MEC prem calcs on Survivor reductions

[wheat66]

There is a special rule in 7702A which seems to say reductions on Survivor policies, at any time (not just those within the 7-year test period), cause the usual reduction recalcultion/retest rules to be invoked.

This part of the code specifically mentions reductions in "death benefit". I've heard this rule was added to avoid some "loophole" in the MEC tests caused by the low Survivor coi charges. I'm not sure what the loophole might have been; presumably something involving a face reduction?

Does anyone interpret this Survivor reduction rule as being applicable only to Face reductions (and perhaps a reduction in a Survivor term rider)? Or maybe only reductions on pure death bens of any type (so Prem Waiver rider reductions wouldn't count?) or do most companies just include all the usual "reductions" as being sufficient to invoke this rule?

thanks for any help

[CDesRochers]

As I recall, the issue that caused the extension of the reduction rules was a product idea that took advantage of the different treatment of riders under section 7702 and 7702A. By using a 7-year survivorship rider, it was possible to design a policy for which the NSP and the 7-pay were equal, thus defeating the concept of a MEC.

The legislative history indicates that "a decrease in future benefits iunder a contract would not be considered a material change" (Congressional Record -- Senate, 9/12/88, S. 12353). Since there are only two choices -- reduction or material change -- following that logic, as "future benefits" include QAB charges, dropping a QAB would appear to subject the contract to the reduction in benefits rule.

Hope this helps.

[wheat66]

thanks; it seemed by interpretation was too uncommon.