National Life Insurance Premium Payment and Loan Modification – InsuranceNewsNet

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Final rule.

CFR Part: “38 CFR Part 8”

RIN number: “RIN 2900-AR29”

Quote: “87 FR 35419”

Page number: “35419”

“Rules and Regulations”

Agency: “Department of Veterans Affairs.”

SUMMARY: The Department of Veterans Affairs (VA) modifies its National life insurance (NSLI) to offer Disabled Veterans Insurance (S-DVI) policyholders the option of paying premiums for government life insurance coverage only on a monthly or annual basis. Virginia also increases the amount insured veterans can borrow based on the value of their life insurance policies and adjusts the interest rates charged for fixed-rate loans in certain circumstances.

DATES: This rule is effective July 11, 2022.

FOR MORE INFORMATION, CONTACT: Paul WeaverInsurance Specialist, Department of Veterans Affairs Insurance Service (310/290B), 5000 Wissahickon Avenue, Philadelphia, Pennsylvania 19144, (215) 842-2000, ext. 4263. (This is not a toll-free number.)

ADDITIONAL INFORMATION: The October 13, 2021, Virginia published in the Federal Register (86 FR 56846) a proposed rule to amend its regulations governing NSLI programs. Interested persons were invited to submit their written comments no later than December 13, 2021. Virginia received two comments regarding proposed changes to NSLI premium payment methods.

The first commenter said that Virginia makes “the confusing argument that allowing veterans to pay their life insurance bills quarterly or semi-annually adds administrative complexity and program costs”, and that the commentator cannot understand how to provide payment options additional “should add administrative complexity”. A second commenter said that calculating quarterly and semi-annual bonuses “should not have a higher program cost than calculating annual bonuses.”

We explained in our regulatory proposal that very few veteran policyholders choose to pay premiums on a semi-annual or quarterly basis. As part of recent Virginia efforts to modernize the IT systems of its life insurance programs, Virginia purchased commercial off-the-shelf (COTS) policy maintenance software used by other private insurance companies. This purchase allowed Virginia to minimize information technology transformation costs for policyholders compared to a custom designed system designed from the ground up for Virginia use. This COTS system does not offer quarterly and half-yearly premium modes, and Virginia should incur additional costs for the contracted supplier to add these modes to Virginia use. GO the analysis indicated that the costs of this personalization were disproportionate to the value of the associated benefit, given the relatively small number of policyholders who choose these payment methods. Whether Virginia If these payment options were maintained, it would add administrative complexity and program costs because Virginia should either purchase a custom enhancement for these modes or develop a manual solution to replace the functionality of the COTS system when policyholders choose to pay premiums on a semi-annual or quarterly basis. We note that while the COTS system will be used for current and new fonts, current fonts will retain the options they have by hard-coding the previous option into the new system when converting. A policyholder who chooses a monthly or annual payment method after conversion will not have the option of switching back to quarterly or semi-annual payment. Again, allowing quarterly and semi-annual payment options for new policies under the COTS system would require a more expensive custom enhancement. Further away, Virginia is required to operate its life insurance programs in a cost-effective and actuarially sound manner (see, for example, 38 U.S.C. 1920(b); 1925(d)(2)), and to continue to offer modes of premiums that would increase costs to all insured while benefiting a relatively small number, while potentially increasing lapse rates for vulnerable disabled veterans, is not actuarially sound because it is not cost effective.

The first commenter also said that an article we cited in our regulatory proposal regarding lapse rates (Cathy Ho & Nancy Muise, WE Individual Lifetime Persistence: Guaranteed and Simplified Problem – A Joint Study Sponsored by Soc’y of Actuaries and LIMRA 16 (2013), https://www.soa.org/globalassets/assets/Files/Research/Exp-Study/research-2013-gisi-study.pdf (last visit January 13, 2022)) “is not convincing” and that there must be “better ways to Virginia to allocate its resources rather than reduce the number of payment options available to veterans. The second commenter suggested that because the data in the article is “two decades old,” Virginia should use a more recent study.

In the proposed rule, we stated that “research shows that lapse rates tend to increase with the number of premium payments made each year, with the notable exception of monthly payment methods”. Identifier. We cited this research because the study results support our efforts to minimize lapsed life insurance coverage by providing fewer, simpler payment options. We also cited this research because some of the commercial insurers we reviewed relied on this research as well as an earlier study from 2005 to limit premium payment options to reduce costs and minimize the expiration of coverage for their policyholders. See Marianne Purushotham, WE Individual Lifetime Persistence Update – A Joint Study Sponsored by LIMRA International and the Society of Actuaries, https://www.soa.org/globalassets/assets/Files/Research/Exp-Study/US-Indiv-Life-Persistency-Report-Final.pdf (2005) (last visit January 13, 2022). Since the 2013 study is consistent with the 2005 study conducted by the same group of insurance professionals, we have no reason to believe that this trend would change with more recent data. Also, Virginia has historically observed more inconsistent premiums from veterans paying by semi-annual and quarterly payment methods. For the reasons given above, Virginia will adopt the proposed rule as final, without change.

Executive Orders 12866 and 13563

Executive Orders 12866 and 13563 direct agencies to evaluate the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential effects on the economy , environment, public health and safety, and other benefits; impacts and equity). Executive Order 13563 (Regulatory Improvement and Scrutiny) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The Office of Information and Regulatory Affairs has determined that this rule is not a significant regulatory action under Executive Order 12866. The regulatory impact analysis associated with this regulation can be viewed as a supporting document at www.regulations.gov.

Regulatory Flexibility Act

The Secretary hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as defined in the Regulatory Flexibility Act, 5 USC 601-612. This final rule will only directly affect individuals and will not directly affect any small entities. Therefore, pursuant to 5 USC 605(b), the initial and final regulatory flexibility analysis requirements of 5 USC 603 and 604 do not apply.

Unfunded mandates

The Unfunded Warrants Reform Act of 1995 requires, at 2 U.S.C. together, or by the private sector, $100 million or more (adjusted annually for inflation) in a year. This final rule will have no such effect on state, local and tribal governments, or the private sector.

PAPER REDUCTION Act

This Final Rule does not contain any provision that constitutes information collection under the Red Tape Reduction Act of 1995 (44 USC 3501-3521).

Congressional Review Act

In accordance with the Congressional Review Act (5 USC 801 and next), the Office of Information and Regulatory Affairs designated this rule as not being a major rule, as defined by 5 USC 804(2).

Support List

The Federal Domestic Assistance catalog numbers and titles for the programs covered by this document are 64.030, Life Insurance for Veterans – Nominal Amount of New Life Insurance Policies Issued, and 64.031, Life Insurance for Veterans. Veterans – Direct Payments for Insurance.

List of topics in 38 CFR Part 8 Disability Benefits, Life Insurance, Loan Programs – Veterans, Military Personnel, Veterans.

Signing authority

Denis McDonoughSecretary of veterans affairsapproved this document on June 6, 2022and authorized the undersigned to sign and submit the document to the Federal Registry Office for electronic publication as an official document of the Department of Veterans Affairs.

Luvenia Potts,

Rules Development Coordinator, Office of Regulatory Policy and Management, General Counsel’s Office, Department of Veterans Affairs.

For the reasons set out in the preamble, Virginia amends 38 CFR part 8 as shown below:

PART 8 – NATIONAL LIFE INSURANCE

1. The citation of authority for Part 8 continues to read as follows:

Authority: 38 USC 501, 1901-1929, 1981-1988, except where noted.

2. Edit SECOND 8.2 by revising paragraph (c)(2) and adding paragraph (c)(3) as follows:

SECOND 8.2 Payment of Premiums.

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(vs) * * *

(2) Insureds may pay premiums in advance on an annual basis.

(3) Insured persons insured at July 11, 2022 may pay premiums in advance on an annual, semi-annual or quarterly basis.

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3. Edit SECOND 8.13:

a. In paragraph (a), by deleting “which shall not exceed 94 percent” and adding “policy” before “reservation” in the first sentence.

b. By revising paragraph (d).

The revision reads as follows:

SECOND 8.13 Policy Advances.

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(d) Notwithstanding any other provision of this Section, the Variable Loan Rate shall not exceed 12% nor be less than 5% per annum. For policyholders with an existing fixed rate loan who subsequently request an additional loan on the same contract, the existing fixed rate loan will be refinanced into the new variable rate loan at the variable rate in effect at the time of the new loan request.

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[FR Doc. 2022-12561 Filed 6-9-22; 8:45 am]

BILLING CODE 8320-01-P

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