Of The New 2001 CSO Table
Once the 2001 Commissioners Standard Ordinary Mortality Table is approved for use in a few states, insurance companies will begin revamping their insurance products using the new table.
Companies may also take this opportunity to look at their policy riders to determine if premium changes should be made. This article discusses possible changes to policy riders.
The 2001 CSO Mortality Table is a “valuation mortality table,” meaning its primary purpose is to determine the mortality risk when calculating insurance company reserves. As such, the table will only affect riders that have mortality risk.
For example, the table will affect term insurance riders on the base insured, spouse, child, or other insureds. It will also affect most annuity riders, disability income insurance riders, and long term care insurance riders.
Term insurance riders are affected because of the obvious mortality risk, while annuity riders are affected only if they pay a benefit upon death. Disability income riders and long term care riders are affected because benefits are generally discontinued upon death.
Other ancillary riders, such as waiver of premium and accidental death benefit riders, will be somewhat affected, but probably not enough to merit any premium changes for these riders. The reserves for these riders will change slightly, but companies are not expected to use this small reserve change as an opportunity to adjust premium rates.
Term insurance riders on the base insured, spouse, child, or other insureds can be attached to either traditional life policies or to universal life policies.
The effect of the 2001 CSO Mortality Table on term insurance riders for traditional life policies is to allow for lower statutory reserves. This is especially the case if the rider has long, level premium guarantees similar to a 20- or 30-year level premium term policy. These lower reserves will allow for lower premiums.
If the rider is of the annual renewable term type, the reserves will be changing little, and the premiums may be adjusted only slightly due to the new table.
Term insurance riders on the base insured on universal life policies are designed to coordinate with the base policy in one of two methods.
In one method, the insurance amount of the base policy and term rider are added together when meeting the definition of life insurance as defined in Section 7702 of the Internal Revenue Code.
Alternatively, the term rider remains separate from the base policy when meeting the definition of life insurance.