Guideline Level Premium

The suggested rule keys this aditional
exemptive relief to a "guideline annual
premium."

This concept is defined as the
level annual premium, payable to the
highest attained age at which a premium
may be paid, that would provide the
future benefits under the policy based
on (i) the 1958 Commissioners' Standard
Ordinary Mortality Table, (ii) an
assumed interest rate of four percent,
and (iii) the expenses specified in the
policy. 6

In short, Petitioner <ACLI> states, the
guideline annual premium equals the
annual premium necessary to keep the
policy ·in force for the life of the insured.

Federal Register / Vol. 48, No. 231 / Wednesday, November 3~, 1983

https://www.govinfo.gov/content/pkg/FR-1983-11-30/pdf/FR-1983-11-30.pdf

  1. 1996-1006 NAIC Proceeding
    1. 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?
    2. See Question 7.9. Either may be illustrated as long as the insurer discloses the effect of what is illustrated.

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

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 - 1999 Valuation Actuary Symposium - Session 44, Society of Actuaries - [PDF-28p]