Much has been written concerning the new 2001 Commissioners Standard Ordinary valuation table, but the complete story is not yet out on the effect the new table will have on insurance products.
Will life insurance products change because of the table? In particular, how might the table affect universal life policies? Lets see.
The 2001 CSO valuation table will impact new UL policies in many areas that will affect consumers. These areas include: maximum cost of insurance charges, maximum surrender charges and Guideline Premiums (i.e., the maximum premium levels payable into most UL policies). This is so, whether the policy is a general account or a variable universal life contract.
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ULs that have already been issued will generally not be affected.
To illustrate, consider a $500,000 UL written on a male nonsmoker, issue age 45.
Maximum cost of insurance charges is usually based on the valuation table (the table an insurance company uses to calculate policy reserves). This is actually required by a few states.
Because the mortality rates in the 2001 CSO valuation table are generally 30% less than in the 1980 CSO valuation table, the maximum cost of insurance charges are also expected to fall. For our sample policy, the initial maximum monthly mortality charge of $138 based on the 1980 CSO valuation table reduces by $41, to $97 based on the 2001 CSO valuation table.
Most ULs charge a mortality rate somewhat less than the guaranteed rates. Nevertheless, most current mortality charges will be greater than the new maximums, resulting in a reduction in the current mortality rates.
Similar to cost of insurance charges, the maximum allowable surrender charges will also start falling. The initial maximum surrender charge for our sample UL will drop from $13,990 to $12,340, for instance, for a reduction of $1,650.