Life insurance provides financial protection for loved ones should the policyholder die. Once a policy is issued, an insurer may not cancel it based on a change in the policyholder’s health status. There are several types of life insurance, allowing consumers to find a policy type that works for their personal situation.
Term life insurance provides coverage over a specified period of time. Typically, term insurance policies are written for 1, 5, 10, or 20 years, or to a specified age (such as 65). Term policies only pay a death benefit to the beneficiary if the policyholder dies during the specified term and so is a good choice when the policyholder needs protection for a temporary time or a specific need. Term insurance has the advantage of being more affordable than permanent insurance, particularly in the early policy durations. There are a few different types of term life insurance policies:
Whole life insurance provides a fixed amount of insurance coverage over the life of the insured, with the benefits payable only upon the insured’s death. Whole life policies are designed to build tax deferred cash value, which is the accumulation of premiums collected less applicable expenses and applicable insurance charges and they allow for borrowing against the cash value of the policy. There are several types of whole life insurance policies.
Under most contracts, premiums and/or death benefits can fluctuate at policyholder discretion. The policy stays in effect as long as the cash value is sufficient to cover the cost of insurance and loans can be taken against the cash value of the policy.
There are also variable universal life insurance products which are kept in an insurer’s separate account. The interest accrued under these contracts are not guaranteed and may in fact be negative since interest is a function of the change in the market value of the separate account assets.
Recent years have seen the rise of indexed universal policies, which have both fixed and variable features. Under these policies, interest credits are linked to external index of investments, such as bonds or the S&P 500. These index products do provide an interest rate guarantee.
Life insurance and annuities are regulated by state insurance commissioners. The NAIC encourages states to adopt model laws and regulations designed to inform and protect insurance consumers. The NAIC Life Insurance Disclosure Model Regulation (#580) requires insurers to deliver to purchasers of life insurance information that will improve the buyer’s understanding of the policy and ability to select the most appropriate plan for the buyer’s needs. The NAIC Life Insurance Illustrations Model Regulation (#582) provides rules for life insurance policy illustrations that will protect consumers and foster consumer education. The NAIC Consumer Credit Insurance Model Regulation (#370) protects the interests of debtors and the public by providing a system of rate, policy form, and operating standards for the transaction of credit life insurance.
The NAIC Life Insurance Illustration Issues (A) Working Group, created in 2016, continues to explore how the narrative summary required by Section 7B of Model (#582) and the policy summary required by Section 5A(2) of Model (#580) can be enhanced to promote consumer readability and understandability. This includes how they are designed, formatted and accessed by consumers. The Working Group is currently discussing draft proposals to amend Model #580 to incorporate a policy overview requirement that encourages (not mandates) the use of a template by providing a safe harbor if the template is used.
The NAIC Life Actuarial (A) Task Force was formed to identify, investigate and develop solutions to actuarial problems in the life insurance industry. After adoption of the Standard Valuation Law (#820) by 46 states representing 87.5% of industry premium prior to e operative on . The Valuation Manual is revised annually to add clarity to existing requirements and enact new requirements. The Task Force has adopted revised Generally Recognized Expense Table (GRET) factors for 2021. Additionally, work is continuing on mortality tables for valuation and minimum nonforfeiture requirements for guaranteed issue forms of life insurance.