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Life Health > Life Insurance

Regulators To Consider Policy Loan Model

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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.

Consequently, the “A” Committee agreed to have the Life & Health Actuarial Task Force look at reserving and underwriting standards for policy loans. It may also ask statutory accounting working groups to weigh in on the feasibility of developing such a model.

Following the call, Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., said that the proposal from the insurance company seems to contravene the Viatical Settlement Model Act just adopted by the NAIC and that the model needs to be revisited.

Separately, the “A” Committee also considered whether to issue a guideline to address the issue of travel underwriting or to develop a model law on the subject. The reason was that under the NAIC’s new system for developing models, regulators did not feel that there was enough support to meet the system’s criteria of devoting significant resources toward developing and adopting a model on travel underwritng, according to the discussion.

However, several commissioners, including McPeak, Praeger and Kevin McCarty, Florida insurance commissioner, expressed the need for a clear message that certain types of travel underwriting activity was inappropriate.

The group left open the possibility of developing a model if more consensus emerged.

The travel underwriting issue surfaced when Congresswoman Debbie Wasserman Schultz, D-Fla., applied for a life insurance policy before traveling on official business to Poland. One of the questions asked on the policy application was whether she would travel to any other foreign country in the future. When she responded that she could at some point visit Israel, the insurer denied her application. Wasserman Schultz has called the practice “despicable” and said that underwriting criteria should be based strictly on actuarial data and not on perception.


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