Price

  • Until the buyer understands how the product works, attempts to compare price are essentially meaningless.

1972 – SOA – Life Insurance and the Buyer by Anna Rappaport, Society of Actuaries – 2p-Article

  • I believe that there is an urgent need for the life insurance industry to answer the accusations of its critics who say that its failure to disclose accurately the price of its products to its policyholders has led to a noncompetitive situation detrimental to the interests of policyholders and the public.

—  Michael B. Hutchison, [Bonk: Crown Life]

1969 – SOA – Life Insurance Net Cost Comparisons, Society of Actuaries – 34p

  • 1972 – LR – What Price “Price Disclosure”? The Trend To Consumer Protection In Life Insurance, By Spencer L. Kimball and Mark S. Rapaport – 29p
    • Meaningful price disclosure at the point of sale in life insurance would help to implement one major objective of insurance regulation, protection of consumers against unreasonably high prices.
  • William L. HUNGATE (D-MO-House): Mr. Speaker, the State of Pennsylvania is taking what may be a leader’s role in analyzing State insurance problems.
  • The following article should be of interest to all who purchase life insurance:
  • A national shopper’s guide for life insurance shows that some major companies charge more than twice as much as others for similar policies, and that some of the best known firms charge the most for coverage.
  • NP – Variation in Surety Cost Charges Can Double From Firm to Firm, By Bob Woodward
    • A national shopper’s guide for life insurance shows that some major companies charge more than twice as much as others for similar policies, and that some of the best known firms charge the most for coverage.
    • Among the life insurance firms doing business in the Washington area, for example, average annual cost for the same $10,000 straight life policy from Connecticut Mutual Life is $22.40 compared to $53.10 a year from Travelers Insurance Co.
      • This means that over 20 years it takes to pay off such a policy, the Counnecticut Mutual subscriber would pay $448, compared to $1,062 paid by a subscriber of Travelers. (p25109) 

1972 0724 – Federal Register – [38p]

Target Premium

  • If your training process for your agents is to sell at target premium, for example, and target premium carries the policy to maturity at a 7 percent rate, if you're only crediting 6, it's not making it there.
    • So keep an eye on how you're training your agents to sell your products and try to avoid problems up front in the product performance before they become a premium risk problem.

--  Joseph E. Paul, Clarica Life Insurance Company, Vice President and Pricing Actuary

2001 - SOA - Investment Strategies to Maximize Investment Yield, rsa01v27n3132pd - Society of Actuaries - 25p

  • This can also allow for a low first-year target premium.
  • On the other side, however, it may cause some difficulties in terms of the annual reporting to the policyholder if, indeed, the policyholder really pays attention to the statement sent to him. 

--  Christian J. DesRochers

1983 - SOA - Universal Life (RSA83V9N212), Society of Actuaries - 24p

  •  "Target" premiums for universal life are those premiums upon which full first year commissions are paid.

2017 - Protective Life, 10k - [link]

  • Target Premium - Michael Tivilini - LSW - product designer
  • Q Are you familiar with the phrase "target premium"?
  • A Yes.
  • Q What's the target premium?
  • A Well, it kind of has multiple -- multiple uses.
    • It's -- primarily, it's the premium upon which the agent will earn top-level commission rate.  (p108).
  • A The other -- the other purpose of target premium is it's a premium that you'd like to get the policyholder to pay because it really would make the policy very safe.
    • I mean, it was -- something I used to say to agents about these policies was, If you can get the policyholder to pay target premium, these will never lapse. (p109)
  • Q All right, if this is at 4 percent, do these policies still carry the target premium?  (p129)

2013 1211 - LC - DOC 735-2 : Deposition of Michael Tivilini - Walker v LSW - 215p

  • In our Universal Life products, we need to find that critical point, or what is as important, what is the best level of premium relative to the target premium.
    • You don't want all target premiums.
    • In fact, the lower the premium is, the closer to the minimum premium, the happier we are.
    • How do we communicate that to our agency people?

--  Richard Schwartz, product marketing function for the agency distribution systems for the Sun Life Group of America

1986 - SOA - Organizing the Product Development Function, rsa86v12n216 - Society of Actuaries - 46p

2016 - SOA - A Practical Approach to an Enhanced Premium Persistency Assumption, by Ying Zhao and Nick Komissarov - 4p

  • Mr. Birdsall asked if the agent compensation structure for IUL products provide greater incentives for agents than is provided by the compensation structure of traditional universal life (UL) products.
  • Bobby Samuelson (MetLife) said that a compensation study he had previously conducted found that, on average, IUL policies have a target premium 80% higher than the average target premium for UL products.

2014 - NAIC - LATF - 11/14-15/2014 - 6-63

  • ... most products have a target premium of some sort for each policy that could be and often is used as a future premium assumption.

2016 - SOA - A Practical Approach to an Enhanced Premium Persistency Assumption, by Ying Zhao and Nick Komissarov, The Modeling Platform, mp-2016-iss3-zhao-komissarovSociety of Actuaries - 4p

  • Thus, we have universal life policies with a so-called low target premium where excess interest earnings can carry the policy for the whole of life with the payment of that low premium.
  • We have the other extreme where the premium is higher but through the use of dividends or excess interest earnings, premiums are paid for only a few years.

--  John L. Marcus, Senior Vice President of Prudential, in charge of the Insurance Services department

  • He is also Chairman of Pruco Securities and Vice-Chairman of Pruco Life. In these capacities he is responsible for the development of Prudential's investment type products.
  • At its inception, Mr. Marcus was a deputy on the American Council of Life Insurance (ACLI) Task Force on Financial Services Integration.
    • As a member of its Blueprint Committee he was one of the authors of the ACLI's study of financial services in the 1980's. <WishList>

1984 - SOA - Deregulation of Financial Industries (rsa84v10n221), Society of Actuaries - 30p

  • It will be mathematically possible to calculate a schedule of "target" periodic premiums to be paid under the policy, which will be intended to provide the insurance benefits desired by the policyholder at any given time.
  • Many policies may stipulate a target premium schedule, and many companies and agents will encourage (but not require) purchasers to make payments in accordance with such a schedule.
  • The failure to pay a target premium will not of itself cause the policy to lapse, however.

1983 - Federal Register / Vol. 48, No. 231 / Wednesday, November 30 - Securities and Exchange Commission. PROPOSED RULES
Investment companies: 54043 Flexible premium variable life insurance 

  • An approach which seems to be gaining in popularity expresses commissions as a percent of a target or a minimum premium.

--  Christian J. DesRochers

1983 - SOA - Universal Life (RSA83V9N212), Society of Actuaries - 24p

  • Mr. Herget: Our next speaker is Paul Hekman, an FSA and a member of the AAA. Paul is a vice president at PolySystems...
  • He also was one of the first to develop the target premium concept of agent compensation for flexible premium universal life insurance contracts.

1997 - SOA - Anatomy of an Earned-Interest Rate, rsa97v23n24pd - Society of Actuaries - 22p

  • As a result of the declining interest rates during the first ten years, the amount accumulated in the deposit fund after ten years is less than anticipated when the contract was issued, and less than necessary to keep the contract in force for the long term if the original "target premium" assumptions were continued.
  • Industry experience indicates that policyholders will increase their renewal premium payments in order to maintain their valuable insurance and minimum deposit interest rights.
  • For purposes of these Illustrations, we assume that the policyowner wishes to keep the UL contract in force and increases the renewal premium payments from duration ten.
  • Therefore, after the tenth year, an increase in the rate of premium payments into the deposit fund is illustrated sufficient to provide funds to maintain the contract in force under the changed financial conditions.|
  • In practice, policyholders are continually modifying their behavior to reflect changing circumstances.

2004 - ACLI/ IAA - Renewal Premiums and Discretionary Participation Features of a Life Insurance, A Joint Research Project, ACLI_IAA_Aug2004 - 52p

  • Maybe he is not getting all the disclosure he needs, as far as the continuing benefit is concerned, when the interest rates change from that illustrated.
    • Products which are sold with target premiums may not have had the fact considered that in any proposal based on high interest rates over long periods, more coverage will be needed.
  • We would be happy to illustrate the other way for the policyholder if he wants it that way, but I don't think he knows that he wants it that way.

--  Gary P. Monnin, Senior Vice President, Chief Actuary of American Founders Life Insurance Company

1982 - SOA - Universal Life, Society of Actuaries - 14p

  • The complaint set forth a litany of alleged facts misrepresented or concealed from policyholders, including,..... (d) Farmers encouraged setting the premium for FFUL policies no higher than a "target" rate, by its commission structure; however, policies would lapse when only the target premium was paid;
  • Plaintiffs also noted that Farmers's computerized rate-setting program would inform agents of the minimum and target premiums, thus suggesting that the premium be set between these two numbers, and no higher.
  • Plaintiffs' argument regarding the underfunding of the FUL policies was more direct.
    • As Farmers set the premiums on these policies, it was solely within Farmers's control to establish initial premiums high enough to accrue sufficient interest so that the policies would be on track to last until maturity. 
    • Farmers set the premiums based on a presumed 11.5 percent interest rate, which plaintiffs argued was unrealistically high, and would result in the policies lapsing.
    • Fairbanks v. Farmers New World Life Insurance - Scholar.google.com

2011 - LC - Fairbanks v. Farmers New World Life Insurance  ---  [BonkNote]

 

1985 - SOA - Using Deterministic Scenarios To Test Valuation Reserves For Universal Life, Valuation Actuary Symposium Proceedings, (VASP855), Society of Actuaries - 86p

Fri, Sep 12, 1986 – 21 · Arizona Daily Sun (Flagstaff, Arizona) · Newspapers.com

  • Actually, a target premium can be calculated in this manner for any number of years: so it can be used in a UL proposal system to calculate the premium required to reach a certain fund at a certain point.
  • Calculate Target Premium Directly
    • TARGET PREMIUM:
      • " Start thru calculation from last year forward.
      • " If calculating to maturity, target age is (maturity age - I).
    • This is because you are going to the END of the previous ago

1993 - SOA - Speeding Up Universal Life Calculations in BASIC, by Dennis Radliff, arch93v312 - Society of Actuaries - 12p

  • Commissions are usually a large (35-85%) percentage of the '"target" or "Minimum Allowable Premium (MAP), but are much smaller on premium dollars generated in excess of the target premium. (p198)

1985 11 - FTC - Report - Life Insurance Products And Consumer Information, by Michael P. Lynch and Robert J. Mackay, Staff Report Bureau of Economics, Federal Trade Commission  ---  [BonkNote]  ---  [PDF-317p] 

2016 - SOA - A Practical Approach to an Enhanced Premium Persistency Assumption, by Ying Zhao and Nick Komissarov - 4p

  • The "target premium" Universal Life differs from the classic product in several respects.
    • First of all, commissions are expressed as a percentage of the target premium and typically are comparable to non-par whole llfe.
      • So it might be something like 90% of $10 per thousand.
    • Commission percentages are the same for all ages and all face amounts.
      • And commission percentages generally are quite high, as I mentioned, perhaps in the range of 90%.
    • The "target premium" plan is currently the most popular Universal Life type policy being developed and it is expected that the trend toward developing this type of plan will continue.
  • Why is this?
    • First of all, the plan has a simple commission structure, just like the whole life policy with which the agents are accustomed.
    • Secondly, it pays the higher commission rate that the traditional agent is familiar with.
  • And as more traditional companies enter the Universal Life marketplace, this is sort of a middle-of-the-road approach.
  • The companies can say that they have Universal Life but it has the high commissions with which the agent is familiar on traditional whole life plans.
  • Now in the long term (whether that's six months or six years), one might expect the trend back to the classic Universal Life with the three factor approach, having somewhat lower commissions, especially on savings, and commission rates that reduce by policy size.
    • Basically, it is very difficult to analyze exactly what's happening with loads and commissions.
    • But if one looks at the target premium whole life, it is clear that the load and the commission on the savings element involved is quite high, relative to alternative products being offered by other industries.
    • In the long term, it is impossible to compete for savings dollars with very high front-end loads and high commissions on the pure savings element of the product.
  • In addition, we are about the only industry that still doesn't recognize "cheaper by the dozen" and offer substantially discounted prices and compensation for larger type policies, which is a basic feature of classic Universal Life. 

--  Randall P. Mire

1983 - SOA - Universal Life, Society of Actuaries, (rsa83v9n32) - 22p

  • Donald L. ADDINK: Since this meeting has been on inflation, and universal life addresses many aspects of inflation, and because competition frequently does not address itself to the interest rate, but to the target premium at point of sale itself, have either of the panelists addressed the question of consumer protection in terms of inflation particularly, with regard to the interest rate used in the target premium calculation? The extremely high interest rates used in target premium calculations may be building an obsolecene in the premium itself, since it relies on inflation (whereas the benefit does not). Instead of using something like a real rate of interest in the premium calculations, so that the benefit has to be increased due to inflation, the premium itself would be increased because of the excess interest that is built up inside the contract.
  • Gary MONNIN, Senior Vice President, Chief Actuary of American Founders Life Insurance Company: We are not attempting to sell the minimum premium on universal life and we do not have a target premium calculator, although we will. We illustrate universal life under a number of interest rates. Our illustration system uses the guaranteed rate plus another interest rate. Our policy summary shows three interest rates. We are not providing the policyholder with a target premium. Maybe he is not getting all the disclosure he needs, as far as the continuing benefit is concerned, when the interest rates change from that illustrated.
  • Jim PARRISH, Fidelity Mutual, Vice President and Actuary: We are in the same position as Gary is in. The product that we have on the shelf will not be sold with a target premium indicated. Products which are sold with target premiums may not have had the fact considered that in any proposal based on high interest rates over long periods, more coverage will be needed. We would be happy to illustrate the other way for the policyholder if he wants it that way, but I don't think he knows that he wants it that way.

1982 - SOA - Universal Life (rsa82v8n111), Society of Actuaries - 14p

  • 2012 - NAIC - Emerging Actuarial Issues (E) Working Group: Draft Exposure 11/20/2012
    • Issue / Question: 
      • Erie Family Life has a shadow account product design feature where the premium load is expressed as a fixed percentage of premium up to the target premium, where the target premium is reasonably consistent with level premium funding of the lifetime guarantee.
      • In effect, there is a fixed dollar cap on the annual premium charge.
      • Please clarify that a fixed dollar cap for the premium load, regardless of how the cap is expressed, does not make such a product incompatible with Policy Design # 1.
  • Issue / Question
    • 1. A shadow account product has a design feature where the premium load is expressed as a fixed percentage of premium up to the target premium, where the target premium is reasonably consistent with level premium funding of the lifetime guarantee.
    • In effect, there is a fixed dollar cap on the annual premium charge.
    • The literal form of the charge is simply a specified percentage of premiums up the target premium and 0% thereafter.
    • This will always mathematically produce the same result as the capped charge described above.
    • Please clarify that a fixed dollar cap for the premium load, regardless of how the cap is expressed, does not make such a product incompatible with Policy Design # 1.

Interpretation of the Emerging Actuarial Issues (E) Working Group - Actuarial INT 12-24
Date Adopted by Emerging Actuarial Issues (E) Working Group - December 19, 2012
Date Adopted by Financial Condition (E) Committee - December 20, 2012
Reference - Actuarial Guideline 38- The Application of the Valuation of Life Insurance Policies Model Regulation

  • 1 A Target Premium is a measure of premium specified in a policy that varies from insured to insured and never exceeds a Guideline Annual Premium (``GAP''), as defined in Rule 6e-3(T)(c)(8) under the 1940 Act.

SECURITIES AND EXCHANGE COMMISSION - [Rel. No. IC-21931; File No. 812-10100] The Manufacturers Life Insurance Company of America, et al. April 30, 1996. AGENCY: Securities and Exchange Commission (``SEC''). ACTION: Notice of application for exemptions under the Investment Company Act of 1940 (``1940 Act''). - https://www.govinfo.gov/content/pkg/FR-1996-05-06/html/96-11231.htm

  • 2005 - Virginia Cooperative Extension - Life Insurance: Universal-Life Insurance, publication 354-146 - 2p
    • Each policy will have a "target" premium payment.
      • This target is the amount of premium that the insurance company believes to be adequate to fund the policy. It is generally a good idea to pay premiums at least equal to this target premium, assuming a conservative rate of return (5 percent for example)
  • 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
    • This Base/Target Premium is set by actuaries and generally calculated using conservative assumptions as the amount necessary to cover COIs and expenses required to maintain life insurance death benefit.
      • As such, this Base/Target Premium can be thought of as the "insurance premium" (i.e. the premium paid to maintain life insurance coverage).
  • 2019 0403 - SPJST.org - - 13p 
    • SPJST - Universal Life 3
      • Target Premiums: The target premium is the recommended level annual premium. It may be sufficient to keep the certificate in force to age 95. It is not guaranteed.

No Results - Actuarial Toolkit (SOA), ACLI,

There were no results for your search - https://actuarialtoolkit.soa.org/tool/glossary/search?search=%22target+premium%22&field_topics_target_id=All

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https://www.acli.com/search?archive=0#q=%22target%20premium%22
NAIC Results  - 3
Page 1 of 2 I. Scope limitation We propose the following language ...
https://www.naic.org/.../committees_e_capad_lrbc_C3P3_Scope_Exposure_ 2010-01-14.pdf 
from lapsing during an initial surrender charge period as long as a certain target premium is paid. These guarantees are conceptually similar to secondary ...
 
Interpretations of the Emerging Actuarial Issues (E) Working Group
www.naic.org/.../committees_e_emerging_actuarial_issues_related_eaiwg_ interpretations.pdf
Nov 20, 2012 ... percentage of premiums up the target premium and 0% thereafter. This will always mathematically produce the same result as the capped ...
 
Market Conduct Examiners Handbook 2004 Edition Volume I ...
https://www.naic.org/documents/prod_serv_marketreg_exc_zu.pdf
based on objective criteria not on perceived competitive pressures.) Determine if the company is adjusting individual premiums to target premium levels for.

Sun, Jul 15, 1984 – Page 53 · The Indianapolis Star (Indianapolis, Indiana) · Newspapers.com

Planned Premium

  • Planned Premium
    • For UL and VUL Plans, this is the Amount of Annual Premium that the Policyholder Plans to pay at  Issue.
      • Typically this is the Billed Amount.
    • For Whole Life and Term Plans, this is the Annual Required Premium.

2006 – SOA – Minimal Policyholder Behavior Format, Society of Actuaries – 4p

  • LEGAL CASE – Blumenthal v New York Life
    • …the facts are controverted that the policy clearly and unambiguously informs a reasonable insured that the policy will lapse if only the planned premiums are paid.

Case 5:08-cv-00456-F Document 85 Filed 06/01/10 Page 15 of 37 – PLAINTIFF’S RESPONSE TO DEFENDANT’S MOTION FOR SUMMARY JUDGMENT AND BRIEF IN SUPPORT

  • It should be noted that a policy would not necessarily be classified as a “scheduled premium” policy simply because the specifications page might set forth a “planned premium” (a concept characteristic of current universal life insurance policies).
    • This is because the planned premium, in most cases, is set by the insured, not the insurer.

—  ACLI

1983-1, NAIC Proceedings 

  • You may opt for a “planned” or “target” premium–a predetermined amount to be paid on a regular basis to help protect you from lapsing the policy.

—  Key Features of Universal Life Policy – Consumers Union


1994-1, NAIC Proc.
  • Our sales illustrations are developed to comply with state laws and regulations.
    • While the expiration date of the policy is not required by law, it is an important feature because it lets the customer know how long the policy will remain in-force, based on guaranteed factors and planned premiums. 
    • (p187 of 1991-1992 – SOA – Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries  —  [BonkNote]  —  142p)

2020 0221 – AAA to NAIC (IULSG) – American Academy of Actuaries – Comment –  Mr. Fred Andersen Chair, IUL Illustration Subgroup – 144p 

  • You generally pay a planned premium designed to keep the policy in force for life, and accumulate cash value, based upon the interest and expense and mortality charges you assume.
    • It is important that these assumptions be realistic because if they are not, you may have to pay more to keep the policy from decreasing or lapsing.
    • On the other hand, if your experience is better then the assumptions, than you may be able in the future to skip a premium, to pay less, or to have the plan paid up at an early date.
  • You do not have to pay the planned premium, but if you pay less, the benefit may be more like term insurance, which is only in force for a limited time and builds no cash value.
  • On the other hand, if you pay more, and your assumptions are realistic, it is possible to pay up the policy at an early date.

From <https://www.dfs.ny.gov/consumers/life_insurance/types_of_policies>

  • Q: Is an approach for flexible premium contracts which depends on a planned periodic premium workable and/or desirable?
  • <Participant Responses>
    • Not sure how to work such an approach. Section 5c of Standard Nonforfeiture Law might provide guidance.
    • This is a reasonable approach, at least for nonforfeiture.
    • Doubtful that this approach will work. The committee that drafted the model regulation felt that an approach based on planned periodic premiums was open to manipulation.
    • We are using this technique now because it is practical. However, it is not totally satisfactory because it is subject to manipulation.
    • Would be opposed to a planned periodic premium approach if it left any room for manipulation.
    • Too much room for manipulation in the planned periodic premium approach.
    • There have been discussions in our office to prohibit the use of planned premiums in the sales material.
    • New York used a planned periodic premium approach prior to this year, according to their circular letter.
      • Dropped it in this year’s legislation.
      • Not sure how workable it was.
      • New York received criticism, saying it could be manipulated.

1987-4, NAIC Proceedings

  • The alternative of basing the initial expense allowance on a policyowner’s “planned premium” was considered but rejected as artificial and subject to substantial manipulation by agents and/or insurers.

1988-2, NAIC Proc.

  • NAIC
  • MDL-585 – NAIC Universal Life Model Regulation
    • The alternative of basing the initial expense allowance on a policyowner’s ” planned premium” was considered but rejected as artificial and subject to substantial …
  • MDL – 270-1 – NAIC VARIABLE LIFE INSURANCE MODEL REGULATION
    • It should be noted that a policy would not necessarily be classified as a scheduled premium policy simply because the specifications page might set forth a planned premium (a concept characteristic of current universal life insurance policies).
    • This is because the planned premium, in most cases, is set by the insured, not the insurer.
  • ACLI.org – “No results for “planned premium”
  • NAIFA,org – No results for planned premium
  • actuarialtoolkit.soa.org/ – “There were no results for your search.”

 

Guaranteed Gross Premium

  • For purposes of determining the guaranteed gross premiums used in the demonstration in Section 6.B.2:
    1. For universal life policies, the guaranteed gross premium shall be the premium specified in the contract, inclusive of any applicable policy fee, or if no premium is specified, then the level annual gross premium at issue that would keep the policy in force for the entire period coverage is to be provided based on the policy guarantees of mortality, interest and expenses; and
    2. For policies other than universal life policies, the guaranteed gross premium shall be the guaranteed premium specified in the contract, inclusive of any applicable policy fee.

2021 – NAIC – Valuation Manual – 330p

  1. For purposes of determining the valuation net premiums used in the demonstration in subsection 6.B.2:
  2. The guaranteed gross premium is defined as:
  3. For universal life policies, the guaranteed gross premium shall be the premium specified in the contract, or if no premium is specified, the level annual gross premium at issue that would keep the policy in force for the entire period coverage is to be provided based on the policy guarantees of mortality, interest and expenses; and
  4. For policies other than universal life policies, the guaranteed gross premium shall be the guaranteed premium specified in the contract.

2016-1, NAIC Proc. 

GMP - Guaranteed Maturity Premium

  • NAIC - Universal Life Insurance Model Regulation (#585): - 14p
    • Universal Life Insurance Model Regulation - Citations - (MDL-585) - NAIC  ---  [BonkNote]
    • GMP - Guaranteed Maturity Premium
      • "Every universal life insurance policy of which the drafters are aware has a "net level premium" that could be computed which would guarantee permanent protection."
        • As a result, it is expected that most universal life insurance policies will be sold as permanent plans."
    • GMF - Guaranteed Maturity Fund
      • The guaranteed maturity fund at any duration is that amount which, together with future guaranteed maturity premiums, will mature the policy based on all policy guarantees at issue.
    • r-ratio
      • "The letter "r" is equal to one, unless the policy is a flexible premium policy and the policy value is less than the guaranteed maturity fund, in which case "r" is the ratio of the policy value to the guaranteed maturity fund." 
  • The Guaranteed Maturity Premium is that gross annual premium which will mature the policy based on the guaranteed factors set forth in the policy.

1993-2, NAIC Proc.

  • A regulator had told them that in that case they should not treat their universal life as though it was a whole life policy matured by paying the GMP. --- [Guaranteed Maturity Premium]
  • Rather, you should assume that people will pay the guideline level premium, and that will give you a policy that provides guaranteed coverage for something less than the whole of life.

--  Daniel J. McCarthy

1999 - SOA - Valuation Actuary Symposium - Session 44, Society of Actuaries - 28p

  • I'll talk about the complications.
    • The typical policy that runs into this issue is a policy with a 3% interest guarantee where the guideline level premium requires a 4% interest guarantee.
    • Therefore, under the policy guarantees, and by paying the guideline level premium year by year, the policy will expire at age 68 without value. It'll be term to 68.
    • Your guideline level premium is less than the premium that would be theoretically required to mature the policy at age 100 or 95.
  • Therein lies the problem.
    • If you were to use that interpretation, it makes the reserving calculation extremely complex.
  • Let me give an example. I'm going to contradict what I just said in this example.
    • The policy doesn't really expire at age 68 because there's a provision in 7702 that enables you to pay YRT premiums if the policy would otherwise lapse.
  • What kind of guaranteed maturity premiums do you use?

--  Edward L. Robbins

1999 - SOA - Valuation Actuary Symposium - Session 44 (va99-44of), Society of Actuaries - 28p

  • p3 - The guaranteed maturity premium for flexible premium universal life insurance policies shall be that level gross premium, paid at issue and periodically thereafter over the period during which premiums are allowed to be paid, which will mature the policy on the latest maturity date, if any, permitted under the policy (otherwise at the highest age in the valuation mortality table), for an amount which is in accordance with the policy structure.1
  • The guaranteed maturity premium is calculated at issue based on all policy guarantees at issue (excluding guarantees linked to an external referent).
  • The guaranteed maturity premium for fixed premium universal life insurance policies shall be the premium defined in the policy which at issue provides the minimum policy guarantees.2

ULMR - Universal Life Insurance Model Regulation - MDL-585 - NAIC  ---  [BonkNote]  ---  22p

  • The Model Regulation assumes that future premiums will be paid at the whole life level, and calls this premium the GMP [the guaranteed maturity premium].
    • [Bonk: Universal Life Model Regulation - NAIC]

--  Shane Chalke

1984 - SOA - NAIC Update, Society of Actuaries - 24p 

  • 1999 10 - AAA - Report of the American Academy of Actuaries' Equity Indexed Universal Life Work Group to the Life and Health Actuarial Task Force of the NAIC - 19p
  • For the UL Model Reg, you start by calculating a guaranteed maturity premium (GMP).
    • This is calculated at issue, so once the policy is issued, unless you have a policy change of some sort, it is fixed.
    • It's the level premium that will mature the policy for the specified amount. In other words, if you have a $100,000 specified amount policy, it's the premium that you have to pay every year so that the maturity value when your policy matures is $100,000. It's based on the guarantees in the contract: guaranteed mortality, guaranteed interest and guaranteed expense charges.
    • From this, you then calculate a guaranteed maturity fund (GMF).
      • The GMF is...

2005 - SOA - VASP - Statutory Financial Reporting for Universal Life, Jeffrey A. Beckley, va05-21ts - Society of Actuaries - 15p

  • The Model Regulation assumes that future premiums will be paid at the whole life level, and calls this premium the GMP [the guaranteed maturity premium].
    • [Bonk: Universal Life Model Regulation - NAIC]
  • The GMP is analogous to the guideline level premium (GLP) from TEFRA, the only differences being in the area of assumptions.
  • The GMP is calculated using plan guarantees, regardless of their level, and with no restrictions on plan form (20 year endowment, 10 pay life, etc.).
  • For most plans, however, the GMP should be equal to the GLP from TEFRA.

--  Shane Chalke

1984 - SOA - NAIC Update, Society of Actuaries - 24p 

  • Blumenthal v New York Life - Sanderford (Expert Witness for Blumenthal) - Guaranteed Maturity Premium
  • 85-3 - Deposition of David Sanderford - Plaintiff Expert Witness - 65p

 

  • The Task Force also believes that manipulative patterns of COl deductions will be weeded out by their GMP test.
  • Examples have been given to the regulators that a whole life product filed in their state today that offered cash values that were equal to 1941 CSO 2.5% values would probably be approved, as long as the paid-up values were on the more current non-forfeiture basis, but a similar UL product would not be approved.

-- Philip K. Polkinghorn

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

  • Life and Health Actuarial Task Force - Conference Call - August 22, 2000
    • 2. What is the projection interest rate to be used to  calculate the guaranteed maturity premium and the guaranteed maturity fund for variable universal life policies?

2000-, NAIC Proceedings

  • 1999 10 - AAA - Report of the American Academy of Actuaries' Equity Indexed Universal Life Work Group to the Life and Health Actuarial Task Force of the NAIC - 19p
  • MR. ROBBINS: The actual wording is, "the guaranteed maturity premium shall be that level gross premium paid at issue, and periodically, thereafter, over the period during which premiums are allowed to be paid, which will mature the policy on the latest maturity date, if any, permitted under the policy."
    • So it has two things that are sort of in conflict: "Allowed to be paid" and "which will mature the policy".
  • MR. RAYMOND: It's hard to tell whether "permitted under the policy" only refers to the latest maturity date or if it refers to the premiums also.]
  • MR. MCCARTHY: As Ed pointed out, this happened before 7702.
  • MR. RAYMOND: Nobody thought of these things back then.
  • FROM THE FLOOR: I just wanted to mention that some of us, a few years ago, quit including any difference between current and guaranteed expense charges into our guideline premium calculations, I believe on your advice.
  • MR. MCCARTHY: I didn't know she was going to do that.
  • FROM THE FLOOR: For recent issues that means that guideline premiums are always going to be less than guaranteed maturity premiums.

1999 - SOA - Valuation Actuary Symposium - Session 44 (va99-44of), Society of Actuaries - 28p

  • 1994 - Letter - NALU to NAIC (LDWG) - NALU [Currently NAIFA] National Association of Life Underwriters to the NAIC Life Disclosure Working Group - 1994-1, NAIC Proc.
    • GMP - Guaranteed Maturity Premium
    • 1994 NALU Cover Page GMP ATTACHMENT FOUR-C
      • Statement of the National Association of Life Underwriters (NALU) to the NAIC Life Disclosure Working Group of the Life Insurance (A) Committee on Life Insurance Illustrations January 31, 1994
      • 13. The Cover Page for any illustration should contain the annual premium necessary to maintain the policy to maturity based solely upon the guarantees in the policy.
        • This will assist the policyowner in understanding the differences between guaranteed and non-guaranteed policy features.
  • 1990 - LC - USAA Life Ins. Co. v. Commissioner 60 united States Tax court Mar 26, 1990 94 T.C. 499
    • ...conceptually similar to the NLP, the GMP differs in some notable respects.
    • The GMP is calculated using universal life fund mechanics; the NLP uses commutation functions.
    • The GMP is based on policy guarantees of interest and mortality; the NLP is based on valuation assumptions of interest and mortality.
  • Flexible Premium Universal Life-Type Contracts
    • Alternative minimum reserves shall be required, if applicable, for flexible premium universal life-type contracts if the guaranteed maturity premium is less than the valuation net premium.

1998 - Statutory Issue Paper No. 56 - Universal Life-Type Contracts, Policyholder Dividends, and Coupons STATUS - Finalized March 16, 1998, Original SSAP: SSAP No. 51; Current Authoritative Guidance: SSAP No. 51R- 12p

GLP – Guideline Level Premium

  • 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?
  • 8. See Question 7.9. Either may be illustrated as long as the insurer discloses the effect of what is illustrated.

1996-x, NAIC Proceeding

  • I’ll talk about the complications.
    • The typical policy that runs into this issue is a policy with a 3% interest guarantee where the guideline level premium requires a 4% interest guarantee.
    • Therefore, under the policy guarantees, and by paying the guideline level premium year by year, the policy will expire at age 68 without value. — It’ll be term to 68.
    • Your guideline level premium is less than the premium that would be theoretically required to mature the policy at age 100 or 95.
    • Therein lies the problem.
    • If you were to use that interpretation, it makes the reserving calculation extremely complex.
  • Let me give an example. I’m going to contradict what I just said in this example.
    • The policy doesn’t really expire at age 68 because there’s a provision in 7702 that enables you to pay YRT premiums if the policy would otherwise lapse.

  —  Edward L. Robbins

1999 – SOA – 1999 Valuation Actuary Symposium – Session 44, Society of Actuaries – 28p

  • Daniel J. McCarthy:
    • A regulator had told them that in that case they should not treat their Universal Life as though it was a Whole Life policy matured by paying the GMP (Guaranteed Maturity Premium).
    • Rather, you should assume that people will pay the guideline level premium, and that will give you a policy that provides guaranteed coverage for something less than the whole of life. What were the implications of that?  
  • Craig R. Raymond:
    • I guess I don’t disagree with anything you said.
    • The model regulation (Universal Life Model Regulation) has a structure that says you must go back to this level premium format.
    • You’re caught into this box where you’ve got a product that, when you go back to that format, it’s an iteration of the product that can’t exist.

1999 – SOA – 1999 Valuation Actuary Symposium, (va99-44of), Edward L. Robbins, Society of Actuaries – 28p

  • Robert MARKS: Do any companies have concerns regarding not being able to charge a premium that would be high enough to mature the policy on a current interest rate basis with the new guideline premiums being lower?
    • In other words, since the interest rates are being credited or say, in the 5 to 5.5 percent range, and there’s a six percent interest rate in the calculation of guideline single premiums, would there be a concern that you couldn’t even fund the policy on a guaranteed basis?
  • Scott Berlin, New York Life. I’ve heard of that issue.
    • Your guideline level is calculated at four percent.
    • This is just my feeling, but I don’t think that we want to approach the Service to reduce the interest rates from four percent to say, 2.5 to 3 percent because then it opens 7702 up for scrutiny and a whole host of other issues.
    • Sometimes the evil you know is better than the evil you don’t.

2002 – SOA – Implications of the New CSO Mortality Table, Society of Actuaries – 28p

17 CFR Part 270
[Release No. IC-13632; S7-10041
Request for Comments on Issues
Arising Under the Investment
Company Act of 1940 Relating to
Flexible Premium Variable Life
Insurance
AGENCY: Securities and Exchange
Commission.
ACTION: Request for written comments.

https://cdn.loc.gov/service/ll/fedreg/fr048/fr048231/fr048231.pdf

Premium Per Thousand

  • First, the average premium per thousand is going down as a result of companies introducing products based on the 4% valuation interest rate basis.

—  Jesse M. Schwartz

1983 – SOA – Individual Life Insurance, Society of Actuaries – 22p

  • For cost comparison purposes, the natural unit price for insurance is dollars of Premium per thousand dollars of death benefit per year-adjusted as appropriate and cash surrender values.  (p131)

—  1980 0130 – Letter – ACLI to GOV (Senator Howard Cannon (D-NV), Chairman – American Council of Life Insurance, on The FTC Staff’s Responses to Criticisms of the Report on Life Insurance Cost Disclosure – (p130-136)

1979 0710 and 1017 – GOV (Senate) – FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)   —  [BonkNote]  —  [PDF-592p] 

  • While it is possible to make some sort of cost comparison in these cases on the basis of cost in a given year per $1,000 of net protection, such comparisons apparently can be misleading in some cases when the original policy is an endowment or retirement income policy or a limited payment policy.

1969 – SOA – Life Net Cost Comparisons, Society of Actuaries – 34p

  • I see four major potential problem areas:
  • a. The Model requires various numerical amounts — cash values, death benefits, dividends — to be presented on a “per policy” basis, not on a per thousand or per unit basis.”
  • [Bonk: Model = NAIC Model Life Insurance Solicitation Regulation]

—   Donald B. Maier

1976 – SOA – Cost Comparisons and Policy Language, Society of Actuaries – 16p

  • (p449) – Alan Richards, president and chief executive officer of E. F. Hutton Life Insurance Co: The maximum guideline level premium under TEFRA for a male age 35 purchasing our universal life policy is $15.33 per thousand of insurance.
    • By contrast, the average level premium for participating whole life insurance sold by 25 of our larger competitors is $21.92 per thousand, and that is 43 percent greater.
    • Furthermore-and I find this most interesting-the actual average annualized premium received by Hutton is considerably less than the $15.33.
  • Actually, since TEFRA it has been $9.46.
  • I think these numbers clearly demonstrate that universal life is not an investment.

1983 0510, 0511 and 0728 – GOV (House) – Tax Treatment of Life Insurance, Pete Stark (D-CA)  —  [BonkNote]

Premiums

  • Richard Weber, Merrill Lynch Life … suggested that the illustration show … how the policy values are paying the premium.
  • Mr. Morgan said that this issue needs specific attention because many complaints were received in the state insurance departments on this issue.  (p521)

1994-3, NAIC Proceedings – Life Disclosure Working Group – NAIC

  • Example 2 – 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 

  • “‘(b) The term “premium” shall include the amount specified in the policy as the stipend to be paid by the insured at regular intervals during the period therein stated.” (p15/7414)

1942 0924 – Congressional Record – Senate – [link]

  • For most plans, however, the GMP should be equal to the GLP from TEFRA.
    • [GMP – Guaranteed Maturity Premium – NAIC, Universal Life Model Regulation]
    • [GLP – Guideline Level Premium – Congress, IRS, Contract]
  • The Model Regulation assumes that future premiums will be paid at the whole life level, and calls this premium the GMP [guaranteed maturity premium]

—  Shane Chalke

1984 – SOA – NAIC Update, Society of Actuaries – 24p

  • Equity Risk Premium – ICS – Capital Standards
    • 2019 – AIA /IAIS – Three Bucket Approach – 9p
      • Currently the Insurance Capital Standard (ICS) makes no allowance for the spread over the risk free rate that is produced by equities
      • This is despite the fact that it is widely accepted that equities earn more than risk-free assets over the long term
      • This spread is commonly referred to as the equity risk premium and has been widely discussed in academia by financial economists and other experts
  • 1991-4, NAIC Proceedings –  premium def naic over 60

    • Definitions: The following terms used in the above chart are defined as:

      • 1. Premiums – Amount you must pay each year to keep this policy in force.

  • [Limits on premiums, TEFRA??, GMP]
  • Ted Becker of the Texas State Board of Insurance also said the group had questions on whether or not some limitations should be put in the contract as to the total amount of future premiums to be accepted.

2. Report of Universal Life Advisory Committee

1983-2, NAIC Proceedings

  • A regulator had told them that in that case they should not treat their universal life as though it was a whole life policy matured by paying the GMP [Guaranteed Maturity Premium].
  • Rather, you should assume that people will pay the guideline level premium, and that will give you a policy that provides guaranteed coverage for something less than the whole of life.

—  Daniel J. McCarthy

1999 – SOA – Valuation Actuary Symposium, Society of Actuaries – 28p

  • Guaranteed Gross Premium – [Bonk: Same as Guaranteed Maturity Premium?]
  • For purposes of determining the guaranteed gross premiums used in the demonstration in Section 6.B.2:
    • a. For universal life policies, the guaranteed gross premium shall be the premium specified in the contract, inclusive of any applicable policy fee, or if no premium is specified, then the level annual gross premium at issue that would keep the policy in force for the entire period coverage is to be provided based on the policy guarantees of mortality, interest and expenses; and
    • b. For policies other than universal life policies, the guaranteed gross premium shall be the guaranteed premium specified in the contract, inclusive of any applicable policy fee. (p20-25)

202x – NAIC Valuation Manual

  • Commissioner Willis (DC) said the trouble with disclosing that the premium might at some point “resume” is that the premium never stopped.
    • It is misleading to make a consumer think the premium is not being paid.
    • [Bonk: Vanishing Premium, Policy Mechanics, Cash Flow, Work)

1994-3, NAIC Proceedings

  • Related:
  • Universal Life Insurance Model Regulation (#585):
  • Guaranteed Maturity Premium (GMP)
  • Guaranteed Maturity Fund (GMP)
  • r-ratio
    • “The letter “r” is equal to one, unless the policy is a flexible premium policy and the policy value is less than the guaranteed maturity fund, in which case “r” is the ratio of the policy value to the guaranteed maturity fund.”
    • “Every universal life insurance policy of which the drafters are aware has a “net level premium” that could be computed which would guarantee permanent protection.
    • “As a result, it is expected that most universal life insurance policies will be sold as permanent plans.”
  • …the “premium outlay” terminology was changed to “net payment.”

1981 – SOA – Individual Life Insurance Cost Disclosure Issues, Society of Actuaries – 22p

  • The thrust of this development says the deal needs to be articulated.
    • This deal has several components, and one is with respect to premiums.
    • If they are not guaranteed or fixed, there needs to be an understanding of how they can vary.

—  Walter S. Rugland

1996 – SOA – Nonforfeiture Law Developments, Society of Actuaries – 23p

  • Media – USNews
  • 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

Premiums – Actuarial vs Not Actuarial?
https://actuarialtoolkit.soa.org/tool/glossary —  “actuarial terms and definitions”

 

Actuarial – Gross Premium, Net Premium

Not Actuarial? – Planned Premium, Target Premium, Scheduled Premium, Guideline Level Premium, Guideline Premium, Guaranteed Maturity Premium, 

  • And the fourth is the phantom premium;
    • …that is, the difference between the maximum premium and the current premium for an indeterminate premium life policy
    • and the difference between the maximum cost of insurance versus the current cost of insurance for a Universal Life policy.
  • The question is whether or not this difference is a dividend.

— William R. Britton, Jr.

1983 – SOA – Individual Life Insurance, Society of Actuaries – 22p