On March 1, 2016, the second phase of Actuarial Guideline XLIX (AG49) takes effect, further defining — and refining — indexed universal life (IUL) illustration practices. Back in August, I reviewed the first phase of AG49, which brought consistency in illustrated crediting rates. As of March 1, even more changes will be required to help level the playing field among illustrations and provide greater transparency for customers.
First and most noticeable will be the inclusion of an additional set of projected policy values. Currently, illustrations are required to project values on both a guaranteed and a non-guaranteed basis. AG49 requires an additional set of non-guaranteed projected values using a specified interest rate, frequently the declared rate for the policy's fixed account. Illustrated values at two different non-guaranteed interest rates will help to increase consumer understanding of the effect of non-guaranteed interest rates on their policies.
Second, a table of hypothetical indexed interest crediting rates will be required. The policy's current non-guaranteed rate, such as the cap, will be applied historically to actual index performance within the table. The resulting hypothetical indexed interest crediting rate will be displayed. A second new table will also be required listing additional hypothetical historical interest rates. Both of these tables are additional tools to help explain the potential variability of the product's interest crediting.
