Interest-Sensitive Whole Life

Nine years after buying a universal life policy that was sold using an illustration, Perrine writes to the insurer asking how the contract is actually performing against what she was shown. Under the NAIC illustrations framework, what is the insurer obligated to provide?

1. A.A refund of premiums if actual performance has trailed the original illustrationUnderperformance of nonguaranteed elements is not a breach and does not trigger a refund remedy.
2. B.An annual report of actual policy values and activity, plus an in force illustration on request projecting forward from current valuesCorrect. The framework requires both an annual report and an in force illustration furnished on request.
3. C.A replacement policy on the original illustrated terms, at the insurer expenseNo such make-whole obligation exists. The framework provides transparency, not a performance guarantee.
4. D.Nothing further, because the original illustration disclosed that nonguaranteed elements could changePost-sale reporting obligations are independent of the disclaimers on the original illustration.

Why: The framework does not end at the point of sale. For a policy sold with an illustration, the insurer must send the owner an ANNUAL REPORT showing actual policy values and activity for the period, and must provide an IN FORCE ILLUSTRATION on the owner request, projecting values forward from the current actual status of the contract using current assumptions. Together these let the owner compare what was projected at sale against what has actually happened and what is now projected, which is the only practical check on an illustration made years earlier. The insurer may not refuse on the ground that the original illustration was clearly labelled as nonguaranteed.

CURRENT ASSUMPTION (interest-sensitive) whole life provides guaranteed minimums but credits current rates. Its 'redetermination' provision means the insurer periodically:

1. A.Redetermines the insured's risk class by new medical examsWrong-but-tempting. Insurability is locked at issue - ECONOMIC assumptions are what reset.
2. B.Recalculates premiums and values based on actual experience, within contractual guaranteesCorrect. Experience-based resets between guaranteed limits define the product.
3. C.Reprices the policy to the insured's attained ageWrong. Attained-age repricing describes renewable TERM.
4. D.Converts the policy to variable lifeWrong. No conversion occurs - crediting rates change, not the chassis.

Why: Interest-sensitive whole life periodically resets current assumptions: policyowners share favorable experience through lower outlay or higher values, and bear adverse resets up to contract guarantees. Citation: current assumption whole life design. Takeaway: current elements float with experience between guaranteed rails.