Regulators Mull Nonforfeiture Options

The ACLI comment letter suggests allowing the level of surrender charges to be determined by the insurer, subject to a limit of 3% beyond year 10.

Where the index interest rate guarantee is attached to each premium consideration, according to a letter from William Schreiner, a life actuary with the ACLI, the surrender charge basis may also be attached to each consideration.

Other suggestions include:

• annual interest rate guarantee requirements ranging from 1%-4%, based on an index;
• after a three-year period, a cash nonforfeiture value equal to no less than the return of considerations paid, less prior withdrawals or surrender charges, must be made available to contract holders for a contract sold to individuals age 80 or older; and,
• the contract must be available for annuitization not more than 10 years after inception for issue ages through 70, not later than age 80 for issue ages 71-75, and not later than five years for issue ages over 75, up to a limiting date chosen by the insurer. That date must be at least five years after annuitization is permitted.

Regulators including Larry Gorski, chief actuary with the Illinois insurance department and Frank Dino, a life actuary with the Florida insurance department, emphasized the need for proper disclosure.

Dino said minimum standards also need to be imposed. A balance needs to be achieved so consumers are protected but that undue wealth is not given away at the expense of companies.

Gorski said that with changes in guarantees, consumers could be surprised if there is a downside rather than an upside in the value reflected in the contract. Consequently, he explained, disclosure is important.

Having longer surrender periods of 10 years for older consumers may seem at first glance to be a poor choice, according to Greg Carney of Annuity Solutions, Indianapolis. But in one case he cited, an 80-year-old wanted to withdraw interest only to supplement Social Security and pass on the value of the annuity to heirs. The 10-year surrender allowed her to receive a higher interest rate since investments to support the annuity could be made for longer durations, he said. The annuity also included a nursing home waiver, Carney said, adding that in certain situations, the longer surrender period can benefit a customer.

But Gorski responded that it would be interesting to see if the customer was satisfied with the interest rate in five years.

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 1, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.