(11) Procedures Memorandum
<PAGE>
9
October 3, 2000
Description of Issuance, Transfer and Redemption Procedures for Policies
Supported by Transamerica Occidental Life Separate Account VUL-4 and Issued by
Transamerica Occidental Life Insurance Company
The Transamerica Occidental Life Separate Account VUL-4 ("Separate Account") of
Transamerica Occidental Life Insurance Company ("Company" and "we") is
registered under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. ). The Separate Account is available in the Policy, the
TransSurvivorSM Life Variable Universal Life insurance policy ("TSSL VUL"). The
Policy is a flexible premium survivorship variable life insurance policy
registered with the Securities and Exchange Commission under the Securities Act
of 1933.. There are currently 19 sub-accounts within the Separate Account.
Procedures apply equally to each sub-account and for purposes of this
description are defined in terms of the Separate Account, except where a
discussion of both the Separate Account and the individual sub-accounts is
necessary. Each sub-account invests in shares of a corresponding portfolio.
Currently, there are 19 portfolios available from nine mutual fund companies.
The investment experience of a sub-account of the Separate Account depends on
the investment performance of its corresponding portfolio. Although survivorship
flexible premium variable life insurance policies funded through the Separate
Account may also provide for fixed benefits supported by the Company's General
Account, this description assumes that net payments are allocated exclusively to
the Separate Account and that all transactions involve only the sub-accounts of
the Separate Account, except as otherwise explicitly stated herein.
This memorandum hereby incorporates by reference the prospectus for the
TransSurvivor Life Variable Universal Life Insurance policies as amended from
time to time.
1. "Public Offering Price" Purchase and Related Transactions - Section 22(d) and
Rule 22c-1
This section outlines Policy provisions and administrative procedures that might
be deemed to constitute, either directly or indirectly, a "purchase"
transaction. Because of the insurance nature of the policies, the procedures
involved necessarily differ in certain significant respects from the purchase
procedures for mutual funds and annuity plans. The chief differences revolve
around the structure of the cost of insurance charges and the insurance
underwriting process. Certain Policy provisions, such as reinstatement and loan
repayment, do not result in the issuance of a Policy but require certain
payments by the Policy owners and involve a transfer of assets supporting Policy
reserve into the Separate Account.
a. Offer of the Policies, Application and Issuance, Premiums, Underwriting
Standards, and Insurance Charges
Offer of the Policies. We offer Policies generally to proposed Joint
Insureds between the ages of 16 and 89 who qualify for insurance
according to our current underwriting standards and who qualify for at
least $100,000 of face amount of insurance. Ages are determined as of
the individual's age on his or her birthday nearest the Policy Date, if
the application is approved. The amount of insurance is requested by
the proposed Policy Owner on the application. We may approve the amount
requested or, instead, approve a different, lesser amount.
Application and Issuance. Upon receipt of a completed application from
a prospective Policy Owner, the Company will follow our insurance
underwriting procedures to allow us to determine whether the proposed
insureds are insurable and, if so, the applicable underwriting class
which applies to each. This process may involve such verification
procedures as medical examinations and may require that further
information be provided by the proposed Policy Owner and/or proposed
insureds, if other than the proposed Policy Owner, before a
determination can be made. A Policy cannot be issued until this
underwriting procedure has been completed and we have approved the
application. We may not require medical evidence if the application for
TSSL VUL is based on the "exchange" of term insurance policies we
issued on the proposed insureds for the TSSL VUL Policy. We may decline
applications and not issue insurance if the proposed insureds do not
qualify under our underwriting guidelines, or the application for other
reasons does not meet our underwriting guidelines. We may terminate our
underwriting on a case if we do not receive, on a timely basis, medical
and other information necessary for us to reach an underwriting
decision.
Except as otherwise provided under the provisions of the conditional
receipt, no insurance coverage under the Policy will be in effect until
all the following conditions have been met:
We approve the application.
The Policy is delivered to the Policy Owner while the Joint
Insureds are alive and in good health, and all statements
on the application remain true and complete.
The initial premium for the Policy is paid while the Joint Insureds are
alive.
If the Policy is issued with one or more delivery requirements which
the Proposed Owner must accept and return to us (generally through our
agent), then the Policy will not be in force until all delivery
requirements are accepted and we receive notice of acceptance at our
Administrative Office, in addition to the other conditions noted above
being met.
If at the time of application a proposed Policy Owner makes a
sufficient payment (generally, an amount equal to at least one monthly
required premium for the Policy as applied for), the Company will
provide fixed conditional insurance in the amount of insurance applied
for, up to a maximum of $250,000, pending underwriting approval and
subject to completion of all conditions of the conditional receipt
which provides the fixed, conditional insurance. We generally do not
accept payments at the time of application if the amount applied for
exceeds $1,000,000.
If the application is approved, the Policy generally will be issued
within one valuation date of the date we approve the application.
Generally, the Policy Date will be the date we approve the Policy for
issue plus two calendar days. Different Policy Dates may be
established, however, as described below. The Policy Date is the date
from which insurance coverage will be provided, if the Policy is
delivered and the initial premium is paid while the Joint Insureds are
alive. Monthly Deductions for a Policy, which include charges for the
cost of insurance, are taken beginning as of the Policy Date.
The Policy Date will be established differently, however, under the
following conditions:
If the initial premium will be paid pursuant to an IRC Section
1035 Exchange, the Policy Date will be the date of the other
company's surrender check.
If requested by the proposed Policy Owner and approved by us, we
will backdate the Policy Date consistent with state
regulations and our underwriting rules and practices. We
require the Policy Owner sign an amendment to the application
requesting that the Policy be backdated. Backdating a Policy
is generally requested to obtain the lower cost of insurance
rates associated with a Policy Date reflecting a younger age
for one or both insureds. Since we assess Monthly Deductions
beginning with the Policy Date, however, backdating a Policy
also results in the payment of Monthly Deductions for a period
during which no insurance coverage existed.
If the initial premium for the Policy is paid after the Policy is
issued and delivered, once we receive the initial premium we
amend the Policy Date to the date the Policy was delivered and
the initial premium was paid over to our agent. If amending
the Policy Date in that manner would change the insurance age
of either insured, we will instead bring the new Policy Date
to the most current date possible without changing the
insurance age of either insured.
If the Policy is issued subject to delivery requirements being
completed and returned to us, once we receive the last
delivery requirement we amend the Policy Date to the date the
Policy was delivered and, if applicable, the initial premium
was paid over to our agent. If amending the Policy Date in
that manner would change the insurance age of either insured,
we will instead bring the new Policy Date to the most current
date possible without changing the insurance age of either
insured.
If requested by the agent or proposed Policy Owner, we will treat
two or more applications as a "set" and will not approve any
application in the set until all applications in the set can
be approved. In that situation, all applications in the set
will have a common Policy Date which will be based on the date
the last application in the set is approved by us, unless a
different date was requested and we approved the request.
While we currently do not so limit the Policy Dates we use, we reserve
the right to limit Policy Dates to the 1st - 28th of any month. If we
do so limit policies to these dates, policies that may have otherwise
been dated on these excluded dates (29th, 30th or 31st of any month)
will be dated the 1st of the following month.
These processing procedures are designed to provide insurance, starting
with the date of the application, to the proposed Policy Owner in
connection with payments at the time of application subject to all the
conditions of the conditional receipt, and these procedures will not
dilute any benefit payable to any existing Policy Owner. Although a
Policy cannot be issued until the underwriting process has been
completed, the proposed Policy Owner will receive immediate insurance
coverage, if he or she has made an initial payment and the proposed
insured proves to be insurable, after the completion of all
requirements under the conditional receipt.
The procedures regarding Policy Dates for policies issued subject to
completion of delivery requirements and/or collection of the initial
premium are designed to charge Monthly Deductions only from the date
from which insurance coverage under the Policy became effective.
The Company will require that the Policy be delivered within a specific
delivery period to protect itself against anti-selection by the
prospective Policy Owner resulting from a deterioration of the health
of the proposed insureds. Generally, the period will not exceed 15 days
from the date the Policy is issued.
Premiums. The minimum initial premium required to put the Policy in
force generally is an amount sufficient to pay one month of the
Required Premium Per Year amount beyond the current date. We specify
the minimum initial premium due on the delivery notice we provide our
agent.
Premium payments generally are not limited as to frequency and number,
but the following limitations do apply:
There is a Required Premium Per Year amount which must be paid
during the first five policy years in order to keep the policy
in-force. The amount of the Required Premium Per Year is
selected by the Proposed Owner on the application. We
determine a minimum and a maximum Required Premium Per Year
amount for each Policy, based on the age, sex, and
underwriting classification of the proposed insureds, the face
amount of insurance, and other criteria. The Proposed Owner
must elect to pay an amount at least equal to the minimum
amount we determine for the Policy. The Proposed Owner may pay
more than the maximum amount we determine for the Policy,
subject to other premium payment limitations. Within limits,
the amounts may be paid cumulatively in advance.
There are specified minimum premium amounts (Select Monthly
Premiums) which must be paid to keep the Endorsement to Modify
Grace Period in-force. These may be paid cumulatively in
advance, within limits. Premium paid in advance of the policy
year in which it is due will reflect a time value of money at
4%, as specified in the endorsement. This provides for
discounting of the minimum premiums required when those
premiums are paid in advance.
No premium payments may be made after the policy anniversary nearest
the 100th birthday of the Younger Insured. No premium payment may be
less than $25 without the Company's consent. We reserve the right to
refund any unscheduled premium during a particular policy year if the
total premium paid: (a)
increases the difference between the death benefit and the
accumulation value; and (b) is more than $10 per thousand of
face amount and more than three times the total of the monthly
deductions for the last year.
We also reserve the right to refund any unscheduled premiums that
exceed $25,000 in any 12-month period.
Except for the Required Premium Per Year amounts which must be paid
during the first five policy years, there are no premiums which are
required under the Policy. The Policy may enter grace and subsequently
may lapse, however, if premiums sufficient to keep the Policy in force
are not paid. There are premium requirements which must be satisfied to
maintain the Endorsement to Modify Grace Period, if that endorsement is
made a part of the Policy.
At the end of each Policy Year during the first five Policy Years, we
determine whether the Required Premium Per Year amounts have been met
for that year. If so, we will add a Premium Qualification Credit to the
Policy on the Policy Anniversary immediately following the end of the
Policy Year for which the credit is due. The Premium Qualification
Credit is allocated to the Policy according to the current premium
allocation instructions we have for the Policy. If the Policy
Anniversary is not a valuation date, we will allocate the Premium
Qualification Credit on the next valuation date immediately following
the Policy Anniversary.
Underwriting Standards and Classifications. Currently, we classify
insureds into different underwriting classes based on our underwriting
standards and guidelines. These classifications are:
Preferred Non-smoker
Preferred Smoker
Standard Non-smoker
Standard Smoker
Uninsurable Non-smoker
Uninsurable Smoker
We increase rates in each Preferred and each Standard class to reflect
the increased mortality reflected in sub-standard ratings, or what we
refer to as "extra" ratings. We will offer insurance to a Proposed
Owner if one proposed insured is classified in the Uninsurable classes
according to our underwriting standards, so long as the other proposed
insured is insurable. Generally, for the same face amount of insurance,
we charge lower cost of insurance rates for the same two insureds if
they qualify for our Preferred class compared to the rates we would
charge if they qualified for our Standard class, assuming the same
smoker or non-smoker classification. The rates we charge for a Policy
if one of the insureds is placed in one of the Uninsurable classes will
be higher yet. Generally, we charge lower cost of insurance rates for
those insureds who qualify for non-smoker rates within a class compared
to those who are placed in the smoker category within a class. For
example, the cost of insurance rates for two insureds placed in our
Preferred Non-smoker class will generally be less than the rates for
those same two insureds if they were placed in our Preferred Smoker
class.
We currently also provide different cost of insurance rates based on
the "band" for the face amount of insurance on the base coverage.
Generally, the cost of insurance rate for the same two insureds will
decrease at each "band" we have established. The "bands" currently are:
$100,000 - $249, 999
$250,000 - $999,999
$1,000,000 - $2,999,999
$3,000,000 - $4,999,999
$5,000,000 and above.
We also have a "band" for face amounts of $10,000,000 and above, but we
do not reduce our cost of insurance rates at that band. Rather, we
provide for a reduced current Administrative Charge deducted from gross
premiums. The Administrative Charge for Policies with face amounts of
$10,000,000 or more is 5.5% (current basis), rather than 6% (current
basis) which applies to premiums paid on Policies with face amounts
less than $10,000,000.
If the same Policy Owner owns two or more TSSL VUL Policies on which
the same Joint Insureds are covered, we will determine the band for the
Policies by aggregating the base coverage on all the Policies. The band
determined by aggregation will apply to all such TSSL VUL Policies
included for aggregation purposes.
Cost of Insurance. Cost of insurance rates on a Policy may change due
to certain policy changes, the effects of certain distributions from
the Policy, and changes in underwriting classes based on new
underwriting evidence we review and approve. The cost of insurance
rates on a Policy are not adjusted after the death of the First Insured
but, instead, the cost of insurance rates throughout the time the
Policy is in-force are based on the combined classifications and
characteristics of the two insureds.
The cost of insurance rates on a Policy are based on the unique
combination of underwriting classifications for each individual,
including extra rating adjustments, as well as the sex and age of each
insured, the face amount of insurance, and the policy duration.
The underwriting classification of the Joint Insureds may also affect
the cost of insurance rates applicable for certain riders, if such
riders are added to the Policy.
Cost of insurance charges for the policies will not be the same for all
Policy Owners. The insurance principle of pooling and distribution of
mortality risk is based upon the assumption that each Policy Owner pays
a cost of insurance charge commensurate with the insured's mortality
risk, which is actuarially determined based upon factors such as age,
health and occupation. In the context of life insurance, a uniform
mortality charge (the "Monthly Deduction Rate") for all insureds would
discriminate unfairly in favor of those insureds representing greater
mortality risks to the disadvantage of those representing lesser risks.
Accordingly, there will be a different "price" for each actuarial
category of insureds because different cost of insurance rates will
apply. While not all insureds will be subject to the same cost of
insurance rate, there will be a single "rate" for all insureds in a
given actuarial category. The Policies will be offered and sold
pursuant to the Company's underwriting standards and in accordance with
state insurance laws. Such laws prohibit unfair discrimination among
insureds, but recognize that payments must be based upon factors such
as age, health and occupation. Tables showing the maximum cost of
insurance charges will be delivered as part of the Policy. We may
charge less than the maximum rates. The current Monthly Deduction
Rates, which are the rates we use to determine the cost of insurance on
the base policy, for a Policy are guaranteed not to increase during the
first five policy years.
b. Premium Processing
The Policy will not be in force until the initial premium is paid,
among other conditions.
The Policy Owner may allocate net premiums among the Fixed Account
(part of the Company's General Account) and the sub-accounts of the
Separate Account. We may limit the maximum number of sub-accounts on a
Policy which may have value in them. Currently, Policy Owners may
invest in up to all 19 sub-accounts plus the fixed account. Allocations
must be specified in whole percentages, and the minimum percentage
allocation is 1%. The Policy Owner indicates the premium allocation
election on the application. The Policy Owner may change the allocation
of net payments at any time by providing written or telephone notice
(subject to telephone access privilege rules we set) to our
Administrative Office. The change will be effective as of the valuation
date we receive the notice for premiums received on or after the date
we receive the notice. Although we currently do not assess a charge for
a premium allocation change, we reserve the right to impose a charge of
up to $25 per allocation change.
Each Policy has a Reallocation Date assigned to it. The Reallocation
Date is currently set as 25 calendar days from the date we approve the
Policy for issuance. We reserve the right to change these rules in the
future, including extending or shortening the period between the date
we issue the Policy and the Reallocation Date; and providing different
periods for different Policies, based on the free look provisions
applicable to the Policy or other reasonable criteria.
Premiums credited to the Policy before the Reallocation Date initially
will be allocated, net of the administrative charge, to the Policy as
follows: (a) amounts designated for the Fixed Account will be allocated
to the Fixed Account; and (b) amounts designated for the Separate
Account will be allocated to the Money Market sub-account which invests
in the Transamerica Variable Insurance Fund, Inc. Money Market
Portfolio ("Money Market sub-account"). On the Reallocation Date,
amounts allocated to the Money Market sub-account, along with
investment gains, if any, on such amounts, will be reallocated among
the sub-accounts according to the current premium allocation
instructions from the Policy Owner.
Premiums credited to the Policy on or after the Reallocation Date will
be allocated, net of the administrative charge, directly to the
investment options selected by the Policy Owner on the most current
premium allocation election received by us.
We do not add any interest to amounts received by us prior to the date
we approve and issue the Policy. Such amounts received by us are held
in our General Account. If we return the application (for example,
because we decline the application), we will issue a refund check in
the amount of the payment to us. Our check will be made payable to the
payer (maker) of the payment to us.
If the application is approved and the Policy is issued, we allocate
the initial net premium no later than the second valuation day
following the latest of:
The valuation date we approve the Policy for issue.
The Policy Date.
The valuation date we receive the initial premium.
The date we receive the last delivery requirement.
Premiums subsequent to the initial premium will be credited to the
Policy on the valuation date on which we receive the premium. Premiums
received by us on a day that is not a valuation date will be credited
on the next valuation date.
c. Repayment of Loan
The Policy Owner may repay any part of any outstanding loan at any time
while either Joint Insured is living.
If the Policy Owner wishes to make a loan repayment, the Policy Owner
must tell us that the payment is for that purpose. Unless the payment
is clearly marked as a loan repayment, we will assume it is a premium
payment (unless it is received after the policy anniversary nearest
Exact Age 100). When we receive a loan repayment, we will apply it to
the Loan Account and then transfer the loan repayment to the investment
options according to the allocation percentages provided in the most
recent premium allocation election we received from the Policy Owner.
The loan repayment will be allocated to the designated investment
options on the valuation date on which we receive the loan repayment.
If we receive the loan repayment on a date which is not a valuation
date, we will allocate the loan repayment on the next valuation date.
d. Policy Reinstatement
A Policy will enter a grace period under certain conditions. These
conditions vary based on the duration of the policy, among other
things. During the first five policy years, a grace period is a period
of 60 days beginning on: (a) a policy anniversary on which the
cumulative Required Premium Per Year for the base policy in Policy
Years 1-5 has not been paid; or (b) a monthly policy date when the
accumulation value minus any existing loan is less than the monthly
deduction due. After the fifth policy anniversary and prior to the
policy anniversary nearest Exact Age 100, a grace period is a period of
60 days beginning on a monthly policy date when the net cash value is
less than the monthly deduction due. If the Endorsement to Modify Grace
Period is in-force, however, the Policy will not enter grace because
the monthly deduction due exceeds the accumulation value or net cash
value, as applicable. The Endorsement to Modify Grace Period does not
prevent the Policy from entering grace due to failure to meet the
cumulative Required Premium Per Year amounts for the Policy.
After the policy anniversary nearest Exact Age 100, a grace period is a
period of 60 days beginning on a policy anniversary on which the loan
interest due has not been paid in cash, and the accumulation value
minus any existing loan is less than the loan interest due.
When a Policy enters grace period, we will send a letter to the Policy
Owner notifying the Policy Owner of: (a) the fact that the Policy
entered the grace period; (b) the amount of premium or loan interest
payment, as applicable, which is necessary to take the Policy out of
the grace period; and (c) the date on which the Policy will lapse if
the required payments are not made to us by that date. Generally, we
will send our notice on the 30th day following the date the Policy
enters the Grace Period. We do not send our notice sooner due to the
fact that many Policy Owners make payments after the due date. Failure
to pay sufficient premiums (or, as applicable, loan interest due)
within the grace period generally will result in termination of the
Policy. A proposed Policy Owner may elect to add the Automatic Premium
Loan (APL) option to the Policy. If the APL provision is in effect on
the Policy, and if there is sufficient net cash value at the time, then
we will use the net cash value to create a loan to pay premiums if the
Policy enters grace due to insufficient premium payments during the
Required Premium Per Year period. The loan, and the associated loan
interest due in advance, will be deducted from the investment options
on a pro rata basis. The premium will be allocated in accordance with
the current premium allocation election for the Policy. The loan and
loan interest will be deducted from the investment options, and the
premium will be credited, on the last day of the grace period, if that
date is a valuation date. If the last day of the grace period is not a
valuation date, however, we will deduct the loan amount, and credit the
premiums, on the next valuation date. Any net cash value available at
the time the Policy lapses will be paid to the Policy Owner. The death
benefit payable during the grace period will be reduced by the unpaid
amount of insurance charges due to the date of death of the Survivor.
If the Policy lapses, it may be reinstated provided it was not
surrendered. To reinstate the policy, the Policy Owner must meet the
following conditions:
1. Request reinstatement in writing within three years after the date
of lapse and before the policy anniversary nearest Exact Age 100.
2. If only one Joint Insured is alive when the Policy Owner requests
reinstatement, the other Joint Insured's death must have occurred
prior to the end of the grace period, and proof of such death must
have been submitted prior to the reinstatement.
3. Evidence of insurability satisfactory to us must be given to us by:
(a) both Joint Insureds, if the lapse occurred while both Joint
Insureds were living; or
(b) the Survivor, if the lapse occurred after the First Death.
4. If any loans existed when the policy lapsed, the Policy Owner must
repay or reinstate them with interest. Interest will be compounded
annually from the date of lapse. Interest will be at the loan
reinstatement interest rate for the loan. The loan reinstatement
interest rate will not exceed an effective annual rate of 4.75%
(4.53% in advance).
5. The reinstated policy will be subject to the minimum premium
requirement during the first 5 policy years. This means that the
required premium period will be calculated from the original Policy
Date; it will not start anew.
If the policy lapsed during any required premium period, and is
reinstated in a different policy year, the Policy Owner must pay a
premium large enough to meet the minimum premium requirement at the
time of reinstatement, with interest. Interest will be compounded
annually at the reinstatement interest rate of 6%. If the policy
lapsed after any required premium period, or if it lapsed during
one of the first 5 years of any required premium period, and is
reinstated in the same policy year, the Policy Owner must pay a
premium large enough to cover two monthly deductions due when the
policy lapsed and three monthly deductions due when the policy is
reinstated.
6. If the Policy Owner reinstates the policy during any required
premium period, the Policy Owner must repay any net cash value
given to the Policy Owner at the time of lapse, with interest.
Interest will be compounded annually at the reinstatement interest
rate of 6%.
7. If the policy is reinstated within the first 15 policy years or
before the policy anniversary nearest Exact Age 100 (whichever is
the shorter time period), any applicable surrender penalties in
effect for the reinstated policy will be calculated from the
original Policy Date.
The effective date of a reinstatement will be the date we approve the
request.
The accumulation value of the reinstated policy will be: the surrender
penalty assessed at the time of lapse; plus any net cash value we paid
the Policy Owner at the time of lapse; plus any loan repaid or
reinstated; plus any net premium the Policy Owner pays at
reinstatement; minus any monthly deductions due at the time of lapse.
We will allocate the net premiums and any loan repayment amount the
Policy Owner pays at reinstatement according to the most recent premium
allocation election we received from the Policy Owner. We will allocate
the amount paid within one valuation date following the later of (a)
the valuation date on which we approve the reinstatement; or (b) the
valuation date on which we receive the required premium and other
payments. Surrender penalties restored to the accumulation value and
net cash value repaid to the Policy will be allocated according to the
allocations of such amounts at the time the Policy lapsed. The
surrender penalties and net cash value repaid will be credited to the
Policy on the same valuation date on which the net premiums and any
loan repayments are credited to the Policy.
e. Correction of Misstatement of Age or Sex
----------------------------------------
If there is a misstatement of both or either Joint Insureds' age or sex
in the application, we will adjust the excess of the death benefit over
the accumulation value to that which would be purchased by the most
recent monthly deduction at the correct age or sex. There will be no
adjustment beyond Exact Age 100, unless the Full Death Benefit Rider is
in effect on the Policy at that time.
f. Incontestability
Except for fraud or nonpayment of premiums, the Policy will be
incontestable with respect to either Joint Insured after it has been in
force during the lifetime of that Joint Insured for two years from the
date of issue. This provision does not apply to any rider providing
benefits specifically for disability or death by accident.
If the Policy is rescinded for any contestable reason (e.g. material
misrepresentation), we will be liable only for the amount of premiums
paid, less any partial surrenders and any outstanding loans and loan
interest due. The policy will be rescinded as of the Policy Date.
g. Suicide
If either Joint Insured dies by suicide (while sane or insane) within
two years from the date of issue of the Policy, we will be liable only
for the amount of premiums paid, less any partial surrenders, surrender
penalty free withdrawals, loans and loan interest due. The Policy will
be rescinded as of the Policy Date.
II. "Redemption Procedure" - Surrender and Related Transactions
The Policies provide for the payment of monies to a Policy Owner or
beneficiary upon request to us from the Policy Owner or, for death
benefits, the beneficiary, in a form and manner acceptable to us.
Generally, except for the payments of death proceeds, the imposition of
Monthly Deductions and of fees and charges associated with the
administration of the Policies, and the possible effect of a surrender
penalty, the payee will receive a pro rata or proportionate share of
the Separate Account's assets, within the meaning of the 1940 Act, in
any transaction involving "redemption procedures". The amount received
by the payee will depend upon the particular benefit for which the
request is made, including, for example, the net cash value or death
benefit. Any combined transactions on the same day that counteract the
effect of each other will be allowed. We will assume the Policy Owner
is aware of the possible conflicting nature of the transactions and
desires their combined result. If a transaction is requested which we
will not allow (e.g., a request for a decrease in face amount which
lowers the face amount below the stated minimum) we will reject the
whole transaction and not just the portion which causes the
disallowance. The Policy Owner will be informed of the rejection and
will have an opportunity to give new instructions. If the Policy Owner
requests a transaction be allocated in a certain manner, and the
allocation cannot be supported (e.g., a request that a loan be taken
and that a portion of the loan be allocated to a sub-account which, in
fact, has no value), then we will reject the transaction in full. We
will then contact the Policy Owner and request new instructions. When
we receive new instructions in good order, we will then reprocess the
transaction on the valuation date we receive the new instructions in
good order.
a. Surrender and Partial Surrender for Cash Values; Deductions
from Accumulation Value
We will pay the net cash value within seven days after receipt, at our
Administrative Office, of a signed request for surrender. Computations
with respect to the investment experience of each sub-account will be
made at the close of trading of the New York Stock Exchange ("NYSE") on
each day that the NYSE is open. This will enable us to pay a net cash
value on surrender based on the next computed value after the surrender
request is received. For valuation purposes, the surrender is effective
on the date we receive the request at our Administrative Office
(although insurance coverage ends the day the request is mailed to us).
If we receive the request on a date that is not a valuation date, then
the net cash value will be determined as of the close of the next
valuation date following the date we receive the request.
The portion of the Accumulation Value equal to the value of all
accumulations in the Separate Account may increase or decrease from day
to day depending on the investment experience of the Separate Account.
Calculation of the Accumulation Value for any given day will reflect
the actual net premiums made to the Policy, expenses charged,
deductions taken, investment performance of the underlying portfolio
for a sub-account, and the effect of the Mortality and Expense Risk
Charge.
Administrative Charge. We deduct an Administrative Charge from each
premium payment. The charge is currently 6% of the gross premium amount
for Policies with face amounts less than $10,000,000 and 5.5% for
Policies with face amounts above that level. We may increase the
Administrative Charge we deduct, but the maximum charge is 12% of the
gross premium. The net premium is allocated to the Separate Account
according to Policy Owner's instructions, as described previously.
Monthly Deductions. Beginning with the Policy Date and each monthly
policy date thereafter until the policy anniversary nearest Exact Age
100, we will take monthly deductions from the Policy's Accumulation
Value to cover (a) the cost of insurance charge, (b) the monthly
deduction for any riders, (c) the policy fee, and (d) the monthly
expense charge per thousand. The policy fee is currently $6 per month.
After the first policy year, it may be increased to a maximum of $10
per month. The monthly expense charge per thousand is calculated
separately for each Policy based on each joint insured's age at issue,
sex, underwriting classification, and sub-standard ratings. The amount
is shown in the Policy Data for the Policy. Monthly deductions are
allocated pro rata.
Transaction Fees. Fees may be charged for (a) transfers in excess of 18
during a policy year; (b) changes in allocations for premiums; and (c)
for providing a Policy Owner more than one illustration of values in a
policy year. Fees are only charged on a Policy if the specific
transactions have occurred on the Policy.
We charge a transfer fee of $25 for each transfer in excess of 18 in a
policy year. We do not include the following as part of the 18
transfers each policy year, and we do not impose a transfer fee on
these transactions: (a) transfers from the Money Market sub-account on
the Reallocation Date; (b) transfers due loans or loan repayments; (c)
transfers under the Dollar Cost Averaging option or the Automatic
Account Rebalancing option; (d) transfers upon receipt of notice of the
death of the Survivor; (e) transfers due to material changes in the
Separate Account or one or more sub-accounts;
We do not currently charge a fee for (a) changes in allocations for
premiums; or (b) for providing a Policy Owner more than one
illustration of values in a policy year. We reserve the right to charge
up to $25 for each of these transactions, however.
Surrender Penalties. Other possible deductions from the Policy (which
will occur on a Policy-specific basis) include (a) surrender penalties
during the first fifteen policy years on surrenders for net cash value;
(b) surrender penalties, during the first fifteen policy years on
partial surrenders in excess of the surrender penalty free withdrawal
amount, and a $25 surrender penalty after the first fifteen policy
years; and (c) surrender penalties, during the first fifteen policy
years, for face amount decreases.
A surrender penalty applies only on a surrender, certain partial
surrenders, and decreases in face amount within the first fifteen
Policy Years (or, if shorter, to the policy anniversary nearest Exact
Age 100), except we assess a $25 charge on certain partial surrenders
after the end of the fifteenth policy year. The surrender penalty is
calculated as a factor per $1,000 of face amount on the base policy.
The surrender penalty factor is based on each joint insured's age at
issue, sex, underwriting classifications (including smoker or
non-smoker classifications), and the duration of the Policy in years.
The surrender penalty factor for a Policy generally reduces each year
on the Policy anniversary. The surrender penalty applies to the amount
of the surrender (including partial surrenders) in excess of the
surrender penalty free withdrawal amount. The surrender penalty factors
for a Policy are shown in the Policy Data pages for the Policy. For
partial surrenders, the proportionate surrender penalty is equal to A
times B divided by C, where
A is the amount of partial surrender in excess of the surrender penalty
free withdrawal amount; B is the surrender penalty factor for the
policy year; and C is 1,000 minus the surrender penalty factor for the
policy year.
If this calculated amount is less than $25, then the surrender penalty
will be $25. After the fifteenth policy year, the surrender penalty is
$25 for any partial surrender in excess of the amount eligible for
surrender penalty free withdrawal.
The proportionate surrender penalty for a partial surrender is
allocated among the investment options in proportion of A over B, where
A is the partial surrender amount allocated to an investment option,
and B is the total amount of the partial surrender amount (surrender
penalties not included).
The proportionate surrender penalty for a face amount decrease is the
full surrender penalty for the Policy times (A over B), where
A is the face amount decrease of the base policy, and B is the face
amount of the base policy immediately before the decrease.
The surrender penalty for a face amount decrease is allocated pro rata
among the investment options in the Policy.
Surrenders and Partial Surrenders. We will make the payment of net cash
surrender value and of partial surrender value out of our General
Account and, at the same time, transfer assets from the Separate
Account to the General Account in an amount equal to the Policy
reserves in the Separate Account.
The Policy Owner may surrender the Policy for its net cash value at any
time after the end of the free look period. After the end of the free
look period, the Policy Owner may request a partial surrender of a
portion of the net cash value of the Policy. The portion of the
surrender, if any, in excess of the surrender penalty free withdrawal
amount is subject to a surrender penalty as described above.
Each Policy year after the first, the Policy Owner may elect a
surrender penalty free withdrawal. The maximum amount of such
withdrawal is up to 10% of the Accumulation Value as of the last
monthly policy date, minus the sum of all surrender penalty free
withdrawals since the last policy anniversary. A lesser maximum amount
may apply, depending on the Accumulation Value, policy loans
outstanding, surrender penalties, and future monthly deductions. This
amount is the maximum amount eligible for partial surrender, as
explained in the prospectus. The minimum amount of a surrender penalty
free withdrawal is $100.
The full surrender, partial surrender, and surrender penalty free
withdrawal will be deducted from the Accumulation Value at the price
computed at the end of the valuation date on which the request for the
surrender is received by us at our Administrative Office. The partial
surrender amount and surrender penalty free withdrawal amount generally
will be allocated pro rata. We may permit Policy Owners to specify the
allocation of a partial surrender and of a surrender penalty free
withdrawal. If we do permit such allocation elections, and the Policy
Owner provides us with an election in a form and manner acceptable to
us, we will allocate the surrender amount according to the election. If
the elected allocations are not supported by the Policy Accumulation
Value (for example, a portion of the partial surrender amount is to be
allocated to a specific sub-account but that sub-account has no value
in it), the allocation election will be treated as not in good order
and we will not process the request. We will contact the Policy Owner
for new instructions.
If the Death Benefit Option is Option 1, the face amount of the base
coverage will be reduced by the amount of the partial surrenders in
excess of the amount eligible for surrender penalty free withdrawal,
plus any surrender penalties. If the Death Benefit Option is Option 3,
the face amount of the base coverage may be reduced by part or all of
the partial surrender and surrender penalties, as explained further in
the prospectus.
b. Death Benefit
We will normally pay a death benefit to the beneficiary within seven
days after receipt, at our Administrative Office, of due proof of death
of the Survivor and all other requirements necessary to make payment.
A death benefit is payable on the death of the second of the Joint
Insureds to die. There is no death benefit paid upon the First Death.
Upon receipt of notice, written or otherwise, of the death of the
Survivor, we will transfer all values in the sub-accounts under the
Policy to our General Account and not permit any values to be
transferred to, or to remain in, the sub-accounts.
The death proceeds payable will depend on the option in effect at the
time of death; whether the Survivor died before the Policy anniversary
nearest Exact Age 100; and whether the Full Death Benefit Rider was in
force on the Policy if the Survivor died on or after the Policy
anniversary nearest Exact Age 100.
Prior to the Policy anniversary nearest Exact Age 100, the death
benefit will be based on the death benefit option in effect on the
Policy at the time of the Survivor's death. The options are described
below.
Option 1: The death benefit will be the greater of: (a) the total face
amount of the base policy on the date of the Survivor's death; (b) the
death benefit factor multiplied by the accumulation value of the base
policy on the date of the Survivor's death; or (c) the amount required
for the policy to qualify as a life insurance contract under Section
7702 of the Internal Revenue Code.
Option 2: The death benefit will be the greater of: (a) the total face
amount of the base policy plus the accumulation value of the base
policy on the date of the Survivor's death; (b) the death benefit
factor multiplied by the accumulation value of the base policy on the
date of the Survivor's death; or (c) the amount required for the policy
to qualify as a life insurance contract under Section 7702 of the
Internal Revenue Code.
Option 3: The death benefit will be the greater of: (a) the total face
amount of the base policy plus the excess, if any, of all gross premium
payments for the base policy over the sum of any withdrawals, partial
withdrawals, surrender penalty free withdrawals, partial surrenders and
premium refunds on the date of the Survivor's death; (b) the death
benefit factor multiplied by the accumulation value of the base policy
on the date of the Survivor's death; or (c) the amount required for the
policy to qualify as a life insurance contract under Section 7702 of
the Internal Revenue Code.
Beginning with the policy anniversary nearest Exact Age 100, the death
benefit will be: (a) the death benefit factor multiplied by the
accumulation value of the base policy as of the date of death of the
Survivor; or (b) the amount required for the policy to qualify as a
life insurance contract under Section 7702 of the Internal Revenue
Code. If the Full Death Benefit Rider is in effect at policy
anniversary nearest Exact Age 100, however, then the death benefit
beginning with that policy anniversary will be based on the death
benefit option in effect immediately before that policy anniversary.
We determine the accumulation value as of the survivor's date of death
using the prices computed at the end of the day on which death
occurred. If the survivor's date of death was not a valuation date, we
compute the accumulation value based on the next valuation date's
prices.
We will reduce the death benefit by any existing policy loans and by
the portion of any grace period premium payment necessary to provide
insurance to the date of the Survivor's death.
The death benefit factors will be the greater of the factors in the
Table of Death Benefit Factors on the Data Page, or the factors
applicable to joint and last survivor insurance set forth in the
Internal Revenue Code of 1986 ("IRC"), as in effect at the time the
policy is issued and the regulations thereunder.
We will make payment of death proceeds out of our General Account and
will transfer assets from the Separate Account to the General Account
in an amount equal to the reserve in the Separate Account attributable
to the Policy. The excess, if any, of the death proceeds over the
amount transferred will be paid out of the General Account reserve
maintained for that purpose.
c. Default and Options on Lapse
The duration of insurance coverage depends upon (a) the Required
Premium Per Year amounts being paid during the first five Policy years;
(b) the Accumulation Value or Net Cash Value, as applicable, being
sufficient to cover the monthly deductions due; (c) after the policy
anniversary nearest Age 100, the loan interest due and unpaid being
less than the result of the Accumulation Value minus the outstanding
loan; and (d) whether the Endorsement to Modify Grace Period is in
effect on the Policy.
As described previously, the Policy may enter a grace period if various
conditions occur.
Any portion of the Required Premium Per Year that remains unpaid at the
end of the grace period will be paid by automatic premium loan, if the
Policy Owner elected that option on the application, subject to the
terms of the provision. We will process an automatic premium loan if
there is enough net cash value to pay both the Required Premium Per
Year due and interest due on the automatic premium loan. If there is
not enough net cash value to pay both the Required Premium Per Year due
and the interest on the automatic premium loan, we will not make an
automatic premium loan. The policy will then lapse subject to the
nonforfeiture provision. If the automatic premium loan is processed,
the loan amount will be deducted pro rata, as will the loan interest
paid in advance on the loan. The loan and associated premium
transactions will be effective on the last day of the grace period or,
if that day is not a valuation date, on the next valuation date. The
automatic premium loan provision will terminate at the end of the
Required Premium Per Year period.
If a sufficient premium payment or, if applicable, loan interest
payment or loan repayment, is not received during the grace period, the
Policy will terminate, generally without value except for certain
lapses of Policies, as described above, which lapse during the Required
Premium Per Year period. Notice of such termination will be sent to the
owner and any assignee of record. If the insured should die during the
grace period, an amount sufficient to cover the amount required to
provide insurance to the date of the Survivor's death will be deducted
from the death proceeds.
d. Policy Loans
The amount of any outstanding loan plus accrued interest is called
"debt". When a loan is made, the portion of the assets in the Separate
Account (which is a portion of the Accumulation Value and net cash
value and which also constitutes a portion of the reserves for the
death benefit) equal to the debt created thereby is transferred by us
from the Separate Account to the General Account. Allocation of the
loan among sub-accounts will generally be pro rata, but we will allow
the Policy Owner to specify an allocation in a form and manner
acceptable to us. If the elected allocations are not supported by the
Policy Accumulation Value (for example, a portion of the net loan
amount is to be allocated to a specific sub-account but that
sub-account has no value in it), the loan request will be considered
not in good order. We will not process the request. We will contact the
Policy Owner for new instructions. When we receive new instructions in
good order, we will reprocess the loan request as of the date we
receive the new instructions in good order.
Loan interest is due in advance. Loan interest deductions are always
allocated pro rata. Loan interest is a part of the outstanding loan.
The loan request will be effected at the value computed at the end of
the valuation date on which we receive the loan request in good order.
Loans of less than $10,000 may be requested by telephone subject to our
current rules on telephone access privileges.
The portion of the Accumulation Value in each sub-account equal to the
Policy loan allocated to such sub-account will be transferred to the
Fixed Account, and the number of Units equal to the Accumulation Value
so transferred will be canceled. Because of the transfer, a portion of
the Policy is not variable during the loan period and, therefore, the
death benefit and the net cash value are permanently affected by any
debt, whether or not repaid in whole or in part.
Loan interest credited to the policy on outstanding loans will be 4.0%.
The loan interest charged will be based on the policy duration when the
interest is due: During policy years 1-10, the effective annual loan
interest rate will not exceed 4.75% (4.53% in advance). During policy
years 11-20, the effective annual loan interest rate will not exceed
4.50% (4.30% in advance). During policy years 21+, the effective annual
loan interest rate will not exceed 4.25% (4.07% in advance).
Currently, we charge loan interest at a rate of 4.50% (4.30% in
advance) during policy years 1-10; 4.25% (4.07% in advance) during
policy years 11-20; and 4.00% (3.85% in advance) during policy years 21
and later.
Interest is payable in advance at the rates shown above. Interest is
payable at the time the loan is taken until the next Policy
anniversary. Loan interest is due on each Policy anniversary. If not
paid when due, we will create a new loan for the interest due and will
add it to the outstanding loan. The new loan will be allocated pro rata
among the investment options on the Policy anniversary on which the
loan interest is due, if the Policy anniversary is a valuation date. If
that anniversary is not a valuation date, we will deduct the loan
amounts pro rata on the next valuation date.
Failure to repay a loan will not necessarily terminate the Policy. If
the Accumulation Value or, if applicable, net cash value is not
sufficient to cover the monthly deductions, however, the Policy will go
into a 60 day grace period as described above.
In addition to requested loans, we will also process an automatic
premium loan as described previously.
f. Transfers Among Sub-Accounts
Amounts may be transferred, upon request, at any time from any
sub-account of the Separate Account to one or more other sub-accounts.
We may limit the number of sub-accounts which may have value in them.
Currently, a Policy Owner may have value in all 19 sub-accounts plus
the fixed account. Transfers requested (other than automatic transfers
under the Dollar Cost Averaging or the Automatic Account Rebalancing
options) which relate to one or more sub-accounts of the Separate
Account will take effect as of the receipt of a request in good order
in a form and manner acceptable to us at our Administrative Office. The
first eighteen transfers in a Policy year are free of charge; however,
we will deduct an administrative charge of up to $25 for additional
transfers in a Policy Year. Transfer fees are deducted proportionately
from sub-accounts according to the ratio of the transfer from a
sub-account over the total amount of transfers from all sub-accounts
from which transfers were taken. Transfers resulting from Policy loans,
reallocation of Policy Value on the Reallocation Date, transfers under
automatic transfer options (Dollar Cost Averaging and Automatic Account
Rebalancing), transfers upon notice of the Survivor's death, and
transfers due to a material change in investment policy of portfolio
are not be subject to a transfer charge, and will not be counted for
purposes of the limitation on the number of `free' transfers allowed in
each Policy year.
g. Right to Examine Policy ("Free Look") Procedures
The Policy Owner has the right to examine and cancel the Policy be
returning it to us along with a written request for cancellation to us
or one of our representatives by the later of 10 days (or such longer
period required by state law due to replacements or other reasons)
after the Policy Owner receives the Policy.
If the Policy provides for a full refund under its "Right to Examine
Policy" provision as required in a particular state, the refund will be
the total amount of premiums received by us for payment to the Policy.
If the Policy does not provide for a full refund, the refund will be
the amounts allocated to the Fixed Account, the portion of the
Accumulation Value in the Separate Account, and all fees, charges and
taxes which have been imposed.
h. Paid-up option
The Policy Owner may elect to use the Policy's net cash value to
provide insurance with no further premiums due. When the paid-up option
is exercised, Accumulation Value in the Separate Account will be
transferred to our General Account. This transfer will use the value of
the applicable sub-accounts next computed following receipt of the
request in good order at our Administrative Office. After the paid-up
option is exercised, the Policy will no longer have a variable
component. This option will only be offered where required by state
regulation.
i. Other Benefits and Options
The policies contain an Option to Split the Policy, whereby the Policy
Owner can surrender the joint life insurance Policy for two individual
life insurance policies, one on each of the Joint Insureds, if certain
qualifying events occur (e.g., divorce or change in federal tax law).
The Policy may contain a Guaranteed Policy Split Option Rider if the
Joint Insureds qualify for this option based on our underwriting
criteria. The individual life insurance policies will be on a policy
form we offer for this purpose. Currently, the policy form for the
individual policies will not be a variable universal life insurance
policy form. We may, in the future, provide a variable universal life
policy form for this purpose. Exercising an option to split the policy
will result in the termination of this Policy. The termination will be
on the effective date of the policy split, and all associated values
under the Policy will be determined as of that date. The date of the
policy split will be not later than the second valuation date following
the latest of:
o The date we approve each Joint Insured for coverage under the new policies, if
new underwriting evidence is required; o The date we receive all required
evidence required for us to approve the policy split; o The date we receive the
minimum required premium for each policy.
The policies will also contain a Guaranteed Exchange Option whereby the
Policy Owner can exchange this Policy for a fixed life insurance policy
anytime during the first 20 policy years. If this option is exercised,
the exchange will generally occur not later than the second valuation
date following the date on which we receive all required information,
including any minimum required premium, necessary to issue the new
policy. We may limit exchanges to the policy anniversary next following
the date we receive the request to exchange in a form and manner
acceptable to us. The policy values exchanged will be those as of the
date of the exchange.
Additionally, an Accelerated Death Benefit Rider will be added to the
Policy if the rider is approved in the state of issue. Under this
rider, a portion of the death benefit may be paid prior to the
Survivor's death if the Survivor is diagnosed as having a terminal
illness, subject to the conditions of the rider. The benefit will be
deducted from the Policy's investment options on a pro rata basis at
the price established at the close of the valuation date on which we
approve the benefit payment. Under the terms of the rider, we also
reduce the death benefit by an amount in excess of the benefit amount,
and we also adjust the accumulation values and net cash values
proportionately to the reduction in the death benefit.
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