Research - Rehabilitation - Re-Employment

Sgt. Shaft 10/20/2003

Dear Sgt. Shaft:
I always read your articles in the Washington Times. I never thought I would write you, but your article on September 8, 2003 caught my eye. The letter was written by Donald A., Springfield, VA.

I was in the USMC from Feb. 1951 to Feb. 1954. I also kept my govt. insurance policy of $10,000, 5 year term. About 2000 the VA reissued me two policies face value of $5,000.

The thing that caught my eye in your article was that Donald A. was receiving dividends in excess of premiums paid. That is not the case with me.

My policy numbers are V2707-16-37 ($5,000) and V1607-97-15. My file number is FV 1607-97-15. These are 5 year term policies. I will be 70 years old on 2-9-04. I pay out a total of $565.20 per year for both policies. I received a total of $206.40 in dividends.

Could you give an answer on this?

Sincerely,
John S.
Maryland

Dear John, I forwarded your query to the VA Insurance Center in Philadelphia and By now you should have received the following reply.

Our office is responsible for administering the Veterans Life Insurance programs. Your question as to why some policyholders receive dividends in excess of premiums, while the dividends on your policy are less than your premiums can best be answered by providing you with some background information. First of all, you have two identical 5-Year renewable Term policies with face amount $5,000 each. These policies are in the National Service Life Insurance (NSLI) program.

“Capping” of NSLI term premiums
A VA regulation in 1984 capped NSLI term premiums when these policyholders renew at age 70 or older. When your policies renew in 2006 at age 72, your total quarterly premium will be capped at $184.30, which is the age 70 rate. This premium will never increase. If not for capping, your quarterly premium would increase to $218.60 at age 72 and $336.70 at age 77. In effect, your monthly premiums will be reduced from what they would be without “capping”.

Term life insurance vs. permanent life insurance
Term insurance is generally used to provide protection against financial loss for a limited number of years. Premiums for term life insurance increase at the higher ages, because of the higher mortality cost at those ages. Permanent life insurance generally has a level premium and is meant for protection for a long period of time or for life. Permanent insurance premiums are initially higher than term premiums. But term premiums become more expensive at the higher ages. The dividends are higher on permanent plans than on term plans. Permanent plans build reserves, or cash values, which earn interest. Permanent plan dividends include interest earned on these reserves.

Non-profit aspect of NSLI
VA does not make any profit on NSLI. The law specifies that NSLI be operated as a Trust Fund. Its revenues are used exclusively for the benefit of its policyholders and may not be used for any other government program. Any excess revenues resulting from favorable experience are returned to NSLI policyholders in the form of dividends. Your 2003 dividend was $206.40.

The value of term insurance
Individuals very often have term insurance for various periods of time without ever having the need to submit a claim for benefits. An example of this is someone who has automobile insurance for 10 years without the occurrence of any situation requiring reimbursement for a loss. This insured person still received the valuable benefit, under his insurance, of being protected against financial loss. You received the benefit of many years of valuable protection under your NSLI term insurance.

Cash values now available on term policies
For your information, the Department of Veterans Affairs has recently put into effect a regulation to provide paid-up insurance on term policies. Until now, reserves were not available on terminated term policies. Under the regulation, veterans with NSLI term insurance who are age 71 or older, who decide to stop paying premiums on their policies, will be given a termination dividend. That dividend will be used to purchase a reduced amount of paid-up insurance. This paid-up insurance insures the veteran for life and no premium payments are required. The amount of insurance remains level.

The amount of paid-up insurance depends on the age of the veteran at the time he stops paying his term premiums. This paid-up insurance has cash values, which increase each month. If you continue paying premiums until age 80, you would receive about $4,400 in paid-up insurance.

The DIVIDEND CREDIT dividend option
Your dividend option is DIVIDEND CREDIT. Your dividends are kept on deposit and accumulate at interest. The total amount of your dividend deposits on both policies combined was $29,270.64 on March 1, 2003. On that date your dividend credit account was credited with $1,902.59 in annual interest using the current annual interest rate of 6.50%. Then your 2003 dividend of $206.40 was added to your account, bringing it to the new total of $31,379.60. As you probably know, the interest credited on this account is not taxable in your Federal Income Tax return.

If you have additional questions or concerns, you can contact the Insurance Center toll-free at 1-800-669-8477. An Insurance Specialist will be pleased to assist you.

Sincerely,
THOMAS M. LASTOWKA
Director
Philadelphia VA Regional Office and Insurance Center

The Sarge is looking forward to presenting the keynote address on October 21 at the Washington DC Medical Center’s celebration of national disability awareness month. The theme of this years event will be, “America works best when all America works”.

President Bush recently signed the annual proclamation naming October as National Disability Employment Awareness Month (NDEAM). The full text is available on the White House web site. http://www.whitehouse.gov/news/releases/2003/10/20031003-15.html

Send letters to Sgt. Shaft, c/o John Fales, P.O. Box 65900, Washington, D.C. 20035-5900; fax to 301-622-3330; call 202-462-4430 or email sgtshaft@bavf.org.

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