[Federal Register Volume 87, Number 112 (Friday, June 10, 2022)]
[Rules and Regulations]
[Pages 35419-35421]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-12561]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 8

RIN 2900-AR29


National Service Life Insurance Premium Payment and Loan 
Amendment

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: The Department of Veterans Affairs (VA) is amending its 
National Service Life Insurance (NSLI) regulations to offer Service-
Disabled Veterans' Insurance (S-DVI) policyholders the option of 
remitting premiums for government life insurance coverage only on a 
monthly or annual basis. VA is also increasing the amount that Veteran 
policyholders are eligible to borrow against the value of their life 
insurance policies and to adjust the interest rates charged for fixed-
rate loans in certain circumstances.

DATES: This rule is effective July 11, 2022.

FOR FURTHER INFORMATION CONTACT: Paul Weaver, Insurance Specialist, 
Department of Veterans Affairs Insurance Service (310/290B), 5000 
Wissahickon Avenue, Philadelphia, PA 19144, (215) 842-2000, ext. 4263. 
(This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On October 13, 2021, VA published in the 
Federal Register (86 FR 56846) a proposed rule to amend its regulations 
governing the NSLI programs. Interested persons were invited to submit 
written comments on or before December 13, 2021. VA received two 
comments concerning the proposed changes to the modes of payment for 
NSLI premiums.
    The first commenter stated that VA makes the ``confusing argument 
that allowing veterans to pay their life insurance bills quarterly or 
semi-annually adds administrative complexity and program costs,'' and 
that the commenter cannot understand how providing additional payment 
options ``should add any administrative complexity.'' A second 
commenter

[[Page 35420]]

stated that calculating quarterly and semi-annual premiums ``should not 
have a higher program cost than calculating the annual premiums.''
    We explained in our proposed rulemaking that very few Veteran 
policyholders choose to pay premiums on a semi-annual or quarterly 
basis. As part of recent VA efforts to modernize the information 
technology systems of its life insurance programs, VA purchased 
commercial-off-the-shelf (COTS) policy maintenance software used by 
other private insurance companies. This purchase enabled VA to minimize 
information technology transformation costs to policyholders compared 
to a custom-designed system built from the ground-up for VA use. This 
COTS system does not offer quarterly and semi-annual premium modes, and 
VA would have to incur additional costs to have the contracted vendor 
add these modes for VA use. VA's analysis indicated that the costs for 
this customization were disproportionate to the value of the associated 
benefit, given the relatively few policyholders who choose these 
payment modes. If VA were to continue these payment options, it would 
add administrative complexity and program costs because VA would either 
have to purchase a customized enhancement for these modes or develop a 
manual solution to override the functionality of the COTS system when 
policyholders choose to pay premiums on a semi-annual or quarterly 
basis. We note that, while the COTS system will be used for current and 
new policies, current policies will retain the options they have by 
hardcoding the prior option into the new system at conversion. A 
policyholder who elects a monthly or annual payment mode after 
conversion will not have the option to return to a quarterly or semi-
annual payment. Again, to allow the quarterly and semi-annual payment 
options for new policies under the COTS system would require a more 
costly customized enhancement. Further, VA is required to manage its 
life insurance programs in a cost-effective and actuarially sound 
manner (see, e.g., 38 U.S.C. 1920(b); 1925(d)(2)), and continuing to 
offer premium modes that would increase costs for all policyholders 
while benefitting a relative few, while also potentially increasing 
lapse rates for vulnerable disabled veterans, is not actuarially sound 
because it is not cost-effective.
    The first commenter also stated that an article that we cited to in 
our proposed rulemaking concerning lapse rates (Cathy Ho & Nancy Muise, 
U.S. Individual Life Persistency: Guaranteed & Simplified Issue--A 
Joint Study Sponsored by Soc'y of Actuaries & LIMRA 16 (2013), https://www.soa.org/globalassets/assets/Files/Research/Exp-Study/research-2013-gisi-study.pdf (last visited Jan. 13, 2022)) ``is not compelling'' and 
that there must be ''better ways for the VA to allocate its resources 
than reducing the number of payment options available to veterans.'' 
The second commenter suggested that, because the data in the article is 
``two decades old,'' VA should use a more recent study.
    In the proposed rule we stated that ``research shows that lapse 
rates tend to increase with the number of premium payments made each 
year, with the notable exception of monthly payment modes.'' Id. We 
cited to this research because the results of the study support our 
effort to minimize lapsed life insurance coverage by offering fewer, 
simpler payment options. We also cited to this research because some of 
the commercial insurers that we reviewed relied upon this research as 
well as a prior 2005 study when limiting premium payment options to 
reduce costs and minimize lapse of coverage for their policyholders. 
See Marianne Purushotham, U.S. Individual Life Persistency Update--A 
Joint Study Sponsored by LIMRA International and the Society of 
Actuaries, https://www.soa.org/globalassets/assets/Files/Research/Exp-Study/US-Indiv-Life-Persistency-Report-Final.pdf (2005) (last visited 
Jan. 13, 2022). Because the 2013 study is consistent with the 2005 
study that was conducted by the same insurance trade group, we have no 
reason to believe this pattern would change with more recent data. 
Also, VA has historically observed more inconsistent premiums from 
veterans paying under semi-annual and quarterly payment modes. For the 
reasons stated above, VA will adopt the proposed rule as final, without 
change.

Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, when 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, and other advantages; distributive impacts; 
and equity). Executive Order 13563 (Improving Regulation and Regulatory 
Review) emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
The Office of Information and Regulatory Affairs has determined that 
this rule is not a significant regulatory action under Executive Order 
12866. The Regulatory Impact Analysis associated with this rulemaking 
can be found as a supporting document at www.regulations.gov.

Regulatory Flexibility Act

    The Secretary hereby certifies that this final rule will not have a 
significant economic impact on a substantial number of small entities 
as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-
612. This final rule will directly affect only individuals and will not 
directly affect any small entities. Therefore, pursuant to 5 U.S.C. 
605(b), the initial and final regulatory flexibility analysis 
requirements of 5 U.S.C. 603 and 604 do not apply.

Unfunded Mandates

    The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 
1532, that agencies prepare an assessment of anticipated costs and 
benefits before issuing any rule that may result in the expenditure by 
State, local, and tribal governments, in the aggregate, or by the 
private sector, of $100 million or more (adjusted annually for 
inflation) in any one year. This final rule will have no such effect on 
State, local, and tribal governments, or on the private sector.

Paperwork Reduction Act

    This final rule contains no provisions constituting a collection of 
information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3521).

Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

Assistance Listing

    The Catalog of Federal Domestic Assistance numbers and titles for 
the programs affected by this document are 64.030, Life Insurance for 
Veterans--Face Amount of New Life Insurance Policies Issued, and 
64.031, Life Insurance for Veterans--Direct Payments for Insurance.

List of Subjects in 38 CFR Part 8

    Disability benefits, Life insurance, Loan programs--veterans, 
Military personnel, Veterans.

Signing Authority

    Denis McDonough, Secretary of Veterans Affairs, approved this 
document on June 6, 2022, and authorized the undersigned to sign and

[[Page 35421]]

submit the document to the Office of the Federal Register for 
publication electronically as an official document of the Department of 
Veterans Affairs.

Luvenia Potts,
Regulations Development Coordinator, Office of Regulation Policy & 
Management, Office of General Counsel, Department of Veterans Affairs.

    For the reasons set out in the preamble, VA amends 38 CFR part 8 as 
set forth below:

PART 8--NATIONAL SERVICE LIFE INSURANCE

0
1. The authority citation for part 8 continues to read as follows:

    Authority:  38 U.S.C. 501, 1901-1929, 1981-1988, unless 
otherwise noted.


0
2. Amend Sec.  8.2 by revising paragraph (c)(2) and adding paragraph 
(c)(3) to read as follows:


Sec.  8.2   Payment of premiums.

* * * * *
    (c) * * *
    (2) Policyholders may pay premiums in advance on an annual basis.
    (3) Policyholders insured as of July 11, 2022 may pay premiums in 
advance on an annual, semi-annual, or quarterly basis.
* * * * *

0
3. Amend Sec.  8.13:
0
a. In paragraph (a), by removing ``which will not exceed 94 percent'' 
and adding ``policy'' before ``reserve'' in the first sentence.
0
b. By revising paragraph (d).
    The revision reads as follows:


Sec.  8.13   Policy loans.

* * * * *
    (d) Notwithstanding any other provisions of this section, the 
variable loan rate shall not exceed 12 percent or be lower than 5 
percent per annum. For policyholders with an existing fixed-rate loan 
who subsequently apply for an additional loan on the same policy, the 
existing fixed-rate loan shall be refinanced into the new variable-rate 
loan at the prevailing variable rate at the time of the new loan 
application.
* * * * *
[FR Doc. 2022-12561 Filed 6-9-22; 8:45 am]
BILLING CODE 8320-01-P