[Federal Register Volume 86, Number 195 (Wednesday, October 13, 2021)]
[Proposed Rules]
[Pages 56846-56848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22208]


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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: Proposed rule.

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SUMMARY: The Department of Veterans Affairs (VA) proposes to amend its 
National Service Life Insurance regulations to offer Service-Disabled 
Veterans' Insurance policyholders the option of remitting premiums for 
government life insurance coverage only on a monthly or annual basis. 
VA also proposes to increase 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: Comments must be received on or before December 13, 2021.

ADDRESSES: Comments may be submitted through www.Regulations.gov. 
Comments should indicate that they are submitted in response to ``RIN 
2900-AR29--National Service Life Insurance Premium Payment and Loan 
Amendment.'' Comments received will be available at regulations.gov for 
public viewing, inspection or copies.

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: Under the authority of 38 U.S.C. 1901-1929, 
VA currently administers four distinct life insurance programs: 
National Service Life Insurance (NSLI), Veterans' Special Life 
Insurance (VSLI), Veterans' Reopened Insurance (VRI), and Service-
Disabled Veterans' Insurance (S-DVI). As of January 31, 2021, these 
life insurance programs are providing insurance coverage under 458,424 
policies owned by Veterans.

1. Payment of Premiums for Programs Issuing New Policies

    Section 1908 of title 38, U.S.C., requires VA to ``prescribe the 
time and method of payment of the premiums on insurance'' for those 
programs by issuing regulations. VA has implemented this authority in 
38 CFR 8.2(c). Section 8.2(c) requires Veteran policyholders to pay 
premiums on a monthly basis, with the option of paying premiums on a 
quarterly, semi-annual, or annual basis if the premiums are paid in 
advance. NSLI, VSLI, and VRI are closed to new issues, and VA does not 
propose to modify any premium paying requirements pertaining to these 
life insurance programs. However, S-DVI remains open to new issues and 
is currently providing coverage to Veterans with service-connected 
disabilities. More than 275,000 Veteran policyholders are insured under 
S-DVI, and less than 3,000 pay premiums on a quarterly or semi-annual 
basis. Because very few S-DVI policyholders are paying premiums on a 
quarterly or semi-annual basis and these payment options add 
administrative complexity and program costs associated with calculating 
premiums due for policyholders who elect these payment options, VA 
proposes to eliminate these two payment options for policyholders 
receiving future issue of S-DVI. Moreover, research shows that lapsed 
rates tend to increase with the number of premium payments made each 
year, with the notable exception of monthly payment modes. See, e.g., 
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/

[[Page 56847]]

Files/Research/Exp-Study/research-2013-gisi-study.pdf (last visited 
Aug. 5, 2021). Thus, we propose to amend Sec.  8.2(c) to require 
policyholders receiving future issue of S-DVI to submit premiums on the 
policy monthly due date or in advance on an annual basis. Veterans who 
were previously insured under S-DVI will retain the option of paying 
premiums on a monthly basis or in advance on a quarterly, semi-annual, 
or annual basis. The proposed amendment is consistent with 38 CFR 8.4, 
which allows Veteran policyholders to pay premiums by a monthly 
deduction from disability compensation or certain other payments due 
from VA. The proposed rule would also apply to Veteran policyholders 
who become insured under 38 U.S.C. 1922B(a)(1). (On January 1, 2023, VA 
will begin issuing policies under a new service-disabled Veterans' 
insurance program, authorized by section 2004(a)(1) of the Johnny 
Isakson and David P. Roe, M.D. Veterans Health Care and Benefits 
Improvement Act of 2020, Pub. L. 116-315, and codified at 38 U.S.C. 
1922B.) In addition, we would add a paragraph in Sec.  8.2(c) to make 
clear that NSLI, VSLI, and VRI policyholders, as well as current S-DVI 
policyholders, may continue to pay premiums on a monthly basis or in 
advance on an annual, semi-annual, or quarterly basis.

2. Adjust Policy Loan Amounts and Interest Rates

    Section 1906 of title 38, U.S.C., provides VA discretion to provide 
reasonable and practicable provisions pertaining to cash and loan 
values by publishing regulations. In 38 CFR 8.13(a), VA states that 
``the United States will lend to the insured . . . any amount which 
will not exceed 94 percent of the [policy's] reserve.'' Standard 
insurance industry practice allows policyholders access to the full 
cash value of their policies. To align with standard insurance industry 
practice, VA proposes to provide Veteran policyholders with access to 
the full cash value that policies accrue over the time period in which 
Veteran policyholders pay premiums for life insurance coverage. Thus, 
VA proposes to remove from Sec.  8.13(a) the 94 percent limit on the 
amount that Veteran policyholders may borrow.
    In addition, managing multiple loans for a single policyholder is 
administratively complex and costly. Furthermore, it would be cost 
prohibitive to modify current technology to support multiple loans for 
one policyholder. Thus, VA proposes to amend Sec.  8.13(d) to require 
Veteran policyholders with existing fixed-rate loans who want to apply 
for additional loans on their policies to refinance these existing 
fixed-rate loans into new variable-rate loans subject to a new loan 
rate equal to variable loan rates available from VA at the time of the 
loan application. This practice is acceptable within the insurance 
industry and would allow VA to offer loans against the remaining 
available cash value of Veterans' life insurance coverage, and reduce 
administrative complexity and costs associated with managing multiple 
loans for a single policyholder.

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 proposed rule would 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 proposed rule would directly affect only 
individuals and would 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 proposed rule would have no such 
effect on State, local, and tribal governments, or on the private 
sector.

Paperwork Reduction Act

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

Catalog of Federal Domestic Assistance

    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 September 14, 2021, and authorized the undersigned to sign 
and submit the document to the Office of the Federal Register for 
publication electronically as an official document of the Department of 
Veterans Affairs.

Jeffrey M. Martin,
Assistant Director, Office of Regulation Policy & Management, Office of 
the Secretary, Department of Veterans Affairs.

    For the reasons stated in the preamble, the Department of Veterans 
Affairs proposes to amend 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.

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 [EFFECTIVE DATE OF THE FINAL RULE] 
may pay premiums in advance on an annual, semi-annual, or quarterly 
basis.
* * * * *
0
3. Amend Sec.  8.13:

[[Page 56848]]

0
a. In paragraph (a), by removing ``which will not exceed 94 percent'' 
and adding ``policy'' before ``reserve'' in the first sentence; and
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. 2021-22208 Filed 10-12-21; 8:45 am]
BILLING CODE 8320-01-P