Illinois Administrative Code
Title 50 - INSURANCE
Part 1411 - UNIVERSAL LIFE INSURANCE
Section 1411.40 - Nonforfeiture
Universal Citation: 50 IL Admin Code ยง 1411.40
Current through Register Vol. 48, No. 12, March 22, 2024
a) Minimum Cash Surrender Values for Flexible Premium Universal Life Insurance Policies
1) Minimum cash surrender values for flexible
premium universal life insurance policies shall be determined separately for
the basic policy or group certificate and any benefits and riders for which
premiums are paid separately. The following requirements pertain to a basic
policy or group certificate and any benefits and riders for which premiums are
not paid separately.
2) The minimum
cash surrender value (before adjustment for indebtedness and dividend credits)
available on a date as of which interest is credited to the policy or group
certificate shall be equal to:
A) The
accumulation to that date of the premiums paid minus the accumulations (all
accumulations being at the actual rate or rates of interest at which interest
credits have been made unconditionally to the policy; or have been made
conditionally, but for which the conditions have since been met) to that date
of:
i) The benefit charges;
ii) The averaged administrative expense
charges for the first policy year and any insurance-increase years;
iii) Actual administrative expense charges
for other years;
iv) Initial and
additional acquisition expense charges not exceeding the initial or additional
expense allowances, respectively;
v) Any service charges actually made
(excluding charges for cash surrender or election of a paid-up nonforfeiture
benefit); and
vi) Any deductions
made for partial withdrawals,
B) Minus any unamortized unused initial and
additional expense allowances.
3) Interest on the premiums and on all
charges referred to in subsections (a)(2)(A)(i) through (vi) of this Section
shall be accumulated from and to such dates as are consistent with the manner
in which interest is credited in determining the policy value.
4) The benefit charges shall include the
charges made for mortality and any charges made for riders or supplementary
benefits for which premiums are not paid separately. If benefit charges are
substantially level by duration and develop low or no cash values, then the
Director shall have the right to require higher cash values unless the insurer
provides adequate justification that the cash values are appropriate in
relation to the policy's or group certificate's other
characteristics.
5) The
administrative expense charges shall include charges per premium payment,
charges per dollar of premium paid, periodic charges per thousand dollars of
insurance, periodic per policy or group certificate charges, and any other
charges permitted by the policy or group certificate to be imposed without
regard to the policyowner's or group certificateholder's request for
services.
6) The averaged
administrative expense charges for any year shall be those which would have
been imposed in that year if the charge rate or rates for each transaction or
period within the year had been equal to the arithmetic average of the
corresponding charge rates which the policy or group certificate states will be
imposed in policy years 2 through 20 in determining the policy value.
7) The initial acquisition expense charges
shall be the excess of the expense charges, other than service charges,
actually made in the first policy year over the averaged administrative expense
charges for that year. Additional acquisition expense charges shall be the
excess of the expense charges, other than service charges, actually made in an
insurance-increase year over the averaged administrative expense charges for
that year. An insurance-increase year shall be the year beginning on the date
of increase in the amount of insurance by policyowner or group
certificateholder request (or by the terms of the policy or group
certificate).
8) Service charges
shall include charges permitted by the policy or group certificate to be
imposed as the result of a policyowner's or group certificateholder's request
for a service by the insurer (such as the furnishing of future benefit
illustrations) or of special transactions.
9) The initial expense allowance shall be the
allowance provided by Section
229.2(4c)(a) of
the Code for a fixed premium, fixed benefit endowment policy with a face amount
equal to the initial face amount of the flexible premium universal life
insurance policy, with level premiums paid annually until the highest attained
age at which a premium may be paid under the flexible premium universal life
insurance policy, and maturing on the latest maturity date permitted under the
policy or group certificate, if any, otherwise at the highest age in the
valuation mortality table. The unused initial expense allowance shall be the
excess, if any, of the initial expense allowance over the initial acquisition
expense charges as defined above.
10) If the amount of insurance is
subsequently increased upon request of the policyowner or group
certificateholder (or by the terms of the policy or group certificate), an
additional expense allowance and an unused additional expense allowance shall
be determined on a basis consistent with the above and with Section
229.2(4c)(e) of
the Code, using the face amount and the latest maturity date permitted at that
time under the policy or group certificate.
11) The unamortized unused initial expense
allowance during the policy year beginning on the policy or group certificate
anniversary at age x+t (where "x" is the same issue age) shall be the unused
initial expense allowance multiplied by
ax+t/ax where
ax+t and ax are present values of
an annuity of 1 per year payable on policy or group certificate anniversaries
beginning at ages x+t and x, respectively, and continuing until the highest
attained age at which a premium may be paid under the policy or group
certificate, both on the mortality and interest bases guaranteed in the policy
or group certificate. An unamortized unused additional expense allowance shall
be the unused additional expense allowance multiplied by a similar ratio of
annuities, with ax replaced by an annuity beginning on
the date as of which the additional expense allowance was determined.
b) Minimum Cash Surrender Values for Fixed Premium Universal Life Insurance Policies
1) For fixed premium universal life insurance
policies, the minimum cash surrender values shall be determined separately for
the basic policy or group certificate and any benefits and riders for which
premiums are paid separately. The following requirements pertain to a basic
policy or group certificate and any benefits and riders for which premiums are
not paid separately.
2) The minimum
cash surrender value (before adjustment for indebtedness and dividend credits)
available on a date as of which interest is credited to the policy or group
certificate shall be equal to [(A)-(B)-(C)-(D)], where:
A) (A) is the present value of all future
guaranteed benefits.
B) (B) is the
present value of future adjusted premiums. The adjusted premiums are calculated
as described in Section
229.2(4c)(a).
The nonforfeiture net level premium is equal to the quantity
PVFB/ax where:
i) PVFB
is the present value of all benefits guaranteed at issue assuming future
premiums are paid by the policyowner or group certificateholder and all
guarantees contained in the policy or group certificate or declared by the
insurer, and
ii)
ax is the present value of an annuity of 1 per year
payable on policy or group certificate anniversaries beginning at age x and
continuing until the highest attained age at which a premium may be paid under
the policy or group certificate.
C) (C) is the present value of any quantities
analogous to the nonforfeiture net level premium that arise because of
guarantees declared by the insurer after the issue date of the policy or group
certificate. ax shall be replaced by an annuity
beginning on the date as of which the declaration became effective and payable
until the end of the period covered by the declaration.
D) (D) is the sum of any quantities analogous
to subsection (b)(2)(B) of this Section that arise because of structural
changes in the policy or group certificate, as described in Section
1411.30(a)(4).
3) Future guaranteed benefits are
determined by:
A) Projecting the policy value,
taking into account future premiums, if any, and using all guarantees of
interest, mortality, expense deductions, etc., contained in the policy or group
certificate or declared by the insurer; and
B) Taking into account any benefits
guaranteed in the policy or group certificate or by declaration that do not
depend on the policy value.
4) All present values shall be determined
using:
A) An interest rate (or rates)
specified by Section 229.2(4c) of
the Code for policies or group certificates issued in the same year,
and
B) The mortality rates
specified by Section 229.2(4c) of
the Code for policies or group certificates issued in the same year or
contained in such other table as may be approved by the Director for this
purpose.
c) Minimum Paid-Up Nonforfeiture Benefits
1) If a
universal life insurance policy provides for the optional election of a paid-up
nonforfeiture benefit, it shall be such that its present value shall be at
least equal to the cash surrender value provided for by the policy or group
certificate on the effective date of the election. The present value shall be
based on mortality and interest standards at least as favorable to the
policyowner or group certificateholder as:
A)
In the case of a flexible premium universal life insurance policy, the
mortality and interest basis guaranteed in the policy or group certificate for
determining the policy value, or
B)
In the case of a fixed premium policy, the mortality and interest standards
permitted for paid-up nonforfeiture benefits by Section
229.2(4c) of
the Code.
2) In lieu of
the paid-up nonforfeiture benefit, the insurer may substitute, upon proper
request not later than 60 days after the due date of the premium in default, an
actuarially equivalent alternative paid-up nonforfeiture benefit that provides
a greater amount or longer period of death benefits, or, if applicable, a
greater amount or earlier payment of endowment benefits.
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