Section 1411.10  Purpose and Applicability

 

The purpose of this Part is to supplement the Department’s existing regulations on life insurance policies with standards and requirements specifically applicable to all individual and group universal life insurance policies and group certificates except variable universal life policies and group certificates.  It establishes minimum standards for reserve valuation and cash surrender values, as well as mandatory policy provisions, including a periodic policy status report to the policyowner or group certificateholder.

 

Section 1411.20  Definitions

 

Cash Surrender Value means the net cash surrender value plus any amounts outstanding as policy loans.

 

Code means the Illinois Insurance Code [215 ILCS 5].

 

Director means the Director of the Illinois Department of Insurance.

 

Fixed Premium Universal Life Insurance Policy means a universal life insurance policy other than a flexible premium universal life insurance policy.

 

Flexible Premium Universal Life Insurance Policy means a universal life insurance policy that permits the policyowner or group certificateholder to vary, independently of each other, the amount or timing of one or more premium payments or the amount of insurance.

 

Net Cash Surrender Value means the maximum amount payable to the policyowner or group certificateholder upon surrender.

 

Policy Value means the amount to which separately identified interest credits and mortality, expense, or other charges are made under a universal life insurance policy.

 

Universal Life Insurance Policy means a group or individual life insurance policy where separately identified interest credits (other than in connection with dividend accumulations, premium deposit funds, or other supplementary accounts) and mortality and expense charges are made to the policy or group certificate. A universal life insurance policy may provide for other credits and charges, such as charges for the cost of benefits provided by rider.

 

Section 1411.30  Valuation

 

a)         Requirements

The minimum valuation standard for individual and group universal life insurance policies shall be the Commissioners Reserve Valuation Method, as described in this Section for those policies, and the tables and interest rates specified in this Section.  The terminal reserve for the basic policy or group certificate and any benefits and/or riders for which premiums are not paid separately as of any policy or group certificate anniversary shall be equal to the net level premium reserves less the quantity (C) and less the quantity (D), where reserves by the net level premium method shall be equal to ((A)-(B))r, where the quantities (A), (B), (C), (D), and "r" are as defined, respectively, in subsections (a)(1), (a)(2), (a)(3), (a)(4), and (a)(2)(D):

 

1)         (A) is the present value of all future guaranteed benefits at the date of valuation.

 

2)         (B) is the quantity (PVFB)(a_x+t)/a_x

 

A)        Where PVFB is the present value of all benefits guaranteed at issue assuming future guaranteed maturity premiums are paid by the policyowner or group certificateholder and taking into account all guarantees contained in the policy or declared by the insurer.

 

B)        a_x and a_x+t are present values of an annuity of 1 per year payable on policy or group certificate anniversaries beginning at ages x and x+t, respectively, and continuing until the highest attained age at which a premium may be paid under the policy. The letter "x" is defined as the issue age and the letter "t" is defined as the duration of the policy or group certificate.

 

C)        The guaranteed maturity premium for flexible premium universal life insurance policies shall be that level gross premium, paid at issue and periodically thereafter over the period during which premiums are allowed to be paid, which will mature the policy or group certificate on the latest maturity date, if any, permitted under the policy or group certificate (otherwise at the highest age in the valuation mortality table), for an amount that is in accordance with the policy or group certificate structure.  (The maturity amount shall be the initial death benefit where the death benefit is level over the lifetime of the policy or group certificate except for the existence of a minimum-death-benefit corridor, or shall be the specified amount where the death benefit equals a specified amount plus the policy value or cash surrender value except for the existence of a minimum-death-benefit corridor.)  The guaranteed maturity premium is calculated at issue based on all policy guarantees at issue (excluding guarantees linked to an external referent). The guaranteed maturity premium for fixed premium universal life insurance policies shall be the premium defined in the policy or group certificate that at issue provides the minimum policy or group certificate guarantees.  (The guaranteed maturity premium for both flexible and fixed premium policies shall be adjusted for death benefit corridors provided by the policy. The guaranteed maturity premium may be less than the premium necessary to pay all charges.  This can especially happen in the first year for policies or group certificates with large first year expense charges.)

 

D)        The letter "r" is equal to 1, unless the policy is a flexible premium policy and the policy value is less than the guaranteed maturity fund, in which case "r" is the ratio of the policy value to the guaranteed maturity fund.

 

E)         The guaranteed maturity fund at any duration is that amount which, together with future guaranteed maturity premiums, will mature the policy or group certificate based on all policy or group certificate guarantees at issue.

 

3)        (C) is the quantity ((a)-(b))(a_x+t)(r)/a_x where (a)-(b) is as described in Section 223 of the Code for the plan of insurance defined at issue by the guaranteed maturity premiums and all guarantees contained in the policy or group certificate or declared by the insurer.  a_x+t and a_x are defined in subsection (a)(2)(B).

 

4)        (D) is the sum of any additional quantities analogous to subsection (a)(3) that arise because of structural changes in the policy or group certificate, with each such quantity being determined on a basis consistent with that of subsection (a)(3) using the maturity date in effect at the time of the change. (Structural changes are those changes which are separate from the automatic workings of the policy or group certificate.  These changes usually would be initiated by the policyholder or group certificateholder and include changes in the guaranteed benefits, changes in latest maturity date, or changes in allowable premium payment period.  For fixed premium universal life policies with redetermination of all credits and charges no more frequently than annually, on policy or group certificate anniversaries, structural changes also include changes in guaranteed benefits, or in fixed premiums, unanticipated by the guaranteed maturity premium for these policies or group certificates at the date of issue, even if the changes arise from automatic workings of the policy or group certificate.  The recomputation of subsection (a)(2), for fixed premium universal life structural changes, shall exclude from PVFB, the present value of future guaranteed benefits, those guaranteed benefits which are funded by the excess of the insurer's declared guarantees of interest, mortality and expenses, over the guarantees contained in the policy or group certificate at the date of issue.)

 

5)         The guaranteed maturity premium, the guaranteed maturity fund and subsection (a)(2) shall be recalculated to reflect any structural changes in the policy or group certificate. This recalculation shall be done in a manner consistent with the descriptions in subsections (a)(1) through (4).

 

6)         Future guaranteed benefits are determined by:

 

A)        Projecting the greater of the guaranteed maturity fund and the policy value, taking into account future guaranteed maturity 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.

 

7)         All present values shall be determined using:

 

A)        An interest rate (or rates) specified by Section 223 of the Code for policies or group certificates issued in the same year;

 

B)        The mortality rates specified by Section 223 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; and

 

C)        Any other tables needed to value supplementary benefits provided by a rider that is being valued together with the policy or group certificate.

 

b)         Alternative Minimum Reserves

 

1)         If, in any policy year, the guaranteed maturity premium on any universal life insurance policy is less than the valuation net premium for that policy or group certificate, calculated by the valuation method actually used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for the contract shall be the greater of subsection (b)(1)(A) or (b)(1)(B).

 

A)        The reserve calculated according to the method, the mortality table, and the rate of interest actually used.

 

B)        The reserve calculated according to the method actually used but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the guaranteed maturity premium in each policy year for which the valuation net premium exceeds the guaranteed maturity premium.

 

2)         For universal life insurance reserves on a net level premium basis, the valuation net premium is PVFB/a_x and, for reserves on a Commissioners Reserve Valuation Method, the valuation net premium is (PVFB/a_x)+((a)-(b))/a_x.

 

c)         This Section does not apply to policies or certificates issued on or after January 1, 2017.

 

(Source:  Amended at 42 Ill. Reg. 14435, effective July 23, 2018)

 

Section 1411.40  Nonforfeiture

 

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 a_x+t/a_x where a_x+t and a_x 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 a_x 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/a_x 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)         a_x 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.  a_x 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.

 

(Source:  Amended at 47 Ill. Reg. 133, effective December 20, 2022)

 

Section 1411.50  Policy and Group Certificate Requirements and Disclosures

 

a)         Periodic Disclosure

The policy shall provide that the individual policyowner or group certificateholder will be sent, without charge, at least annually, a report that will serve to keep the policyowner or group certificateholder advised as to the status of the policy. The end of the current report period must be not more than 3 months previous to the date of the mailing of the report. Specific requirements of this report are detailed in Section 1411.60 of this Part.

 

b)         Current Illustrations

The annual report shall provide notice that the individual policyowner or group certificateholder may request an illustration of current and future benefits and values, as required by 50 Ill. Adm. Code 1406, when the policy is illustrated.

 

c)         Policy Guarantees

The policy shall provide guarantees of minimum interest credits and maximum mortality and expense charges. All values and data shown in the policy or group certificate shall be based on guarantees. No figures based on nonguarantees shall be included in the policy or group certificate.

 

d)         Calculation of Cash Surrender Values

The individual policy or group certificate shall contain at least a general description of the calculation of cash surrender value including the following information:

 

1)         The guaranteed maximum expense charges and loads.

 

2)         Any limitation on the crediting of additional interest. Interest credits shall not remain conditional for a period longer than 24 months.

 

3)         The guaranteed minimum rate or rates of interest.

 

4)         The guaranteed maximum mortality charges.

 

5)         Any other guaranteed charges.

 

6)         Any surrender or partial withdrawal charges.

 

e)         Changes in Basic Coverage

If the policyowner or group certificateholder has the right to change the basic coverage, any limitation on the amount or timing of such change shall be stated in the policy.  If the individual policyowner or group certificateholder has the right to increase the basic coverage, the individual policy or group certificate shall state whether a new period of contestability and/or suicide is applicable to the additional coverage.

 

f)         Grace Period and Lapse

The group or individual policy shall provide for written notice to be sent to the individual policyowner's or group certificateholder’s last known address at least 30 days prior to termination of coverage.  A flexible premium policy shall provide for a grace period after lapse, either of 30 days or of 1 month for individual policies or 31 days for group policies, as required by Sections 224 and 231.1 of the Code.  Unless otherwise defined in the policy, lapse shall occur on that date on which the net cash surrender value first equals zero.

 

g)         Misstatement of Age

If there is a misstatement of age in the individual application or group enrollment form, the policy shall provide that the amount of the death benefit shall be that which would be purchased by the most recent mortality charge at the correct age.

 

h)         Maturity Date

If an individual policy or group certificate provides for a "maturity date," "end date," or similar date, then the policy or group certificate shall also contain a statement, in close proximity to that date, that it is possible that coverage may not continue to the maturity date even if scheduled premiums are paid in a timely manner, if such is the case.

 

i)          Disclosure Requirements

Disclosure of information about the policy being applied for shall follow the standards in 50 Ill. Adm. Code 1406.

 

(Source:  Amended at 47 Ill. Reg. 133, effective December 20, 2022)

 

Section 1411.60  Annual Report to Individual Policyowner or Group Certificateholder

 

a)         Requirements

The policy shall provide that the individual policyowner or group certificateholder will be sent, without charge, at least annually, a report that will serve to keep the policyowner or group certificateholder advised of the status of the policy. The end of the current report period shall be not more than 3 months previous to the date of the mailing of the report.

 

b)         The report shall include the following:

 

1)         The beginning and end of the current report period;

 

2)         The policy value at the end of the previous report period and at the end of the current report period;

 

3)         The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type (e.g., interest, mortality, expense and riders);

 

4)         The current death benefit at the end of the current report period on each life covered by the policy;

 

5)         The net cash surrender value of the policy or group certificate as of the end of the current report period;

 

6)         The amount of outstanding loans, if any, as of the end of the current report period;

 

7)         For fixed premium policies:

If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the individual policy's or group certificate’s net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report;

 

8)         For flexible premium policies:

If, assuming guaranteed interest, mortality and expense loads, the individual policy's or group certificate’s net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.