North American: Premium Limit on Inforce CVAT policies
04-23-2020
North American's life insurance contracts expressly provide that the policies are intended to qualify as life insurance under the Internal Revenue Code (IRC), and prohibit the payment of premiums that would cause the policy to no longer qualify. North American regularly monitors policies subject to a Cash Value Accumulation Test election (CVAT) to ensure that credited interest and/or new premium do not cause a disqualification as life insurance under the IRC.
While increasing a policy’s death benefit may avoid a disqualification that otherwise would result from applying a premium payment, North American will not accept substantial increases to death benefits without assurances that the increased risk to the company is appropriate under the circumstances. Their insurance contracts provide that any proposed increase in death benefit is subject to the company’s right to require evidence of insurability satisfactory to the company. Accordingly, North American may reject or refund any premium payment that would require a substantial increase in the death benefit to satisfy CVAT.
Consistent with these fundamental principles, North American is implementing premium limits for premium on CVAT policies. These protocols are consistent with their contractual rights and responsibilities, while ensuring that they are also adhering to compliance guidelines for CVAT. These protocols will ensure that increases in the death benefit resulting from additional premium are underwritten where appropriate. North American will continually review their policies and procedures, of course, and the implementation of these new protocols are not a waiver of the company’s right to make changes in the future.
Effective immediately, North American will implement the following premium limits for premium payments received on CVAT policies that have entered corridor.
- North American is limiting premium to $250,000 in any given policy year for policies that are in the CVAT corridor. Any premium received that violates this premium limit will require evidence of insurability or be returned to the client.
- North American will also be reviewing recently received unscheduled premium. The unscheduled premium will be returned if it violates the $250,000 unscheduled premium limit for CVAT policies in corridor.
Please be advised that North American may modify these premium limits at any time in the future and in their sole discretion or determine at any point in the future to require underwriting satisfactory to us prior to allowing the death benefits on policies they have issued to increase. Your flexibility is appreciated as they monitor CVAT premiums under these modified procedures.
Should you have any questions about these updates, please call 1-800-792-6795.