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Deal Reached On Proposed IUL Illustrations
The solution is clear: Don't sell IUL based on illustrations.
The coalition of insurers led by MetLife also includes Northwestern Mutual and New York Life.
It is expected that the current proposal would result in crediting rates in the 6 to 7 percent range and put limits on loan leveraging.
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Under the proposed phase-in, provisions dealing with currently payable scale methodology, as well as the so-called “guardrail” that limits the expected yield that can be offered investors in IUL, will go into effect Sept. 15. Provisions detailing information on policy loans and establishing additional standards will go into effect for all new business and in-force life insurance illustrations on policies sold on or after March 1, 2016.
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“This is a critical component of the proposal as it represents the main control over the maximum illustrated rate,” the actuary said. More specifically, he said, the Life Insurance Illustrations Model Regulation stipulates that the illustrated scale must be the lesser of the currently payable scale and the disciplined current scale.
The actuary explained that, for the currently payable scale (DCS), the LATF proposal uses a historical look-back approach that generally results in rates in the high 6's (6.83 percent for a 0 percent floor/12 percent cap product).
“While this rate is much higher than I would like, we believe that most companies' illustrated rates will be capped at the disciplined current scale,” the actuary said.
He said that for the DCS provision, the LATF proposal caps the investment return on options at 45 percent.
“While this 45% is clearly much higher than I would like, there are some clear positives here,” he said, “because this guardrail, even when using a 45 percent maximum return, will provide a limit on illustrations.”
The solution is clear: Don't sell IUL based on illustrations.