Return of premium term has been gaining popularity as a mainstream life-insurance product. More companies sell this type of product to the general market rather than confining it to the mortgage-term arena, where it has existed for many years.
ROP term is generally more expensive than traditional term insurance, but less expensive than various forms of permanent insurance. It benefits from lower premiums than many forms of life insurance, with the added bonus of a cash value available during the level-premium period and a full return of premium at the end of that period.
Most industry professionals are familiar with the basic structure of a ROP term product. During the level-premium period, but before the end, the cash value available will grow as a percentage of total premium paid. Generally no benefit is paid in the first few years. A gradual increasing percentage of premium is paid until 100% is paid at the end of the level-premium period.
It is during the interim time frame that a ROP term product may change.
With ROP term gaining popularity, the Interstate Insurance Product Regulation Commission (Interstate Compact) began to set up filing guidelines to assist in expediting approval of this type of product.
The 31 states participating in the Interstate Compact (as of July 1, 2008) agree on the required guidelines for approving any product filing. The group setting up the ROP guidelines has been meeting throughout 2008, and has come to their initial recommendation.
The recommendation involves some interpretation of the non-forfeiture law, and this is where the change lies.
This interpretation has evolved into an actuarial guideline (AG CCC) that was posted as of June 11, 2008, on http://www.naic.org/documents/committees_lhatf_AG-ccc.doc. The guideline is open for comment through July 15, 2008.
Some regulators believe the guideline is necessary to create more of an equal playing field in the market. Some feel there are potential abuses in the current methodology that are not allowing some product designs to be as competitive as others, with only an interpretation of the non-forfeiture law being the main driver of the difference.