31.09.02.04

.04 Insurance Policy Requirements—Policy Qualification.

A. The Commissioner may not approve a variable life insurance form filed pursuant to this chapter unless it conforms to the requirements of this regulation.

B. Filing of Variable Life Insurance Policies.

(1) All variable life insurance policies, and all riders, endorsements, applications, and other documents which are to be attached to and made a part of the policy and which relate to the variable nature of the policy, shall be filed with the Commissioner and approved by him in writing before delivery or issuance for delivery in this State.

(2) The procedures and requirements for the filing and approval shall be, to the extent appropriate and not inconsistent with this chapter, the same as those otherwise applicable to other life insurance policies (for example, see particularly Insurance Article, §§12-102, 12-103, 12-203—12-205, and 12-209, Annotated Code of Maryland, and COMAR 31.04.17).

(3) The Commissioner may approve variable life insurance policies and related forms with provisions the Commissioner deems to be not less favorable to the policyholder and the beneficiary than those required by this chapter.

(4) The requirements of §§C(1), C(4), D(5)(a), and D(16) of this regulation do not apply to variable life insurance policies and related forms issued in connection with pension, profit-sharing, and retirement plans if separate accounts for the policies are exempt pursuant to the federal Investment Company Act of 1940, §3(c)(11).

C. Mandatory Policy Benefit and Design Requirements. Variable life insurance policies delivered or issued for delivery in this State shall comply with the following minimum requirements:

(1) Coverage shall be provided for the lifetime of the insured with the mortality and expense risk borne by the insurer. The mortality and expense charges shall be subject to the maximums stated in the policy.

(2) Gross premiums for death benefits shall be a level amount for the duration of the premium payment period, but this subsection may not be construed to prohibit temporary or permanent additional premiums for incidental insurance benefits or substandard risks. This subsection may not be deemed to prohibit the use of fixed benefit preliminary term insurance for a period not to exceed 120 days from the date of the application for a variable life insurance policy. The premium rate for the preliminary term insurance shall be stated separately in the application or receipt.

(3) A minimum death benefit for scheduled premium policies shall be provided in an amount at least equal to the initial face amount of the policy as long as premiums are duly paid, subject to the provisions of §E(2)(d) of this regulation.

(4) The amount payable upon the death of the insured as long as premiums are duly paid, subject to the provisions of §E(2) of this regulation, shall be not less than a minimum multiple of the gross premium payable in that year, exclusive of that portion allocable to any incidental insurance benefit, by a person who meets standard underwriting requirements, as shown in the following table:

Issue Ages Multiples
0—5 80
6—10 71
11—15 63
16—20 55
21—25 47
26—30 40
31—35 33
36—40 27
41—45 21
46—50 15
51—55 13
56—60 11
61—65 9
66—70 8
71 and over 7

(5) The policy shall provide that the variable death benefit shall reflect the investment experience of the variable life insurance separate account established and maintained by the insurer and that the excess, positive or negative, of the net investment return over the assumed investment rate, as applied to the benefit base of each variable life insurance policy, shall be used to provide either:

(a) Fully paid-up variable life insurance providing coverage for the same period as the basic insurance under the policy or fully paid-up term insurance amounts for a term of annual periods of not less than 1 year or more than 5 years, positive or negative, as the case may be, or a combination thereof; or

(b) Variable life insurance amounts, positive or negative, as the case may be, so that the reserve maintains the same percentage relationship to the variable death benefit as it would have on a corresponding fixed benefit policy.

(6) Each variable life insurance policy shall be credited with the full amount of the net investment return applied to the benefit base.

(7) Changes in variable death benefits of each variable life insurance policy shall be determined at least annually.

(8) The cash value of each variable life insurance policy shall be determined at least monthly. The method of computation of cash values and other nonforfeiture benefits, as described either in the policy or in a statement filed with the Commissioner of the state in which the policy is delivered, or issued for delivery, shall be in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation shall be such that, if the net investment return credited to the policy at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy, then the resulting cash values and other nonforfeiture benefits shall be at least equal to the minimum values required by Insurance Article, Title 16, Subtitle 3, Annotated Code of Maryland, for a fixed benefit policy with the premiums and benefits. The assumed investment rate may not exceed the maximum interest rate permitted under the Standard Nonforfeiture Law of this State. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include, for example, but are not to be limited to, a guarantee that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate.

(9) The computation of values required for each variable life insurance policy may be based upon such reasonable and necessary approximations as are acceptable to the Commissioner.

(10) Adjusted Premiums.

(a) If the gross premiums for any variable life insurance policy delivered or issued for delivery in this State produce an excess of (A) over (B) as defined in §C(10)(b) of this regulation the present value as of the date of issue of the adjusted premiums used in determining the minimum cash values required by §C(8) of this regulation shall be decreased by this excess by decreasing each adjusted premium by a uniform percentage.

(b) The excess of (A) over (B) referred to in §C(10)(a) of this regulation shall be determined as of the date of issue on the basis of the mortality table and maximum rate of interest permitted by Insurance Article, Title 16, Subtitle 3, Annotated Code of Maryland; and (A) is the present value of the gross premiums for the policy, decreased by one dollar per thousand of equivalent uniform amount for policies with an equivalent uniform amount of less than ten thousand, payable on an annual basis (exclusive of those portions of the gross premiums allocable to any incidental insurance benefits) by a person who meets standard underwriting requirements; and (B) is the product of (1) times (2) where (1) is the present value of the maximum premium rates per thousand of insurance shown below payable at the beginning of each policy year to attained age 65 of the insured for issue ages below age 51, for 15 years for issue ages 51 to 70 and for life for issue ages above age 70 and (2) is the ratio of (i) the present value of the benefits under the policy to (ii) the present value of an insurance of one thousand for the whole of life.

Tables of Rates
Age at
Issue
Premium
Rate
0 11.50
1 11.60
2 11.76
3 11.97
4 12.22
5 12.50
6 12.80
7 13.11
8 13.43
9 13.75
10 14.08
11 14.42
12 14.77
13 15.13
14 15.49
15 15.87
16 16.27
17 16.70
18 17.16
19 17.65
20 18.18
21 18.74
22 19.34
23 19.97
24 20.62
25 21.28
26 21.95
27 22.64
28 23.37
29 24.15
30 25.00
31 25.92
32 26.91
33 27.97
34 29.10
35 30.30
36 31.55
37 32.84
38 34.17
39 35.56
40 37.04
41 38.65
42 40.45
43 42.51
44 44.89
45 47.62
46 50.71
47 54.17
48 58.00
49 62.18
50 66.67
51 68.58
52 70.54
53 72.57
54 74.69
55 76.92
56 79.29
57 81.84
58 84.61
59 87.63
60 90.91
61 94.45
62 98.25
63 102.31
64 106.31
65 111.11
66 115.48
67 122.51
68 122.51
69 124.50
70 125.00
71 118.86
72 123.96
73 129.66
74 135.96
75 142.86
76 150.36
77 158.46
78 167.16
79 176.46
80 186.36

(c) For purposes of this subsection, the portion of the premium set aside to support a guarantee that the surrender value will not be less than a specified amount or for any other benefit that the Commissioner deems excludable, will not be included.

(11) In determining the net investment return to be applied to the benefit base, the insurer may deduct only the charges described in Regulation .06G(1), (2), (4), and (5) of this chapter.

(12) While the provisions of §C(2), (4), and (10) of this regulation are intended to apply to a variable life insurance policy on which level premiums are payable for life, a variable life insurance policy issued on a single premium or other premium payment plan may be delivered or issued for delivery in this State if, in the opinion of the Commissioner, the policy is in no respect less favorable to the policyholder than a policy on which level premiums are payable for life and which meets the requirements of this regulation, and if the policy issued on a single premium or other premium payment plan is otherwise issued and administered in conformity with and as prescribed by this chapter.

D. Mandatory Policy Provisions.

(1) Every variable life insurance policy filed for approval in this State shall be plainly printed in a type size not less than 10 point with a lower case unspaced alphabet length not less than 120 point, and shall contain at least the following:

(a) The cover page or pages corresponding to the cover page of each policy that shall contain:

(i) A prominent statement in either contrasting color or in boldface type at least four points larger than the type size of the largest type used in the text of any provision on that page, that the death benefit may be variable or fixed under specified conditions;

(ii) A prominent statement in either contrasting color or in boldface type at least four points larger than the type size of the largest type size used in the text of any provision on that page that cash values may increase or decrease in accordance with the experience of the separate account subject to any specified minimum guarantees;

(iii) A statement that the minimum death benefit will be at least equal to the initial face amount at the date of issue if premiums are duly paid and if there are no outstanding policy loans, partial withdrawals, or partial surrenders;

(iv) The rule, or a reference to the policy provision, which describes the method for determining the variable amount of insurance payable at death;

(v) A captioned provision which provides that the policyholder may return the variable life insurance policy within 45 days of the date of the execution of the application or within 10 days of receipt of the policy by the policyholder, whichever is later, and receive a refund of all premium payments for the policy; and

(vi) Other items that are currently required for fixed benefit life insurance policies and which are not inconsistent with this chapter;

(b) A provision regarding the policy grace period as follows:

(i) For scheduled premium policies, the grace period shall be not less than 31 days from the premium due date and when the premium is paid within the grace period, policy values will be the same, except for the deduction of any overdue premium, as if the premium were paid on or before the due date;

(ii) For flexible premium policies, the grace period shall begin on the policy processing day when the total charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day exceed the amounts available under the policy to pay such charges in accordance with the terms of the policy and end on a date not less than 61 days after the mailing date of the report to policyholders required by Regulation .09C of this chapter;

(iii) For all policies, the death benefit payable during the grace period shall equal the death benefit in effect immediately prior to such period less any overdue charges; and

(iv) For all policies, if the policy processing day occurs monthly, the insurer may require the payment of not more than three times the charges that were due on the policy processing day on which the amounts available under the policy were insufficient to pay all charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day;

(c) A provision that the policy will be reinstated at any time within 2 years from the date of default upon the written application of the insured and evidence of insurability, including good health, satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired, upon the payment of any outstanding indebtedness arising after the end of the grace period following the date of default together with accrued interest thereon to the date of reinstatement and payment of an amount not exceeding the greater of:

(i) All overdue premiums with interest at a specified rate not exceeding the rate of interest set forth in Insurance Article, §16-210, Annotated Code of Maryland, and any indebtedness in effect at the end of the grace period following the date of default with interest at a specified rate not exceeding the rate set forth in Insurance Article, §16-210, Annotated Code of Maryland; or

(ii) One hundred and ten percent of the increase in cash surrender value resulting from reinstatement plus all overdue premiums for incidental insurance benefits with interest at a specified rate not exceeding the rate set forth in Insurance Article, §16-210, Annotated Code of Maryland;

(d) A full description of the benefit base and of the method of calculation and application of any factors used to adjust variable benefits under the policy;

(e) A provision designating the separate account to be used and stating that:

(i) The separate account shall be used to fund only variable life insurance benefits, except to the extent permitted by §F(3)(f) of this regulation;

(ii) The assets of the separate account shall be available to cover the liabilities of the general account of the insurer only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life insurance policies supported by the separate account; and

(iii) The assets of the separate account shall be valued at least as often as any policy benefits vary, but at least monthly;

(f) A provision that at any time during the first 18 months of the variable life insurance policy, as long as premiums are duly paid, the owner may exchange the policy for a policy of permanent fixed benefit life insurance on the life of the insured for the same initial amount of insurance as the variable life insurance policy, and on a plan of insurance specified in the policy, provided that the new policy:

(i) Bears the same date of issue and age at issue as the original variable life insurance policy;

(ii) Is issued on a substantially comparable plan of permanent insurance offered in this state by the insurer or an affiliate on the date of issue of the variable life insurance policy and at the premium rates in effect on that date for the same class of insurance;

(iii) Includes riders and incidental insurance benefits which were included in the original policy if the riders and incidental insurance benefits are issued with the fixed benefit policy;

(iv) Is issued subject to an equitable premium or cash value adjustment that takes appropriate account of the premiums and cash values under the original and new policies. A detailed statement of the method of computing the adjustment shall be filed with the Commissioner;

(v) Does not require evidence of insurability for this exchange;

(g) A provision that the policy and any papers attached by the insurer, including the application if attached, constitute the entire insurance contract;

(h) A designation of the officers of the insurer who are empowered to make an agreement or representation on behalf of the insurer and an indication that statements by the insured, or on his behalf, shall be considered as representations and not warranties;

(i) An identification of the owner of the insurance contract;

(j) A provision setting forth conditions or requirements as to the designation, or change of designation, of a beneficiary and a provision for disbursement of benefits in the absence of a beneficiary designation;

(k) A statement of conditions or requirements concerning the assignment of the policy;

(l) A description of any adjustments in policy values to be made in the event of misstatement of age or sex of the insured;

(m) A provision that the policy shall be incontestable by the insurer after it has been in force for 2 years during the lifetime of the insured, notwithstanding that any increase in the amount of the policy’s death benefits subsequent to the policy issue date, which occurred upon a new application or request of the owner and was subject to satisfactory proof of the insured’s insurability, shall be incontestable after the increase has been in force, during the lifetime of the insured, for 2 years from the date of issue of increase;

(n) A provision stating that the investment policy of the separate account may not be changed without the approval of the Insurance Commissioner of the state of domicile of the insurer, and that the approval process is on file with the Commissioner of this State;

(o) A provision that payment of variable death benefits in excess of the minimum death benefits, cash values, policy loans, or partial withdrawals, except when used to pay premiums, or partial surrenders may be deferred:

(i) For up to 6 months from the date of request, if these payments are based on policy values which do not depend on the investment performance of the separate account; or

(ii) Otherwise, for any period during which the New York Stock Exchange is closed for trading, except for normal holiday closing, or when the Securities and Exchange Commission has determined that a state of emergency exists which may make payment impractical;

(p) Settlement options which shall be provided on a fixed basis only;

(q) A description of the basis for computing the cash surrender value under the policy shall be included, with the surrender value expressed as either:

(i) A schedule of cash value amounts per $1,000 of variable face amount at each attained age or policy year for at least 20 years from issue, or for the premium paying period, if less than 20 years; or

(ii) One cash value schedule as described in §D(17)(a) of this regulation for the death benefit, or for each $1,000 of death benefit, which would be in effect if the net investment return is always equal to the assumed investment rate and a second schedule applicable to any adjustments to the death benefit, disregarding the minimum death benefit guarantee and term insurance amounts, if the net investment return does not equal the assumed investment rate at each age for at least 20 years from issue, or for the premium paying period if it is less than 20 years;

(r) Premiums for incidental insurance benefits shall be stated separately;

(s) Any other policy provisions required by this chapter;

(t) Such other items as are currently required for fixed benefit life insurance policies and are not inconsistent with this chapter.

E. Nonforfeiture, Partial Withdrawal, Policy Loan, and Partial Surrender Provisions. A variable life insurance policy delivered or issued for delivery in this State shall contain provisions which are not less favorable to the policyholder than the following:

(1) Nonforfeiture Benefits:

(a) A provision for nonforfeiture insurance benefits so that at least one benefit is offered on a fixed basis from the due date of the premium in default;

(b) Variable extended term insurance may not be offered;

(c) A given nonforfeiture option need not be offered on both a fixed and variable basis;

(2) A provision for policy loans after 3 full years' premiums have been paid (which may at the option of the insurer be entitled and referred to as a partial withdrawal provision) not less favorable to the policyholder than the following:

(a) Up to 75 percent but if the loan is made from the general account not more than 90 percent of the policy's cash value may be borrowed;

(b) The amount borrowed, or any repayment thereof, does not affect the amount of the premium payable under the policy;

(c) The amount borrowed shall bear interest at a rate not to exceed the rate stated in Insurance Article, §16-207, Annotated Code of Maryland;

(d) Any indebtedness shall be deducted from the proceeds payable on death;

(e) Any indebtedness shall be deducted from the cash value upon surrender or in determining any nonforfeiture benefit;

(f) If the indebtedness exceeds the cash value for scheduled premium policies, the insurer shall give notice of intent to cancel the policy if the excess indebtedness is not repaid within 31 days after the date of mailing of the notice;

(g) The policy may provide that if, at any time, as long as premiums are duly paid, the variable death benefit is less than it would have been if no loan or withdrawal had ever been made, the policyholder may increase the variable death benefit up to what it would have been if there had been no loan or withdrawal by paying an amount not exceeding 110 percent of the corresponding increase in cash value and by furnishing such evidence of insurability as the insurer may request;

(h) The policy may specify a reasonable minimum amount which may be borrowed at any time, but this minimum does not apply to any automatic premium loan provision;

(i) A policy loan provision is not required if the policy is under the extended insurance nonforfeiture option;

(j) In addition to the foregoing, the policy may contain a partial surrender provision. However, this provision shall provide that the policyholder may request part of the cash value, and both the variable and minimum death benefits will be reduced in proportion to the percentage of the cash value received by the policyholder, and the premium for the remaining amount of insurance will also be reduced to the appropriate rates for the reduced amount of insurance. The policy may provide that a partial surrender provision may not require the insurer to reduce the amount of the minimum death benefit to less than the lowest amount of minimum death benefit which would have been issued to the insured under the insurance plans of the insurer at the time the policy was issued. The policy shall clearly provide that the policyholder has the option of electing to exercise the cash value privileges of the policy loan or partial withdrawal provision rather than the partial surrender provision;

(k) All policy loan, partial withdrawal, or partial surrender provisions shall be constructed so that variable life insurance policyholders who have not exercised these provisions are not disadvantaged by their exercise;

(l) Monies paid to the policyholders upon the exercise of a policy loan, partial withdrawal, or partial surrender provision shall be withdrawn from the separate account and shall be returned to the separate account upon repayment, except that a stock insurer may provide the monies for policy loans from the general account.

F. Other Policy Provisions. The following provisions may in substance be included in a variable life insurance policy or related form delivered or issued for delivery in this State:

(1) An exclusion for suicide within 2 years of the policy issue date, and an exclusion, to the extent of the increased death benefits only, for suicide within 2 years of any increase in death benefits which result from an application of the owner subsequent to the policy issue date;

(2) Incidental insurance benefits may be offered on a fixed basis only;

(3) Policies issued on a participating basis shall offer to pay dividend amounts in cash and may offer options so that the amount of the dividend may be:

(a) Credited against premium payments;

(b) Applied to provide paid-up amounts of additional fixed benefit whole life insurance;

(c) Applied to provide paid-up amounts of additional variable life insurance;

(d) Deposited in the general account at a specified minimum rate of interest;

(e) Applied to provide paid-up amounts of fixed benefit 1-year term insurance;

(f) Deposited as a variable deposit in the separate account if the separate account is exempt pursuant to the federal Investment Company Act of 1940, §3(c) (11);

(4) A provision allowing the policyholder to elect in writing in the application for the policy or thereafter an automatic premium loan on a basis not less favorable than that required of policy loans or partial withdrawals under §E of this regulation, except that a restriction that no more than two consecutive premiums can be paid under this provision may be imposed.