§1971 Basic Tables of Premiums; Readjustment of Rates

Summary

Insurance policies bought under section 1966 must start with a schedule of basic premium rates by age for the first policy year. The Secretary sets those rates so they match the lowest rates generally charged for new group life insurance sold to large employers. Those age rates are used to figure an average basic premium per $1,000 of insurance. The same basic rates usually continue in later years, but the insurer can change them based on the policy’s experience if the Secretary allows a method for doing so that matches normal industry practice. Total premiums equal the basic premium plus an extra amount that covers the extra hazard of active duty in the uniformed services. The Secretary decides that extra cost, and it is readjusted retroactively each year under section 1969(b). If finding the actual age spread of coverage would cost too much, the Secretary can allow a tentative average premium instead, and can redetermine it if assumptions were wrong. Policies must also set a maximum expense and risk charge for the first year (set by the Secretary to match industry levels), which can be redetermined by agreement or with at least one year’s written notice. Insurers must give the Secretary an accounting within 90 days after each policy year showing premiums earned, claim costs, and expense/risk charges. Any excess is held as a special contingency reserve that earns interest at a rate the insurer sets and the Secretary approves. Once the Secretary says the reserve is large enough, further excess goes into the revolving fund in section 1969(d)(1). If the policy ends and money remains, that balance goes to the same revolving fund; the insurer may pay it in equal monthly installments over up to two years.