Regulators To Consider Policy Loan Model

Regulators are preparing to consider a proposed model that would offer guidance on life insurance policy loan programs.

A unanimous motion to begin technical work needed to consider the model was made during a conference call of the Life & Annuities “A” Committee of the National Association of Insurance Commissioners, Kansas City, Mo.

The decision follows an insurer’s notification to the Kansas insurance department that it intended to implement a policy loan program, according to a July 11 memorandum from Sandy Praeger, Kansas insurance commissioner and NAIC president-elect. The memo, addressed to Julie McPeak, Kentucky executive director of insurance and “A” Committee chair, did not identify the insurance company.

“From this company’s perspective, this program provides the policy owner an alternative to a viatical settlement,” Praeger’s memo notes. “This program as described in the letter would allow in-force policy owners who meet certain underwriting criteria to borrow against the death benefit of a policy. The underwriting criteria would identify insureds whose life expectancy has changed significantly due to health conditions that have developed since the policy was originally issued.”

Advantages to the proposal include the fact that “the policy owner receives similar if not the same benefits offered by the viatical company (i.e., cash in an amount that exceeds the cash surrender value of the policy and the elimination of payment of any future premiums),” according to the memo.

A further advantage is that the policy owner continues to own the contract and does not sell any contract rights, Praeger noted.

The Kansas department determined that such a program would violate Kansas statutes because currently insurers cannot offer a loan that exceeds the policy’s cash surrender value, according to the memo. But the proposal appears to be “good public policy,” Praeger said.