UL Non-guaranteed Elements Policy Form Language

By Tom Hartman

In the universal life insurance setting, New York uses the concept of additional amounts. To my knowledge, New York is the only state that uses the additional amounts concept in the life insurance setting. In the annuity setting, many states use the additional amounts concept, since it’s used in NAIC Model 805 that has the nonforfeiture requirements for individual deferred annuities.

Paragraph (1) & (2) of Section 4232(b) of the New York Insurance Law indicates:

(1) Any individual life insurance policy may provide that in addition to any minimum benefits guaranteed in the policy, additional amounts may be credited to the policy.

(2) No such additional amounts shall be guaranteed or credited except upon reasonable assumptions as to investment income, mortality, persistency, and expenses. The declaration of such additional amounts by an insurer must be made prospectively; no such additional amounts shall be credited retroactively to apply to any period prior to such declaration.

Typically, additional amounts are the difference between what the contract produces using the current factors versus what would be produced if only the guaranteed factors are used.

Paragraph (2) sets out the factors that may be used in determining the difference between the current factor and the guaranteed factor. Many companies say in their policy form that the current charge is based on these factors. This confuses the issue because it takes the focus off the additional amounts and instead looks at just the current charges.

We recommend a different approach with wording like this:

The initial cost of insurance rates is based on our future expectation of investment income, mortality, persistency, expenses, and profit. Any changes in the cost of insurance rates will be based on changes in our future expectation of investment income, mortality, persistency, and expenses.

This sample applies to the additional amounts related to current cost of insurance rates, but similar wording could apply to any non-guaranteed element. This satisfies New York’s Regulation 210 requirement that profit be fixed at issue and provides a better match of how changes in cost of insurance rates actually work.