WP management - Alteration of terms

Question 1

What must a company alert a policyholder of if they’re altering their policy?

Answer 1

1. If a qualifying policy will become non-qualifying

Question 2

5 methods of alteration terms?

Answer 2

1. Proportionate paid-up
2. Equate policy value
3. SV respread to reduce future premiums
4. PUP value + premium for balance of SA
5. Accumulation of premium arrears/surplus

Question 3

Explain Proportionate paid up in 5 points?

Answer 3

1. Same formula as non-profit if attached bonuses stay unchanged
2. Some companies reduce bonuses in proportion to reduction in basic benefit
3. Some may not give future bonuses on PUP
4. If TB declared in proportion to attached bonuses, then problem if keep bonuses same
5. Problems with presentation on lower bonuses than others

Question 4

Explain equating policy values in 5 points?

Answer 4

1. Equate prosp/retro value before alteration to prosp after alteration
2. Company may choose to adjust past RB’s or leave them the same
3. Want to allow policy to have same RB/TB rates as unaltered policies
4. Need to make sure still equitable
5. Specimen calcs needed

Question 5

SV respread to reduce future premiums in 3 points?

Answer 5

1. Calculate new premium for benefits after alteration
2. Calculate special surrender value on policy up to now
3. Spread that surrender value over lifetime of new policy and adjust premiums

Question 6

Explain the accumulation of premium arrears/surplus method in alterations?

Answer 6

Policyholder put into same position as if they had taken out the adjusted policy at the original entry date