§3768. Calculations of adjusted premiums by the nonforfeiture net level premium method

Link to law: http://legislature.vermont.gov/statutes/section/08/103/03768
Published: 2015

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The Vermont Statutes Online



Title

08

:
Banking and Insurance






Chapter

103

:
LIFE INSURANCE POLICIES AND ANNUITY CONTRACTS






Subchapter

003B
:
STANDARD NONFORFEITURE LAW FOR LIFE INSURANCE










 

§

3768. Calculations of adjusted premiums by the nonforfeiture net level premium

method

(a)(1) This

section shall apply to all policies issued on or after the operative date of

this section. Except as provided in subsection (g) of this section. the adjusted

premiums for any policy shall be calculated on an annual basis and shall be

such uniform percentage of the respective premiums specified in the policy for

each policy year, excluding amounts payable as extra premiums to cover

impairments or special hazards and also excluding any uniform annual contract

charge or policy fee specified in the policy in a statement of the method to be

used in calculating the cash surrender values and paid-up nonforfeiture

benefits, that the present value, at the date of issue of the policy, of all

adjusted premiums shall be equal to the sum of:

(A) the then

present value of the future guaranteed benefits provided for by the policy;

(B) one percent

of either the amount of insurance, if the insurance be uniform in amount, or

the average amount of insurance at the beginning of each of the first 10 policy

years; and

(C) 125 percent

of the nonforfeiture net level premium as defined in this section.

(2) In applying

the percentage specified in subdivision (1)(C) of this subsection, no

nonforfeiture net level premium shall be deemed to exceed four percent of

either the amount of insurance, if the insurance be uniform in amount, or the

average amount of insurance at the beginning of each of the first 10 policy

years. The date of issue of a policy for the purpose of this section shall be

the date as of which the rated age of the insured is determined.

(b) The

nonforfeiture net level premium shall be equal to the present value, at the

date of issue of the policy, of the guaranteed benefits provided for by the

policy divided by the present value, at the date of issue of the policy, of an

annuity of one per annum payable on the date of issue of the policy and on each

anniversary of the policy on which a premium falls due.

(c) In the case

of policies which cause, on a basis guaranteed in the policy, unscheduled

changes in benefits or premiums, or which provide an option for changes in

benefits or premiums, other than a change to a new policy, the adjusted

premiums and present values shall be calculated initially on the assumption

that future benefits and premiums do not change from those stipulated at the

date of issue of the policy. At the time of any change in the benefits or

premiums, the future adjusted premiums, nonforfeiture net level premiums and

present values shall be recalculated on the assumption that future benefits and

premiums do not change from those stipulated by the policy immediately after

the change.

(d) Except as

otherwise provided in subsection (g) of this section, the recalculated future

adjusted premiums for any policy shall be the uniform percentage of the

respective future premiums specified in the policy for each policy year,

excluding amounts payable as extra premiums to cover impairments and special

hazards, and also excluding any uniform annual contract charge or policy fee

specified in the policy in a statement of the method to be used in calculating

the cash surrender values and paid-up nonforfeiture benefits, that the present

value, at the time of change to the newly defined benefits or premiums, of all

such future adjusted premiums shall be equal to the excess of:

(1) The sum of:

(A) the then

present value of the then future guaranteed benefits provided for by the

policy, and

(B) the

additional expense allowance, if any, over

(2) the then

cash surrender value, if any, or present value of any paid-up nonforfeiture

benefit under this policy.

(e) The

additional expense allowance, at the time of the change to the newly defined

benefits or premiums, shall be the sum of:

(1) One percent

of the excess, if positive, of the average amount of insurance at the beginning

of each of the first 10 policy years subsequent to the change over the average

amount of insurance prior to the change at the beginning of each of the first 10

policy years subsequent to the time of the most recent previous change, or, if

there has been no previous change, the date of issue of the policy; and

(2) 125 percent

of the increase, if positive, in the nonforfeiture net level premium.

(f) The recalculated

nonforfeiture net level premium shall be equal to the result obtained by

dividing the sum arrived at under subdivision (1) of this subsection by the

value specified in subdivision (2) of this subsection.

(1) As used in

this subsection, "sum" means:

(A) the

nonforfeiture net level premium applicable prior to the change times the

present value of an annuity of one per annum payable on each anniversary of the

policy on or subsequent to the date of the change on which a premium would have

fallen due had the change not occurred, plus

(B) the present

value of the increase in future guaranteed benefits provided for by the policy.

(2) As used in

this subsection, "value" means the present value of an annuity of one

per annum payable on each anniversary of the policy on or subsequent to the

date of change on which a premium falls due.

(g)

Notwithstanding any other provisions of this section to the contrary, in the

case of a policy issued on a substandard basis which provides reduced graded

amounts of insurance so that, in each policy year, the policy has the same

tabular mortality cost as an otherwise similar policy issued on the standard

basis which provides higher uniform amount of insurance, adjusted premiums and

present values for the substandard policy may be calculated as if it were

issued to provide higher uniform amounts of insurance on the standard basis.

(h) All adjusted

premiums and present values referred to in this subchapter shall for all

policies of ordinary insurance be calculated on the basis of the Commissioners'

1980 Standard Ordinary Mortality Table or, at the election of the company, for

any one or more specified plans of life insurance, the Commissioners' 1980

Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors, shall

for all policies of industrial insurance be calculated on the basis of the

Commissioners' 1961 Standard Industrial Mortality Table, and shall for all

policies issued in a particular calendar year be calculated on the basis of a

rate of interest not exceeding the nonforfeiture interest rate as defined in

this section, for policies issued in that calendar year, provided that:

(1) At the

option of the company, calculations for all policies issued in a particular

calendar year may be made on the basis of a rate of interest not exceeding the

nonforfeiture interest rate, as defined in this section, for policies issued in

the immediately preceding calendar year.

(2) Under a

paid-up nonforfeiture benefit, including any paid-up dividend additions, any

cash surrender value available, whether or not required by section 3762 of this

subchapter, shall be calculated on the basis of the mortality table and rate of

interest used in determining the amount of such paid-up nonforfeiture benefit

and paid-up dividend additions, if any.

(3) A company

may calculate the amount of any guaranteed paid-up nonforfeiture benefit

including any paid-up additions under the policy on the basis of an interest

rate no lower than that specified in the policy for calculating cash surrender

values.

(4) In

calculating the present value of any paid-up term insurance with accompanying

pure endowment, if any, offered as a nonforfeiture benefit, the rates of

mortality assumed may be not more than those shown in the Commissioners' 1980

Extended Term Insurance Table for policies of ordinary insurance and not more

than the Commissioners' 1961 Industrial Extended Term Insurance Table for

policies of industrial insurance.

(5) For

insurance issued on a substandard basis, the calculation of any adjusted

premiums and present values may be based on appropriate modifications of the

aforementioned tables.

(6)(A) For

policies issued prior to the operative date of the Valuation Manual defined in

subchapter 4a or this chapter, any Commissioners' Standard Ordinary Mortality Tables,

adopted after 1980 by the National Association of Insurance Commissioners,

approved by rule adopted by the Commissioner for use in determining the minimum

nonforfeiture standard may be substituted for the Commissioners' 1980 Standard

Ordinary Mortality Table with or without 10-Year Select Mortality Factors or

for the Commissioners' 1980 Extended Term Insurance Table.

(B) For policies

issued on or after the operative date of the Valuation Manual the Valuation

Manual shall provide the Commissioners' Standard Mortality Table for use in

determining the minimum nonforfeiture standard that may be substituted for the

Commissioners' 1980 Standard Ordinary Mortality Table with or without 10-Year

Select Mortality Factors or for the Commissioners' 1980 Extended Term Insurance

Table. If the Commissioner adopts by rule a Commissioners' Standard Ordinary

Mortality Table adopted by the NAIC for use in determining the minimum

nonforfeiture standard for policies issued on or after the operative date of

the Valuation Manual then that minimum nonforfeiture standard supersedes the

minimum nonforfeiture standard provided by the Valuation Manual.

(7)(A) For

policies issued prior to the operative date of the Valuation Manual, any

Commissioners' Standard Industrial Mortality Tables, adopted after 1980 by the

NAIC, approved by rule adopted by the Commissioner for use in determining the

minimum nonforfeiture standard may be substituted for the Commissioners' 1961

Standard Industrial Mortality Table or the Commissioners' 1961 Industrial

Extended Term Insurance Table.

(B) For policies

issued on or after the operative date of the Valuation Manual the Valuation

Manual shall provide the Commissioners' Standard Mortality Table for use in

determining the minimum nonforfeiture standard that may be substituted for the

Commissioners' 1961 Standard Industrial Mortality Table or the Commissioners'

1961 Industrial Extended Term Insurance Table. If the Commissioner adopts by

rule a Commissioners' Standard Industrial Mortality Table adopted by the NAIC

for use in determining the minimum nonforfeiture standard for policies issued

on or after the operative date of the Valuation Manual then that minimum

nonforfeiture standard supersedes the minimum nonforfeiture standard provided

by the Valuation Manual.

(i) The

nonforfeiture interest rate is defined as follows:

(1) For policies

issued prior to the operative date of the Valuation Manual, the nonforfeiture

interest rate per annum for any policy issued in a particular calendar year

shall be equal to 125 percent of the calendar year statutory valuation interest

rate for such policy as defined under subchapter 4a of this chapter, rounded to

the nearer one quarter of one percent, provided the nonforfeiture interest rate

shall not be less than four percent.

(2) For policies

issued on and after the operative date of the Valuation Manual, the

nonforfeiture interest rate per annum for any policy issued in a particular

calendar year shall be provided by the Valuation Manual.

(j)

Notwithstanding any other provision of law to the contrary, any refiling of

nonforfeiture values or their methods of computation for any previously

approved policy form which involves only a change in the interest rate or

mortality table used to compute nonforfeiture values shall not require refiling

of any other provisions of that policy form.

(k) After the

effective date of this section, any company may file with the Commissioner a

written notice of its election to comply with the provision of this section

after a specified date before January 1, 1989, which shall be the operative

date of this section for the company. If a company makes no election, the

operative date of this section for the company shall be January 1, 1989. (Added

2015, No. 63, § 2, eff. June 17, 2015.)
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