Universal life-type contracts have charges or provide benefits that are not fixed or guaranteed. A principal component of most universal life-type contracts is an account balance on which interest is credited to policyholders and from which fees are deducted (assessed) for mortality (or other insurance) risk and contract administration. See IG 5.4 for additional information for accounting for universal life-type contracts.

Universal life-type contracts can also have various features including ones that result in more than one potential account balance, protect against a policy lapsing (e.g., no lapse guarantee), offer returns based on the total return of a referenced pool of assets (e.g., indexed crediting rate tied to the S&P 500), and guaranteed minimum benefits (e.g., guaranteed minimum death benefit or “GMDB”).

Guidance related to accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts is provided in the universal life-type contracts subsections of ASC 944. Additionally, guidance is provided in Technical Practice Aids (TIS Section 6300.05 through TIS Section 6300.13). The guidance in this section remains applicable until an entity adopts the new guidance in ASU 2018-12. For more information on the accounting under the ASU, see IG 5.4 through IG 5.6.

As described in ASC 944-40-25-14 through ASC 944-40-25-15, the accrued account balance for universal life-type contracts and investment contracts is the sum of deposits net of withdrawals, plus amounts credited pursuant to the contract, less fees and charges assessed, plus additional interest (for example, persistency bonus), and other adjustments (for example, appreciation or depreciation recognized in accordance with ASC 944-40-25-18 through ASC 944-40-25-21 to the extent not already credited and included in amounts credited). Contracts that have features resulting in more than one potential account balance should base the accrued account balance on the highest contractually determinable balance that will be available in cash or its equivalent without reduction for future fees and charges expected to be assessed.

For a contract not accounted for as a derivative that provides a return based on the total return of a referenced pool of assets, the accrued account balance should be based on the fair value of the referenced pool of assets, in accordance with ASC 944-40-25-19.

If the mortality or morbidity risks are other than nominal and the fees assessed for insurance benefits are not fixed and guaranteed, the contract should be classified as a long-duration universal-life type contract. There is a rebuttable presumption that a contract has significant mortality risk where the additional insurance benefit would vary significantly in response to capital markets volatility (ASC 944-20-15-21).

For contracts with death benefit features, an analysis is done at contract inception to determine whether amounts are expected to be assessed against contract holders each period for the insurance benefit feature in a manner that is expected to result in current profits and future losses from that insurance benefit function. If so, a liability should be established to recognize the portion of such assessments that compensates the insurer for benefits to be provided in future periods. The liability should be recorded in accordance with ASC 944-40-30-20 through ASC 944-40-30-25.

If annuity purchase guarantees, guaranteed minimum benefits (GMxBs), two tier-annuities, and other benefits, payable only upon annuitization, do not fall within the scope of accounting for derivatives (see ARM 9632.23534), an additional liability for the contract feature should be established if at contract inception the present value of the expected annuitization payments at the expected annuitization date exceeds the expected account balance at the expected annuitization date. The liability should be recorded in accordance with ASC 944-40-30-26 through ASC 944-40-30-29.