurance cost disclosure would only address itself to part of the problem.

⇒ 1973 0221 and 0222 - GOV (Senate) - The Life Insurance Industry - Part 2 of 4 - Philip Hart (D-MI) --- [BonkNote-Part 2 of 4] --- [PDF-733p-GooglePlay]

⇒ 1973-2, NAIC Proceedings

(p6) - Judy Faucett, former chairperson of the Society Task Force on Illustrations and chair of the Academy Task Force on Illustrations
We came up with a new approach that is currently being evaluated for feasibility.
That is, each illustration would have a cover sheet that has four to six very basic notes that set the stage for what the illustration is all about.
- It starts with, "This is a life insurance policy," and gives the generic name of the policy such as participating whole life, universal life, second-to-die, etc.
- It describes when the death benefits are paid.
- The cover sheet also describes the premiums that are required to be paid under the policy on a guaranteed basis.
- If the vanishing premium concept is shown,
- It would explain the concept of vanishing premium, deecdbe how it was sensitive to the current assumptions, and describe how changes in the assumptions could affect the vanish point.
- It would disclose any unique features of the policy, such as persistency, bonuses, changes in the guaranteed values upon the first death, and structures of term and accumulation units in the base policy.
All things would alert the consumer to some questions they should discuss with their agent so that they understand how the program is being structured and the underlying sensitivities.

1993 - SOA - Sales Illustrations - We Can't Life With Them, But We Can't Live Without Them!, Society of Actuaries --- [BonkNote] --- 20p

1980s

I think we all would like more cost disclosure, but how do you make everybody in America a life insurance actuary, with two pages of descriptive material? (p2376)

-- Senator John Durkin (D-NH), Former Insurance Commissioner

1980 0207 - Congressional Record - Senators Howard Cannon (D-NV), Howard Metzenbaum (D-OH), John Durkin (D-NH), re: FTC, McCarran-Ferguson Act - p2382 - congress.gov/bound-congressional-record/1980/02/07/senate-section

This section will describe the life insurance disclosure system (LIDS) which the task force has concluded will best meet its objectives and serve the consumer, the industry, and the regulators.

1981-1, NAIC Proceedings

Suggested language which should accompany the illustration , must necessarily be brief.

We believe, however , that in all cases there should be an identification of the method of investment income allocation used , because of the significantly different illustrative result , in addition , each required exception statement that appears in the suggested Schedule ii would also need to be briefly summarized ."

1981 - Journal, American Academy of Actuaries

In addition, the Subcommittee [ACLI Subcommittee on Cost Comparisons] is recommending disclosure for Universal Life plans in accordance with the "non-guaranteed cost element" concept endorsed by the Council as a modification to the model regulation.
The only special requirement recommended for Universal Life plans is that the Policy Summary indicate when the plan will terminate based on guaranteed assumptions.

1981 - Universal Life, Society of Actuaries

Due to the unique nature of universal life products, a number of states have issued guidelines governing the sale of such products.
South Carolina
- 2. The Policy Summary must contain a prominent statement to the effect that contract values may materially change due to variations in the mortality, interest, and expense charges and also the timing and amount of premium payments.
- The Policy Summary must further indicate when the policy will terminate based on guaranteed assumptions if such is the case.

- In addition, the Subcommittee [ACLI Subcommittee on Cost Comparisons] is recommending disclosure for Universal Life plans in accordance with the "non-guaranteed cost element" concept endorsed by the Council as a modification to the model regulation.
- The only special requirement recommended for Universal Life plans is that the Policy Summary indicate when the plan will terminate based on guaranteed assumptions.

-- Leonard E. Odell, ACLI

1981 - SOA - Universal Life (RSA81V7N412), Moderator: Samuel H. Turner, Society of Actuaries - 16p

.... the policy summary should include a statement on the point at which the policy will expire based on the policy guarantees and the anticipated premiums shown in summary,
...Universal Life should be treated as a life insurance plan with a nonguaranteed cost element for cost disclosure purposes.

1982-1, NAIC Proceedings - ACLI presented a paper on cost disclosure for universal life products - 4p

I. Objectives of the New (A) Committee

a. Simple disclosure form for Universal Type Life products, as well as other simplified cost disclosure methods.

1982-2, NAIC Proceedings

Risks to Buyer
- If assumptions change adversely investment performance can affect satisfaction of long-term goals and cash value can be lower than with Traditional products. (p99)

1987 - Book - Life Insurance, by Huebner, Black, Skipper

Example2
The following table represents the assumptions for this example: back-end load universal life policy; $100,000 specified amount, death benefit option A; insured is a male, age 50, non-smoker; credited rate is 8. 75%; and
six premium levels, shown below.

Premium Level Description

A - IRC Section 7702 Guideline Single Premium ($32,766.82).
B - IRC Section 7702 Guideline Level Premium ($3,083.55).
C - Target Premium of $1,374 years 1 to 20.
D - Target Premium of $1,374 years 1 to 10, $0 years 11 to 20.
E - Target Premium of $1,374 years 1 to 5, $0 years 6 to 15, and $1,200 years 16 to 20.
F - "ART" premium scenario, i.e. target premium in years 1 and 2 followed by minimum premium to keep policy in force.

1988-2, NAIC Proceedings

Some of the items identified which should be disclosed:

(2) adequate disclosure of the fact that a premium quoted will not support the contract for the whole life if the policy is a Universal Life policy;

1988-2, NAIC - Universal Life Insurance Model Regulation, Proceeding Citations

The complications begin with a very simple question:

What's the premium for Universal Life?
- It could be almost anything.
Then what's the cash value?
- That depends on the premium.
It is the relationship between the premium and cash value that determines the product characteristics of Universal Life.

-- BEN H. MITCHELL

1981, UNIVERSAL LIFE, Society of Actuaries

1990s

To date, no state has adopted these forms <NAIC - Policy Information for Applicant - Universal Life>

Why this complete lack of action after all the effort in developing the forms?
One possible reason is that, during the early part of the year, state insurance departments are generally busy dealing with the legislatures, which customarily are in session then.
Also, it takes a few months for new NAIC regulations to be officially published, distributed, and adapted for individual state use.
Many states also have been occupied with more urgent concerns, such as automobile and health insurance rates and solvency questions.

-- ANTHONY T. SPANO (ACLI)

1990 - QUALITY OF LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries - 16p

James F. Reiskytl: If the contracts will not provide for coverage for life, for example, although they put the name whole life or universal life on them, some disclosure should be made.
Michael Roscoe: They are looking for a low premium for permanent insurance, and there are going to be some rude awakenings for the industry in the not-too-distant future.
Thomas L. Bakos: Anybody who believed an illustration that purported to demonstrate cost would be a foolish person.

1991 - SOA - Illustrations, Society of Actuaries - 20p

5. Illustrations as Road Maps

As technology advances, it may soon be possible to store the illustration upon which the sale was made in the home office’s computer.
Then each year on the anniversary, the total current value would be compared to the value originally illustrated for that anniversary and, if it is less, the policyholder would be given (a) the reason(s) why it is less, and (b) the chance to make up the difference via an additional premium payment, if feasible.
Ilutrations would thus be used as road maps instead of just as point-of-sale projections, credibility would be enhanced, and the workings of the policy would be clearer to the buyer on an ongoing basis.
CONCLUSION: Companies should consider providing “in-force illustrations” on a voluntary basis to help educate and inform their customers.

1991-1992 - FINAL REPORT* OF THE TASK FORCE FOR RESEARCH ON LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries - 142p

Technical Advisory Committee - Illustrations Cover Page (Draft) - p732

1993-2, NAIC Proceedings

NALU <NAIFA> Cover Page Guaranteed Maturity Premium, ATTACHMENT FOUR-C

1994-1, NAIC Proceedings

He <George Coleman - Prudential> said in June 1993 it had recommended an explanation page, which was supplemented in November 1993 with a sensitivity analysis, signature requirements, and updated policy explanations on request.

1994-1, NAIC Proceedings

Consistent with a law proposed in California, the buyer's guide immediately emphasizes what annual premium <Guaranteed Maturity Premium> must be paid to guarantee benefits.

Focusing on this one number is much better than trying to explain a column of guaranteed values that will almost always be significantly less than actual results.
When the consumer chooses to pay less premium, the consumer needs to be aware of the possible consequences. <Shortened Duration / Length of Coverage>
Additional disclosure could explain how premiums or benefits should be adjusted if performance is less than illustrated.
My simple rule is that if the policy cash value is going to decrease, an adjustment needs to be made immediately to keep the policy as permanent insurance.

-- Chris Kite (Fipsco)

1994-1, NAIC Proceedings

Mr. Coleman said that he thought this section needed some fleshing out to provide more information.

He said that the cover page prepared by the technical resource advisors was a good way to provide a greater amount of information.
Mr. Wright said he would agree, but the illustration cover sheet, which is Appendix A, was already pretty full.

1994-2, NAIC Proceedings

Commissioner Robert Hunter (Texas) asked if the assumptions being discussed in Section V of the standards paper would be disclosed in the policy.
Commissioner Wilcox responded that they did not need to be disclosed in the same manner that they would be disclosed to an actuary, but that some information would be required.

1994-3 NAIC Proc

Chris Kite (FIPSCO) suggested that it was not necessary to have a whole column of numbers.
A simple statement of when the premium would vanish or when the policy would expire would be sufficient.

1994-4, NAIC Proc

She <Judy Faucett> suggested that a note be added to the illustration that said if you have any questions the agent cannot answer, call the compliance officer of the company.

1994-4

The working group discussed the drafting note to Section 6 that allowed companies to place the items in the illustrations rather than at the beginning.
Mr. Strauss said he did not think this was a good idea because it would allow companies to bury information that they did not want an applicant to see.

1994-4, NAIC Proceedings

Larry Gorski, IL Regulator: The next issue had to do with the plan summary.
- The plan summary is a document that is going to be given to a policyholder, and it is to inform the policyholder as to how values will emerge, how experience assumptions will change, etc.
  - Other issues discussed were the details of that plan summary.
  - I have been one of the advocates of a rather detailed plan summary.
- The plan summary is in the description of the “deal” between the company and the policyholder.
  - I feel that it should be a rather complete description of the deal.
  - Other people have different views.
- We were leaning towards a comprehensive description of the plan and plan summary.

Douglas A. Eckley: Are you paying attention to the buyers and to the ability of policyholders to understand these documents?
- The reason I ask is, in my opinion, right now, many policyholders do not understand what they are buying.

1996 - SOA - National Association of Insurance Commissioners (NAIC) Recent Developments, Society of Actuaries - 14p

1996-4V2, NAIC Proceedings - ATTACHMENT ONE-A - Questions & Answers Life Illustrations Model Regulation - as of Dec.17, 1996 - p1012-1024 - 13p
- 7.8 What is the term of the contract referenced in Section 7B(2) for a contract without a maturity date?
  The working group has not addressed this issue. It would seem reasonable to use the limiting age underlying the valuation table or to use age 100, consistent with the tabular detail specified in Section 7E(l).
- 7.9 Sec. 7B(2) requires that the illustrations show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to the maximum premiums allowable to qualify as life insurance under the Internal Revenue Code.
- 7.10 If the guideline level premium will not provide coverage to the end of the term of the contract, does the illustration have to display the annual term charges allowed by § 7702 or can the illustration explain that the coverage will terminate?

1982 WL UL Differences Chicago_Tribune_Tue__Jul_13

1983

Chalke and Davlin point out that a policy that provides Whole Life benefits assuming 10 percent interest is not a Whole Life plan if the guaranteed cash value is only 4 percent.