00-3454. Cash Value for National Service Life Insurance (NSLI) Term Capped Policies

AGENCY:

Department of Veterans Affairs.

ACTION:

Proposed rule.

SUMMARY:

This document proposes to amend 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 receive either the cash value in a lump sum or to purchase paid-up insurance upon the termination of the contract before maturity.

DATES:

Comments must be received on or before March 16, 2000.

ADDRESSES:

Mail or hand-deliver written comments to: Director, Office of Regulations Management (02D), Department of Veterans Affairs, 810 Vermont Avenue, NW, Washington, DC 20420. Comments should indicate that they are in response to “RIN 2900-AJ35”. All written comments received will be available for public inspection at the above address in the Office of Regulations Management, Room 1158, between the hours of 8:00 a.m. and 4:30 p.m., Monday through Friday (except holidays).

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:

Currently, approximately one percent of term capped policies are canceled each year by lapse or request and these policyholders do not receive any value reserved to their policies. Any reserves no longer necessary to be held for canceled policies are redirected to surplus and distributed to the remaining term policyholders as dividends.

Term capped policyholders who reach age 96 are afforded the full face value of their policies because the mortality table upon which their premiums are based (American Experience Mortality Table) effectively matures these policies at age 96. Yet, if a policyholder cancels coverage at age 95, he or she would not receive any value. In order to remedy this, we are proposing to add section 8.37 to provide cash values for these term capped policies, which is in accordance with the practices in the commercial insurance industry.

Sufficient reserves have been established, not only to fund that NSLI “V” and VSLI “RS” 5-year level premium term rates so that they do not exceed their respective renewal age 70 premium rates (term capped policies), but also to provide cash values to these term premium capped policies. As illustrative of the reserves previously established to provide for cash values, at age 85, a “V” term capped policyholder with a $10,000 policy would accumulate $4,786 in cash value. We also believe that “V” and “RS” policyholders whose policies are canceled should be afforded the option to receive the cash value in a lump sum or to use that value to purchase paid-up insurance. This will afford policyholders the opportunity to retain some of the life insurance coverage which they may have had since the beginning of WWII. At age 85, a “V” policyholder who has accumulated $4,786 in cash value could purchase $6,109 in paid-up insurance.

The Secretary of Veterans' Affairs hereby certifies that this proposed 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 proposed rule is, therefore, exempt from the initial and final regulatory flexibility analysis requirement of sections 603 and 604. The proposed 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: February 3, 2000.

Togo D. West, Jr.,

Secretary of Veterans' Affairs.

For the reasons set out in the preamble, 38 CFR part 8 is proposed to be amended as set forth below:

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 § 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 a 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 “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 § 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)