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NAIC Closing the Loop on Illustrations

Friday, June 12, 2015

On June 4, 2015 the Life Actuarial (A) Task Force (LATF), the NAIC’s Life Insurance and Annuities (A) Committee adopted new Actuarial Guideline 49 governing IUL illustrations. Despite insurance companies asking for a delay in implementation of these new Actuarial Guideline establishing the methodology for calculating the maximum annual rate of index-based interest, and limiting the assumed earned interest rate, they are scheduled to become effective for all IUL policies sold on or after September 1, 2015. 

The Life Insurance Illustrations Model Regulation was adopted by the NAIC in 1995. Since then there has been continued evolution in product design, including the introduction of benefits that are tied to an external index or indices. “Although these policies are subject to Model Regulation, not all of their features are explicitly referenced in the model, resulting in a lack of uniform practice in its implementation. In the absence of uniform guidance, two illustrations that use the same index and crediting method often illustrated different credited rates. The lack of uniformity can be confusing to potential buyers and can cause uncertainty among illustration actuaries when certifying compliance with Model Regulation.”

Consumer representatives ... urge[d] immediate adoption of [new rules governing misleading uses of illustrations] because under current guidelines, “when inflated crediting rates are combined with low loan rates, the illustration can be used to present IUL to the consumer as an arbitrage tool providing free insurance. This must be stopped.”  This is just another example of why illustration comparisons are considered “misleading” and “inappropriate” by both financial and insurance industry authorities.

Industry actuaries said another benefit is the standardization of the use of indices. Companies can “cherry-pick” indices and even combinations of indice that have performed well over a period of time to support high illustrated rates for future product performance, the actuaries said. 

These new guidelines will help illustrations be compliant with published rules, guidance and regulations and avoid sales practices which are specifically and clearly, forbidden by the chief regulatory body of the financial services industry, the chief actuarial body of the life insurance industry, and the OCC.

Perhaps this explains why the cost difference between best-available rates and terms and worst- available rates and terms is as much as 80% - the widest cost spread in such a commonly owned financial product - and why too many CPAs, tax attorneys and trust officers seem resistant to recommend life insurance even given its clear tax preferences. 

Veralytic is the only patented, objective and rules-based research tool that goes beyond the overly-simplistic comparisons of illustrations of hypothetical policy values that can be considered “misleading” and “inappropriate” by both financial and insurance industry authorities. Veralytic’s independent research reports provide a facts-based solution that is both compliant with industry regulations and established case law.

Veralytic is simply the fastest, easiest, and most comprehensive and cost-effective way to independently verify to clients and their advisors whether or not the pricing and performance of existing or proposed life insurance is in their best interest.  Only Veralytic is accepted for independent client representation, endorsed by the New York Bankers Association (NYBA) and compliant with industry regulations and established case law.

Use the Veralytic Reports to determine the appropriateness of pricing, the reasonableness of performance expectations for invested assets underlying policy cash values, and overall suitability for your (client’s) policies based on the 5 factors of suitability.  Get up to 3 Veralytic research reports under our NO-Risk trial subscription.

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