Interaction b/w Guarantee Duration, Valuation Rate & 19P

[actuary-at-large]

When calculating the expense allowance for a life insurance contract, one of many components is 19Px. Should this be calculated using the same underlying valuation interest rate as the other components or should the guarantee duration of the hypothetically issued 19-Pay whole life contract be considered?

For example, on a 10-year non-renewable term contract (issued to a 25-year old), the current maximum valuation interest rate is 5.00%. The hypothetical guarantee duration of the associated 19-pay whole life contract would be 79 (=100-21) with a possible associated maximum valuation rate of 4.50%. Does one use 5.00% or 4.50%?

Thanks in advance.

Without looking it up to verify, I think it's phrased similar to "expense allowance shall not exceed that for a 20-payment whole life contract", which would imply the use of 4.50% in calculating the 19Px (actually x+1 but it doesn't look right that way without the subscripts)

[Gandalf]

If this is a 10-year level premium non-renewable term, isn't the answer irrelevant? There is a limit involving that premium, but a much lower limit will result from the other tests anyway.

If you were selling a 10-payment endowment insurance (which I think no one does), the answer would affect your reserves.

[actuary-at-large]

Thanks uryshon and Gandalf.

First Gandalf:

The plan is for a non-level premium plan and I believe would at the advanced ages affect reserves under either type of premium curvature, be that it either allows for a lower or higher expense allowance.

Uryshon,

Given that the current SVL states that "the interest rates used in the present value calculations for any policy may not exceed the max. val. interest rate, determined with a guarantee duration equal to the sum of the lengths of all segments of the policy." would this imply that the 19-pay whole life contract would be subject to its own contract segmentation. The implication being that select factors could be possibly used for the full first 20/19 years. Assuming then that:

1. we never have an inverted valuation interest curve,
2. 19Px+1 has an initial segment > base contract,

could one effectively eliminate MPT type reserves?

The real question here is how using a unique duration definition impacts the underlying valuation mortality basis.

[G. Ringo]

Although it does not deal with exactly the same question, Actuarial Guideline XVI seems to establish the principle that you use the interest and mortality basis for the actual policy, not for the hypothetical 19-pay life policy.

I can't find anything in the Standard Valuation Law that makes the expense allowance dependent on the pattern of premiums (except for triggering the "deposit term" exception). Please explain how 19Px+1 is relevant to a 10-year term plan.