Policy background and rationale
- Automatic Policy Loan (APL) is a feature of a GSIS life insurance policy that keeps the policy in force despite non-payment of premiums by taking out a loan amount against the unrestricted portion of the policy’s accumulated cash value (CV) or termination value (TV).
- APL application ceases when the accumulated cash value or termination value becomes insufficient to cover both the APL and the policy loan balances.
- GSIS life insurance programs that include APL provisions are the Enhanced Life Policy (ELP), Life Endowment Policy (LEP), and Optional Additional and the Unlimited Optional Life Insurance (UOLI) policies.
- Policy lapse occurs on the date when the total APL and policy loan balances exceed the cash value (for LEP) or termination value (for ELP).
Objectives and implementation thrust
- The guidelines establish policies and procedural standards to ensure uniformity and proper implementation of APL and policy lapse for the GSIS life insurance programs covered.
- The guidelines are designed to effectively and efficiently administer, control, and monitor the APL and lapse provisions through an automated platform and operational processes.
Key definitions governing APL and lapse
- A Life Insurance Policy is a legal document issued by GSIS guaranteeing payment of a specified benefit upon the insured’s death or other circumstances in the contract; for purposes of these guidelines, it includes LEP, ELP, and Optional Additional/UOLI.
- The Unrestricted Portion of the Cash Value (CV) or Termination Value (TV) is the remaining portion after deducting the total indebtedness (outstanding balance of existing policy loan and APL).
- Automatic Policy Loan (APL) is the amount borrowed against the unrestricted portion of the policy’s CV/TV to pay an overdue premium after the due date or after the grace period expires; APL is synonymous with the Automatic Premium Loan referred to in policy contracts.
- The Automatic Premium Loan (APL.) Provision is the policy provision providing that after the policy earns CV/TV (after 1 year for LEP and optional, and upon payment of monthly premium for ELP), any premium unpaid after the due date or applicable grace period is paid in whole or in part through an automatic loan against the unrestricted portion of the CV/TV.
- APL Balance is the outstanding balance of APL (principal plus interest) as of any time.
- An APL Program is the program developed under ILMAAAMS that implements, monitors, and generates reports on APL as administered by GSIS under the life insurance policies.
- Cash Value (CV) is the accumulated value of LEP and the Optional policies at any point within the policy term, payable if surrendered before maturity.
- Termination Value (TV) is the accumulated value under ELP, which increases with regular premium payments.
- Premium Due Date is the date the premium is due; for LEP and ELP, premiums for the current month are due on or before the end of the month, and remitted on or before the end of the grace period; for Optional Additional and UOLI, premiums are due on or before the 1st day of the month they apply and remitted on or before the end of the grace period.
- Grace Period for premium payment is the number of days after the due date within which premiums may be paid by agency remittance or direct payment without incurring interest: for LEP and ELP, the grace period is ten (10) days, except for ELP policies issued to new entrants, which have an initial grace period of 90 days from the start of coverage during which the policy will not elapse; for Optional Additional and UOLI, the policyholder has thirty-one (31) days and the 3-day grace period starts from the 1st day the premiums became due and unpaid.
Coverage and when APL applies
- These guidelines apply to the GSIS life insurance policies: LEP, ELP, and Optional Additional and UOLI.
Automatic Policy Loan: conditions and interest
- The APL facility applies only if the policy has: (1) an unpaid premium after the grace period, and (2) earned sufficient CV/TV to cover the unpaid premium/s (or a fraction thereof) and the policy loan including corresponding interests.
- For LEP or ELP, when a payment has been made but the remaining amount after deducting the monthly retirement premium is not sufficient to cover the life insurance premium due for that month, APL is applied in the amount of the unpaid premium or a fraction thereof.
- APL interest rates are: 6% per annum compounded monthly (or 0.5% per month compounded monthly) for LEP and ELP, and 8% per annum compounded annually (or 0.64% per month compounded monthly) for Optional Additional and UOLI, or the rate indicated in the policy contract.
- APL interest computation treats a fraction of a month as one full month.
- The interest rate charged on APL is independent of the interest charged on the agency for delayed remittances.
APL balance formula and settlement methods
- The APL Balance as of a given date is computed using the formula:
- APL Balance (Current Month) = APL Balance (Previous Month) + Interest Due on APL Balance (Previous Month) + Unpaid Premium Due for the Current Month (full or Partial).
- APL may be paid/settled through Agency Remittance.
- APL may be settled through Deduction from the life insurance claim, provided the policy is still in force.
- APL is not included in the monthly billing to the agency.
Policy lapse: triggers and immediate effects
- A policy lapses when the combined outstanding balances of its APL and policy loan have exceeded the CV/TV.
- Upon policy lapse, the regular/optional policy loan (if any) and APL are deemed paid by the accumulated CV/TV, and the corresponding loan accounts are closed.
- If policy loan payments are received after policy loan liquidation caused by policy lapse, the amount paid is applied as payment to other existing loans of the member or refunded subject to rules on processing overpayments.
- For lapsed ELP, a member in active service receives a 60-day grace period to pay premiums due through agency remittance or direct payment.
- For lapsed ELP, the 60-day grace period starts on the day premiums became due and unpaid.
- For lapsed ELP, if the member dies during the grace period, death benefits are paid to beneficiaries less unpaid premiums and all outstanding obligations the member has with GSIS.
- For lapsed ELP, ELP is automatically reinstated on the date life insurance premiums are paid and remitted to GSIS for the account of the active member, effective on the beginning of the due month covered by the payment.
- For lapsed LEP, a member in active service is issued an ELP upon receipt of the first premium under the new coverage.
- For active members whose LEP has elapsed and were issued new ELP, all unposted life insurance payments prior to policy lapse but posted after policy lapse are added to the termination value of the new policy.
- For lapsed optional policies, monthly billing of premium ceases.
Additional lapse conditions and fund handling
- A compulsory life insurance policy automatically lapses after twelve (12) consecutive months of non-payment of premiums even if there is still balance in the cash or termination value.
- If a compulsory life insurance policy lapses with still remaining CV/TV balance:
- If the member is still in active service, the balance becomes a seed fund of a new ELP or is added to the termination value of the member’s reinstated ELP.
- If the member is separated, the balance is used to pay other existing loan obligations with GSIS, and any excess is paid to the policyholder subject to filing a request/application, or becomes seed fund of a new ELP, or is added to termination value of a reinstated ELP, in case of re-entry in government service.
Lapsing process and notices
- The Accounts Management Unit (AMU) runs a regular program that generates the list of policies that have lapsed for the covered period.
- The AMU prepares/generates the corresponding Notices of Lapse (Annex A) for the covered run and ensures these are sent immediately to the member concerned.
- For lapsed compulsory life insurance premiums, the Membership Unit verifies with the agency whether members concerned are still in active service and, if so, provides advice and assistance to facilitate reinstatement or conversion to ELP.
Operational implementation duties
- The ITSG develops the application systems and enhancements in existing programs that the Operations sector specifies to operationalize the APL and policy lapse guidelines.
- The Operations Sector and the Controller Group provide ITSG with all necessary requirements and support to comply with these directives.
- After approval, operating units develop detailed procedures and revise amended sections of their respective manuals of operations, then submit these to the Corporate Services Group for review and inclusion in the official manual and codification.
- The Controller Group provides the necessary accounting entries and accounting reports required to properly reflect the transactions in the books of accounts.
- All GSIS PPGs, Board Resolutions, and Office Orders previously issued that are inconsistent with these guidelines are deemed amended or superseded.