Q: Who Can Explain How Life Insurance Policies Work?

  • The insider joke about indexed universal-life policies is that it takes an actuary, an attorney and maybe even an engineer to understand how the product works.
    • Some regulators worry that hypothetical projections of savings growth using these indexes are overly rosy and can lead to unrealistic consumer expectations.
    • If a projection proves faulty, a buyer could be stuck with an unaffordable insurance bill.

2022 1224 - WSJ - Stock Selloff Hits Life Insurers’ Fastest-Growing Product Indexed universal-life policies grew with low rates and soaring markets, by Leslie Scism - [link]

  • Academics
    • [  ] - 2003 07 - Journal of Financial Planning - In-Force Policy Illustrations: A Financial Planning Tool, by David R. Lange, Ken G. Himes and Steven T. Jones
      • <WishList - Nicer Copy> 
    • 2018 1118 - No. 294: Universal Life Policies—a Disaster for Life Insurance Companies and Their Policyholders, by Joseph Belth - [link]
      • [  ] - Detailed discussions of the history and operation of universal life may be found in college-level insurance textbooks. See, for example, pages 70-76 in the 15th edition of Life Insurance, by Kenneth Black Jr., Harold D. Skipper, and Kenneth Black III.
      • 2015 - Book - Life Insurance, by Black, Skipper, Black-  Huebner Series - Universal Life - p70-86 - 17p
  • Accountants /  CPA
    • 2003 0131 - Journal of Accountancy - Understanding Life Insurance Illustrations - How to make sense of it all, by Neil Alexander - [link]
    • Ed Slott - 2014 0219 - Ed Slott IUL Tax Free Retirement - on PBS - Public Broadcasting Service - [VIDEO-YouTube-5:14]
      • - CPA Ed Slott on Tax Free Retirement Using Life Insurance - [VIDEO-YouTube-34:52]
        • It's all about the Taxes
        • 1:40 - "I don't sell it and I'm no expert in how all the various life insurance contracts work... That's why there are life insurance professionals that you need to work with to fill in all the details. I do know the end result"
          • Car example..... I know it gets you there, but I don't know how the engine works.
  • Actuaries
  • Agents / Sales
  • Consumer Books
    • Life Insurance for Dummies
  • Lawsuits
    • Company Lawyers
      • 2003 0203- LC - Fay v. Aetna - Doc 65 - Defendant Aetna Life Insurance And Annuity Company's Response To Plaintiffs' Separate Statement of Additional Undisputed Material Facts - 01-cv-10846 - 32p
        • 20. Aetna does not dispute that Mr. Pflugfelder described the Policies as "permanent insurance."  He did so correctly, as Plaintiffs concede.
        • 21. Aetna does not dispute this paragraph, but adds that Plaintiffs never asked what the term "permanent insurance" means. - Page 6 of 32
      • 2003 0203 - LC - Fay v. Aetna - Rebuttal Report of Mr. Affleck by Donna R Claire - 2001cv10846 - 22p
        • Mr. Affleck states that using the term "permanent" is "deceptive" with regard to universal life insurance.  - [Mr. Affleck = Plaintiff Expert Witness]
        • Universal life is considered "permanent insurance" in the industry.
          • For example, a governmental website for seniors, maintained by the Social Security Administration, has the following definition "Permanent Insurance -- including whole, ordinary, universal, adjustable and variable life -- is protection that can be kept in force for as long as you live."8
          • 8 http://www.seniors.gov/retirementplanner/Iife_insurance.html - Bad Link
          • 1987 - newspapers.com/article/the-dawson-springs-progress/155317218/  - A consumer's guide to life insurance -
          •   02 Jul 1987, Thu The Dawson Springs Progress (Dawson Springs, Kentucky) Newspapers.com
          • [Bonk: 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
            • Whole (or universal) life insurance policies are considered permanent.
            • As long as you pay the premium, the policy is in effect.  (p32)
      • 2003 0227 - LC - Fay v. Aetna - Doc 65 - William Hager (Former Iowa Insurance Regulator) - Deposition - Excerpt - Doc 65 - V1p1-46 - 01-cv-10846 - 1p - <WishList - Complete Deposition>
        • Page 29 - Q. What did the committee do, then?
          • A The committee dealt with national insurance issues. Specific to this case, the committee dealt with issues relating to illustrations. Misrepresentations in illustrations during this period of time was a significant issue.
        • Page 32 - Q. As chair of the life insurance product development task force, you led the development of model disclosure statements for  ---  [Bonk: End of Excerpt]
        • [Bonk: CIDWG - Consumer Issues Disclosure Working Group - (A) - NAIC  ---  [BonkNote]]
          • 1990-1A, NAIC Proceedings - NAIC / LIMRA - Universal Life Disclosure Form Test Market Results - CIDWG -Consumer Issues Disclosure Working Group  ---  [BonkNote]  ---  10p
          • 1993 - NAIC - Policy Information for Applicant - Universal Life Policy - 3p
            • Life Insurance Disclosure Model Regulation - Appendix D
            • Located in: 1993 0525 - GOV (Senate) - When Will Policyholders Be Given The Truth About Life Insurance?, Howard Metzenbaum (D-OH)  ---  [BonkNote]
      • 2010 0526 - LC - Blumenthal v. New York Life - 08-cv-00456 - 82-1 - Defense - Expert Report - 23p
  • Companies
    • A. L Williams / Primerica
      • 2019 - EntreLeadership - [Dave Ramsey] - How To Change Your Life and Your Business - Art Williams - [VIDEO-YouTube-54:47
        • 8:15 -They did everything they could possibly do to put A.L. Williams out of business. But the industry had to defend things that were indefensible.
        • They had to defend selling a fraud.
        • They sold a Cash Value Life Insurance Product whether it was called Whole Life or Universal Life or any of that stuff out there - there were two Benefits locked together in one Contract. - Insurance and Savings. You pay for 2 things, but you only got one.
          • If you died, your family got the Life Insurance Benefits, but they kept your Savings.
          • If you wanted you Savings, you had to Surrender your Life Insurance.
          • A.L. Williams separated that. Split-Funding we called it.
            • Where you bought an Insurance Policy, a Cheap Term Insurance policy from an Insurance Company and you Invested with an Investment Company. You paid for two things and you got both things.
        • Next, they had to defend you lose your Savings if you die.
          • Let me ask you this - What kind of Low Life Scum Sucking Dog could create a product like that? A Savings program you lose if you die. 
        • 10:15 - Number one - We Destroyed Trash Value
      • 2013 0827 - Team Freedom - Team Freedom Systems: Universal Life vs. Buy Term & Invest the Difference - [Jeff Fieldstad] - [VIDEO-YouTube-11:54]
    • MetLife -
      • 1982 - ABA - Universal Life Insurance: Legal, Regulatory and Actuarial Aspects, by Alan Lazarescu and Harold Leff - Metropolitan Life, American Bar Association, The Forum, Vol. 17, No. 4 - 13p 
    • 2019 0528 – IULSG – IUL Illustration Subgroup – (A) – NAIC
      • Fred Andersen (MN) - one company has offered to demonstrate to regulators how their illustration works.
  • Industry
    • ACLI - Brian Bayerle, Michael Lovendusky, 1980s, Government Hearings
    • Actuaries / ACLI- Actuaries can do lots of things. We can provide the field with a clear description of the policy and how it works.
      • Bruce E. Booker, Life of Virginia, a member of the American Council of Life Insurance (ACLI) Task Force on Cost Disclosure and the National Association of Insurance Commissioners (NAIC) Advisory Group on Illustrations
    • NAIFA / NALU
      • 1994 0308 - NYT - Regulators Seek Limits on Insurer Sales Pitches, by Michael Quint  ---  [BonkNote]  ---  [link
        • [NALU - NAIFA] - William N. Albus, senior general counsel for the National Association of Life Underwriters, which represents life insurance sales agents, said illustrations of future benefits "are essential to explaining how a policy works."
          • He suggested that agents should be allowed to project current dividends into the future and include an example of how a policy would look if its dividends were reduced by one percentage point.
      • LC - Walker v LSW 
      • Scott Harris
  •  Media
    • Leslie Scism
  • NAIC - Other
    • Richard Wicka, Mary Mealer
  • NAIC - Actuaries
    • 2011 0211 - LC - Thao v. Midland National - Document 34 - Declaration of Robert E. Wilcox in Opposition to Plaintiff’s Motion For Class Certification - 09-cv-1158 - 44p
      • Robert E. Wilcox - Former Utah Insurance Commissioner and Chairman of the LDWG - Life Disclosure Working Group - (A) - NAIC
      • p6 - A. The Black Box of Life Insurance
        • 6. Life insurance contracts are circular, interrelated series of cash flows into, out of, and within a policy.
        • There are innumerable ways to establish these cash flows...
      • p7 - B. Basic Structure and Operation of Life Insurance Contracts
    • Fred Andersen (MN)
    • Tomasz Serbinowski (UT)
    • Teresa Winer (GA)
      • 2019 0917 - LIIIWG - Life Insurance Illustrations Issues Working Group - (A) - NAIC  ---  [BonkNote]
  • Other / Consumer Representatives / Academics / Independents / Agent / Interested Party
  • 2023 0321 - NAIC/Consumer Liaison Committee - 6p
    • (p3-4) - Richard Weber (Life Insurance Consumer Advocacy Center—LICAC)
    • 5. Heard a Presentation Calling Attention to the Dilemma of Current Assumption Policy Illustrations
      • Weber provided some simple graphic views of variable universal life policies and said an illustration showing a $5,900 annual premium with an illustrated rate of return of 10% had only an 8% probability of success of actually covering a policyholder until age 100.
      • Weber said consumers should buy policies based on the probability of success rather than the lowest premium. Weber said a policy with a constant illustrated rate of return of 4.4% would need an annual premium of $16,500 to reach a 99% probability of success.
  • (p170) Mr. Brosnahan said: Well, the fees can cause policies to lapse. Is that a secret?
    • I mean, fees cost something. That's the point of fees. If someone puts money into their policy, there will be fees, as they know, coming out of those policies.
    • If you don't put enough premiums into your policy, over time the fees will keep decreasing the value of the policy. That's what fees do.
    • That's not a defect in the policy. That's how policies work. 
  • (p171) - The fact that we charge people fees that we have disclosed and that fees reduce the value of your policy, and if your policy keeps reducing in value, it will lapse, is not a fraud.
    • That's common sense. That's how life insurance works.

2014 0425 - LC - Walker vs Life Insurance Company of the Southwest, LSW - DOC 813 - Trial Transcript - 224p

  • I'm here to talk to you specifically about a meeting that was held in March 2000 with the Federal Reserve at the Federal Reserve Bank in Boston.
    • As the Federal Reserve became more aware of the potential role that it might have in insurance and insurance regulation, it parceled out some of its responsibilities.
    • It gave to the Boston Bank the primary role with regard to regulation of banks and insurance.
  • That afternoon, actuaries from John Hancock came in to make a presentation on life insurance actuarial issues.
    • All of this was done in an effort to educate skilled bank regulators.

--  Robert E. Wilcox,  member of the Actuarial Standards Board, Current Former Utah Insurance Commissioner and Former Chairman of the Life Disclosure Working Group (NAIC)

2000 - SOA - Enhancing Actuarial Input at the Federal Level on Life Insurance Issues, Society of Actuaries - 20p

  • Universal Life is a ratebook and more, all by itself. If you say you have Universal Life, you in fact have more of a product than you probably have in your current portfolio at the present time.

--  Thomas F. Eason

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

  • C. Universal Life
    • From the beginning, a necessity for successful marketing of universal life has been the ability of the seller to illustrate the performance of a policy tailored (within policy limits) to the needs and resources of the prospective purchaser.
    • 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.  Each one is different.
    • Any system of policy illustrations will have some limitations on this flexibility. (p151)

1991-1992 - SOA - Final Report* of the Task Force for Research on Life Insurance Sales Illustrations, Society of Actuaries - 142p

  • Let's review the basic mechanics of Universal Life.
    • The first thing that has to occur is a premium payment.
      • A premium may be paid at any time and in any amount desired.
    • Whenever a premium is paid, loads are deducted from that premium.
    • The balance is added to a fund.
    • On a monthly basis, cost of insurance charges are deducted from the fund.
    • Expense charges may be deducted from the fund, especially in the early policy years, and interest is added to the fund on a monthly basis.
    • The cash value changes each month based on the net impact of the income and deduction transactions.
    • 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