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Life Health > Life Insurance

Cash Value Debate Highlights Industry Changes

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Any nonforfeiture model developed by regulators should recognize the economic value and the cash value in a life insurance contract, says William Koenig, a life actuary with Northwestern Mutual Life Ins. Co., Milwaukee.

Speaking at the spring meeting of the National Association of Insurance Commissioners, Koenig called the failure to recognize a contract’s economic value and offer cash in a contract “a step in the wrong direction.” So if a decision is made by regulators of the Life & Health Actuarial Task Force to continue to pursue a nonforfeiture model, then it should be developed keeping this goal in mind, he said.

Efforts to create a nonforfeiture model have been an on-again, off-again process for nearly 25 years.

Having a cash value in life insurance policies is important because “opportunistic” entities, including viatical and life settlements companies, are stepping in and offering cash to contract holders, he said.

“Some people want cash, and the life settlement market has grown up on the basis that people can’t get cash,” according to Koenig.

Bill Carmello, a New York regulator and life actuary, asked Koenig if other companies supported this measure.

“If it’s just one company, it’s not going to work,” he said. “It is a pricing issue as well, and I’m not sure that we could stop it at this point. I’m not saying that that should be the goal, anyway,” Carmello added.

When asked if the American Council of Life Insurers, Washington, had looked into the issue, John Bruins, a life actuary, said ACLI has not raised the issue with its members.

The issue is becoming a battleground between insurers and life settlement companies, one regulator noted. If “the status quo continues, and we don’t do anything, the battle will just escalate, and we’ll be caught in the middle,” Joe Musgrove, an Arkansas regulator, said.

Following the session, some attendees noted not every company would agree there needs to be recognition of cash value in a contract and wondered whether the model would require products such as term insurance to recognize cash value.


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