Policy Overview / Policy Summary / Cover page / Narrative Summary

George Coleman (Prudential) spoke next.

  • He said that the NAIC had formed a resource group last November to assist and recommend changes.
  • The resource group recommended a cover page to the illustration to include essential information about the illustrated policy.

 -- George Coleman

1993-3, NAIC Proc.

The Universal Life Insurance (A) Task Force - The regulation would address appropriate issues of regulatory concerns, including the following:

4. The manner in which prospective purchasers of such plans are fairly and accurately appraised of the nature of such plans....

1982 - NAIC Proc. II 359-360 - Universal Life Model Regulation - Citations

CURRENT

  • Birny Birnbaum - Policy Overview only applies when the consumer is shopping for the policy.
  • Michael Lovendusky (ACLI) - Whistling into the winds of change. These are Dynamic Contracts.

2018 - 10/19
LIIIWG CC - <Bonk>

 

EXAMPLES BELOW:

  • NAIC Proceedings
    • Model Regs
    • Working Groups
    • Advisory Groups
  • ACLI (American Council of Life Insurers)
  • Legal Cases
  • Actuarial
  • Academic
  • Society of Actuaries

ULMR - R ratio

Guaranteed Maturity Premium

Guideline Level Premium

  • In essence, the model regulation <Universal Life Model Regulation> assumes that at issue, all universal life policies are permanent plans.
  • The r-ratio is meant to measure the extent to which the policy is on track" as a permanent plan.

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

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.

1991-1992 - FINAL REPORT* OF THE TASK FORCE FOR RESEARCH ON LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries - 142p

1970s

1973 - Feb 21


II. Complexity of the Problem

As evidence of the complexity of the problem, I am attaching Exhibit II which shows that, in the last fifty years, No Less than 21 different attempts have been made to solve this problem.

STATEMENT OF STANLEY C. DUROSE, JR.

(COMMISSIONER OF INSURANCE - WISCONSIN) ON BEHALF OF THE (NAIC) NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS BEFORE THE SUBCOMMITTEE ON ANTITRUST AND MONOPOLY LEGISLATION SENATE JUDICIARY COMMITTEE - LIFE INSURANCE COST AND BENEFIT COMPARISONS

We came up with a new approach that is currently being evaluated for feasibility.
That is, each illustration would have a cover sheet that has four to six very basic
notes that sat the stage for what the illustration is all about. It starts with, "This is a
life insurance policy," and gives the generic name of the policy such as participating
whole life, universal life, second-to-die, etc. It describes when the death benefits are
paid. The cover sheet also describes the premiums that are required to be paid under
the policy on a guaranteed basis. If the vanishing premium concept is shown, It
would explain the concept of vanishing premium, deecdbe how it was sensitive to the
current assumptions, and describe how changes in the assumptions could affect the
vanish point. It would disclose any unique features of the policy, such as persistency,
bonuses, changes in the guaranteed values upon the first death, and structures of
term and accumulation units in the base policy. All things would alert the consumer
to some questions they should discuss with their agent so that they understand how
the program is being structured and the underlying sensitivities.

1993 - SALES ILLUSTRATIONS - WE CAN'T LIVE WITH THEM, BUT WE CAN'T LIVE WITHOUT THEM!, Society of Actuaries

1980s

  • I think we all would like more cost disclosure, but how do you make everybody in America a life insurance actuary, with two pages of descriptive material?

-- Senator Durkin (Former Insurance Commissioner)"

1980 0207 -  Federal Register

  • This section will describe the life insurance disclosure system (LIDS) which the task force has concluded will best meet its objectives and serve the consumer, the industry, and the regulators.

1981-1, NAIC Proceedings

"Suggested language which should accompany the illustration , must necessarily be brief.

We believe, however , that in all cases there should be an identification of the method of investment income allocation used , because of the significantly different illustrative result , in addition , each required exception statement that appears in the suggested Schedule ii would also need to be briefly summarized ."

1981 - Journal, American Academy of Actuaries

  • 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, Society of Actuaries

 

LEONARD E. ODELL: Due to the unique nature of universal life products, a number of states have issued guidelines governing the sale of such products

<South Carolina>.
2. The Policy Summary must contain a prominent statement to the effect that contract values may materially change due to variations in the mortality, interest, and expense charges and also the timing and amount of premium payments.

The Policy Summary must further indicate when the policy will terminate based on guaranteed assumptions if such is the case.


"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, Society of Actuaries

.... the policy summary should include a statement on the point at which the policy will expire based on the policy guarantees and the anticipated premiums shown in summary.
...Universal Life should be treated as a life insurance plan with a nonguaranteed cost element for cost disclosure purposes.

1982-1, (ACLI) presented a paper on cost disclosure for universal life products.

"I. Objectives of the New (A) Committee"

"a. Simple disclosure form for Universal Type Life products, as well as other simplified cost disclosure methods."

1982-2, NAIC Proceedings

Risks to Buyer

  • If assumptions change adversely investment performance can affect satisfaction of long-term goals and cash value can be lower than with Traditional products. (p99)

1987  - Life Insurance, Huebner, Black, Skipper

1988-2, NAIC Proceedings p559

Example2
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.

"Some of the items identified which should be disclosed:

(2) adequate disclosure of the fact that a premium quoted will not support the contract for the whole life if the policy is a Universal Life policy; 

1988-2 349, Universal Life Insurance Model Regulation, Proceeding Citations

"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
    1981UNIVERSAL LIFE, Society of Actuaries

1990s

  • To date, no state has adopted these forms <NAIC - Policy Information for Applicant - Universal Life>
  • Why this complete lack of action after all the effort in developing the forms?
  • One possible reason is that, during the early part of the year, state insurance departments are generally busy dealing with the  legislatures, which customarily are in session then.
  • Also, it takes a few months for new NAIC regulations to be officially published, distributed, and adapted for individual state use.
  • Many states also have been occupied with more urgent concerns, such as automobile and health insurance rates and solvency questions.

-- ANTHONY T. SPANO (ACLI)

1990 QUALITY OF LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries - 16p

  • If the contracts will not provide for coverage for life, for example, although they put the name whole life or universal life on them, some disclosure should be made.

--  JAMES F. REISKYTL

  • They are looking for a low premium for permanent insurance, and there are going to be some rude awakenings for the industry in the not-too-distant future.

-- MICHAEL J. ROSCOE

 

  • Anybody who believed an illustration that purported to demonstrate cost would be a foolish person.

-- THOMAS L. BAKOS

 

1991 - Illustrations, Society of Actuaries

5. Illustrations as Road Maps

  • As technology advances, it may soon be possible to store the illustration upon which the sale was made in the home office’s computer.
  • Then each year on the anniversary, the total current value would be compared to the value originally illustrated for that anniversary and, if it is less, the policyholder would be given (a) the reason(s) why it is less, and (b) the chance to make up the difference via an additional premium payment, if feasible.
  • Ilutrations would thus be used as road maps instead of just as point-of-sale projections, credibility would be enhanced, and the workings of the policy would be clearer to the buyer on an ongoing basis.

    CONCLUSION: Companies should consider providing “in-force illustrations” on a voluntary basis to help educate and inform their customers.

    1991-1992 - FINAL REPORT* OF THE TASK FORCE FOR RESEARCH ON LIFE INSURANCE SALES ILLUSTRATIONS, Society of Actuaries - 142p

Technical Advisory Committee - Illustrations Cover Page (Draft) - p732 
1993-2, NAIC Proceedings


 NALU <NAIFA> Cover Page Guaranteed Maturity Premium, ATTACHMENT FOUR-C
1994-1, NAIC Proceedings


  • He <George Coleman - Prudential> said in June 1993 it had recommended an explanation page, which was supplemented in November 1993 with a sensitivity analysis, signature requirements, and updated policy explanations on request.

1994-1 NAIC

Consistent with a law proposed in California, the buyer's guide immediately emphasizes what annual premium <Guaranteed Maturity Premium> must be paid to guarantee benefits.

Focusing on this one number is much better than trying to explain a column of guaranteed values that will almost always be significantly less than actual results.

When the consumer chooses to pay less premium, the consumer needs to be aware of the possible consequences. <Shortened Duration / Length of Coverage>

Additional disclosure could explain how premiums or benefits should be adjusted if performance is less than illustrated.

My simple rule is that if the policy cash value is going to decrease, an adjustment needs to be made immediately to keep the policy as permanent insurance.

-- Chris Kite (Fipsco)

1994-1, NAIC Proceedings

Mr. Coleman said that he thought this section needed some fleshing out to provide more information. He said that the cover page prepared by the technical resource advisors was a good way to provide a greater amount of information. Mr. Wright said he would agree, but the illustration cover sheet, which is Appendix A, was already pretty full.

1994-2 NAIC

  • Commissioner Robert Hunter (Texas) asked if the assumptions being discussed in Section V of the standards paper would be disclosed in the policy.
  • Commissioner Wilcox responded that they did not need to be disclosed in the same manner that they would be disclosed to an actuary, but that some information would be required.

1994-3 NAIC Proc

  • Chris Kite (FIPSCO) suggested that it was not necessary to have a whole column of numbers.
  • A simple statement of when the premium would vanish or when the policy would expire would be sufficient.

1994-4, NAIC Proc

  • She <Judy Faucett> suggested that a note be added to the illustration that said if you have any questions the agent cannot answer, call the compliance officer of the company.

1994-4

  • The working group discussed the drafting note to Section 6 that allowed companies to place the items in the illustrations rather than at the beginning. Mr. Strauss said he did not think this was a good idea because it would allow companies to bury information that they did not want an applicant to see.

1994-4 NAIC 

[Larry Gorski - Regulator] The next issue had to do with the plan summary.

  • The plan summary is a document that is going to be given to a policyholder, and it is to inform the policyholder as to how values will emerge, how experience assumptions will change, etc.
  • Other issues discussed were the details of that plan summary.
  • I have been one of the advocates of a rather detailed plan summary.
  • The plan summary is in the description of the “deal” between the company and the policyholder.
  • I feel that it should be a rather complete description of the deal.
  • Other people have different views.
  • We were leaning towards a comprehensive description of the plan and plan summary.

    Mr. Douglas A. Eckley:

    • Are you paying attention to the buyers and to the ability of policyholders to understand these documents?
    • The reason I ask is, in my opinion, right now, many policyholders do not understand what they are buying.

1996 - National Association of Insurance Commissioners (NAIC) Recent Developments, Society of Actuaries

1996-4, NAIC Proceedings

ATTACHMENT ONE-A
Questions & Answers Life Illustrations Model Regulation

  • 7.9 Sec. 7B(2) requires that the illustrations show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to the maximum premiums allowable to qualify as life insurance under the Internal Revenue Code.
  • 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?
1982 WL UL Differences Chicago_Tribune_Tue__Jul_13

1983

  • Chalke and Davlin point out that a policy that provides Whole Life benefits assuming 10 percent interest is not a Whole Life plan if the guaranteed cash value is only 4 percent.
  • Such a plan is term insurance only for a period of years. 

--  THOMAS G. KABELE

1983 - UNIVERSAL LIFE VALUATION AND NONFORFEITURE: A GENERALIZED MODEL, by SHANE A. CHALKE AND MICHAEL F. DAVLIN

1983 Lincoln Life Clarion_Ledger_Mon__Feb_28
Life Insurance Disclosure Model Regulation - January 1993 - Appendix D
Policy Information for Application -Universal Life
Policy Information for Application -Universal Life
ACLI - IAA joint reportaugfinal 31-32 Policy Overview_Page_1
ACLI - IAA joint reportaugfinal 31-32 Policy Overview_Page_2
ACLI - IAA joint reportaugfinal 31-32 Policy Overview_Page_2
1977-Changing-Times-premium-plans
1977-Changing-Times-Adjustable Life
2014-NAIC-Summer-National-Meeting-ACLI-ULSG-Case
1993-2-California-Guide-to-Ledger-Illustrations-1-of-2
1993-2-California-Guide-to-Ledger-Illustrations
1993-2-California-Guide-to-Ledger-Illustrations

1993-2 REQUIREMENTS FOR Illustration COVER PAGES p2
1993-2 REQUIREMENTS FOR Illustration COVER PAGES p2
1987-Huebner-Black-Skipper-Life-Insurance-11ed-p94-UL-Flexible-Graph
1987-Huebner-Black-Skipper-Life-Insurance-11ed-p94-UL-Flexible-Graph
1994-3-Sample-Policy-Clip-IllustrationsVanLeer-John-Hancock
1994-3-Sample-Policy-Clip-IllustrationsVanLeer-John-Hancock
1985 SOA MisMatch Life VASP855

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2010-Blumenthal-v-New-York-Life-Depo-Cash-Value-Zero-Year-16
2010 - LegalCase - Blumenthal-v-New-York-Life-GLP-GMP-Min
1999-Exh-5-Yearly-Detail-for-Blumenthal
1999-Exh-5-Yearly-Detail-for-Blumenthal
Blumenthal-v-New-York-Life-Yearly-Detail
Blumenthal-v-New-York-Life-Yearly-Detail
2017-Mrs-Vogt-Depo-Not-WL-as-they-expected
2017 Mrs Vogt Depo Premium not set.
2017 Vogt End of Coverage Graph Annual Report
2017 Vogt v State Farm Mrs Vogt Depo 150 per month Lapse Dates G NG
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1989-Fundamentals-of-Risk-and-Ins-Vaughan-5th-Tree-Diagram - UL = INNOVATIVE
1988-1-507-AAA-UL-Policy-Overview-Example