1996, NAIC Proceedings
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?
See Question 7.9. Either may be illustrated as long as the insurer discloses the effect of what is illustrated.
- CHRISTIAN J. DESROCHERS
- JOHN T. ADNEY
Life Insurance and Modified Endowments Under Internal Revenue Code Sections 7702 and 7702A, Christian J. DesRochers, FSA, John T. Adney, et al.
MR. EDWARD P. MOHORIC: With regard to new business, certainly on annuities, a
way to avoid the minimum guarantee problem in the future is to have products with a
lower rate guarantee like 3%. With the new nonforfeiture law it might be as low as
2.5%. With life insurance you really don't have that option because of Section 7702.
I'm curious as to whether anyone is up to date or knows the IRS status in terms of
reviewing Section 7702 to allow something other than 4% for your premium test.
I had heard the IRS is looking into it. I don't know if that means that it is going to
come up with something next month or in 1999.
MR. CROWNE: t think it does point to a need for some kind of dynamic rate for the
MR. BRUCE D. SCHOBEL: The Internal Revenue Code's definition of life insurance (in
section 7702) includes premium limits that are determined by using interest rates that
cannot be less than 4%. At lower guaranteed rates, a contract's premiums could be
too high for the contract to qualify as life insurance under the law. Unfortunately, the
minimum interest rates are set by the statute, not by the Internal Revenue Service.
The only way to change the rates is to change the law; the IRS cannot do it by regulation or ruling.
1994 - LONG-TERM MINIMUM INTEREST RATE GUARANTEES, Society of Actuaries
MR. 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?
MR. BERLIN: 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 - Implications Of The New CSO Mortality Table, Society of Actuaries