[lmi-commits] [lmi] master 8bac826 3/4: Amend 7702 specifications: (f)(1)(A) amount can be negative

[Greg Chicares]

branch: master
commit 8bac8261d58f825c651fc02a1f5f28f8c8b1d2c7
Author: Gregory W. Chicares <gchicares@sbcglobal.net>
Commit: Gregory W. Chicares <gchicares@sbcglobal.net>

    Amend 7702 specifications: (f)(1)(A) amount can be negative
    
    The phrase "premiums paid" in the original clearly meant tax basis (in
    contradistinction to income in the contract), and not 'premiums paid' as
    defined by the statute. Replaced the misleading phrase.
    
    For example, if cum_prems_paid was $30, and the guideline_limit becomes
    -$100 due to an adjustment event, then
    
        forceout_amount = cum_prems_paid - guideline_limit
        cum_prems_paid = cum_prems_paid - forceout_amount
    
        forceout_amount = 30 - (-100) = 130
        cum_prems_paid = 30 - 130 = -100
    
    so a negative guideline limit causes (f)(1)(A) 'premiums paid' to become
    negative.
---
 7702.html | 8 ++++++--
 1 file changed, 6 insertions(+), 2 deletions(-)

diff --git a/7702.html b/7702.html
index ffaaeb1..53daabf 100644
--- a/7702.html
+++ b/7702.html
@@ -2925,8 +2925,12 @@ guideline premiums or changes initiated by the 
company.&rdquo;
 </p>
 <p>
 [<a name="fn17" href="#fr17">17</a>]
-Forceouts are not limited to premiums paid: income can be
-forced out as well.
+Forceouts are not limited to the tax basis: income can be forced out
+as well. Thus, &sect;7702(f)(1)(A) premiums paid can become negative.
+&sect;7702(c)(1) requires that
+&ldquo;the sum of premiums paid&hellip;does not at any time exceed
+the guideline premium limitation as of such time&rdquo;,
+so premiums paid must be negative whenever the guideline limit is.
 </p>
 <p>
 [<a name="fn18" href="#fr18">18</a>]