SEC – Variable Life – 12%

1996 - NAIC - Variable Life Illustrations Subgroup of the Life Disclosure (A) Working Group - June 2, 1996
- Mr. Morse reported that under the current rules, a personalized illustration may be prepared using 0% and 12%.
- The 12% includes the current morality and expenses and the 0% illustration uses the maximum mortality and expenses allowed in the contract.
- Mr. Morse opined that this approach does not do consumers the best service.
  - He saw two problems with this approach:
    1. it does not do a good job of showing a consumer what the risks and results might be. The risks in a variable life product include:
      investment risks, a risk that the cost of insurance charges may go up, and a risk that the mortality costs may go up as time passes;
    2. not all purchasers invest in an aggressive stock investment option.
  - If 50% of the investment goes into treasury bills and 50% in stocks, the return shown should be 8% or 9% rather than 12%.
- James Hunt (Consumer Federation of America) said that the illustrations of variable life that he had seen had been relatively cleaner than those illustrations of nonvariable life.
  - He was unaware of the reason why the SEC chose 12%, because the highest average return he had seen for historical returns on stock funds was approximately 10%.

Consistency across UL products
- The maximum illustrated rate should be set at a level that is consistent with other products and allows IUL illustrations to illustrate these differences.
- The 12% maximum illustrated rate was selected for VUL because it was unlikely that an average would exceed 12%.
- The maximum for IUL illustrations should be set with a similar goal.

2014-1, NAIC Proceedings
- Attachment Twenty-Six - Life Actuarial (A) Task Force - 11/14-15/14 - October 28, 2014
- To: Mr. Mike Boerner, Chairman - NAIC Life Actuarial Task Force
- From: ACLI
  - Re Actuarial Guideline on Illustrations of Indexed Universal Life Policies