Texas Life Policy Charge and Rate Notices

Why Texas requires a notice

Some life policies contain values that depend on charges or interest rates that are not guaranteed at issue. The policy may state a maximum cost of insurance charge or minimum interest rate, while the insurer applies a current scale that can change within the contract’s limits. A change can affect cash value, required future premiums, and the time coverage may last.

Texas Insurance Code Subchapter L of Chapter 1101 requires disclosures for certain policies with non-guaranteed charges that the insurer can change at its discretion. These notices help owners see what changed and how it may affect policy duration. A notice does not itself amend the contract, guarantee a projected result, or mean that every life product can change its charges in the same way.

Which policies are covered?

Section 1101.203 applies to a life insurance policy containing non-guaranteed charges that may be changed at the insurer’s discretion. The chapter excludes several categories from this subchapter, including group life without separately identifiable accounts, policies that guarantee the death benefit and premium in exchange for a guaranteed premium set at issue, individual or group annuity contracts, credit life, policies with no illustrated death benefit above the statutory threshold, bank- or corporate-owned life insurance, and policies with no cash or nonforfeiture values.

The scope matters. A policyholder should not assume that every life policy receives every notice described here. Start by asking whether the contract has discretionary non-guaranteed charges and whether an exclusion applies. The owner’s policy, current illustration, and notices identify the actual design. Variable universal and indexed life have a specific exclusion from the credited-rate-decrease section; that exclusion should not be generalized to every disclosure provision in the subchapter.

When an insurer raises non-guaranteed charges

Under §1101.204, if an insurer increases a non-guaranteed charge applied to a covered policy, its written notice must disclose each charge that changed, the new scale of charges, the scale in effect immediately before the change, and the guaranteed maximum scale. Those figures let the owner distinguish the current scale from both the former current scale and the policy’s contractual ceiling.

If the increase is adverse—or could become adverse under stated conditions—the notice must explain the nature of the change and the conditions under which it is adverse. It must also display the new age and policy year at which coverage is projected to lapse if the owner makes no change to payments or coverage. Texas requires that notice no later than the 90th day before the change is applied.

The projected lapse point is a warning based on stated assumptions, not a prediction that the policy will definitely terminate on that date. The owner’s future payments, costs, credited interest, withdrawals, and other contract events can alter the result. The key practical step is to request an illustration showing the effect of the proposed change, then compare the policy’s guaranteed and current assumptions.

The notice must include the insurer’s telephone number and a prominent consumer statement explaining that the change may affect policy value and duration and that the owner can ask for a no-charge illustration of the effect. The required warning directs the owner to discuss available options with the insurer, agent, or financial adviser. It does not force the owner to increase premiums or reduce coverage; those options depend on the contract and suitability.

When credited interest falls

Section 1101.205 addresses a decrease in the credited interest rate on a policy’s accumulation value. The insurer must provide written notice annually. It must identify the new current rate, the prior credited rate, the minimum rate stated in the policy, and the effective date of the decrease.

The notice must also prominently show the new age and policy year when the policy is projected to lapse if payments and coverage do not change, taking into account the rate and other applicable non-guaranteed changes. It must list a contact telephone number and include the required warning that the rate decrease may change value or policy duration. The owner can request an in-force illustration that shows the effect.

Section 1101.205 specifically says its credited-rate disclosure does not apply to or require disclosures for variable universal or indexed life insurance. Do not automatically carry that exception into the charge-increase rule or the annual illustration rule. Each section has its own scope and text.

The annual in-force illustration offer

Section 1101.206 requires the insurer to offer an in-force illustration at least annually for a policy subject to the subchapter, regardless of whether non-guaranteed charges have changed. If the insurer changed non-guaranteed charges or the credited interest rate, it must offer that illustration without charge.

An in-force illustration is useful because it applies current policy data to show how the contract may perform under guaranteed and current assumptions. It is not a guarantee that current assumptions will continue. Owners can use it to check whether planned premiums, withdrawals, and policy benefits remain sustainable. If the projected duration is shorter than intended, ask the insurer to illustrate different premium or coverage choices allowed by the contract.

What the disclosure rules do not promise

• They do not freeze non-guaranteed charges at the scale that applied when the policy was issued.
• They do not turn a current interest-crediting rate into a guaranteed rate; the contract’s stated minimum is a different figure.
• A projected lapse age and year are conditional on the assumptions shown, not a fixed termination date.
• An annual offer of an illustration does not mean that every policy owner receives an identical projection or that projections are guaranteed.
• The credited-rate notice exception for variable universal and indexed policies is specific to §1101.205 and should not be treated as a blanket exemption from all Texas disclosures.

How to read a notice

1. Identify the kind of event: a charge increase, credited-rate decrease, or ordinary annual illustration offer.
2. Check whether the policy appears to fit §1101.203 and whether a statutory exclusion applies.
3. Compare the new, prior-current, and guaranteed values named in the notice.
4. Read the projected lapse age and year together with its assumptions; it is not a guaranteed date.
5. Ask the insurer for the no-charge illustration when a qualifying change occurs and compare guaranteed with current assumptions.
6. If the policy may lapse earlier than planned, ask the carrier what contractual options are available and document the answer.

This sequence also helps with exam questions. A stem mentioning discretionary cost increases points to the charge notice. A stem describing a lowered accumulation crediting rate points to the annual rate notice and its three rate figures. A prompt asking about a yearly projection points to the insurer’s offer of an in-force illustration. Keep the three sections distinct.

Example: a charge change notice

Suppose a covered universal life policy has a current monthly insurance charge that the insurer may change within a guaranteed maximum. The insurer decides to raise the current charge. The notice analysis begins with §1101.204: identify the charge that changed, compare the former current scale with the new scale and guaranteed maximum, explain any adverse effect or conditions, and show the policy age and year at which coverage is projected to lapse if the owner changes nothing. The notice must arrive no later than the 90th day before the increase is applied.

The owner should then request the no-charge in-force illustration described by the notice, especially if the projected lapse point conflicts with the owner’s plan. Compare the guaranteed column with the current assumption column and note what premium or coverage change would be needed to reach the intended duration. A projection is a scenario based on assumptions, not a promise that the policy will lapse on precisely that date or stay in force if the owner follows an untested premium pattern.

Example: a credited-rate decrease notice

Now suppose instead that the insurer lowers the current interest rate credited to the accumulation value. Section 1101.205 is the relevant section. The annual notice must identify the new current rate, the prior rate, the contract’s minimum guaranteed rate, and the effective date. It also must show a projected lapse age and policy year under the stated assumptions, contact information, and the prescribed warning about possible effects on value and duration.

Do not use the charge-increase notice checklist as a substitute. The rate notice is annual and compares three rates; the charge notice is triggered by an increase and compares the old current, new current, and guaranteed maximum charge scales, with at least 90 days’ advance notice. If a policy has both a charge change and a rate decrease, evaluate each statutory disclosure separately rather than assuming one notice automatically answers both.

How to check the scope before applying a deadline

Before deciding that a notice is missing, check the policy type and the statutory scope. Section 1101.203 defines covered policies and lists exclusions. The sections do not apply as a blanket notice code to every life policy, annuity, or group contract. In particular, §1101.205 has its own exclusion for variable universal and indexed life; that specific exception should not be extended to §1101.204 or §1101.206 without reading those sections independently.

For a consumer reviewing a notice, note the date received, stated effective date, policy values, and the projected lapse assumptions. If the notice appears to omit a required figure or arrives after a stated effective date, contact the insurer in writing and ask for the applicable policy provision and corrected illustration. For the exam, apply the section described by the event; avoid assuming that the law guarantees the current scale or requires an insurer to keep an unguaranteed assumption unchanged.

Guaranteed and current values answer different questions

The guaranteed maximum charge is a contractual ceiling, not necessarily the amount currently deducted. The minimum guaranteed interest rate is a contractual floor, not necessarily the rate currently credited. The current charge and current crediting rate show the scale then being used, subject to contract terms. A notice that reports all of these figures helps the owner see the distance between current practice and the policy’s guarantee.

An in-force illustration combines the current policy status with assumptions about future premiums, charges, credited interest, and benefits. It is useful for comparing scenarios, but future non-guaranteed values can change. Ask the insurer to show a guaranteed projection as well as a current projection and keep the assumptions with the illustration. That makes later comparisons meaningful if charges or rates change again.

Exam memory aid

Charge increase: detail the old and new scales, show adverse effect and projected lapse point, and provide advance notice. Credited-rate decrease: report new, prior, and minimum rates and the effective date each year, with a specific exception for variable universal and indexed life. Covered policy: offer an in-force illustration annually; if a charge or rate changed, offer it free.