00-23201. Cash Values for National Service Life Insurance (NSLI) and Veterans Special Life Insurance Term-Capped Policies

AGENCY:

Department of Veterans Affairs.

ACTION:

Final rule.

SUMMARY:

This document amends the Department of Veterans Affairs (VA) regulations regarding National Service Life Insurance (NSLI) and Veterans Special Life Insurance (VSLI) by providing cash values for NSLI and VSLI term-capped policies and further providing the options to either receive the cash value in a lump sum or to purchase paid-up insurance upon the termination of the contract before maturity.

Effective Dates:

Date: September 11, 2000.

FOR FURTHER INFORMATION CONTACT:

George Poole, Chief of Insurance Program Administration and Oversight, PO Box 8079, Philadelphia, Pennsylvania 19101, [phone], ext. 4286; [phone], ext. 5012 (voicemail); [phone] (fax); or e-mail at “[e-mail]”.

SUPPLEMENTARY INFORMATION:

In a document published in the Federal Register on February 15, 2000 (65 FR 7467), we proposed to provide cash values for NSLI and VSLI term-capped policies and further provide the options to either receive the cash value in a lump sum or to purchase paid-up insurance upon the termination of the contract before maturity.

We received two comments. Both supported the proposed rule. Accordingly, based on the rationale set forth in the proposed rule we are adopting the proposed rule as a final rule without any changes.

The Acting Secretary of the Department of Veterans Affairs hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-602. Pursuant to 5 U.S.C. 605(b), this final rule is, therefore, exempt from the initial and final regulatory flexibility analysis requirement of sections 603 and 604. The final regulation will affect only government life insurance policyholders. It will, therefore, have no significant direct impact on small entities in the terms of compliance costs, paperwork requirements, or effects on competition.

The catalog of Federal Domestic Assistance Program number for this regulation is 64.103.

List of Subjects in 38 CFR Part 8

• Disability benefits
• Life insurance
• Loan programs-veterans
• Military personnel
• Veterans

Approved: August 29, 2000.

Hershel W. Gober,

Acting Secretary of Veterans Affairs.

For the reasons set out in the preamble, 38 CFR Part 8 is amended as follows:

PART 8—NATIONAL SERVICE LIFE INSURANCE

1. The authority citation for part 8 continues to read as follows:

Authority: U.S.C. 501, 1901-1929, 1981-1988, unless otherwise noted.

2. Section 8.37 is added to read as follows:

§ 8.37

Cash value for term-capped policies.

(a) What is a term-capped policy? A term-capped policy is a National Service Life Insurance policy prefixed with “V” or Veterans Special Life Insurance policy prefixed with “RS,” issued on a 5-year level premium term plan in which premiums have been capped (frozen) at the renewal age 70 rate.

(b) How can a term-capped policy accrue cash value? Normally, a policy issued on a 5-year level premium term plan does not accrue cash value (see section 8.14). However, notwithstanding any other provisions of this part, reserves have been established to provide for cash value for term-capped policies.

(c) On what basis have the reserve values been established? Reserve values have been established based upon the 1980 Commissioners Standard Ordinary Basic Table and interest at five per centum per annum in accordance with accepted actuarial practices.

(d) How much cash value does a term-capped policy have? The cash value for each policy will depend on the age of the insured, the type of policy, and the amount of coverage in force and will be calculated in accordance with accepted actuarial practices. For illustrative purposes, below are some examples of cash values based upon a $10,000 policy at various attained ages for an NSLI “V” policy and a VSLI “RS” policy:

Age	Cash value “V”	Cash value “RS”
75	$1,494	$1,716
80	3,212	3,358
85	4,786	4,818
90	6,249	6,217
95	8,887	7,286

(e) What can be done with this cash value? Upon cancellation or lapse of the policy, a policyholder may receive the cash value in a lump sum or may use the cash value to purchase paid-up insurance. If a term-capped policy is kept in force, cash values will continue to grow.

(f) How much paid-up insurance can be obtained for the cash value? The amount of paid-up insurance that can be purchased will depend on the amount of cash value that the policy has accrued and will be calculated in accordance with accepted actuarial practices. For illustrative purposes, below are some examples of paid-up insurance that could be purchased by the cash value of a “V” and an “RS” $10,000 policy at various attained ages:

Age	Paid-up “V” insurance	Paid-up “RS” insurance
75	$2,284	$2,625
80	4,452	4,654
85	6,109	6,149
90	7,421	7,115
95	9,331	7,650

(g) If the policy lapses due to non-payment of the premium, does the policyholder nonetheless have a choice of receiving the cash value or paid-up insurance? Yes, the policyholder will have that choice, along with the option to reinstate the policy (see section 8.10 for reinstatement of a policy). However, if a policyholder does not make a selection, VA will apply the cash value to purchase paid-up insurance. Paid-up insurance may be surrendered for cash at any time.

(h) If a policyholder elects to receive either the cash surrender or paid-up insurance due to lapse or voluntary cancellation of a term-capped policy, may the original term-capped policy be reinstated? Yes, the term-capped policy may be reinstated but the policyholder, in addition to meeting the reinstatement requirements of term policies, must also pay the current reserve value of the reinstated policy.

(Authority: 38 U.S.C. 1906)