WL Policies and MEC limit calculations

Does someone have a suggestion for learning more about MEC limits and the calculations for WL policies other than reading tax code and regulations? I am looking for a more technical primer than what most articles online discuss but still suitable for a moderately intelligent non-life actuary.


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The Life Insurance and Modified Endowments book is great for this. I think it is available from the SOA but is a tad expensive.

For the majority of WL policies, it is pretty hard to become a MEC unless the policy is limited pay or allows changes like partial surrenders or dropping large riders.

The basic formula is the NSP divided by a 7 year annuity due. The NSP may contain the PV of certain riders and benefits too. If there is a 1035 premium or you need to do the calculation after issue, you would reduce the NSP by either the 1035 premium amount or the current cash value. This is a bit simplified, but I am not sure the depth you are looking for.

Also WL policies that allow dumping large amounts of money into PUA riders.

IME this is usually best addressed by using the Necessary Premium Test (NPT) and considering every increase in DB as a material change.

This is the gold standard for sure.

My interest is primarily related to this.

The question is basically, for a given expected level premium and a goal of maximizing cash value, what is the" better" policy design and what are the different risks one might face for a) a small base premium that utilizes large PUA riders v b) a premium with larger base and smaller PUA riders.

My understanding is that a small base/higher PUA generates higher short-term CV. I have seen numerous illustrations where both over the short- and long-term both CV and death benefit is higher under design a, but have been told the reliance on temporary riders to increase the DB (to avoid MEC limits) makes this structure more “fragile”. Frequently this fragility is described in terms of MEC risk. The problem is no one seems to be able to explain mathematically or with examples, why this is the case. It is always very general, mostly theoretical, and very unsatisfactory (i.e. repeating “common knowledge” explanations).

I also wonder if a corollary of this risk for design a is a benefit to design b, e.g. the ability to buy more PUA in future years in the event of a large cash influx, because the policy is generally farther away from the MEC limit.