New Mortality Tables Will Change Life

Mel Feinberg, a senior vice president, individual insurance department with New York Life Insurance Company, says once the new tables take effect, life insurers still will need clarification from the Treasury Department on points such as the definition of life insurance and what constitutes a material change in a contract.

For instance, a material change might be considered the conversion of term insurance to permanent insurance, he says, and a minor change could be an improvement in a risk class if someone improved their health. But, he adds, that still needs to be stated by Treasury.

Overall, with the exception of some classes such as female smokers, there should be a moderate improvement in mortality, Feinberg says. Long-term guarantees such as term with 30-year guarantees could be affected, but in New York Lifes case, it offers guarantees of up to 10 years, he adds.

The cash accumulation allowed for variable life and whole life products will change modestly with more premium used to cover a pure death benefit, Feinberg continues.

Products targeting older age consumers may see some benefit, he says; for example, a UL contract will no longer need a life extension benefit.

Bill Schreiner, a life actuary with the American Council of Life Insurers, Washington, says the new table clears up potential tax issues because it now extends to age 120 rather than age 100. In the past, if the value of the contract was not paid out as a death benefit, a tax question was raised, he adds. This wont be the case with the new tables.

In most cases, the new tables will lower reserves as well as tax deductions for companies, says Schreiner, who was also involved with the development of the tables.

What is important for life insurers, he says, is that the new tables be uniformly adopted. He says that 24 states have adopted it so far, and another 6 states are actively looking at it. The NAIC is giving companies until 2009 to put the tables into effect, but for federal tax purposes, there is a 3-year phase-in starting in the year 26 states adopt it.

Uniformity is important, New York Lifes Feinberg concurs. If a company offers a product in a state that has not adopted the tables, then that company could be required to hold reserves for all of that product sold, both in and out of the state, at the higher 1980 CSO table levels, he explains.

A company would have the option of filing a separate annual statement in a state that had not adopted the new tables, which is a complicated process, he continues.

The good news, according to Feinberg, is that even if states adopt the tables at mid-year, they are usually made retroactive to the first of the year, creating more uniformity.

Van Elsen says there is another piece of good news, which is that he has not heard of any state that is not considering the new tables.

Reproduced from National Underwriter Edition, April 30, 2004. Copyright 2004 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.