GAAP guidance requires that the reserve for future policy benefit reserves attributable to limited-payment contracts should be calculated consistent with the accounting for long-duration contracts if the terms of the contract are fixed and determinable (see ARM 9632.23532). The guidance in this section remains applicable until an entity adopts the new guidance in ASU 2018-12. For more information on the accounting for limited-payment contracts under the ASU, see IG 5.3.

Under the accounting for long-duration contracts with equal premiums received over the life of the contract, any gross premium received in excess of the net premium is recognized in income when received. However, the accounting for limited-payment long-duration contracts requires that any such excess amounts be deferred and recognized in income in a constant relationship to the insurance in force. For annuities, the excess of gross premium collected over the net premium will be recognized in income in relation to the expected future policy benefit payments. ASC 944-605-35-1A specifies that the deferred profit should be amortized in relation to the discounted insurance in force, or expected future benefit payments, and interest should accrue to the unamortized balance. ASC 944-605-25-4A and ASC 944-605-35-1 guidance requires that gross premiums in excess of net premiums be deferred and amortized over the life of the limited payment contract, with the deferral recorded as a reduction of the premium revenue caption rather than as an expense. The theory of this accounting calls for additions to the deferred revenue to be netted against revenue and for amortization of the deferred revenue to be reflected as revenue. The guidance does not specify where to present the DPL and subsequent amortization of the DPL within the balance sheet or income statement. Refer to IG 10.2.1 for further information.