A Layman’s Guide to Corporate-Owned Life Insurance

A Layman’s Guide to. Corporate-Owned Life Insurance. Rick Schnurr, ASA, MAAA. Published in the July 2008 issue of the Actuarial Practice Forum…

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A Layman\’s Guide to Corporate-Owned Life Insurance

  • Section 1. Background, Purpose, and Scope
  • Background
  • Purpose/Scope
  • Qualifications
  • Section 2. Product Characteristics
  • General Account versus Separate Account
  • Traditional Whole Life versus Universal Life
  • Background
  • Investment Availability
  • Minimum Interest Guarantee
  • Variable Returns
  • Credit Risk
  • Securities Regulations
  • Investor Control
  • Transparency
  • Background
  • Premium Flexibility
  • Adjustable Death Benefits
  • Transparency
  • Interaction with General and Separate Accounts
  • Private Placement versus Registered
  • Modified Endowment Contracts versus Non-Modified Endowment Contracts
  • Experience Rating versus Community Rating
  • Section 3. Cost Considerations
  • Premium Tax
  • Deferred Acquisition Cost
  • Securities Act of 1933
  • Investment Company Act of 1940
  • Issues to Consider
  • Background
  • Additional Benefits Afforded to Non-MECs
  • Definition of Life Insurance
  • Qualifying for Non-MEC Status
  • Summary of Considerations
  • General Definitions
  • Experience Rating within COLI
  • Effect on Financial Statements
  • Issues to Consider
  • Nature of the Tax
  • Payment Methods
  • Selection of Payment Method
  • Best Practices Pricing Guarantee
  • IRC Requirement
  • Mortality and Expense Risk Charge
  • Administrative Fee
  • Cost of Insurance Charge
  • Retention
  • Commissions
  • Reallocation Fees
  • Opportunity Cost
  • Payment Methods
  • Choosing a Payment Method
  • Best Practices Pricing Guarantee
  • General Discussion
  • Best Practices Pricing Guarantee
  • General Discussion
  • Best Practices Pricing Guarantee
  • General Discussion
  • Best Practices Pricing Guarantee
  • General Discussion
  • Best Practices Pricing Guarantee
  • General Discussion
  • Best Practices Pricing Guarantee
  • General Discussion
  • Best Practices Pricing Guarantee
  • Loan Spread
  • Drag on Earnings
  • Investment Management Fees
  • 3.11.1 General Discussion
  • 3.11.2 Best Practices Pricing Guarantee
  • Custody and Accounting Fees
  • 3.12.1 General Discussion
  • 3.12.2 Best Practice Pricing Guarantee
  • Charge for Smoothing Portfolio Returns
  • 3.13.1 General Discussion
  • 3.13.2 Best Practice Pricing Guarantee
  • General Discussion
  • Best Practices Pricing Guarantee
  • Section 4. Legal Considerations, Representations, and Warranties
  • Transfer of Risk
  • Insurable Interest
  • Background Information
  • Traditional Group Life Insurance
  • Universal Life Insurance
  • Experience-Rated Life Insurance
  • Best Practices Representations, Warranties, and Indemnities
  • Background Information
  • State Insurance Law
  • “Life Insurance Contract” Status under IRC Section 7702
  • Modified Endowment Contract Status under IRC Section 7702A
  • Diversification Status under IRC Section 817(h)
  • Common Law
  • State Law
  • Conflicts of Law
  • Best Practices Representations, Warranties, and Indemnities
  • Background Information
  • Best Practices Representations, Warranties, and Indemnities
  • Background Information
  • Applicable Law
  • Computational Tests
  • Best Practices Representations, Warranties, and Indemnities
  • Background Information
  • Seven-Pay Test and Procedures to Remedy Failure
  • Best Practices Representations, Warranties, and Indemnities
  • Background Information
  • Diversification Requirements
  • Look-through Rules
  • Inadvertent Nondiversification
  • Best Practices Representations, Warranties, and Indemnities
  • Investor Control
  • COLI Best Practices Act
  • Background Information
  • Variable Life Service Rulings
  • Best Practices Representations, Warranties, and Indemnities
  • Background Information
  • Notice and Consent Requirements
  • Exceptions Based on Insured’s Status
  • Exceptions for Amounts Paid to Insured’s Heirs
  • Employer Reporting Requirements
  • Employer Recordkeeping Requirements
  • Best Practices Representations, Warranties, and Indemnities
  • Section 5. Accounting
  • Premium
  • Policy Expense Charges
  • Cost of Insurance Charges
  • Surrender Charges and FASB’s EITF Consensus
  • DAC Asset
  • Investment Gains
  • Additional Amounts Included in Contract
  • Ability to Surrender All Policies
  • Discounted Basis
  • Death Benefits
  • Mortality-Based Dividends
  • Section 6. Investments
  • General Account Crediting Rates
  • Separate Account Asset Allocation
  • Smoothing of Returns
  • Glossary
  • Acknowledgments
  • References
  • General
  • Book Value Crediting Rate
  • Issues to Consider When Comparing Smoothing Product Features
  • Amortization of Up-Front Charges

 

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