Premiums and Benefits – Index

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Premium – Regulator – Universal Life

  • Commissioner Hager of the Universal & Other Plans (A) Task Force stated that there appeared to be disclosure problems with universal life plans and that the identification of these items should be placed on the Actuarial Task Force agenda.
  • 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 Proceedings – Universal Life Insurance Model Regulation, Proceeding Citations

  • Roger Strauss (Iowa) said a fundamental issue was that the consumer realize that the premium is being paid from someplace. 
    • He said that was the most important issue to him and if it were to be included in the basic illustration then he would want to show the numbers with an asterisk beside them saying that they were being paid from other than the consumer’s pocket.

 1995-1, NAIC Proceedings

Overfund

  • (p5-7) – Section 2 – Introduction and Background
    • The ultimate goal of this report is to raise awareness regarding the questionable sale of complex insurance products (overfunded UL insurance in particular) in specific circumstances, and to commence a broader discussion regarding specific actions that can be taken to increase adherence to FTC/ICP 19 and to mitigate the potential risk of poor consumer outcomes in the future.

2023 10 – FSRA – Report – Observed Practices in the Distribution and Sale of Universal Life Insurance  —  [BonkNote]  —  15p

  • Consider that there are really two parts to the fund value, at least for a policy that is “over funded” (i.e., has a fund value greater than the GMF).
    • The first part is equal to the GMF.
    • The second part we might call the excess fund, and it is equal to the excess of the fund value over the GMF.
    • [Bonk: GMF – Guaranteed Maturity Fund]

—  James W. Lamson

1988 – SOA – Update on Universal Life Reserves and Non-Forfeiture Values, Society of Actuaries – 36p

  • If the maximum COIs were based on the select and ultimate table, policyholders paying guideline premiums based on the ultimate table could overfund the contract.

2002 – SOA – The New 2001 CSO: Implications for Universal Life Plans, by Nancy Winings, pdn0201 – Society of Actuaries – 6p

  • 2019 0327 – Leimberg – Subject: Barry Flagg: New York Best Interest Rule for Life Insurance – New Requirements for Life Insurance Producers and Ethical Considerations for Other Estate Planners, by Barry Flagg – 27p
    • [Bonk: Overfund-?] – Premium amounts paid into the policy in excess of this Base/Target Premium can, therefore, be viewed as “excess premium” above and beyond that required to cover the costs of maintain the death benefit.
      • “Excess premiums” are typically intended to either create a cash value reserve as “pre-payment” of what would otherwise be future premiums and/or to grow the policy account for wealth accumulation, retirement planning, and/or asset protection

Premium – Consumer – Universal Life

  • The agent said that Universal Life policy premiums would stay the same, but I came to realize that this is not true of our policies.
    • …what bothers me is that I am afraid that this same misleading information may be the basis of my children’s and grandchildren’s … planning…  (p13)

—  Statement of Gloria Darleen Newberry, Policyholder

1993 0525 – GOV (Senate) – When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  —  [BonkNote]

  • Also, because most people presume that if you pay your premium continuously, your policy will remain in effect, quite a few people had a hard time understanding how or why the policy would terminate in policy year 31.
  • This was simply foreign to their way of thinking.

1990-1A NAIC Proceedings – NAIC LIMRA – Universal Life Disclosure Form Test Market Results – 10p – Consumer Testing

  • recent news youtube video
  • GOV – Consumer handbook
  • LIBG
  • 2016 – LC – Vogt v. State Farm  —  [BonkNote]

Premium – Actuarial – Universal Life

  • 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, [Bonk: a consulting actuary with Tillinghast in Atlanta – Years-?]

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

  • What UL does, among other things, is to let the policyowner or maybe the agent pick the point on the line between these two promises— pick the point that best fits the situation that the agent or the policyowner is in.
    • He can have a high premium policy with lots of dividends if experience does remain good
    • or he can pay a very low premium but have a big risk of increasing the premium if experience does not turn out so well.
    • One thing this ability does, it opens up the traditional 3-factor dividend formula, the black box, so that some of the workings are exposed.
      • That is the good side, the opening up of the black box.

— Bruce E. Booker

1988 – SOA – Update on Universal Life Reserves and Non-Forfeiture Values, Society of Actuaries – 36p

Modified Premium Whole Life

  • Out of curiosity, I examined Conning and Company’s printed studies on twenty-two large stock life insurance companies …
  • Among those companies showing a more rapid growth in the whole life and endowment account, I found the following changes had transpired between 1961 and 1966:
    •  (2) modified premium whole life policy had been classified as term insurance in 1961 and as whole life insurance in 1966; 

—  Frederick S. Townsend

1967 – SOA – Digest of Discussion of Subjects of Special Interest – Individual Life and Health Insurance, Society of Actuaries – 62p

  •  …..products, the so called “Split Life” product and Modified Premium Whole Life (developed as “Deposit Term” by
  • … in many disapprovals. So then came: III. Modified Premium Whole Life

1978 – SOA – Individual Life Product Development, Society of Actuaries – 18p

  • Modified Premium Life Insurance
  • In the case of modified premium life insurance which is essentially term insurance followed by permanent, minimum nonforfeiture value requirements shall be determined by applying the Standard Nonforfeiture Law separately to the term coverage period and the whole life coverage period, irrespective of any language in the policy which states that the conversion to whole life coverage is automatic or that the coverage period is continuous.

1979-1, NAIC Proceedings

  • Critical to this approach is the assumption that companies will price their product in a rational manner.
    • Unfortunately, not only is illogical pricing an academic possibility, it has become reality for some companies and products.
    • An excellent example is a “Modified Premium Whole Life” type plan under which ultimate premiums purport to be ”whole life” premiums but which actually are set simply to be sufficiently high relative to premiums in prior years that minimum values will be as low as desired and deferred as long as desired.
To: NAIC (C) Committee Technical Task Force
From: Bradford S. Gile, A.S.A., M.A.A.A., Life and Health Actuary – State of Wisconsin Dept. of Insurance – October 17, 1979
(ATTACHMENT F)  – re: Nonforfeiture Values for Life Insurance Contracts Having Prerniums’which Vary by Policy Duration

1980-1, NAIC Proc.

Guideline Annual Premium

  • In short, Petitioner states, the guideline annual premium equals the annual premium necessary to keep the policy in force for the life of the insured.  
  • [Bonk: Petitioner = ACLI]

1983 1130 – Federal Register, Vol.48 No. 231 – 234p 

  • The suggested rule keys this additional exemptive relief to a “guideline annual premium.”
    • This concept is defined as the level annual premium, payable to the highest attained age at which a premium may be paid, that would provide the future benefits under the policy based on (i) the 1958 Commissioners’ Standard Ordinary Mortality Table, (ii) an assumed interest rate of four percent, and (iii) the expenses specified in the policy.6
    • In short, Petitioner <ACLI> states, the guideline annual premium equals the annual premium necessary to keep the policy ·inforce for the life of the insured.
  • 6Petitioner states that the guideline annual premium concept is derived from the 101(f) of the International Revenue Code [I.R.C. 101(f)(1982)[ relating to exclusion from gross income the proceeds of a flexible life policy payable by reason of death.

1983 1130 – Federal Register, Vol.48 No. 231 – 234p 

As long as you pay the premium….

  • Unlike term insurance, all permanent policies remain in place as long as the premium is paid.

NAIC – insureuonline.org/insureu_type_life.htm – <Bad Link>

  • After receiving these notices, John contacted Glasgow who had retired in 2000, to inquire why his policies would be terminating, even though he had timely paid the premiums on the policies for approximately 18 years.  (p4-5)

2010 – LC – Maloof v. John Hancock – Alabama Supreme Court Opinion – 39p

  • Let’s review the basic mechanics of Universal Life.
  • The policy does not lapse if a premium is not paid; rather, it lapses if the fund balance becomes too small to pay the next month’s cost of insurance. 

—  Ben H. Mitchell, [Bonk: a consulting actuary with Tillinghast in Atlanta – Years-?]

1981 – SOA – Universal Life (RSA81V7N412), Society of Actuaries – 16p

  • 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, [Bonk: a consulting actuary with Tillinghast in Atlanta – Years-?]

1981 – SOA – Universal Life, Society of Actuaries – 16p

  •  ….the concept of a “premium due date” was thought to be inapposite to flexible premium policies.

1983-1, NAIC proceedings

[def. inapposite: out of place; inappropriate]

  • A great deal of the confusion seems to stem from a lack of understanding of how cash value insurance products work and a lack of understanding of insurance terminology.
  • Also, because most people presume that if you pay your premium continuously, your policy will remain in effect, quite a few people had a hard time understanding how or why the policy would terminate in policy year 31.
    • This was simply foreign to their way of thinking.
  • One person was so confused that he said that the maturity age and endowment benefit were moot points, since the policy was going to end at year 31 anyway.

1990-1A, NAIC Proceedings – NAIC / LIMRA – Universal Life Disclosure Form Focus Group Summary  —   [BonkNote]  —  10p

  • Life insurance is available in two basic types:
    1. term and
    2. permanent (which includes whole life, universal life, variable life, and variable universal life). 205
  • Permanent (cash value) life insurance pays the beneficiary whenever the insured dies, as long as premiums have been paid. (p38)

2016 11 – FIO (Federal Insurance Office) – Report on Protection of Insurance Consumers and Access to Insurance – 58p

Life insurance is available in two basic types: term and permanent (which includes whole life, universal life, variable life, and variable universal life). 205  – ACLI 

  • Q – Defense Attorney (Phillip E. Stano, Sutherland, Asbill & Brennan): The next sentence, quote, this can happen due to insufficient premium payments if loans or withdrawals are made or if current interest rates or charges fluctuate. So the illustration gives three reasons by which the cash value might be insufficient. Let me repeat those. One is insufficient —
  • A – Blumenthal (Policyowner – Plaintiff):  You don’t need to.
  • Q – You understand that?
  • A – Yeah. Jesus.
  • Q – Okay.
  • A – Get to the point that you’re trying to establish.  Jesus, this is ridiculous.
  • Q – You —
  • A – This has nothing to do — I know I was paying the premium. That’s all I know, period. That’s it.
  • Q – So–
  • A – We paid every month whatever it was.
  • Q – So the three reasons that are given in the illustration that the cash surrender value can be insufficient, you understand those three reasons that I just mentioned?

2011 – LC – Blumenthal v. New York Life –  2010 0302 – 85-1 and 85-7 – Exh 1 and 6 – Deposition of Irving Blumenthal – 61p

  • [re: Vanishing Premium]
  • I think any way that we can make illustrations more understandable to the public is certainly going to help us.
    • We’ve seen the problems that have occurred when Senator Howard Metzenbaum (OH-D) was given an illustration with a vanishing premium, and he had absolutely no idea that he had bought a policy that was not paid up in four years.
    • It caused many problems for the industry; it caused many problems because the press got involved, and the press doesn’t understand the products as well as it thinks it does.

—  Linda M. Lankowski

1995 – SOA – Practical Illustrations and Nonforfeiture Values, Society of Actuaries – 14p

  • Universal life insurance, like whole life insurance, is a type of permanent life insurance policy that accumulates tax- deferred cash value.
  • The policy stays in effect for as long as you remain alive and pay the premiums.

usnews.com/360-reviews/life-insurance/universal-life-insurance

  • Life insurance pays a death benefit if you die while the policy is in effect, in exchange for premiums you pay before your death.

2018 – NAIC Life Insurance Buyer’s Guide – 8p

  • g. Clarifying “Coverage Period Description”
  • The Working Group discussed what information is intended to be included.
  • Mr. Yanacheak said this is intended to capture how long a policy’s term is-a term of years or for life.
  • Mr. Birnbaum said it is intended to answer the question: If I pay my premium, this policy will cover x amount of time.
  • Mr. Wicka suggested, and the Working Group agreed, to the following revised language to Section 5A(2)(e)(iii): (iii) Indicate whether it is a term or permanent policy.
    • If it is a term policy, indicate the length of the initial term.

2019 0917 – NAIC (LIIIWG) – Life Insurance Illustration Issues (A) Working Group Conference Call  —  [BonkNote]

  • Whole (or universal) life insurance policies are considered permanent.
  • As long as you pay the premium, the policy is in effect.  (p32)

2015 Version – Consumer Action Handbook, published by USAGov, part of the U.S. General Services Administration’s (GSA) Office of Citizen Services and Innovative Technologies – 146p 

  • The most popular document distributed by Pueblo remains the annual Consumer Action Handbook, a free trouble-shooting guide to help Americans solve all sorts of consumer problems.

govbooktalk.gpo.gov/tag/free-government-books/

  • 2013 0905 – LC – Johnston & Johnston v Conseco – 5th Circuit Court of Appeals – 13-30010 —   [BonkNote]
    • 2013 0905 – LC – Johnston & Johnston v Conseco – 5th Circuit Court of Appeals – 13-30010 – Oral Argument – mp3  —  [BonkNote] —  [link-mp3-audio]
      • 20 –  Judge Carl E. Stewart  …..usually the Policy Due Date is not a mystery. 
  • Term insurance is for a specific period of time whereas permanent is for life as long as the premiums are paid.

MassMutual – massmutual.com/insurance/life-insurance

  • The personalized information in the Policy Overview is the premium for the policy – based on information known to the producer or insurer at the time and subject to change based on additional or revised information – and that information can be provided prior to purchase.
  • If an insurer can produce an illustration for a complex, investment type life insurance product prior to the consumer purchase, it is clearly possible for an insurer to provide the premium for a policy prior to purchase.

2019 0830 – Letter – CEJ / Birney Birnbaum to NAIC (LIIIWG) Life Insurance Illustrations Issues Working Group – 12p

  • Since universal life insurance was then being marketed only on a very limited basis, the council task force’s proposals did not address this product.
    • The council has now developed a recommendation for universal life insurance, which we would like to present for your consideration.
  • The essence of the proposal is that universal life insurance be treated for cost disclosure purposes as a life insurance plan with a nonguaranteed cost element.
  • Thus, the policy summary would show for the prescribed policy years the anticipated premiums and, both on the guaranteed and currently illustrated bases, the death benefits, cash surrender values, and endowment amounts, if any.
    • The life insurance cost indexes would be calculated on the currently illustrated basis, using the anticipated premiums, and would be required to be shown along with corresponding nonguaranteed elements.
  • An additional item of information that is recommended to be required in the policy summary is the point at which the policy will expire based on the policy guarantees and the anticipated premiums shown in the summary.

—   1982-1, NAIC Proceedings – 1981 1215 – Letter – ACLI to NAIC – Cost Disclosure for Universal Life, by the Special Task Force of the ACLI Cost Disclosure Subcommittee to NAIC Task Force on Life Insurance Cost Disclosure – 4p

Premiums – Index

  • Graded Premiums
    • 1956 – SOA – Graded Premiums – DISCUSSIOn OF SUBJECTS OF SPECIAL INTEREST – 6p

Indeterminate Premium

  • The product revolution, in my mind, began in the 1970s with the introduction of indeterminate premium products.
  • The introduction of universal life in the early 1980s really did create a revolution.
  • We’ve seen more product change and more increasing frequency of product change in the 1980s than ever before.

—  William R. Britton, Jr. 

1988 – SOA – Group Universal Life Product, Society of Actuaries – 22p

  • 1980 – SOA – Dividend Philosophy, Committee on Dividend Philosophy, rsa80v6n418 – Society of Actuaries – 18p
  • The (C4) Technical Subcommittee has already agreed that it should develop a recommended NAIC Model Regulation on Indeterminate Premium Life Plans, but no progress has as yet been made on drafting such a model regulation.

1981-1, NAIC Proceedings