Premium Payment Options

  • 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 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.

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

  • Universal Life Modeling Example
  • Funding Levels 
    • Universal life plans offer the policyholder great flexibility in their use of the plan -- from a term plan to an investment vehicle.
  • The funding level affects:
    • 1. Universal life commissioners reserve valuation method reserves -- In particular the r factor is the ratio of the actual fund value to the guaranteed maturity fund.
    • Since r is capped at 100%, using a ratio based on the average fund for all policies may not produce the actual reserve.

1994 - SOA - Valuation Actuary Symposium - Session 8 - Life and Deferred Annuity Liability Models - Society of Actuaries - 32p

  • 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 

  • Many insurance contracts offer the policyowner options regarding premium payment, benefit patterns, and policy loans.
  • This flexibility means that many different patterns of future cash flow could arise under the contract. (p6)

2002 09 - AAA - Fair Valuation of Insurance Liabilities: Principles and Method, American Academy of Actuaries - 48p

  • Carriers marketed interest rate-sensitive insurance under a host of premium payment options, including the `vanishing premium' plan.

2009 -  LC - Kaldenbach v. Mutual of Omaha - Court of Appeals of California, Fourth District, Division Three. 78 Cal.App.4th 830 (2009) 100 Cal.Rptr.3d 637 - Google Scholar-Kaldenbach-2009

  • Persons seeking life insurance for the Whole of Life have several choices: they may...
    1. buy a one-year renewable term contract and renew it annually, paying the full cost of insurance for each year
    2. buy coverage for the insured's life with a single premium payment, or 
    3. buy coverage for the whole of life under some type of installment arrangement.  (p47)

1984 - Book - Life Insurance: Theory and Practice, Robert I. Mehr