Non-Guaranteed Elements

  • He <Richard Minck, ACLI> said the most striking change in life insurance in past years was in the non-guaranteed elements.

1994-1, NAIC Proceedings

  • Up until 15 years ago, the deal was generally in the contract, but now, a large part of the deal is not in the contract.
  • It is outside the contract because now we have a nonguaranteed element.

--  Tom Foley <Regulator> 

1996 - Nonforfeiture Law Developments, Society of Actuaries - 23p

  • 3) Since Universal Life is an "unbundled" product, the cost of each of the elements is disclosed to the buyer.
  • Consumers have demonstrated their unwillingness to commit dollars to heavily loaded products.

1982 - The Universal Life Update - Society of Actuaries (rsa82v8n22) - 16p

Our Lexington report alluded to the controversial issue of nonguaranteed. policy element illustrations.

  • Currently. the issue is being addressed by four different groups:
    1. this task force;
    2. the Life Insurance (A) Committee's Cost Disclosure Task Force;
    3. the American Academy of Actuaries Task Force on Nonguaranteed Elements; and
    4. the American Council of Life Insurance's Subcommittee on Cost Comparisons.

For this reason, subsection 14(b) should await the consensus of opinion on this issue at the December meeting.  (p137)


  • Rules Governing the Advertising of Life Insurance and
  • Life Insurance Products Coupled with Annuities

1987-2, NAIC Proc.

  • The group first considered a suggestion from Chris Kite (FIPSCO) for a new type of index that would allow consumers to compare the assumptions in the illustration.
  • Brenda  Cude (Cooperative Extension  Service) opined  that  the  target  audience does not care about assumptions.

-- Report of the Cost Indices Subgroup of the Life Disclosure (A) Working Group

1996-3V2, NAIC Proceedings - (p931)

  • 1987 01 - Non-Guaranteed Elements - Actuarial Update - William Tozer
  • Establishes standards for determining or adjusting non-guaranteed elements for life policies and annuity contracts issued in NY

Non-Guaranteed Elements: NY Reg. 210 - Effective March 19, 2018

Actuarial Standards Board

The following items are typically considered Non-Guaranteed Elements in a flexible premium UL contract:

  • Monthly contract charges and policy loads
  • COI charges
  • Spreads on credited interest rates vs. the actual investment earned rate

2006/12 - AAA to NAIC - Report on Valuation Effects of a Principle Based Approach (“PBA”) For Accumulation Type Universal Life
From the American Academy of Actuaries’ Life Reserves Work Group Modeling Subgroup, Presented to the National Association of Insurance Commissioners’ Life and Health Actuarial Task Force San Antonio, TX – December 2006

  • Commissioner Wilcox also spoke favorably of a new provision in California where the illustration of non-guaranteed elements must show the lesser of the amount being currently paid, the amount the company is currently earning, or the amount the company can expect to earn.

1994-3, NAIC Proceedings

  • Up until recently, this has been a satisfactory approach since dividends were essentially the only non-guaranteed element in the marketplace.
  • This is no longer true and the Equivalent Level Annual Dividend needs to be replaced by a non-guaranteed element.
  • The Non-Guaranteed Element would be the difference between the cost index on the highest possible cost basis and the cost index on the currently illustrated non-guaranteed basis.
  • For most plans, the Non-Guaranteed Element for the surrender cost index and the payment cost index would be the same.
  • However, this is not always true.
  • When the elements are not the same, a separate element should be calculated for each cost index.

Suggestive modifications of cost indexes for various products are as follows :


  • ... could we use some of the Society of Actuaries resources to do some educational pieces, such as a videotape?
  • I'm not sure a booklet does it.
  • But a videotape that talks about the Society of Actuaries, utilizing Society of Actuaries resources.
  • We are a research body and an education body to help educate the public on why these are not guarantees, and how they should be looking at these in terms of flexibility.
  • I'm not talking about numbers now.
  • I'm talking about perceptions and concepts regarding the nonguaranteed elements of a contract.


1992 - LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries - 16p

  • 14. Smith did not explain to me in July (or at any other time) that the Universal Life Policy was sensitive to interest rates or crediting rates or that a decline in those rates could effect the amount of the premiums or the amount of use death benefits.
  • Smith never provided me with any other illustration to show how the policy would perform at lower interest rates or crediting rates.
  • Smith never discussed the possibility that additional premium outlays might ever be due, other than those illustrated in the July 1990 Lotus Spreadsheet illustration.

1999 - 

Case 2:95-cv-03566-JFW-EX Document 249 Filed 07/29/99 Page 94 of 225

  • Other illustrations were prepared which reflected the impact of declining interest crediting rates on policy lapse ages and were included in materials furnished to Mr. McCarthy.
  • The July 1990 Lotus spreadsheet illustration, though, only demonstrated what would, occur under current interest crediting rates.
  • No particular emphasis was placed on the possibility of interest crediting rate decline because actual rates had consistently met illustrated rate projections.

-- Statement of Agent

Case 2:95-cv-03566-JFW-EX Document 249-1 Filed 07/29/99 Page 14 of 160

What do we have?

  • In some ways, it is an industry victory; nonguaranteed elements are still allowed in illustrations. I recall that at one point they were really talking about eliminating all nonguaranteed elements from illustrations.”“
  • I am on this panel principally as Chairman of the ACLI Subcommittee on Cost Comparisons.
  • Much of our work has dealt with the issue of illustrating Nonguaranteed Elements.
  • As a backdrop, I want to quote from a January 1988 Financial Planning article.
  • The article is entitled "Future Shock" by Harry Lew with the sub-heading: "What will happen when a generation of insurance buyers begins comparing unrealistic illustrations with the actual performance of their policies? Industry leaders would prefer not to find out."
  • The article goes on to say that "... veterans of the insurance industry are quietly expressing concern about the way illustrations are being used in today's market."
  • Often the numbers on the computer printout contain nonguaranteed projections on how the policy will perform in future years and tend to convince the client he is getting a better deal than he really is.
  • Some have gone so far as to call even well-designed illustrations the industry's "great lie."
  • Agents who continue to give much credence to nonguaranteed projections may be setting themselves up for a fall as policies fail to live up to the expectations of a whole generation of insurance customers.


Credibility of Illustrations

  • (* By "non-guaranteed pricing elements," we mean either the dividends in a traditional participating policy or any
    elements subject to change at company discretion - such as premiums, interest rates, and mortality charges-----in the so called non-traditional policies that have come to the fore recently.)

1987-1, NAIC Proceedings

4. Proposed Adoption of Amendments to Model Rules Governing the Advertising of Life Insurance

Dick Rogers (Ill.) presented a report on behalf of the Life Insurance Advertising Issues Subgroup.

  • He indicated that the model had been exposed for nearly a year and is presently ready for adoption (Attachment 'I\vo).
  • Mr. Rogers indicated that several minor amendments had been added to the draft since Pittsburgh meeting on Sept 13.
  • He stated that the language at Section II, paragraph 6 regarding "Nonguaranteed Policy Element" may be in need of further study.
  • While Mr. Rogers indicated that the language was acceptable and intended, recent discussions have indicated that there may be potential loopholes that will be created.
  • He asked that it be noted specifically that it was the intent of the subgroup to re-examine the language but that it should currently stand for adoption at this time.

198x?, NAIC Proceedings

Section 4.  Definitions

  • D. “Nonguaranteed elements” means the premiums, credited interest rates (including any bonus), benefits, values, non-interest based credits, charges or elements of formulas used to determine any of these, that are
    subject to company discretion and are not guaranteed at issue.
  • An element is considered non-guaranteed if any of the underlying non-guaranteed elements are used in its calculation.


  • Richard Minck (American Council of Life Insurance -- ACLI) .... suggested having examples of what illustrations would look like with past performance and future guarantees to see if this was what the working group intended.
  • He said the most striking change in life insurance in past years was in the non-guaranteed elements.

1994-1, NAIC Proc.

  • What I'm thinking about in particular is, Universal Life companies, back in the early 1980s, were illustrating interest rates that we all knew were not realistic long-term." 



The thrust of this development says the deal needs to be articulated.

  • This deal has several components, and one is with respect to premiums.
  • If they are not guaranteed or fixed, there needs to be an understanding of how they can vary. 

--  Walter S. Rugland:

1996 - Nonforfeiture Law Developments, Society of Actuaries - 23p

  • The difference in these two indexes would be the Non-Guaranteed Element. 



Mr. Albus said:

  • there was a need to illustrate non-guaranteed elements, but consumers must understand that they are not guaranteed.
  • He thought it was a good idea to tighten up the parameters of assumptions.
  • He said his group was working on the concept of a sensitivity index to allow consumers to see what would happen when assumptions changed to a small degree.

--  William Albus (National Association of Life Underwriters -- NALU)

1993-3, NAIC Proceedings

Jack Turnquist (Actuarial Standards Board) said

  • his organization had held a public hearing in March because of concern about abuses in illustrations and concerns about how non-guaranteed elements were being illustrated.

1993-4, NAIC Proceedings

  • The accuracy of these projections depends, among other factors, on how well the assumptions and estimates represent actual experience in the future."  (p9)

Statutory Valuation of Individual Life and Annuity Contracts | 5th Edition, Claire, Lombardi and Summers

  • Tony Higgins (N.C.) asked the working group to consider projections into the future for only a few years of the non-guaranteed elements, and then projections further into the future of standardized assumptions or guarantees.
  • Mr. Wright said this allows a company to show how its policy works without the problem of projections of non-guaranteed elements far into the future.
  • Lester Dunlap (La.) - He said projections far into the future can border on misrepresentation.

1994-3, NAIC Proceedings

  1. Actuarial
  2. Government
  1. Industry
    • ACLI
      • "In addition, the Subcommittee [ACLI Subcommittee on Cost Comparisons] is recommending disclosure for Universal Life plans in accordance with the "non-guaranteed cost element" concept endorsed by the Council as a modification to the model regulation. The only special requirement recommended for Universal Life plans is that the Policy Summary indicate when the plan will terminate based on guaranteed assumptions." 1981, “Universal Life,” 1981, Society of Actuaries
      • "The most obvious is if we fail policyholder expectations, we may have policyholder suits."  -- LARRY R. ROBINSON (Chairman of the ACLI Subcommittee on Cost Comparisons)
      • "He <Richard Minck - ACLI) said the most striking change in life insurance in past years was in the non-guaranteed elements." 1994-1 NAIC
  1. Law
  2. NAIC Proceedings
    • 1994-3
      • “Commissioner Wilcox also spoke favorably of a new provision in California where the illustration of non-guaranteed elements must show the lesser of the amount being currently paid, the amount the company is currently earning, or the amount the company can expect to earn.”
      • “4. Discussion of Model Limited to Illustration of Guarantees and Past Performance”
      • Assumptions.
        • Non-guaranteed elements will be based on separate assumptions for interest, mortality, lapse and expenses that are each not greater than the most conservative of:
  1. The rate reflected in the current credited scale;
  2. The most recent experience on the policy block; and
  3. The rate that can reasonably be expected on the policy block.

“Mr. Gorski <Regulator> :  They are complaints about things that we can’t do anything about because the contract might be a Universal Life type product with Nonguaranteed Elements, and there is no regulatory framework to deal with those issues. Those complaints just fall by the wayside because there is nothing that can be done. I think that the bottom-line suggestion is that nonguaranteed elements should be regulated (and I am using the word “regulated” in a very general sense) through this plan approach.”  


  1. Other
    • Google Search Results - About 76 results


1877 - The International Review: Volume 4

"The rate of interest at which the company computes that its funds will accumulate is not the current rate in the community, but a rate so low that it can be surely obtained as a minimum for generations to come. 

But the probabilities in any case are very great that, with good management, the mortality will be indefinitely less, the expenses less, and the interest greater than the estimates. The probability that all these margins will be lost, under such management, is inconceivably small."



New York Reg.210 Non-Guaranteed Elementsrf210txt



TEXAS house-insurance-COI-04122018




ACLI- Larry Robinson

AAA - William Tozer

1978-2 - Life Insurance (Policy Lapsation (C3) Advisory Committee