Expense Allowance

  • Elizabeth MacGowan - Trial - Walker v Life Insurance Company of the Southwest
  • The Model Regulation specifies that the expense allowance shall be that for level premium, level death benefit endowment insurance at the maturity date.
    • The rationale for choosing a "whole life" expense allowance of this sort was thought out carefully.
    • It was felt that most of these plans were sold as a substitute for traditional forms of permanent insurance.
    • In addition, the expenses incurred in putting one of these policies on the books is comparable to plans where the whole life expense allowance is permitted.
    • Any expense allowance smaller than that for whole life would leave universal life plans at an unfair disadvantage in comparison to traditional plans of insurance.

--  Shane Chalke

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

  • The third area of change is the excess initial expense allowance in the Standard Nonforfeiture Law for Life Insurance.
    • This proposal adopts the recommendations set out by C.F.B. Richardson in his paper published in the Transactions of the Society of Actuaries, Vol. XXIX, 1977, p. 209.
      • [Bonk: 1977 - SOA - Expense Formulas for Minimum Nonforfeiture Values, by Charles F.B. Richardson, Society of Actuaries - 34p]
    • Briefly, the proposed amendments would change the excess initial expense allowance in the formula to reduce the minimum nonforfeiture values for most permanent policies.
      • For level-premium whole life insurance the formula for computing the excess initial expense allowance would be changed from 65% of the adjusted premium plus $20 per $1000 to 125% of a net level nonforfeiture premium plus $10 per $1000.
      • For non-level-premium policies, the proposal would make the initial expense allowance much less dependent on the size of the first-year premium than it otherwise would be, thereby increasing the minimum nonforfeiture values for high first-year premium policies.

--  John O. Montgomery, California

1980 - SOA - Insurance Regulation and Legislation (rsa80v6n39), Society of Actuaries - 20p

  • The initial expense allowance shall be the allowance provided by [insert reference to Section 5 or 5cA of the Standard Nonforfeiture Law for Life Insurance] for a fixed premium, fixed benefit endowment policy with a face amount equal to the initial face amount of the flexible premium universal life insurance policy, with level premiums paid annually until the highest attained age at which a premium may be paid under the flexible premium universal life insurance policy, and maturing on the latest maturity date permitted under the policy, if any, otherwise at the highest age in the valuation mortality table.
  • The unused initial expense allowance shall be the excess, if any, of the initial expense allowance over the initial acquisition expense charges as defined above.

--  Universal Life Model Regulation (MDL-585) - NAIC

  • 1956 - SOA - A New Look At The New York Expense Limitation Law, by Allen L. Mayerson, Society of Actuaries - 57p
    • It has been the subject of two papers in the Transactions of the Actuarial Society of America.
      • Mr. M. A. Linton, in "Section 97--New York Law, Revision of 1929," TASA XXX, 109, discussed the amendments to the law which were made in 1929 - <WishList>
      • Mr. Daniel J. Lyons discussed the 1948 amendments to section 213, and some of the weaknesses in the law as it then stood, in "Expense Limitations in Section 213 of the New York Insurance Law," TASA XLIX, 27 - <WishList>
  • 1977-1, NAIC Proceedings - (p660) - ATTACHMENT 4 - Statement by Industry Advisory Committee on Art. VI, Sec. 21 - August 6, 1973 [7-?]
    • At age 25, for example, on the whole life plan the initial expense allowance provided under the Standard Nonforfeiture Law is $28 per $1,000 of coverage.
  • 1977-1, NAIC Proceedings - Initial Expense Allowance - ATTACHMENT D - Linkage of Nonforfeiture Values With Valuation Reserves - Prepared By The Society of Actuaries Special Committee on Nonforfeiture Values
  • 1978 - SOA - Adjustable Life Products (rsa78v4n33), Society of Actuaries, Moderator: Samuel H. Turner - 14p
  • 1978 - SOA - Expense Assumptions, Society of Actuaries - 16p
  • 1979 - SOA - Adjustable Life Expense Allowances Under The Commissioners Reserve Valuation Method [CRVM],  Society of Actuaries - 36p
  • 1982 12- AP - New York Regulation of General Agency Expense Allowances, by Scott E. Harrington, The Journal of Risk and Insurance. Vol. 49, No. 4 (Dec., 1982), pp. 564-582 - 
  • Universal Life Model Regulation (MDL-585)
  • 1977-1, NAIC Proceedings - Initial Expense Allowance
  • ATTACHMENT D - Linkage of Nonforfeiture Values With Valuation Reserves - Prepared By The Society of Actuaries Special Committee on Nonforfeiture Values
    • 6. Recommendation. Base excess initial expense allowances on levelized net premiums rather than first year adjusted premium. Reason. To produce identical excess initial expense allowances for policies with identical benefits and identical premium paying periods. Arguments and Positions. NAIC recognizes the need for special treatment of unusual products both good and bad. NAIC feels further testing of such products is needed with provision for approval or disapproval under some other section of the law such as the Fair Trade Act and disclosure legislation. Change Law Section. Section S-c.
    • 8. Recommendation. Base excess initial expense allowance on the automatic track for multi-track policies. Allow for additional initial expense allowance on increase in premium at point of increase. Reason. It would be unfair to force all companies into lowest possible expense posture to control a limited number of abuses. At time of premium increase there are additional sales and underwriting expenses. Arguments and Positions. NAIC will test examples of multi-track policies using conclusions 5 and 6. Change Law Section. Section 5-c.
    • 9A. Recommendation. Base excess initial expense allowance for life-cycle and open policies on similar approach to that used for multi-track policies with additional allowances on increases. Reason. See 8 above. Arguments and Positions. NAIC notes that individual policy pension trust and key man insurance and other kinds of policies to be considered in the open category. Change Law Section. Section 5-c.
  • The problem is that it is not possible under the CRVM method to predict a pattern of initial expense allowances because they are dependent upon the plan of insurance, premium, and age.
  • The ideas underlying an alternative are as follows:
    • The policyholder would select the level face amount and specify the initial premium which would apply for a predetermined period of, say, 10-15 years.
    • The plan of insurance would always be modified-premium whole life.
    • The Company would solve for the premium required beyond the initial period.
    • At a subsequent adjustment date, a new initial premium would be payable for a similar predetermined period beyond the date of adjustment.
    • Thus, the plan would always be modified premium whole life at issue, and there are three possible premiums -- the selected premium, the completion premium, and, of course, the unscheduled premium.

1978 - SOA - Adjustable Life Products (rsa78v4n33), Society of Actuaries, Moderator: Samuel H. Turner - 14p