A CAWL contract explicitly states the maximum mortality rates it will charge for all ages and guarantees that mortality rates will not exceed those maximums. Many companies now use the 2001 Commissioner’s Standard Mortality (CSO) table as the basis for their contractually guaranteed maximum rates on newly issued policies, but some companies still use the older 1980 CSO mortality table for their new policies. In addition, all policies issued before about 2002 used the 1980 CSO mortality table or even the 1958 CSO mortality table. All three tables are very conservative; that is, they assume mortality rates that are considerably higher than what is expected, but the 1980 CSO table and, even more so, the 1958 CSO table are more conservative than the 2001 CSO table. Virtually every company currently charges less than the stated maximums, but those using the more conservative 1980 or 1958 CSO tables have even more room to increase mortality charges in future years if their mortality experience is poor.
Although annual statements explicitly show actual mortality charges, many policy illustrations do not. In fact, some illustrations assume very low or no mortality charges, which tend to show projected cash values that are overstated relative to what can actually be expected. Other illustrations include mortality charges based on rates the company is currently assessing, but they may also assume that there will be improvements in mortality experience in future years. If the mortality improvements do not materialize as anticipated, actual cash values are unlikely to match the projected cash values.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM