EXPLANATORY STATEMENT
STATUTORY RULES NO 180 1988
ISSUED BY AUTHORITY OF THE MINISTER ASSISTING THE TREASURER
LIFE INSURANCE ACT 1945
LIFE INSURANCE REGULATIONS (AMENDMENT)
LEGISLATIVE BASIS FOR THE REGULATIONS
The Life Insurance Act 1945 (the Act) establishes an administrative system for the supervision of the conduct of life insurance business in Australia by registered life insurance companies.
Under subsection 95(2) of the Act the Governor-General may, on the recommendation of the Insurance and Superannuation Commissioner, by regulation declare that the provisions of Division 4 of Part IV of the Act shall apply in respect of any policy or class of policies with such modifications as are declared in the regulation, and the provisions of the Division are to apply in respect of that policy or class of policies accordingly.
BACKGROUND
The regulation declares under subsection 95(2) of the Act a set of modifications to the provisions in Division 4 of Part IV of the Act pertaining to the determination of minimum paid-up values and minimum surrender values to apply to a new class of policies. The modifications are included under the existing Regulation 8 of the Life Insurance Regulations where other modifications of the provisions of that Division are set out. In accordance with the requirements of subsection 95(2) of the Act, the modifications were recommended by the Insurance and Superannuation Commissioner.
The new class of policies is increased ordinary policies, ie ordinary policies the contract under which has been varied at the request of the policy owner since their issue in such a manner as to increase the sum insured and premium payments, or to grant an increase in the sum insured upon the making of additional premium payments, but not so as to alter either the date on which the sum insured becomes payable or the term during which premium payments are to be made.
Under the provisions of sections 96 and 97 respectively of the Act, a policy may only be changed into a paid-up policy (ie a policy in respect of which no further premiums are payable) where not less than three years’ premiums have been paid; and a policy must have been in force for at least six years before its owner can become entitled to receive a surrender value in respect of that policy by surrendering that policy. Unless these provisions are made subject to appropriate modifications when applying to the new class of policies, life insurance companies would face the prospect of having to assess paid-up values and surrender values of policies in this class by treating them as if they had been originally issued at the increased level of sum insured.
The regulation sets out modified provisions applicable to this class of policies. It provides for the calculation of a separate paid-up value or surrender value in respect of the original sum insured, and each subsequent increase in the sum insured. In addition, it amplifies certain aspects of the application of the provisions of subsection 100(1) of the Act to increases in the sum insured.
Details of the regulation are set out below:
The regulation amends Regulation 8 of the Life Insurance Regulations by replacing the heading of paragraph (d) thereof with a new and more precise heading, and inserting after paragraph (d) a new paragraph (da).
The new paragraph (da) sets out rules for the calculation of a minimum paid-up value as well as a minimum surrender value of a policy. In addition, it amplifies certain aspects of the application of the provisions of subsection 100(1) of the Act in relation to increases in the sum insured under the policy.
DATE OF OPERATION
The regulation is effective from the date of Gazettal.