April 11, 1996
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re Principal Mutual Life Insurance Company
Flexible Variable Life Separate Account
File No. 33-13481
I am counsel for the above-referenced Registrant, and have reviewed the attached
post-effective amendment which is being filed pursuant to Rule 485(b) under the
Securities Act of 1933. I hereby represent that the amendment does not contain
disclosures which would render it ineligible to become effective pursuant to
Rule 485(b).
Sincerely
DAVID J. BROWN
David J. Brown
Counsel
DJB/ka
Attachment
<PAGE>
Registration No. 33-13481
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE AMENDMENT NO. 13 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON
FORM N-8B-2
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
(Exact Name of Depositor)
The Principal Financial Group
Des Moines, Iowa 50392-0100
(Address of Depositor's Principal Executive Offices)
David J. Brown
Principal Mutual Life Insurance Company
The Principal Financial Group
Des Moines, Iowa 50392-0300
(Name and address of agent for service)
Telephone Number, Including Area Code: (515) 247-5111
Please send copies of all communications to
J. SUMNER JONES
Jones & Blouch
2100 Pennsylvania Ave., N.W.
Washington, DC 20037
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1996 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on (date) pursuant to paragraph (a)(1) of Rule 485
This post-effective amendment designates a new effective date for a
_____ previously filed post-effective amendment.
Title of Securities: Flexible Premium Variable Life Insurance Policy.
Registrant has heretofore registered an indefinite amount of such Flexible
Premium Variable Life Insurance Policies under the Securities Act of 1933
pursuant to Rule 24f-2; Registrant filed a Rule 24f-2 notice for the fiscal year
ending December 31, 1995, on February 27, 1996.
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
Registration Statement on Form S-6
Cross Reference Sheet
Items of
Form N-8B-2 Captions in Prospectus
1.............. Cover Page
2.............. Cover Page
3.............. Not Applicable
4.............. Distribution of the Policy
5.............. Principal Mutual Life Insurance Company Variable Life
Separate Account
6(a)........... Not Applicable
6(b)........... Not Applicable
7.............. Not Required
8.............. Not Required
9.............. Legal Proceedings
10(a).......... Ownership, Beneficiaries, Assignment
10(b).......... Calculation of Accumulated Value; Unit Values; Net
Investment Factor; Valuations in Connection with a
Policy; Participating Policy
10(c), 10(d)... Summary (Transfers; Policy Loans; Surrender,
Termination and Reinstatement; Policy Cancellation);
Death Benefits and Rights; Policy Values (Transfers;
Policy Loans; Surrender); Charges and Deductions
(Surrender Charge)
10(e).......... Summary (Surrender, Termination and Reinstatement);
Premiums (Policy Termination; Reinstatement);
Registration Statement
10(f).......... Other Matters (Voting Rights)
10(g)(1),
10(g)(2),
10(h)(1),
10(h)(2)....... Principal Mutual Life Insurance Company Variable Life
Separate Account; General Provisions (Addition,
Deletion, or Substitution of Investments)
10(g)(3),
10(g)(4),
10(h)(3),
10(h)(4)....... Not Applicable
10(i).......... Principal Mutual Life Insurance Company Variable Life
Separate Account, Policy Values; General Provisions
(Addition, Deletion, or Substitution of Investments;
Optional Insurance Benefits; Policy Proceeds);
Federal Tax Matters
11............. Principal Mutual Life Insurance Company Variable Life
Separate Account; General Provisions (Addition,
Deletion, or Substitution of Investments)
12(a).......... Cover page
12(b).......... Not Applicable
12(c).......... Principal Mutual Life Insurance Company Variable Life
Separate Account (Principal Balanced Fund, Inc.;
Principal Bond Fund, Inc.; Principal Capital
Accumulation Fund, Inc.; Principal Emerging Growth
Fund, Inc.; Principal High Yield Fund, Inc.; Principal
Money Market Fund, Inc.)
12(d).......... Distribution of the Policy
12(e).......... Not Applicable
13(a).......... Principal Mutual Life Insurance Company Variable Life
Separate Account; Charges and Deductions
13(b), 13(c),
13(d), 13(e),
13(f), 13(g)... Not Applicable
14............. Distribution of the Policy
15............. Summary (Premiums); Preimums
16............. Summary (Principal Mutual Life Insurance
Company Variable Life Separate Account); Principal
Mutual Life Insurance Company Variable Life Separate
Account; Policy Values; General Provisions (Addition,
Deletion, or Substitution of Investments)
17(a), 17(b),
17(c).......... Captions referenced under Items 10(c), 10(d), 10(e),
and 10(i) above
18(a).......... Summary (Policy Value); Policy Values (Calculation of
Accumulated Value; Unit Values; Net Investment Factor;
Valuations in Connection with a Policy)
18(b).......... Not Applicable
18(c).......... Summary (Policy Loans); Policy Values (Policy Loans)
18(d).......... Not Applicable
19............. Other Matters (Voting Rights; Statement of Values)
20(a), 20(b)... Principal Mutual Life Insurance Company Variable Life
Separate Account; General Provisions (Addition,
Deletion, or Substitution of Investments); Other
Matters (Voting Rights)
20(c), 20(d),
20(e), 20(f)... Not Applicable
21(a), 21(b)... Summary (Policy Loans); Policy Values
21(c).......... Not Applicable
22............. General Provisions (The Contract; Incontestability)
23............. Not Applicable
24............. Summary; Special Plans
25............. Description of Principal Mutual Life Insurance Company
26............. Not Applicable
27............. Description of Principal Mutual Life Insurance Company
28............. Officers and Directors of Principal Mutual Life
Insurance Company
29............. Description of Principal Mutual Life Insurance Company
30............. Not Applicable
31............. Not Applicable
32............. Not Applicable
33............. Not Applicable
34............. Not Applicable
35............. Description of Principal Mutual Life Insurance Company
36............. Not Applicable
37............. Not Applicable
38(a).......... Summary (Principal Mutual Life Insurance Company
Variable Life Separate Account); Principal Mutual Life
Insurance Company Variable Life Separate Account;
Distribution of the Policy
38(b), 38(c)... Distribution of the Policy
39(a), 39(b)... Distribution of the Policy
40............. Not Applicable
41(a).......... Description of Principal Mutual Life Insurance Company;
Distribution of the Policy
41(b), 41(c)... Not Applicable
42............. Not Applicable
43............. Not Applicable
44(a), 44(b),
44(c).......... Summary (Principal Mutual Life Insurance Company
Variable Life Separate Account; Transfers; Policy
Loans; Surrender, Termination, and Reinstatement;
Policy Cancellation); Principal Mutual Life Insurance
Company Variable Life Separate Account; Policy Values;
Charges and Deductions
45............. Not Applicable
46(a).......... Captions referenced under items 44(a) above
46(b).......... Not Applicable
47............. Not Applicable
48............. Not Applicable
49............. Not Applicable
50............. Not Applicable
51(a) - (j).... Summary; Description of Principal Mutual Life
Insurance Company; Principal Mutual Life Insurance
Company Variable Life Separate Account; General
Provisions; Distribution of the Policy
52(a).......... Principal Mutual Life Insurance Company Variable Life
Separate Account; General Provisions (Addition,
Deletion, or Substitution of Investments)
52(b).......... Not Applicable
52(c).......... Captions referenced in 10(g) and 10(h) above
52(d).......... Not Applicable
53(a).......... Summary (Tax Consequences of the Policy); Federal Tax
Matters
53(b).......... Not Applicable
54............. Not Applicable
55............. Not Applicable
56............. Not Applicable
57............. Not Applicable
58............. Not Applicable
59............. Not Applicable
<PAGE>
Prospectus Dated May 1, 1996
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT FLEX
VARIABLE LIFE - FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
"Flex Variable Life," the flexible premium variable life insurance policy
(the "Policy" or the "Policies") offered by Principal Mutual Life Insurance
Company ("Company") and described in this Prospectus is designed to provide
lifetime insurance protection and maximum flexibility in connection with premium
payments and death benefits. A policyowner may, within limits, vary the
frequency and amount of premium payments and increase or decrease the face
amount of the life insurance benefit under the Policy. This flexibility allows a
policyowner to provide for changing life insurance needs within a single
insurance policy.
A schedule of premium payments is established for a Policy in accordance
with policyowner preference. A minimum premium is required during the first
twelve policy months. At other times, failure to pay premiums will not cause a
Policy to terminate so long as its accumulated value, less the surrender charge
and unpaid policy loans and loan interest, is sufficient on a Policy processing
day to allow deduction of the cost of insurance and other charges.
Premium payments, less a 2% premium tax charge and a 5% sales load, are
allocated according to policyowner direction to one or more Divisions of the
Principal Mutual Life Insurance Company Variable Life Separate Account
("Separate Account"), except for premiums received during the first 45 days from
the policy date, which are allocated for that period to the Money Market
Division of the Separate Account. Each Division invests exclusively in shares
representing an interest in a corresponding mutual fund organized by the
Company. The accompanying prospectus describes the investment objectives and the
attendant risks of the mutual funds currently offered as investment choices
under the Policy: Principal Balanced Fund, Inc. Principal Bond Fund, Inc.,
Principal Capital Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc.,
Principal High Yield Fund, Inc., and Principal Money Market Fund, Inc.
Accumulated value and duration of coverage under the Policy will, and the
death benefit may, increase or decrease based upon the investment experience of
the Divisions of the Separate Account. The accumulated value will also reflect
the amount and frequency of premium payments, surrenders of accumulated value,
policy loans and loan interest, interest earned on loaned amounts, and the
charges and deductions connected with the Policy. The policyowner bears the
entire investment risk as to the Policy's accumulated value, which is not
guaranteed.
The Policy provides a death benefit upon the insured's death. The
policyowner chooses one of two death benefit options. Under Option 1, the death
benefit is the greater of the face amount of the Policy or the accumulated value
on the date of death multiplied by an applicable percentage based upon the
insured's attained age. Under Option 2, the death benefit is the greater of the
face amount of the Policy plus the accumulated value on the date of the
insured's death or the Policy's accumulated value multiplied by the applicable
percentage. The policyowner may, under certain conditions, change from one death
benefit option to the other.
The policyowner generally may obtain policy loans at any time the Policy
has loan value prior to the Policy's maturity date. In addition, subject to
certain restrictions, the Policy's accumulated value may be partially or totally
surrendered. Surrender charges consisting of a contingent deferred sales load
and a contingent deferred administration charge may be imposed upon total
surrender of a Policy. The amount of surrender charge assessed per $1,000 of
face amount is based upon the issue age and sex (where allowed by law) of the
insured and the policy year at the time of surrender.
Prospective purchasers of this Policy are advised that replacement of
existing insurance coverage may not be financially advantageous. It may also be
disadvantageous to purchase a Policy as a means to obtain additional insurance
protection if the purchaser already owns a flexible premium variable life
insurance policy.
This Prospectus is valid only if accompanied or preceded by the current
prospectus for Principal Balanced Fund, Inc., Principal Bond Fund, Inc.,
Principal Capital Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc.,
Principal High Yield Fund, Inc., and Principal Money Market Fund, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Please Read This Prospectus Carefully And Retain It For Future Reference.
TABLE OF CONTENTS
GLOSSARY OF SPECIAL TERMS .................................................... 4
SUMMARY ...................................................................... 5
The Policy............................................................... 5
Principal Mutual Life Insurance Company
Variable Life Separate Account .......................................... 5
Premiums................................................................. 5
Charges and Deductions .................................................. 6
Maturity Proceeds........................................................ 6
Death Benefit and Proceeds............................................... 6
Adjustment Options....................................................... 7
Policy Values............................................................ 7
Transfers................................................................ 7
Policy Loans............................................................. 7
Surrender, Termination and Reinstatement................................. 8
Policy Cancellation...................................................... 9
Distribution of the Policy............................................... 9
Tax Consequences of the Policy........................................... 9
DESCRIPTION OF PRINCIPAL MUTUAL
LIFE INSURANCE COMPANY .......................................................10
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY VARIABLE LIFE SEPARATE
ACCOUNT...................................................................... 10
Principal Balanced Fund, Inc.............................................10
Principal Bond Fund, Inc.................................................11
Principal Capital Accumulation Fund, Inc.................................11
Principal Emerging Growth Fund, Inc......................................11
Principal High Yield Fund, Inc...........................................11
Principal Money Market Fund, Inc.........................................11
PREMIUMS......................................................................12
Purchase Procedures......................................................12
Payment of Premiums......................................................12
Premium Limitations......................................................13
Allocation of Premiums...................................................13
Policy "Free Look".......................................................13
Policy Termination.......................................................14
Reinstatement............................................................15
DEATH BENEFITS AND RIGHTS.....................................................15
Death Proceeds...........................................................15
Death Benefit............................................................15
Applicable Percentage....................................................16
Change in Death Benefit Option...........................................16
Adjustment Options.......................................................17
POLICY VALUES.................................................................18
Calculation of Accumulated Value.........................................18
Units....................................................................18
Unit Values..............................................................18
Net Investment Factor....................................................18
Valuations in Connection with a Policy...................................19
Transfers................................................................19
Policy Loans.............................................................19
Surrender................................................................20
CHARGES AND DEDUCTIONS........................................................20
Premium Expense Charge...................................................20
Monthly Deduction........................................................21
Mortality and Expense Risks Charge.......................................22
Transaction Charge.......................................................22
Surrender Charge.........................................................22
Other Charges............................................................26
Special Plans............................................................26
OTHER MATTERS.................................................................26
Voting Rights............................................................26
Statement of Value.......................................................27
Service Available by Telephone...........................................27
GENERAL PROVISIONS............................................................28
Addition, Deletion, or Substitution of
Investments..............................................................28
Optional Insurance Benefits..............................................28
Death Benefit Guarantee Rider............................................28
The Contract.............................................................29
Incontestability.........................................................29
Misstatements............................................................29
Suicide..................................................................29
Ownership................................................................29
Beneficiaries............................................................29
Benefit Instructions.....................................................30
Postponement of Payments.................................................30
Assignment...............................................................30
Policy Proceeds..........................................................30
Participating Policy.....................................................31
Right to Exchange Policy.................................................31
DISTRIBUTION OF THE POLICY....................................................31
OFFICERS AND DIRECTORS OF
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY.......................................................................32
STATE REGULATION OF PRINCIPAL
MUTUAL LIFE INSURANCE COMPANY.................................................33
FEDERAL TAX MATTERS...........................................................33
The Status of the Company and the
Separate Account........................................................34
Charges for Taxes........................................................34
Diversification Standards................................................34
Life Insurance Status of Policy..........................................34
Modified Endowment Contract Status.......................................34
Policy Surrenders and Partial Surrenders.................................35
Policy Loans and Interest Deductions.....................................35
Corporate Alternative Minimum Tax........................................36
Exchange or Assignment of Policies.......................................36
Withholding..............................................................36
Taxation of Accelerated Death Benefits...................................36
Other Tax Issues.........................................................36
EMPLOYEE BENEFIT PLANS........................................................36
LEGAL PROCEEDINGS.............................................................36
LEGAL OPINION.................................................................37
INDEPENDENT AUDITORS..........................................................37
REGISTRATION STATEMENT........................................................37
FINANCIAL STATEMENTS..........................................................37
Report of Independent Auditors...........................................38
Variable Life Separate Account
Financial Statements.....................................................39
Report of Independent Auditors...........................................51
Principal Mutual Life Insurance
Company Financial Statements.............................................52
APPENDIX - ILLUSTRATIONS OF POLICY
VALUES AND DEATH BENEFITS.....................................................73
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS REGARDING THE
OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, THE PROSPECTUS OF PRINCIPAL BALANCED FUND, INC., PRINCIPAL BOND
FUND, INC., PRINCIPAL CAPITAL ACCUMULATION FUND, INC., PRINCIPAL EMERGING GROWTH
FUND, INC., PRINCIPAL HIGH YIELD FUND, INC., AND PRINCIPAL MONEY MARKET FUND,
INC. OR THE STATEMENTS OF ADDITIONAL INFORMATION OF THESE FUNDS.
GLOSSARY OF SPECIAL TERMS
Attained Age - The age last birthday on the prior policy anniversary.
Division - A part of the Principal Mutual Life Insurance Company Variable
Life Separate Account which is invested in shares of a single mutual fund.
Face Amount - The minimum death benefit of a Policy so long as the Policy
remains in force.
General Account - The assets of Principal Mutual Life Insurance Company
other than those allocated to any of the separate accounts of Principal Mutual
Life Insurance Company.
Guideline Annual Premium - The level annual payment necessary to provide
the future benefit under a Policy, through maturity, based on the 1980
Commissioners Standard Ordinary Mortality Table, a 5% assumed interest rate, and
the fees and charges specified for a Policy.
Internal Revenue Code - The Internal Revenue Code of 1954, as amended, and
regulations promulgated thereunder. Reference to the Internal Revenue Code means
such Internal Revenue Code or the corresponding provisions of any subsequent
revenue code and any regulations thereunder.
Investment Account - An account established under a Policy for a
policyowner with respect to a Division of the Principal Mutual Life Insurance
Company Variable Life Separate Account.
Maturity Date - The policy anniversary following the insured's 95th
birthday.
Monthly Date - The day of the month which is the same as the policy date.
For example, if the policy date is June 10, 1996, the first monthly date is July
10, 1996.
Mutual Fund - Principal Balanced Fund, Inc., Principal Bond Fund, Inc.,
Principal Capital Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc.,
Principal High Yield Fund, Inc., Principal Money Market Fund, Inc., or other
registered open-end investment companies substituted therefor or added for
investment by a Division of the Principal Mutual Life Insurance Company Variable
Life Separate Account.
Policy date - The policy date is the date by which both the application and
a premium payment in an amount at least equal to the required minimum initial
premium for the Policy have been received in the home office of the Company.
Policy Years and Anniversaries - The policy years and anniversaries
computed from the policy date. Example: If the policy date is May 5, 1996, the
first policy year ends on May 4, 1997 and the first policy anniversary falls on
May 5, 1997.
Principal Mutual Life Insurance Company Variable Life Separate Account - A
separate account established by Principal Mutual Life Insurance Company under
Iowa law to receive premiums under the Policies offered by this Prospectus and
other variable life insurance contracts issued by Principal Mutual Life
Insurance Company. It is divided into a Balanced Division, (invested in
Principal Balanced Fund, Inc.), a Bond Division (invested in Principal Bond
Fund, Inc.), a Capital Accumulation Division, formerly known as the Common Stock
Division, (invested in Principal Capital Accumulation Fund, Inc.), an Emerging
Growth Division (invested in Principal Emerging Growth Fund, Inc.), a High Yield
Division (invested in Principal High Yield Fund, Inc.), and a Money Market
Division (invested in Principal Money Market Fund, Inc.).
Prorated Basis - In the same proportion as the value of a particular
investment account for a Policy bears to the total value of all investment
accounts for that Policy.
Valuation Date - The date as of which the net asset value of a mutual fund
is determined.
Valuation Period - The period between the time as of which the net asset
value of a mutual fund is determined on one valuation date and the time as of
which such value is determined on the next following valuation date.
Written Request - Actual delivery to Principal Mutual Life Insurance
Company at its home office in Des Moines, Iowa, of a written notice or request
on a form supplied or approved by Principal Mutual Life Insurance Company.
SUMMARY
THE FOLLOWING SUMMARY INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Policy
The Policy is designed to provide a policyowner with lifetime insurance
protection and flexibility in connection with the amount and frequency of
premium payments and the amount of life insurance proceeds payable under the
Policy. A policyowner may, subject to certain limitations, vary the frequency
and amount of premium payments. The Policy allows a policyowner to adjust the
amount of life insurance payable, without having to purchase a new Policy, by
increasing or decreasing the face amount. Thus, as insurance needs or financial
conditions change, a policyowner has the flexibility to adjust life insurance
proceeds and vary the premium payments. The Policy is a life insurance contract
with a death benefit, accumulated value, and other features traditionally
associated with whole life insurance. It is called "flexible premium" because
unlike traditional insurance contracts, there is no fixed schedule of premium
payments, although a minimum premium is required during the first twelve policy
months. Each policyowner establishes a preferred schedule of premium payments
(planned periodic premiums).
The Policy is called "variable" because the accumulated value, duration of
coverage and, under certain circumstances, the death benefit may increase or
decrease depending upon the investment experience of the Division or Divisions
of the Separate Account to which premium payments, less a premium tax charge of
2% and a 5% sales load, have been allocated. Generally, favorable investment
experience will increase a Policy's accumulated value and unfavorable investment
experience will reduce its accumulated value. Prospective purchasers of a Policy
should be aware that there is no guarantee of accumulated value in a Policy.
Principal Mutual Life Insurance Company Variable Life Separate Account
The Separate Account is a separate account established by the Company
pursuant to the insurance laws of the State of Iowa and is organized as a unit
investment trust under the Investment Company Act of 1940. The Separate Account
is presently comprised of six Divisions, each of which invests exclusively in
shares representing interests in a corresponding Mutual Fund organized by the
Company. (The Company may form other Divisions of the Separate Account or other
separate accounts in the future, thereby creating additional investment choices
under a Policy.) Each mutual fund has a different investment objective. The
Separate Account is administered and accounted for as part of the general
business of the Company, but the income, gains, or losses of the Separate
Account are credited to or charged against the assets held in the Separate
Account in accordance with the terms of the Policy, without regard to other
income or gains or losses arising out of any other business that the Company
conducts. The assets of the Separate Account will be available to cover the
liabilities of the Company's general account only to the extent that the assets
of the Separate Account exceed the liabilities of the Separate Account arising
under the Policies.
Premiums
An initial payment is required as the first premium. This required initial
premium payment is three times the minimum monthly premium shown on the Policy's
data pages. The minimum monthly premium is the amount that, if paid, will keep
the Policy in force for one month, taking into account the current monthly
deduction and surrender charge. Payment of a minimum premium is required during
the first twelve policy months (the "Minimum Required Premium"). The Company
allows payments in accordance with the planned periodic premium schedule
established by the policyowner in the application (annual, semi-annual,
quarterly, or pre-authorized withdrawal payments of premium on a monthly basis).
However, if the minimum monthly premium is less than $30 ($15 if the insured is
ages 0-14), only a planned periodic premium schedule that would result in a
payment of $30 or more ($15 or more if the insured is ages 0-14) will be made
available to the policyowner. The Company also allows unscheduled premium
payments of $30 or more. The planned periodic premium schedule indicates the
preference of the policyowner only, and other than payment of the Minimum
Required Premium, payment of premiums is not required. (However, the death
benefit guarantee premium must be paid to maintain the death benefit guarantee
rider. See "Death Benefit Guarantee Rider," page 28.) Changes in frequency, as
well as increases or decreases in the amount of planned periodic premiums, may
be made. However, the total of all premiums, planned and otherwise, cannot
exceed the current maximum premium limitations set forth in the Internal Revenue
Code to qualify a Policy as a life insurance contract. At any time there is an
outstanding policy loan, if a payment cannot be identified as a premium payment,
it will be considered a loan repayment.
The initial premium payment and all other premium payments received during
the first 45 days from the policy date, after deduction of the premium tax
charge of 2% and the 5% sales load, are allocated to the Money Market Division
of the Separate Account. On the 46th day from the policy date, the accumulated
value held in the Money Market Division is transferred to the Divisions in
accordance with the policyowner's direction for allocation of premium payments.
Premium payments received after the first 45 days from the policy date are
allocated among the Divisions in accordance with the directions in the
application for the Policy.
Charges and Deductions
There is a premium expense charge deducted from each premium payment. The
amount remaining after deduction of the premium expense charge is the "net
premium." The premium expense charge includes a sales load of 5% to partially
compensate the Company for sales expenses incurred with respect to the Policy.
In addition, a sales load of up to a maximum of 25% of the minimum first year
premium may be imposed as a part of a surrender charge upon total surrender or
termination of a Policy for insufficient value. Also included in the premium
expense charge is a charge of 2% for premium taxes. The premium tax charge,
which cannot be changed, is not expected to exceed the premium taxes charged to
the Company.
There is a monthly deduction from the Policy's accumulated value in the
Divisions equal to the cost of insurance, the cost of additional benefits
provided by riders attached to the Policy and a monthly administration charge
which is guaranteed never to exceed $5.00 per month. The current monthly
administration charge for a Policy is $4.75 per month.
The cost of insurance charge is calculated on each monthly date. The cost
of insurance rate is based on the sex (where allowed by law), attained age, and
risk classification of the insured. Current monthly cost of insurance rates will
be determined by the Company based upon its expectations as to future mortality
experience. Cost of insurance rates are guaranteed not to exceed the maximum
rates based upon the 1980 Smoker and Nonsmoker Commissioners Standard Ordinary
Mortality Tables, age last birthday. Where allowed by law, the table used will
be male or female according to the sex of the insured. Additionally, the
guaranteed maximum cost of insurance rates will reflect the insured's risk
classification.
A mortality and expense risks charge will be imposed on a daily basis on
the assets of each Division. The current mortality and expense risks charge is
.0020548% on a daily basis (.75% on an annual basis) and is guaranteed to not
exceed .0024658% on a daily basis (.90% on an annual basis).
A charge consisting of a contingent deferred sales load and a contingent
deferred administration charge may be imposed for total surrender of a Policy or
termination of a Policy for insufficient value. The amount of surrender charge
assessed per $1,000 of face amount is based upon the issue age and sex (where
allowed by law) of the insured and the policy year at the time of surrender.
There is no surrender charge imposed upon partial surrenders of accumulated
value.
A transaction charge of $25 is imposed on transfers of accumulated value
between Divisions exceeding four per policy year. A transaction charge of the
lesser of $25 or two percent of the amount surrendered is imposed upon partial
surrenders of accumulated value.
An investment advisory fee is charged against the assets of each mutual
fund to compensate the Fund's investment advisor. In addition, each mutual fund
incurs other normal expenses of corporate operation.
Maturity Proceeds
If the insured under a Policy is living on the Policy's maturity date,
which is the Policy anniversary following the birthday on which the insured
reaches age 95, the Company will pay the Policy's maturity proceeds to the
policyowner. A Policy's maturity proceeds are the Policy's accumulated value
less any Policy loans and unpaid loan interest on the maturity date. If maturity
proceeds are paid under a Policy, the Policy terminates with no further benefits
payable. On the Policy's maturity date, the Company will pay the excess of the
Policy's face amount over the maturity proceeds, provided certain conditions are
met. (See "Death Benefit Guarantee Rider," page 28.)
Death Benefit and Proceeds
The death proceeds under a Policy are payable to the beneficiary when the
insured dies, subject to all provisions and conditions of the Policy. The death
proceeds, determined as of the date of the insured's death, are: the death
benefit described below, plus proceeds from any benefit riders on the insured's
life, less any Policy loans and loan interest, and less any overdue monthly
deductions if the insured dies during a grace period. All or part of the death
proceeds may be paid in cash or applied under one or more of the benefit options
available under the Policy, subject to certain restrictions. The Company pays
interest on the death proceeds from the date of death until the date of payment
or until applied under a benefit option. Interest is at a rate the Company
determines, but not less than required by state law.
There are two options available for the death benefit under a Policy. If a
policyowner selects Option 1, the death benefit will be equal to the greater of
the face amount of the Policy or the accumulated value on the date of death
multiplied by an applicable percentage specified in the Internal Revenue Code.
If a policyowner selects Option 2, the death benefit will be the greater of the
face amount of the Policy plus the accumulated value on the date of death or the
accumulated value on the date of death multiplied by the applicable percentage.
A policyowner may make a written request to change the death benefit option
on or after the first Policy anniversary. Any change must be approved by the
Company before it takes effect. Changes in death benefit option are limited to
two per policy year. If the request is to change from Option 1 to Option 2, the
face amount will be reduced by the amount of the accumulated value of the Policy
on the effective date of the change. A request to change from Option 1 to Option
2 will not be approved if the face amount in effect after the change would be
less than $25,000. Evidence of insurability satisfactory to the Company under
its underwriting rules then in effect may be required on a change from Option 1
to Option 2. If the request is to change from Option 2 to Option 1, the face
amount will be increased by the amount of the accumulated value of the Policy on
the effective date of the change. No evidence of insurability is required for a
change from Option 2 to Option 1. The effective date of any change will be the
monthly date that coincides with or next follows the day the request for change
is approved by the Company.
Adjustment Options
Subject to certain conditions, the face amount of a Policy may be adjusted
upon the written request of the policyowner. Any written request to adjust the
face amount of a Policy must be approved by the Company. No request to adjust
the face amount of a Policy will be approved if a Policy is in a grace period or
if monthly deductions are being waived under a rider. In addition, a decrease in
face amount may be requested only after the first Policy anniversary and may not
reduce the face amount of a Policy below $25,000. A requested face amount
increase must be at least $5,000 and is subject to evidence of insurability
satisfactory to the Company under its underwriting rules then in effect. Any
adjustment in face amount of a Policy will be effective on the monthly date that
coincides with or next follows the date the Company approves the request,
subject to a payment by the policyowner in an amount not less than the new
minimum monthly premium for the Policy after any such increase in face amount.
The new minimum monthly premium will take into account the Policy's surrender
value. There are no charges assessed in connection with adjustments of a Policy,
although an increase in face amount will result in surrender charges applicable
to the increase.
Policy Values
The Policy provides for accumulated value. The Policy's accumulated value
will reflect the amount and frequency of premium payments, the investment
experience of the chosen Division or Divisions, surrenders of accumulated value,
Policy loans and loan interest, interest earned on amounts in the loan account,
transaction charges, and other charges and deductions imposed in connection with
the Policy and the Separate Account. A Policy has no minimum guaranteed
accumulated value. A Policy's "surrender value" is its accumulated value less
the amount of the surrender charge, if any. A Policy's "net surrender value" is
its surrender value less Policy loans and loan interest. The net surrender value
of a Policy is the amount available to a policyowner upon total surrender.
An investment account is established for each Division of the Separate
Account, representing the interest of the Policy for such Division. When amounts
are allocated or transferred to a Division, units are credited to the applicable
investment account. When amounts are deducted or transferred from a Division,
units of the applicable investment account are cancelled. The number of units
credited or cancelled is equal to the dollar amount of the transaction divided
by the unit value of the Division for the valuation period when the transaction
occurs.
The unit value of a Division is determined on each valuation date. The unit
value of each Division was established at $10.00 at the time the Division was
formed. Thereafter, the unit value of a Division on any valuation date is
calculated by multiplying the unit value on the previous valuation date by the
net investment factor for the current valuation period. The net investment
factor of a Division measures the investment performance of the Division and
determines changes in unit value from one valuation period to the next valuation
period. The investment account value for each Division of the Separate Account
is equal to the number of units in that investment account multiplied by that
Division's unit value. A Policy's accumulated value is equal to the total of the
Policy's investment account values and any amounts in the Policy's loan account.
Transfers
Transfers of accumulated value between Divisions may be made by a
policyowner four times per policy year without charge. All transfers with the
same effective date count as one transfer. Transfers in excess of four per
policy year are subject to a transaction charge of $25. The Company has reserved
the right to revoke or modify transfer privileges and charges.
Policy Loans
A policyowner may borrow against the accumulated value of the Policy at any
time the Policy has loan value. A Policy's loan value, which is the maximum
amount that may be borrowed, is (1) minus (2) where: (1) is 90% of the Policy's
surrender value and (2) is any outstanding policy loans and unpaid loan
interest. A Policy's loan value is determined as of the loan date. The loan date
is the date a written request for a policy loan is processed by the Company. Any
loan must be in at least the minimum amount of $500. At the time the policy loan
is made, a portion of the Policy's accumulated value equal to the loan amount is
transferred from the Separate Account to the loan account maintained for the
Policy in the Company's general account. Loan interest is payable at the end of
each policy year. All policy loans and loan interest will be deducted from
proceeds payable at the insured's death, upon maturity, or upon total surrender.
A policyowner may choose how much of the loan amount is withdrawn from each
of the Divisions. If no choice is made, the amount will be withdrawn from the
Divisions in the same proportion as the most recent monthly deduction.
Accumulated value held in the loan account earns interest daily at an
effective annual rate of six percent. Interest earned on the loaned portion of
the accumulated value is allocated on the Policy anniversary to the Divisions in
the proportion currently designated by a policyowner for the allocation of
premium payments.
Interest is charged on policy loans at an effective annual rate of eight
percent during any period the loan is outstanding. Interest accrues on a daily
basis from the date of the loan and is compounded annually. If loan interest is
not paid when due, it becomes loan principal. An amount equal to the unpaid loan
interest will be transferred from the Divisions to the loan account in the
proportion directed by the policyowner. If no direction is made by the
policyowner, the amount will be withdrawn from the Divisions in the same
proportion as the most recent monthly deduction.
A Policy loan and unpaid loan interest may be repaid in whole or in part at
any time while the Policy is in force. The minimum loan repayment amount is
$30.00 or the outstanding loan amount, if less. When a loan repayment is made,
accumulated value in the loan account equal to the loan repayment will be
allocated among the Divisions in the proportion currently designated by a
policyowner for allocation of premium payments.
Surrender, Termination and Reinstatement
A policyowner may elect to make a total surrender of the Policy and receive
its net surrender value determined as of the date the Company receives the
policyowner's written request. A surrender charge is imposed upon total
surrender of a Policy at any time within the first ten years after the policy
date. In addition, any increase in face amount is subject to a surrender charge
at any time within ten years after the effective date of the adjustment. After
the first policy year, the policyowner may request a partial surrender of the
accumulated value of the Policy, but no more than two times per policy year. A
partial surrender must be in at least the minimum amount of $500 and cannot
exceed 50% of the Policy's net surrender value at the time partial surrender is
requested. A transaction charge of the lesser of $25 or two percent of the
amount of the partial surrender is imposed on each partial surrender. The
Policy's accumulated value is reduced by the amount of any partial surrender
plus the transaction charge. If the Option 1 death benefit is in effect at the
time of a partial surrender, then the Policy's face amount is also reduced by
the amount of the partial surrender plus the transaction charge.
Failure to make a planned periodic premium or additional premium payments
may cause termination of a Policy. A notice of impending termination of a policy
will be sent if:
1. The net surrender value of a Policy on any monthly date is less than
the monthly deduction and the death benefit guarantee premium
requirement has not been satisfied; or
2. During the 12 months following the policy date, the sum of the premiums
paid is less than the Minimum Required Premium on a monthly date.
The Minimum Required Premium on a monthly date is equal to (1) times (2)
where:
1. Is the minimum monthly premium shown on the data page; and
2. Is one plus the number of complete months since the policy date.
The notice of impending termination will show the 61-day grace period
during which the Company will accept payment required to keep the Policy in
force. If a grace period begins because the net surrender value is less than the
current monthly deduction, the minimum payment is three times the monthly
deduction which was due and unpaid. If a grace period begins because the sum of
the premiums paid is less than the Minimum Required Premium, the minimum payment
is the past due Minimum Required Premium, which is:
1. The Minimum Required Premium due on the next following monthly date;
LESS
2. The sum of the premiums paid since the policy date.
If the grace period ends before the Company receives the past due Minimum
Required Premium, the Company will pay to the policyowner any remaining value in
the Policy, which would be the excess of (1) over (2) where:
1. Is the net surrender value on the monthly date at the start of the
grace period; and
2. Is the two monthly deductions applicable during the grace period.
In the event the 61-day grace period expires without a payment by the
policyowner at least equal to the minimum payment, the Policy will terminate.
Once a Policy has terminated as a result of insufficient value, the
policyowner may make a written request to reinstate the Policy at any time
within three years after the date of termination, so long as the insured is
alive and it is prior to the Policy's maturity date. Satisfactory proof of
insurability and payment of a reinstatement premium of at least the greater of
(1) an amount that, after deduction of premium expense charges, is sufficient to
allow at least three monthly deductions or (2) the past due Minimum Required
Premium are required for reinstatement. Repayment or reinstatement of policy
loans and loan interest which remained unpaid on the date the Policy terminated
is also required.
Policy Cancellation
A policyowner has the limited right to return a Policy for cancellation and
receive a refund of all premiums paid. The written request for cancellation,
along with return of the Policy, must be made within 10 days after the Policy is
received by the policyowner, within 10 days after written notice of this right
is provided to the policyowner, or within 45 days after the policyowner
completes the Policy application, whichever is later.
Distribution of the Policy
The Company may offer the Policy in states and jurisdictions where it is
licensed to sell this type of insurance product. The Policy will be sold by
agents and brokers who represent the Company and are registered representatives
of Princor Financial Services Corporation, the principal underwriter of the
Policies, or registered representatives of other broker-dealers which Princor
Financial Services Corporation selects and the Company approves.
Tax Consequences of the Policy
The Policies will be treated as life insurance contracts under provisions
of the Internal Revenue Code so long as certain definitional tests of Section
7702 of the Internal Revenue Code are met and so long as the investments of the
Separate Account meet the diversification requirements of Section 817(h) of the
Internal Revenue Code. The Company has designed the Policy to meet these
criteria. Thus, the death benefit under a Policy should be fully excludable from
the gross income of the beneficiary. In addition, the policyowner should not be
taxed on any part of the accumulated value, unless in the first 15 years of a
Policy a cash distribution is made as a result of a change in the benefits under
(or in other terms of) the Policy, such as a partial or total surrender of
accumulated value which causes a reduction in the face amount. Such a
distribution will be taxable to the extent of income in the Policy, as limited
by the applicable recapture ceiling as set out in Section 7702(f)(7)(C) or (D)
of the Internal Revenue Code. Also, partial surrender may result in taxable
income to the policyowner to the extent distributions (or deemed distributions)
exceed total investments (generally premiums paid) in the Policy to the date of
surrender. If, however, the Policy is considered a modified endowment contract
under the terms of the Technical and Miscellaneous Revenue Act of 1988, all
distributions under the Policy would be taxed on an "income first" basis. Most
distributions received by a policyowner directly or indirectly (including policy
loans, total or partial surrenders or the assignment or pledge of any portion of
the accumulated value of the Policy) would be includable in gross income to the
extent that the accumulated value of the Policy exceeds the policyowner's
investment in the contract. (See "Tax Status of the Company and the Separate
Account," page 34.) Policyowners are advised to consult with their own tax
advisors regarding tax treatment of the Policies.
DESCRIPTION OF PRINCIPAL MUTUAL LIFE INSURANCE COMPANY (The "Company")
Principal Mutual Life Insurance Company is a mutual life insurance company
with its home office at The Principal Financial Group, Des Moines, Iowa 50392,
telephone number 515-247-5111. It was originally incorporated under the laws of
the State of Iowa in 1879 as Bankers Life Association, changed its name to
Bankers Life Company in 1911 and changed its name to Principal Mutual Life
Insurance Company in 1986. It is a member of The Principal Financial Group, a
diversified family of insurance and financial services corporations.
Principal Mutual Life Insurance Company is authorized to do business in the
50 states of the United States, the District of Columbia, the Commonwealth of
Puerto Rico, and the Canadian Provinces of Alberta, British Columbia, Manitoba,
Ontario and Quebec. The Company offers a full range of products and services for
businesses, groups and individuals including individual insurance, pension plans
and group/employee benefits. The Company has ranked in the upper one percent of
life insurers in assets and premium income and has consistently received
excellent ratings from the major rating firms based upon the Company's claims
paying ability. The Company has $51.3 billion in assets under management and
serves more than 9.3 million individuals and their families.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY VARIABLE LIFE SEPARATE ACCOUNT
The Separate Account was established on November 2, 1987, pursuant to a
resolution of the Executive Committee of the Board of Directors of the Company.
Under Iowa insurance law and regulation the income, gains or losses of the
Separate Account are credited to or charged against the assets of the Separate
Account without regard to the other income, gains or losses of the Company. The
assets of the Separate Account, equal to the reserves and other liabilities
arising under the Policies, are not chargeable with liabilities arising out of
any other business conducted by the Company. In addition, all income, gains or
losses, whether or not realized, and expenses with respect to a Division shall
be credited to or charged against such Division without regard to income, gains
or losses, or expenses of any other Division. The assets of the Separate Account
are held with relation to the Policies described in this Prospectus. The assets
of the Separate Account may also, in the future, be derived from other flexible
premium and scheduled premium variable life insurance contracts. Also, although
the assets maintained in the Separate Account attributable to the Policies will
not be charged with any liabilities arising out of any other business conducted
by the Company, the reverse is not true. Hence, all obligations arising under
Policies, including the promise to make benefit payments, are general corporate
obligations of the Company. The Separate Account is organized as a unit
investment trust under the Investment Company Act of 1940.
The Company is taxed as a life insurance company under the Tax Reform Act
of 1984, as amended. The operations of the Separate Account are part of the
total operations of the Company, but are treated separately for accounting and
financial statement purposes and are considered separately in computing the
Company's tax liability.
The Separate Account is not affected by federal income taxes paid by the
Company with respect to its other operations and, under existing federal income
tax law, investment income and capital gains attributable to the Separate
Account are not taxed. The Company reserves the right to charge the Separate
Account with, and create a reserve for, any tax liability which the Company
determines may result from maintenance of the Separate Account. To the best of
the Company's knowledge there is no current prospect of such liability.
A policyowner directs the Company to allocate premium payments, less
premium expense charges, among the Divisions which invest exclusively in shares
of corresponding mutual funds organized by the Company. These mutual funds also
offer their shares to separate accounts of the Company to fund variable annuity
contracts. See "Eligible Purchasers and Purchase of Shares" in the Funds'
Prospectus for a discussion of the potential risks associated with "mixed
funding." The Balanced Division invests only in shares of Principal Balanced
Fund, Inc., the Bond Division only in shares of Principal Bond Fund, Inc., the
Capital Accumulation Division only in shares of Principal Capital Accumulation
Fund, Inc., the Emerging Growth Division only in shares of Principal Emerging
Growth Fund, Inc., the High Yield Division only in shares of Principal High
Yield Fund, Inc., and the Money Market Division only in shares of Principal
Money Market Fund, Inc.
Principal Balanced Fund, Inc. -- The investment objective of Principal
Balanced Fund, Inc. is to generate a total return consisting of current income
and capital appreciation while assuming reasonable risks in furtherance of the
investment objective. The term "reasonable risks" refers to investment decisions
that in the investment advisor's judgment do not present a greater than normal
risk of loss in light of current or anticipated future market and economic
conditions, trends in yields and interest rates, and fiscal and monetary
policies. In seeking to achieve the investment objective, this Mutual Fund
invests primarily in growth and income-oriented common stocks (including
securities convertible into common stocks), corporate bonds and debentures and
short-term money market instruments. This Mutual Fund may also invest in other
equity securities and debt securities issued or guaranteed by the United States
government and its agencies or instrumentalities. This Mutual Fund seeks to
generate real (inflation plus) growth during favorable investment periods and
may emphasize income and capital preservation strategies during uncertain
investment periods. The Manager will seek to minimize declines in the net asset
value per share. However, there is no guarantee that the Manager will be
successful in achieving this goal. The portions of the Fund's total assets
invested in equity securities, debt securities and short-term money market
instruments are not fixed, although ordinarily 40% to 70% of the Fund's
portfolio will be invested in equity securities with the balance of the
portfolio invested in debt securities. The investment mix will vary from time to
time depending upon the judgment of the Manager as to general market and
economic conditions, trends in investment yields and interest rates and changes
in fiscal or monetary policies.
Principal Bond Fund, Inc. -- The investment objective of Principal Bond
Fund, Inc. is to provide as high a level of income as is consistent with
preservation of capital and prudent investment risk. In seeking to achieve the
investment objective, this Mutual Fund will predominantly invest in marketable
fixed-income debt securities. Investments will be made generally on a long-term
basis, but this Mutual Fund may make short-term investments from time to time as
deemed prudent by the investment advisor. Longer maturities typically provide
better yields but will subject this Mutual Fund to a greater possibility of
substantial changes in the values of its portfolio securities as interest rates
change. The market price of fixed-income securities such as those purchased by
this Mutual Fund is affected by changes in interest rates generally. As interest
rates rise, the market value of fixed-income securities will fall, adversely
affecting the net asset value of this Mutual Fund. The value of fixed-income
securities may also be affected by changes in the credit rating or financial
condition of the issuer.
Principal Capital Accumulation Fund, Inc. -- The principal objective of
Principal Capital Accumulation Fund, Inc. is long-term capital appreciation and
growth of future investment income. The assets of this Mutual Fund consist
principally of a portfolio of common stocks. The value of the investments held
by this Mutual Fund fluctuates daily and is subject to the risks of changing
economic conditions as well as the risks inherent in the ability of this Mutual
Fund's management to anticipate changes in such investments necessary to meet
changes in economic conditions. Historically, the value of a diversified
portfolio of common stocks such as invested in by Principal Capital Accumulation
Fund, Inc., held for an extended period of time, has tended to rise during
periods of inflation. There has, however, been no exact correlation, and for
some periods the values of such common stocks have declined while the cost of
living was rising.
Principal Emerging Growth Fund, Inc. -- The objective of Principal Emerging
Growth Fund, Inc. is to achieve capital appreciation by investing primarily in
the common stocks and securities convertible into common stocks of emerging and
other growth-oriented companies that, in the judgment of the investment advisor,
are responsive to changes within the marketplace and have the fundamental
characteristics to support growth. This Mutual Fund will seek to be relatively
fully invested at all times in equity securities. From time to time, this Mutual
Fund may, for defensive purposes and without limit as to the proportion of
assets invested, hold varying proportions of cash, United States government
securities, nonconvertible securities and straight debt securities.
Principal High Yield Fund, Inc. -- The primary investment objective of
Principal High Yield Fund, Inc. is high current income. Capital growth is a
secondary objective when consistent with the objective of high current income.
This Mutual Fund invests primarily in high yielding (high risk), lower or
non-rated fixed-income securities, commonly known as junk bonds, constituting a
diversified portfolio which the investment advisor believes does not involve
undue risk to income or principal. The market value of this Mutual Fund's
investments will change in response to changes in interest rates and other
factors. Changes by recognized rating agencies in their ratings of any
fixed-income security and in the ability of an issuer to make payments of
interest and principal may also affect the value of these investments. The
Fund's prospectus provides a thorough description of the risks associated with
junk bonds which should be read before allocating premium contributions to the
High Yield Division.
Principal Money Market Fund, Inc. -- Principal Money Market Fund, Inc. has
an investment objective of obtaining maximum current income available from
short-term securities consistent with preservation of principal and maintenance
of liquidity by investing all of its assets in a portfolio of money market
instruments. This Mutual Fund invests in United States dollar denominated
instruments having a maturity of 397 days or less that the Fund's Manager,
subject to the oversight of the Fund's board of directors, determines present
minimal credit risks and which at the time of acquisition are "Eligible
Securities" as that term is defined in regulations issued under the Investment
Company Act of 1940. See the Fund's prospectus for details. The value of the
investments held by this Mutual Fund may fluctuate, although the net asset value
per share is normally expected to remain at $1. However, its yield will vary
with changes in short-term interest rates. Over the last two decades there has
been a general correlation between short-term interest rates and the cost of
living, but there has been no exact correlation and for some periods such rates
have declined while the cost of living was rising.
Policyowners make their own decisions on the allocations to and between the
Divisions, based upon their unique circumstances and perceptions of economic
conditions. Additional information concerning these mutual funds, including
their investment policies and restrictions, investment management fees and
expenses, is given in the prospectuses which accompany this Prospectus. They
should be read in conjunction with this Prospectus.
The investment advisor to the mutual funds is Princor Management
Corporation, which is a wholly-owned subsidiary of Princor Financial Services
Corporation, which is a wholly-owned subsidiary of Principal Financial Group,
Inc., which is a wholly-owned subsidiary of the Company. The current investment
management fee at an annual rate of .50% of the first $100 million of each
fund's average daily net assets and .45% of the next $100 million of each fund's
daily average net assets is charged monthly against Principal Capital
Accumulation Fund, Inc., Principal Money Market Fund, Inc., and Principal Bond
Fund, Inc. The current investment management fee at an annual rate of .60% of
the average daily net asset value is charged monthly against Principal Balanced
Fund, Inc. and Principal High Yield Fund, Inc. The current investment management
fee at an annual rate of .65% of the average daily net asset value is charged
monthly against Principal Emerging Growth Fund, Inc.
PREMIUMS
Purchase Procedures
To apply for a Policy, a completed application, including any required
supplements, must be submitted to the Company through the agent or broker
selling the Policy. If interim coverage is desired, a payment in at least the
required minimum initial premium amount must be submitted with the completed
application. The required minimum initial premium amount for any Policy
(including a Policy issued on an application submitted without an accompanying
payment) is three times the minimum monthly premium shown on the Policy's data
pages. The minimum monthly premium is the amount that, if paid, will keep the
Policy in force for one month, taking into account the Policy's current monthly
deduction and surrender charges. The Company will not issue policies to insure
persons over age 75. Applicants for insurance must furnish satisfactory evidence
of insurability. Acceptance is subject to the Company's insurance underwriting
guidelines and suitability rules and procedures. The Company reserves the right
to reject any application or related premium if in the view of the Company, the
Company's insurance underwriting guidelines and suitability and procedures are
not satisfied. The minimum face amount for a Policy at issue is $25,000. The
Company reserves the right to revise its rules from time to time to specify
either a higher or a lower minimum face amount.
If a payment in at least the required minimum initial premium amount is
submitted with the completed application, then a conditional receipt is given to
the applicant, reflecting receipt of the initial payment and outlining any
interim coverage in effect until the Company either issues or declines to issue
a Policy. Subject to variations by state based on differing state requirements,
the terms of the conditional receipt are described in this paragraph. If all of
the conditions precedent set forth in the conditional receipt are fulfilled
exactly, interim coverage under the conditional receipt will take effect on the
date upon which all initial application requirements have been completed. The
initial application requirements consist of full completion and signing of the
application and all necessary supplements, and any medical exams and tests
required by the Company's published rules. The amount of the interim coverage
is: the lesser of $1,000,000 or the amount applied for, if the proposed insured
is insurable on a standard or more favorable basis; or, the lesser of $100,000
or the amount applied for, if the proposed insured is insurable only on a basis
less favorable than standard. Interim coverage provided under the conditional
receipt ends on the earliest of: (1) 75 days after the date coverage commenced
under the conditional receipt, (2) the date the Company mails the proposed owner
a premium refund and notice that the Company will not consider the application
on a prepaid basis, (3) the date the Company mails the proposed owner a premium
refund and a notice that no Policy will be issued on the application, or (4) the
date a Policy is presented to the proposed owner (whether or not accepted by the
proposed owner).
Pending receipt of approval by the states of California and New York of the
conditional receipt described above, a different conditional receipt will
continue to be used in those states. Under the conditional receipt in use in
those states, interim coverage starts on the later of: (1) the date of
completion of the application and supplements thereto or (2) the date any
required medical exam or other medical tests are completed. However, if all the
conditions of the receipt are met except any required medical exam or test,
insurance is provided under the conditional receipt not to exceed the maximum
amount available based on the Company's underwriting rules without the medical
exam or test. The amount of the interim coverage is: the lesser of $1,000,000 or
the amount applied for, if the proposed insured is insurable at the Company's
Standard rate or at the rate applied for or at a better rate; or, the lesser of
$100,000 or the amount applied for, if the proposed insured is insurable only at
a higher premium rate than the Company's standard premium rate and the premium
rate applied for. Interim coverage provided under the conditional receipt ends
on the earlier of: (1) five days after a nonacceptance notice is mailed by the
Company to the applicant, (2) the day before the policy date when the Policy is
issued as applied for, (3) the date a Policy issued other than as applied for is
presented to the applicant for acceptance, or (4) 75 days after the date
coverage commenced under the conditional receipt.
If the Company determines to issue a Policy and has received the required
minimum initial premium, the Policy will be given a policy date. The policy date
is the date by which both the application and a premium payment in an amount at
least equal to the required minimum initial premium for the Policy have been
received in the home office of the Company. The Company does not date Policies
on the 29th, 30th or 31st day of any month of the year. Policies which would
otherwise be dated on these days except for this rule will be dated on the 28th
day of the month. The policy date is shown on the Policy's data pages.
Payment Of Premiums
Premiums must be paid to the Company at its home office. There is no fixed
schedule of premium payments on a Policy, either as to the amount or timing of
the payments, although a minimum premium is required during the first twelve
policy months (the "Minimum Required Premium"). A policyowner may determine,
within specified limits, the planned periodic premium schedule for the Policy.
These limits will be set forth by the Company and will include a minimum initial
premium payment. Planned periodic premium schedules may provide for annual,
semi-annual, quarterly or monthly withdrawal payments. A "pre-authorized
withdrawal" allows the Company to deduct premiums, on a monthly basis, from the
policyowner's checking or other financial institution account. The policyowner
is not required to pay planned periodic premiums. Failure to make any premium
payment will not necessarily result in termination of a Policy provided that (1)
any Minimum Required Premium is paid and the Policy's net surrender value equals
or exceeds the monthly deduction on the current monthly date or (2) the death
benefit guarantee rider is in effect. Likewise, payment of premiums in
accordance with the planned periodic premium schedule does not guarantee that
the Policy will stay in force if the Policy's net surrender value is not at
least equal to the current monthly deduction on the monthly date, unless such
premiums meet the death benefit guarantee premium requirement.
The Company will send premium reminder notices in accordance with planned
periodic premium schedules. Premium payments may also be made by unscheduled
premium payment made to the Company at its home office or by payroll deduction
where allowed by law and approved by the Company. During the fiscal year ended
December 31, 1995 the Company received premium payments totaling $7,349,359.
Premium Limitations
In no event can the total of all premiums paid exceed the current maximum
premium limitations required by the Internal Revenue Code in order to qualify a
Policy as a life insurance contract. The premium limitations are imposed in
order to assure favorable federal income tax treatment of the Policy and its
death benefit. If at any time a premium is paid which would result in total
premiums exceeding the current maximum premium limitation, the Company will only
accept that portion of the premium which will make total premiums equal the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the maximum premium
limitations specified in the Internal Revenue Code. No premium payment may be
less than $30, except the minimum monthly premium for Policies issued to insure
persons ages 0 to 14 may be no less than $15. Premium payments less than the
minimum amount will be returned to the policyowner.
It is possible a premium payment could increase a Policy's death benefit by
more than it increases the Policy's accumulated value because of the manner in
which the Policy's death benefit is calculated. In order to qualify a Policy as
a life insurance contract under provisions of the Internal Revenue Code, the
death benefit must be at least equal to an applicable percentage of the
accumulated value. This percentage starts at 250% for insureds age 40 and under
and grades down to 100% for insureds age 95. For example, a hypothetical Policy
insuring the life of a 35-year old with an accumulated value of $20,000 must
have a death benefit in at least the amount of $50,000 ($20,000 x 250%, the
applicable percentage). Suppose a premium is paid that, after deduction of the
premium expense charge, increases this hypothetical Policy's accumulated value
by $1,000. The Internal Revenue Code test requires that the death benefit for
the hypothetical Policy be at least $52,500 ($21,000 x 250%). Hence, if the
death benefit before the premium were $50,000, the $1,000 increase in
accumulated value would produce a $2,500 increase in the death benefit of this
hypothetical Policy. In such a situation where a premium payment increases a
Policy's death benefit by more than it increases the Policy's accumulated value,
the Company reserves the right to refund the premium payment. Evidence of
insurability under the Company's current underwriting rules then in effect may
be required before acceptance of any such premium.
Allocation Of Premiums
The initial premium payment, less the premium expense charge, is allocated
to the Money Market Division of the Separate Account on the later of the policy
date or the end of the valuation period during which the first premium is
received. Any additional premiums received at the home office of the Company
during the first 45 days from the policy date, less premium expense charges,
will be allocated to the Money Market Division. On the 46th day from the policy
date, accumulated value held in the Money Market Division is automatically
transferred to the Divisions of the Separate Account in accordance with the
policyowner's direction for allocation of premium payments.
Premium payments received after expiration of the initial 45-day period
described above are allocated among the Divisions in accordance with the
directions in the application for the Policy. For each Division, the allocation
percentage must be zero or a whole number not less than ten. The sum of the
percentages for all the Divisions must equal 100. The policyowner may change the
allocation of future premium payments among the Divisions without payment of any
fee or penalty, at any time, by written request to the Company. Allocation
percentages must be approved by the Company. New allocation percentages, once
approved by the Company, will be effective as of the date written request was
received at the home office of the Company.
Policy "Free Look"
The policyowner has a limited right to return the Policy for cancellation
and receive a refund in an amount equal to the premiums paid. The request to
cancel a Policy must be in writing. The written request and the Policy must be
personally delivered or mailed to the home office of the Company or to the agent
or broker who sold the Policy before the later of:
* 10 days after the Policy is received by the policyowner;
* 10 days after a written notice is delivered to the policyowner which
tells about the cancellation right; or
* 45 days after the policyowner completes the application.
Any increase in face amount will carry its own free look period. If a face
amount increase is cancelled pursuant to this right or if the Company does not
approve a requested face amount increase, the Company will refund to the
policyowner the portion of any premiums paid with the adjustment application and
during this free look for face amount increase period which are attributable to
the increase, unless directed otherwise by the policyowner. The portion of the
premiums paid attributable to the face amount increase is determined by use of
the ratio guideline annual premiums for the increase to guideline annual
premiums for the Policy. The Company will also reverse the amount of any monthly
deduction attributable to the face amount increase and return it to the Policy's
accumulated value, unless the policyowner and the Company agree on another
method of refund.
The refunded amount will ordinarily be disbursed by the Company to the
policyowner within seven days after the request for cancellation is received in
the Company's home office. (See "Postponement of Payments," page 30.)
Policy Termination
An initial minimum premium payment is required to commence coverage under a
Policy. A minimum premium is required during the first twelve policy months (the
"Minimum Required Premium"). A notice of impending termination of a Policy will
be sent if, during the 12 months following the policy date, the sum of the
premiums paid is less than the Minimum Required Premium on a monthly date. The
Minimum Required Premium on a monthly date is equal to (1) times (2) where:
1. Is the minimum monthly premium shown on the data page; and
2. Is one plus the number of completed months since the policy date.
Further, a notice of impending termination of a Policy will be sent if the
net surrender value of the Policy is not at least equal to the monthly deduction
on the current monthly date, and the death benefit guarantee premium requirement
has not been satisfied. (See "Death Benefit Guarantee Rider" page 28.)
The grace period begins when a notice of impending termination is mailed to
a policyowner. The notice will be sent to the last post office address of the
policyowner known to the Company. It will show the minimum payment required to
keep the Policy in force. The notice will also show the 61-day period during
which the Company will accept the required payment.
If the grace period begins because the sum of the premiums paid is less
than the Minimum Required Premium, the minimum payment is the past due Minimum
Required Premium, which is:
1. The Minimum Required Premium due on the next following monthly date.
LESS
2. The sum of the premiums paid since the policy date.
If the grace period ends before receipt by the Company of the past due
Minimum Required Premium, the Company will pay to the policyowner any remaining
value in the Policy which would be the excess of (1) over (2) where:
1. Is the net surrender value on the monthly date at the start of the
grace period; and
2. Is the two monthly deductions applicable during the grace period.
The refunded amount will ordinarily be disbursed by the Company to the
policyowner within seven days after the request for cancellation is received in
the Company's home office. (See "Postponement of Payments," page 30.)
If the grace period begins because the net surrender value is less than the
current monthly deduction, the minimum payment is three times the monthly
deduction which was due and unpaid. This payment is intended to reimburse the
Company for the monthly deductions during the 61-day grace period and provide
sufficient accumulated value to pay the monthly deduction for the first monthly
date following the grace period. There is no guarantee the amount requested at
the beginning of the grace period will be sufficient to actually meet the three
monthly deductions as they are processed. Should the Policy's net surrender
value not at least equal the monthly deduction on any monthly date, a new 61-day
grace period will commence.
The Policy will continue in force through a grace period; but, if the
required payment is not received by the Company during the 61-day period, the
Policy will terminate as of the monthly date on or immediately preceding the
start of the grace period. If the insured dies during a grace period, the policy
proceeds will be reduced by the amount of the monthly deduction or deductions
due and unpaid at the insured's death, as well as by loans and unpaid loan
interest.
A Policy will also terminate if the policyowner makes a total surrender of
the Policy, the death proceeds under the Policy are paid or the maturity
proceeds under the Policy are paid. When a Policy terminates for any reason, all
policy privileges and rights of the policyowner under the Policy end.
Reinstatement
A policyowner may, however, reinstate a Policy which terminated as a result
of insufficient premium payment, subject to certain conditions. A Policy may be
reinstated only prior to the maturity date and while the insured is alive. The
application for reinstatement must be personally delivered or mailed to the
Company at its home office within three years of a Policy's termination. (In
some states, the Company is required by law to provide a longer period of time
within which a Policy may be reinstated.) Satisfactory proof of insurability
based upon the Company's underwriting rules then in effect and payment of a
reinstatement premium of at least the greater of (1) an amount that, after
deduction of premium expense charges, is sufficient to allow at least three
monthly deductions or (2) the past due Minimum Required Premium are required.
Payment of monthly deductions for the period of termination is not required. If
a policy loan or loan interest was unpaid at the time of termination, the
Company will require repayment or reinstatement of the loan and any loan
interest before permitting reinstatement of the Policy. Loan interest will not
be charged for the period the Policy was terminated. Reinstatement will be
effective on the next monthly date following the Company's approval of the
reinstatement application. The policy date of the Policy will remain the
original policy date and will not be changed at reinstatement, although
surrender charges for total surrender following reinstatement will resume at the
rate charged at the time of the Policy's termination, as adjusted for the
payment of past due premiums, if any. Upon reinstatement of a Policy, all the
rights and privileges of the owner are restored.
DEATH BENEFITS AND RIGHTS
Death Proceeds
As long as a Policy remains in force, the Company will, upon proof of the
insured's death, pay the death proceeds under the Policy to the named
beneficiary in accordance with the designated death benefit option. The death
proceeds, determined as of the date of the insured's death, are: the death
benefit described below, plus the proceeds from any benefit rider on the
insured's life, less any loan and loan interest on the Policy, and less any
overdue monthly deductions if the insured died during a grace period. All or
part of the death proceeds may be paid in cash or applied under one or more of
the benefit options available under the Policy. The Company pays interest on the
death proceeds from the date of death until date of payment or until applied
under a benefit option. Interest on death proceeds is at a rate the Company
determines, but not less than required by state law.
Death Benefit
The Policy provides two death benefit options: Option 1 and Option 2. The
policyowner designates the death benefit option in the application. Both Option
1 and Option 2 provide insurance protection combined with the opportunity for
increasing accumulated value. Under Option 1, the amount of death benefit
remains level (until the accumulated value exceeds certain limits). Under Option
2, the total death benefit increases as the accumulated value increases. Thus,
Option 1 emphasizes the growth of accumulated value while Option 2 emphasizes
the total available death benefit.
Option 1
The death benefit is the greater of the Policy's current face amount or
the Policy's accumulated value on the date of death multiplied by the
applicable percentage.
Option 2
The death benefit is the greater of the Policy's current face amount
plus its accumulated value on the date of death or the Policy's
accumulated value on that date multiplied by the applicable percentage.
Applicable Percentage
The Policy provides that the death benefit is at least equal to the amount
of insurance proceeds required by the Internal Revenue Code to qualify the
Policy as a life insurance contract. That death benefit amount is calculated by
multiplying the Policy's accumulated value by an applicable percentage set forth
in the Internal Revenue Code based on the insured's age. The applicable
percentages are:
TABLE OF APPLICABLE PERCENTAGES*
(For ages not shown, the applicable percentages
shall decrease by a pro rata portion for each full year.)
Insured's Attained Age %
---------------------- ---
40 and under 250
45 215
50 185
55 150
60 130
65 120
70 115
75 through 90 105
95 100
*The Company has reserved the right, where allowed by law, to change or delete
the applicable percentages as required by amendments to the Internal Revenue
Code.
Illustration of Option 1. Assume that the insured's attained age at the
time of death is between 20 and 40, that there are no policy loans or loan
interest unpaid at the time of death, and that the face amount of the Policy is
$25,000.
Under Option 1, because the death benefit will be equal to or greater than
250% of the accumulated value under this illustrative Policy, any time the
accumulated value of the Policy exceeds $10,000, the death benefit will exceed
the Policy's $25,000 face amount. Each additional dollar added to accumulated
value above $10,000 will increase the death benefit by $2.50. Similarly, any
time accumulated value exceeds $10,000, each dollar taken out of accumulated
value will reduce the death benefit by $2.50. If, for example, the accumulated
value is reduced from $12,000 to $10,000 because of charges or negative
investment performance, the death benefit will be reduced from $30,000 to
$25,000. If, however, at any time in this illustration 250% of the accumulated
value is less than $25,000 and no partial surrenders have been made, the death
benefit will equal $25,000. A partial surrender causes the face amount to
decrease by the amount of the partial surrender and the transaction charge.
Illustration of Option 2. Assume that the insured's attained age at the
time of death is between 20 and 40, that there are no policy loans or loan
interest unpaid at the time of death, and that the face amount of the Policy is
$25,000.
Under Option 2, a Policy with an accumulated value of $5,000 will have a
death benefit of $30,000 ($25,000 + $5,000); an accumulated value of $15,000
will yield a death benefit of $40,000 ($25,000 + $15,000). The death benefit
under this illustrative Policy, however, must be at least equal to 250% of
accumulated value (accumulated value plus 150% of accumulated value). As a
result, if the accumulated value of the Policy exceeds $16,667, the death
benefit will be greater than the face amount plus accumulated value. Each
additional dollar of accumulated value above $16,667 will increase the death
benefit by $2.50. A contract on a 40-year old insured that has an accumulated
value of $20,000 will provide a death benefit of $50,000 (250% x $20,000).
Similarly, any time accumulated value exceeds $16,667, each dollar taken out of
accumulated value reduces the death benefit by $2.50. If, for example, the
accumulated value is reduced from $20,000 to $17,000 because of partial
surrenders, charges, or negative investment performance, the death benefit will
be reduced from $50,000 to $42,500. If, however, at any time in this
illustration 250% of the accumulated value were less than $25,000 plus
accumulated value, the death benefit would be $25,000 plus the accumulated value
of the Policy.
The Company guarantees that, so long as the Policy remains in force, the
death benefit under either death benefit option will never be less than the
current face amount of the Policy. However, the death proceeds payable may be
less than the death benefit in the event of policy loans, unpaid loan interest
or overdue monthly deductions.
Change in Death Benefit Option
A policyowner may make a written request to change the death benefit option
on or after the first anniversary of a Policy. Only two changes in death benefit
option are allowed per policy year. There are no charges or fees for changing
the death benefit option. Any written request for change in death benefit option
must be approved by the Company. The effective date of any change will be the
monthly date that coincides with or next follows the day the request for change
is approved by the Company. A change in death benefit option will affect future
cost of insurance charges.
If the death benefit option is changed from Option 1 to Option 2, the new
face amount will be the old face amount decreased by the Policy's accumulated
value as determined on the effective date of the change. This change will not be
allowed if it will result in a face amount less than the minimum face amount of
$25,000. Changing from Option 1 to Option 2 may require evidence of insurability
satisfactory to the Company that the insured is insurable for the new death
benefit under its underwriting rules then in effect.
If the death benefit option is changed from Option 2 to Option 1, the new
face amount will be the old face amount increased by the Policy's accumulated
value as determined on the effective date of the change. Changing from Option 2
to Option 1 does not require evidence of insurability.
Adjustment Options
A policyowner may make a written request to increase the face amount of a
Policy at any time, so long as the Policy is not in a grace period or monthly
deductions are not being waived under a rider. A policyowner may make a written
request to decrease the face amount at any time on or after the first Policy
anniversary so long as the Policy is not in a grace period or monthly deductions
are not being waived under a rider. Any written request for adjustment of face
amount must be approved by the Company and is subject to these additional
conditions:
1. Any request for an increase in face amount must be applied for by a
supplemental application, signed by the insured, and shall be subject
to evidence of insurability satisfactory to the Company under its
insurance underwriting guidelines and suitability rules and procedures
then in effect. The minimum increase in face amount is $5,000. The age
of the insured must be 75 or less at the time of the request.
2. A request for a decrease in face amount must be applied for by a
supplemental application, signed by the insured, and may not reduce the
face amount of the Policy below $25,000.
3. Any increase in face amount will be in a risk classification the
Company determines.
4. Any adjustment approved by the Company will become effective on the
monthly date that coincides with or next follows the Company's approval
of the request.
Any increase in face amount will carry its own free look period and
exchange right, which apply only to the increase in face amount, not the entire
Policy. The policyowner has a limited right to cancel the face amount increase.
The request to cancel a face amount increase must be in writing. The written
request and the Policy data pages reflecting the increase must be personally
delivered or mailed to the home office of the Company or to the agent or broker
who sold the face amount increase before the later of:
* 10 days after Policy data pages reflecting the increase are received by
the policyowner;
* 10 days after a written notice is delivered to the policyowner which
tells about the cancellation of face amount increase right; or
* 45 days after the policyowner completes the application for the face
amount increase.
If a face amount increase is cancelled pursuant to this right or if the
Company does not approve a requested face amount increase, the Company will
refund to the policyowner only that portion of premiums paid with the adjustment
application and during the free look period attributable to the face amount
increase, unless directed otherwise by the policyowner. The refundable portion
of premiums paid is determined in the same manner as described in the paragraph
below for determining the portion of the Policy's accumulated value attributable
to the face amount increase. Any amount to be refunded will ordinarily be
disbursed by the Company to the policyowner within seven days after the request
for cancellation of the face amount increase is received in the Company's home
office or the request for face amount is disapproved by the Company. (See
"Postponement of Payments," page 30.) The Company will also reverse the amount
of any monthly deduction attributable to the face amount increase and return it
to the Policy's accumulated value unless the policyowner and the Company agree
on another method of refund.
During the first 24 policy months following issuance of Policy data pages
reflecting an increased face amount, but not while the Policy is in a grace
period, the policyowner may exchange the increased face amount for any other
form of fixed benefit individual life insurance policy (other than term
insurance) currently made available by the Company for this purpose on the
insured's life. On the date of exchange, a portion of the Policy's accumulated
value attributable to the increase will be transferred to the fixed benefit
policy. The portion of the Policy's accumulated value attributable to the
increase in face amount is determined by use of the ratio of guideline annual
premiums for the increase to guideline annual premiums for the Policy,
determined at the adjustment date for the face amount increase.
Premium payments made under the Policy after exercise of this exchange
right will be credited only to the Policy. A new Policy will be issued upon
exercise of the exchange right which will require payment of its own premiums. A
portion of any policy loan and loan interest may be required to be repaid prior
to the exchange or transferred to the new Policy. In all other respects, this
exchange right for face amount increases is the same as that available for the
purchase of the Policy (See "Right to Exchange Policy," page 31.)
POLICY VALUES
Calculation of Accumulated Value
The Policy's accumulated value is equal to the total of its investment
account values and any amounts in the Policy's loan account. An investment
account is established for each Division of the Separate Account, representing
the interest of the Policy for such Division. A Policy's investment account
value for each Division is equal to the number of units in that investment
account multiplied by the Division's unit value.
When an amount is allocated or transferred to a Division, units are
credited to the appropriate investment account. When an amount is deducted or
transferred from a Division, units of the appropriate investment account are
cancelled. The number of units and fractional units credited or cancelled is
equal to the dollar amount of the transaction divided by the unit value of the
Division for the valuation period when the transaction occurs. The unit value of
each Division is determined on each valuation date. The number of units credited
or cancelled will not change because of subsequent changes in unit value. The
dollar value of each Division's units will vary depending upon the investment
performance of the corresponding mutual fund.
Units
On the later of the policy date or the end of the valuation period during
which the first premium is received, the number of units in an investment
account equals: (1) the first net premium allocated to that Division; less (2)
the monthly deduction withdrawn from that Division for the first policy month;
divided by (3) the unit value for that Division on that valuation date. At the
end of each valuation period thereafter, the number of units in an investment
account equals (1) plus (2) plus (3) less (4) less (5) less (6) where:
(1) is units in the investment account on the previous valuation date;
(2) is units credited to the investment account when any additional net
premium is allocated to the Division during the current valuation
period;
(3) is units credited for transfers from another Division or from the loan
account during the current valuation period;
(4) is units cancelled for transfers to another Division, transaction
charges, or transfers to the loan account to secure a policy loan
during the current valuation period;
(5) is units cancelled for partial surrenders and transaction charges
during the current valuation period; and
(6) is units cancelled to pay the monthly deduction from the Division
whenever a valuation period includes a monthly date.
Unit Values
The unit value of each Division's units was initially established at
$10.00. Thereafter, the unit value of a Division on any valuation date is
calculated by multiplying (1) by (2) where:
(1) is the Division's unit value on the previous valuation date; and
(2) is the net investment factor for the current valuation period.
The unit value of each Division's units on any day other than a valuation
date is the unit value as of the next valuation date.
Net Investment Factor
The net investment factor measures the investment performance of each
Division and is used to determine changes in unit value from one valuation
period to the next valuation period. The net investment factor for a valuation
period is equal to:
1. The quotient obtained by dividing:
a. the net asset value of a share of the underlying mutual fund as
of the end of such valuation period, plus the per share amount of
any dividend or other distribution made by that mutual fund
during such valuation period (less any amount charged against the
Division for taxes or any amount set aside during the valuation
period by the Company to provide for taxes attributable to the
operation or maintenance of that Division); by
b. the net asset value of a share of that mutual fund as of the end
of the immediately preceding valuation period;
LESS
2. a current mortality and expense risks charge of .0020548% on a daily
basis (.75% on an annual basis) for the number of days within such
valuation period. The mortality and expense risks charge is guaranteed
not to exceed .0024658% on a daily basis (.90% on an annual basis).
The amount of any taxes charged against a Division or set aside and the
amount derived from the mortality and expense risks charge will be accrued daily
and will be transferred from the Separate Account to the general account of the
Company at the discretion of the Company.
Valuations in Connection with a Policy
All valuations in connection with a Policy, i.e., determining units to be
credited or cancelled with respect to investment accounts, determining net
surrender value, and calculation of the death benefit on the insured's death,
will be made on the date of the transaction or on the date of the insured's
death, if applicable, if such date is a valuation date. Otherwise, such
determination will be made on the next succeeding day which is a valuation date
for the Policy.
Transfers
Accumulated value may be transferred among the Divisions. The total amount
transferred each time must be at least $250 unless a lesser amount constitutes
the Policy's entire accumulated value in a Division. The effective date of a
transfer is the date the request is received at the home office of the Company.
All transfers with the same effective date count as one transfer. Four transfers
may be made in any one year without charge to the policyowner. Thereafter, a
transaction charge of $25 is imposed to cover administrative costs for each
transfer. The transaction charge is deducted on a prorated basis from the
Divisions from which accumulated value is transferred, unless the policyowner
directs the Company to deduct the transaction charge from only one Division. The
transaction charge is deducted from the affected Divisions before accumulated
value held in those Divisions is transferred. If the transfer of a Policy's
entire accumulated value in a Division is requested, the amount transferred will
be the Policy's accumulated value in the Division, less any transaction charge.
Policy Loans
So long as a Policy remains in effect and the Policy has loan value, a
policyowner may borrow money from the Company using the Policy as the only
security for the loan. A Policy's loan value, which is the maximum amount that
may be borrowed, is (1) minus (2) where: (1) is 90% of the Policy's surrender
value and (2) is any outstanding policy loans and unpaid loan interest. The loan
value is determined as of the loan date. The loan date is the date a loan
request is processed at the home office of the Company.
The minimum amount of any policy loan is $500. Proceeds of policy loans
ordinarily will be disbursed within seven days from the date of receipt of a
written request at the Company's home office. (See "Postponement of Payments,"
page 30.)
When a policy loan is made, a portion of the Policy's accumulated value
equal to the amount of the loan is transferred to the loan account from the
Divisions in the proportion requested by the policyowner. If no request for
allocation of the loaned amount is made by the policyowner, the loan amount will
be withdrawn from the Divisions in the same proportion as was the most recent
monthly deduction. Any loan interest that is due and unpaid will be transferred
in the same manner. Accumulated value in the loan account will accrue interest
daily at an effective annual rate of six percent. Such interest will be
transferred to the Separate Account and allocated on the policy anniversary to
the Divisions in the proportion currently designated by a policyowner for the
allocation of premium payments. A Policy's loan account is part of the Company's
general account.
The Company charges interest on policy loans. Interest accrues daily at an
effective annual rate of eight percent. Interest is due and payable at the end
of the policy year. Any interest not paid when due is added to the loan
principal and bears interest at the rate of eight percent. Adding unpaid
interest to the loan principal will cause additional amounts to be withdrawn
from the Divisions in the same manner as described above for loans. Amounts
withdrawn from the Divisions for unpaid loan interest will be transferred to the
loan account.
Unpaid policy loans and loan interest reduce the Policy's net surrender
value and may cause it to be less than the monthly deduction on a monthly date.
If on any monthly date the net surrender value is not sufficient to pay the
monthly deduction, the 61-day grace period provision will apply. (See "Policy
Termination," page 14.)
So long as a Policy remains in force, policy loans and loan interest may be
repaid in whole or in part at any time during the insured's life. The minimum
loan repayment amount is $30. If the policyowner does not designate a payment as
a premium payment or if the Company cannot identify it as a premium payment, the
Company will apply the payment received as a loan repayment. Accumulated value
in the loan account equal to the loan repayment will be transferred to the
Divisions in the proportion currently designated by a policyowner for the
allocation of premium payments. Any policy loan, whether repaid or not, is
likely to have a permanent effect on the Policy's accumulated value. Accumulated
value held in the Policy's loan account will earn interest at an effective
annual fixed rate of six percent. If the policy loan had not been made, that
accumulated value would have reflected the investment experience of the chosen
Division or Divisions. Any policy loans and loan interest are subtracted from
life insurance proceeds payable at the insured's death, from surrender value
upon total surrender or termination of a Policy when a grace period expires
without sufficient premium payment, and from accumulated value payable at
maturity.
Surrender
A Policy has a surrender value and a net surrender value. The surrender
value of a Policy is its accumulated value less the surrender charge. The net
surrender value of a Policy is its surrender value less any loans and loan
interest.
So long as the Policy is in effect, a policyowner may elect to surrender
the Policy and receive its net surrender value as of the date the Company
receives the policyowner's written request at its home office. After the first
policy anniversary and so long as a Policy is in effect, a policyowner may
request a partial surrender of the accumulated value of the Policy, but no more
than two times per policy year. The minimum amount of a partial surrender is
$500 and the maximum amount of any one partial surrender is 50% of the Policy's
net surrender value at the time written request for partial surrender is
received at the Company's home office. A transaction charge of the lesser of $25
or two percent of the amount surrendered is imposed on each partial surrender,
which is intended to cover the administrative costs of processing the partial
surrender. There is no surrender charge assessed upon a partial surrender. The
Policy's accumulated value reduces by the amount of the partial surrender plus
the amount of the transaction charge. If the Option 1 death benefit is in effect
at the time of a partial surrender, then the Policy's face amount also reduces
by the amount of the partial surrender and the transaction charge.
A policyowner may designate the amount of the partial surrender to be
withdrawn from each of the Divisions. If no designation is made, the amount of
the partial surrender will be withdrawn from the Divisions in the same
proportion as the most recent monthly deduction. The transaction charge is
deducted on a prorated basis from the Divisions from which accumulated value is
surrendered unless the policyowner directs the Company to deduct the transaction
charge from only one Division.
A surrender charge is imposed upon total surrender of a Policy which occurs
at any time within the first ten years after the policy date. In addition, if
total surrender of a Policy occurs at any time within the first ten years after
the adjustment date of a face amount increase, a surrender charge attributable
to the face amount increase will be imposed. (See "Surrender Charge," page 22.)
Proceeds from partial or total surrender of a Policy will ordinarily be
disbursed within seven days from the date of receipt of a written request at the
Company's home office. (See "Postponement of Payments," page 30.)
CHARGES AND DEDUCTIONS
The Company will make certain charges and deductions to support the
operation of the Policy and the Separate Account. Some charges will be deducted
from premium payments as received, some charges will be deducted from the
Policy's accumulated value on a monthly basis, some charges will be deducted on
a daily basis from the value of the Separate Account, and other charges will be
deducted from the Policy's accumulated value upon total surrender or termination
of a Policy. In addition, there are fees for the administrative costs involved
in processing certain transfers and all partial surrenders of accumulated value.
Premium Expense Charge
Upon receipt of each premium payment, the Company deducts a premium expense
charge. The premium expense charge includes a 5% of premium sales load and a
premium tax charge of 2%. For the period ended December 31, 1995, the Company
collected $367,468 in premium expense charges and $146,987 in premium tax
charges. In addition, a sales load of up to a maximum of 25% of the minimum
first year premium may be imposed as a part of a surrender charge upon total
surrender or termination of a Policy for insufficient value. Sales loads,
including the sales load portion of the surrender charge more fully described
below, are intended to compensate the Company for distribution expenses
including registered representatives' commissions, the printing of prospectuses
and sales literature, and advertising. The sales loads imposed in any policy
year are not necessarily related to actual distribution expenses incurred in
that year. Instead, the Company expects to incur the majority of distribution
expenses in the early years of a Policy and to recover any deficiency over the
life of a Policy. To the extent distribution expenses exceed sales loads
(including the sales load portion of surrender charges, if any) in any year, the
Company will pay them from its other assets or surplus in its general account,
which includes amounts derived from mortality and expense risks charges and from
mortality gains.
The premium tax charge portion of the premium expense charge is deducted to
cover premium taxes imposed against the Company by governmental entities. The
premium tax charge, which cannot be changed, is not expected to exceed the
premium taxes charged to the Company.
No reduction in the charge is made to reflect the fact that in some states
the Company may pay state income taxes in lieu of a portion of the premium tax
liability for that state.
Monthly Deduction
On each monthly date, the Company will deduct from the accumulated value of
a Policy an amount to cover certain charges and expenses incurred in connection
with the Policy. The monthly deduction consists of a monthly administration
charge, a charge for the cost of insurance and a charge for any optional
benefits added by rider. During the period ended December 31, 1995
administrative and cost of insurance charges totaled $1,539,242.
The current monthly administration charge for a Policy is $4.75 per month
and is guaranteed never to exceed $5.00 per month. The Policy also provides for
a contingent deferred administration charge which is a part of the surrender
charge imposed upon total surrender or termination of a Policy when a grace
period expires without sufficient premium payment. The monthly administration
charge and the deferred administration charge reimburse the Company for the
recurring administrative expenses related to the Policy and the Separate
Account. These expenses are expenses other than sales expenses and include, for
example, the cost of processing applications, conducting medical examinations,
determining insurability, establishing policy records, premium reminders and
collection, record keeping, processing death benefit claims and policy changes,
reporting, and overhead costs. The Company does not expect to recover from the
administration charges any amount above its accumulated expenses associated with
the Policies and the Separate Account.
The monthly cost of insurance charge is calculated as (1) multiplied by the
result of (2) minus (3) where:
(1) is the cost of insurance rate as described below divided by 1,000;
(2) is the death benefit at the beginning of the policy month; and
(3) is the accumulated value at the beginning of the policy month.
The cost of insurance rate is based on the sex, attained age and risk
classification of the insured under the Policy. (For Policies issued in states
which require unisex pricing or in connection with employment related insurance
and benefit plans, the cost of insurance is not based on the sex of the
insured.) The rate will be determined by the Company based upon its expectations
as to future mortality experience, but the rate will never exceed the rate shown
in the Table of Monthly Guaranteed Cost of Insurance Rates set forth in the
Policy. These guaranteed maximum rates are based on the 1980 Smoker and
Nonsmoker Commissioners Standard Ordinary Mortality Tables. The table used will
be male or female according to the sex of the insured (where allowed by law).
Any change in current cost of insurance rates will apply to all individuals of
the same age, sex and risk classification of the insured. However, different
maximum cost of insurance rates may apply to any face amount increases under a
Policy.
The monthly deduction is made only from the Policy's accumulated value held
in the Divisions of the Separate Account. No deduction is made from any
accumulated value of the Policy held in the Company's general account for the
purpose of securing policy loans. The amount deducted from each Division will be
in accordance with policyowner instruction on the application for the Policy.
The policyowner's choice of monthly deduction allocation percentages may be: (1)
the same as the allocation percentages for premiums, (2) on a prorated basis or
(3) any other method of allocation agreed upon by the policyowner and the
Company. For each Division, the allocation percentages must be zero or a whole
number not less than ten nor greater than 100. The allocation percentages chosen
by the policyowner must total 100. Requests for changes in allocation
percentages are effective on the next monthly date following approval by the
Company. If following the policyowner's instruction as to allocation of monthly
deductions would not be possible on any monthly date due to insufficient
accumulated value of the Policy in an affected Division, deductions will be
allocated on a prorated basis.
Mortality and Expense Risks Charge
The Company will assess a charge on a daily basis against each Division
equal to .75% (on an annual basis) of the value of the Division to compensate
the Company for its assumption of certain mortality and expense risks in
connection with the Policy. Specifically, the Company bears the risk that the
costs of death benefits under the Policies will be greater than anticipated. The
Company also assumes the risk that the actual cost incurred by it to administer
the Policies will not be covered by charges assessed under the Policies. This
charge is guaranteed never to exceed .90% on an annual basis of the assets of
each Division. During the period ended December 31, 1995 mortality and expense
risk charges totaled $95,590.
Transaction Charge
A transaction charge of the lesser of $25 or 2% of the amount being
surrendered is imposed on each partial surrender of accumulated value. A
transaction charge of $25 is imposed on each transfer of accumulated value among
Divisions exceeding four per policy year. All transfers with the same effective
date count as one transfer.
Surrender Charge
During the first ten policy years, the Company will assess a surrender
charge upon total surrender of a Policy or termination of a Policy when a grace
period expires without sufficient premium payment. The amount of the charge
assessed per $1,000 of face amount depends upon the sex (where allowed by law)
and attained age of the insured on the policy date and how long the Policy has
been in force, but will not exceed 25% of the minimum first year premium. In
addition, the Company will assess a surrender charge upon surrender or
termination of a Policy for insufficient premium payment which occurs during the
first ten policy years after the adjustment date for a face amount increase. The
amount of the surrender charge assessed per $1,000 of net increase in face
amount depends upon the sex (where allowed by law) and attained age of the
insured on the adjustment date and how long the increase has been in force. (For
Policies issued in states requiring unisex pricing or in connection with
employment related insurance and benefit plans, the surrender charge is not
based on the sex of the insured.) Thus, surrender of a Policy or termination of
a Policy for insufficient value within the first ten policy years and within ten
years after the adjustment date of a face amount increase will result in
assessment of a composite surrender charge representing the charge imposed on
the initial face amount and the charge imposed on the face amount increase. The
surrender charge builds up on a monthly basis during the first policy year (and
during the first year after a face amount increase), remains level to the end of
the third policy year (and to the end of the third year after a face amount
increase) and grades down gradually each year thereafter to zero in the tenth
policy year (and in the tenth year after a face amount increase). Surrender
charges do not decrease when the face amount of a Policy is decreased. No
additional surrender charges apply when the death benefit under a Policy is
changed from Option 2 to Option 1.
The surrender charge is comprised of two parts: A contingent deferred sales
charge and a contingent deferred administration charge. The contingent deferred
sales charge portion of the surrender charge is assessed to recover sales
expenses and is in addition to the 5% sales charge which is deducted when
premium payments are made.
The contingent deferred administration charge portion of the surrender
charge is intended to reimburse the Company for administrative expenses
associated with the Policy and the Separate Account and is in addition to the
monthly administration charge for a Policy. The surrender charge is a contingent
charge and will never be assessed if total surrender of a Policy or termination
of a Policy for insufficient value does not occur within the first ten policy
years or within ten years of the adjustment date for a face amount increase.
During the period ended December 31, 1995 the Company received surrender
charges totaling $66,485.
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR CONTINGENT DEFERRED SURRENDER CHARGES
per $1000 of Face Amount
Male Lives
Issue Adm. Sales Total Issue Adm. Sales Total
Age Charge Load Charge Age Charge Load Charge
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.43 0.89 1.32 40 2.31 1.71 4.02
1 0.69 0.63 1.32 41 2.38 1.81 4.19
2 0.72 0.62 1.34 42 2.47 1.91 4.38
3 0.74 0.62 1.36 43 2.56 2.02 4.58
4 0.77 0.62 1.39 44 2.65 2.14 4.79
5 0.80 0.61 1.41 45 2.74 2.27 5.01
6 0.84 0.60 1.44 46 2.86 2.39 5.25
7 0.87 0.60 1.47 47 3.00 2.50 5.50
8 0.91 0.60 1.51 48 3.14 2.63 5.77
9 0.93 0.61 1.54 49 3.30 2.76 6.06
10 0.96 0.62 1.58 50 3.46 2.90 6.36
11 0.97 0.65 1.62 51 3.63 3.06 6.69
12 0.97 0.69 1.66 52 3.81 3.23 7.04
13 0.96 0.74 1.70 53 4.01 3.40 7.41
14 0.95 0.80 1.75 54 4.22 3.58 7.80
15 0.93 0.86 1.79 55 4.44 3.78 8.22
16 0.92 0.91 1.83 56 4.69 3.98 8.67
17 0.91 0.96 1.87 57 4.97 4.18 9.15
18 0.92 1.00 1.92 58 5.26 4.40 9.66
19 0.93 1.03 1.96 59 5.55 4.66 10.21
20 1.02 0.99 2.01 60 5.82 4.98 10.80
21 1.07 0.99 2.06 61 6.05 5.37 11.42
22 1.11 1.00 2.11 62 6.27 5.83 12.10
23 1.16 1.01 2.17 63 6.48 6.34 12.82
24 1.22 1.01 2.23 64 6.70 6.89 13.59
25 1.28 1.02 2.30 65 6.95 7.47 14.42
26 1.34 1.03 2.37 66 7.24 8.07 15.31
27 1.41 1.04 2.45 67 7.55 8.71 16.26
28 1.47 1.06 2.53 68 7.88 9.40 17.28
29 1.53 1.09 2.62 69 8.22 10.16 18.38
30 1.60 1.11 2.71 70 8.59 10.98 19.57
31 1.66 1.15 2.81 71 8.98 11.87 20.85
32 1.73 1.19 2.92 72 9.41 12.83 22.24
33 1.80 1.23 3.03 73 9.83 13.88 23.71
34 1.87 1.28 3.15 74 10.23 15.06 25.29
35 1.93 1.34 3.27 75 10.58 16.38 26.96
36 2.01 1.40 3.41
37 2.08 1.47 3.55
38 2.15 1.54 3.69
39 2.23 1.62 3.85
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR CONTINGENT DEFERRED SURRENDER CHARGES
per $1000 of Face Amount
Female Lives
Issue Adm. Sales Total Issue Adm. Sales Total
Age Charge Load Charge Age Charge Load Charge
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.44 0.76 1.20 40 1.97 1.52 3.49
1 0.66 0.54 1.20 41 2.03 1.60 3.63
2 0.68 0.54 1.22 42 2.09 1.69 3.78
3 0.70 0.54 1.24 43 2.15 1.78 3.93
4 0.72 0.54 1.26 44 2.23 1.87 4.10
5 0.74 0.54 1.28 45 2.30 1.98 4.28
6 0.77 0.54 1.31 46 2.40 2.06 4.46
7 0.79 0.54 1.33 47 2.51 2.15 4.66
8 0.82 0.54 1.36 48 2.63 2.23 4.86
9 0.84 0.54 1.38 49 2.74 2.34 5.08
10 0.85 0.56 1.41 50 2.87 2.44 5.31
11 0.88 0.57 1.45 51 3.00 2.56 5.56
12 0.89 0.59 1.48 52 3.15 2.67 5.82
13 0.90 0.61 1.51 53 3.32 2.78 6.10
14 0.92 0.63 1.55 54 3.50 2.90 6.40
15 0.93 0.66 1.59 55 3.67 3.04 6.71
16 0.94 0.68 1.62 56 3.88 3.17 7.05
17 0.96 0.70 1.66 57 4.10 3.30 7.40
18 0.99 0.72 1.71 58 4.33 3.46 7.79
19 1.01 0.74 1.75 59 4.62 3.58 8.20
20 1.05 0.75 1.80 60 4.90 3.74 8.64
21 1.07 0.77 1.84 61 5.16 3.97 9.13
22 1.11 0.78 1.89 62 5.41 4.23 9.64
23 1.15 0.80 1.95 63 5.64 4.56 10.20
24 1.18 0.82 2.00 64 5.86 4.94 10.80
25 1.22 0.84 2.06 65 6.11 5.32 11.43
26 1.26 0.87 2.13 66 6.39 5.73 12.12
27 1.30 0.90 2.20 67 6.70 6.16 12.86
28 1.35 0.92 2.27 68 7.06 6.61 13.67
29 1.39 0.95 2.34 69 7.47 7.07 14.54
30 1.44 0.98 2.42 70 7.97 7.53 15.50
31 1.49 1.01 2.50 71 8.45 8.10 16.55
32 1.54 1.05 2.59 72 8.93 8.77 17.70
33 1.59 1.09 2.68 73 9.44 9.50 18.94
34 1.65 1.13 2.78 74 9.94 10.35 20.29
35 1.71 1.17 2.88 75 10.33 11.42 21.75
36 1.76 1.23 2.99
37 1.81 1.30 3.11
38 1.87 1.36 3.23
39 1.92 1.44 3.36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST YEAR CONTINGENT DEFERRED SURRENDER CHARGES
per $1000 of Face Amount
Unisex Lives
Issue Adm. Sales Total Issue Adm. Sales Total
Age Charge Load Charge Age Charge Load Charge
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.43 0.87 1.30 40 2.26 1.69 3.95
1 0.69 0.61 1.30 41 2.34 1.78 4.12
2 0.72 0.60 1.32 42 2.42 1.88 4.30
3 0.74 0.60 1.34 43 2.51 1.99 4.50
4 0.77 0.60 1.37 44 2.60 2.10 4.70
5 0.79 0.60 1.39 45 2.69 2.23 4.92
6 0.83 0.59 1.42 46 2.80 2.35 5.15
7 0.86 0.59 1.45 47 2.93 2.46 5.39
8 0.90 0.59 1.49 48 3.07 2.58 5.65
9 0.92 0.60 1.52 49 3.22 2.71 5.93
10 0.95 0.61 1.56 50 3.38 2.84 6.22
11 0.96 0.64 1.60 51 3.55 2.99 6.54
12 0.97 0.67 1.64 52 3.73 3.15 6.88
13 0.96 0.72 1.68 53 3.92 3.32 7.24
14 0.95 0.77 1.72 54 4.12 3.50 7.62
15 0.94 0.82 1.76 55 4.33 3.69 8.02
16 0.93 0.87 1.80 56 4.58 3.88 8.46
17 0.93 0.91 1.84 57 4.85 4.07 8.92
18 0.94 0.95 1.89 58 5.14 4.28 9.42
19 0.96 0.97 1.93 59 5.43 4.52 9.95
20 1.04 0.94 1.98 60 5.70 4.82 10.52
21 1.08 0.95 2.03 61 5.93 5.19 11.12
22 1.12 0.96 2.08 62 6.16 5.62 11.78
23 1.17 0.97 2.14 63 6.37 6.11 12.48
24 1.22 0.98 2.20 64 6.59 6.64 13.23
25 1.28 0.99 2.27 65 6.84 7.19 14.03
26 1.34 1.00 2.34 66 7.13 7.77 14.90
27 1.40 1.02 2.42 67 7.44 8.38 15.82
28 1.46 1.04 2.50 68 7.77 9.04 16.81
29 1.52 1.06 2.58 69 8.13 9.75 17.88
30 1.58 1.09 2.67 70 8.51 10.53 19.04
31 1.64 1.13 2.77 71 8.91 11.38 20.29
32 1.71 1.17 2.88 72 9.34 12.31 21.65
33 1.77 1.21 2.98 73 9.78 13.31 23.09
34 1.84 1.26 3.10 74 10.20 14.44 24.64
35 1.91 1.31 3.22 75 10.55 15.73 26.28
36 1.98 1.38 3.36
37 2.05 1.44 3.49
38 2.11 1.52 3.63
39 2.19 1.60 3.79
</TABLE>
<PAGE>
The percentage of the first year surrender charges shown above remaining in
each policy year thereafter is:
Policy Year Percentage of First Year
Surrender Charges Remaining
2 100.0%
3 100.0%
4 87.5%
5 75.0%
6 62.5%
7 50.0%
8 37.5%
9 25.0%
10 12.5%
11+ 0.0%
If the face amount of a Policy is increased, surrender charges apply to the
net increase in face amount as though a new Policy had been issued for an amount
equal to net increase, based on the tables set out above. The net increase in
face amount is equal to the increase in face amount less earlier decreases in
face amount not offset against an earlier increase in face amount. The Minimum
Required Premium following a requested face amount increase will be shown on the
Policy data pages issued to reflect the adjustment.
Surrender charges following a Policy's reinstatement commence at the rate
in effect at the time of the Policy's termination.
Other Charges
Shares of the mutual funds are purchased by the corresponding Divisions at
the shares' net asset values. The net asset value of mutual fund shares reflects
the investment management fees and corporate operating expenses already deducted
from the assets of the mutual funds. The current investment management fee at an
annual rate of .50% of the first $100 million of each fund's average daily net
assets and .45% of the next $100 million of each fund's daily average net assets
is charged monthly against Principal Capital Accumulation Fund, Inc., Principal
Money Market Fund, Inc., and Principal Bond Fund, Inc. The current investment
management fee at an annual rate of .60% of the average daily net asset value is
charged monthly against Principal Balanced Fund, Inc. and Principal High Yield
Fund, Inc. The current investment management fee at an annual rate of .65% of
the average daily net asset value is charged monthly against Principal Emerging
Growth Fund, Inc.
The Company reserves the right to charge the assets of each Division of the
Separate Account to provide for any income taxes payable by the Company on the
assets of such Divisions.
Special Plans
Where allowed by law, the Company may reduce or eliminate certain charges
for Policies issued under special circumstances that result in lower expenses to
the Company. For example, special circumstances may exist in connection with
group arrangements, including employer or employee organization sponsored plans,
and with regard to Policies issued to persons owning other policies issued by
the Company or its subsidiaries. The amount of any reduction, the charges to be
reduced, and the criteria for applying a reduction will reflect the reduced
sales effort, costs and differing mortality experience appropriate to the
circumstances giving rise to the reduction. The charges will be reduced in
accordance with the Company's practice in effect when the Policy is issued.
Reductions will not be unfairly discriminatory against any person, including the
purchasers to whom the reduction applies and all other owners of the Policies.
OTHER MATTERS
Voting Rights
The Company shall vote mutual fund shares held in the Separate Account at
regular and special meetings of shareholders of each mutual fund, but will
follow voting instructions received from persons having the voting interest in
such mutual fund shares.
The policyowner has the voting interest under a Policy. The policyowner
shall have one vote for each $100 of accumulated value in the Divisions, with
fractional votes allocated for amounts less than $100. The number of votes on
which the policyowner has the right to instruct will be determined as of the
date coincident with the date established by the mutual fund for determining
shareholders eligible to vote at the meeting of the mutual fund. Voting
instructions will be solicited by written communications prior to such meetings
in accordance with procedures established by the mutual fund. The Company will
vote other mutual fund shares held in the Separate Account, including those for
which no instructions are received in the same proportion as it votes shares for
which it has received instructions. All mutual fund shares held in the general
account of the Company will be voted in proportion to instructions that are
received with respect to participating contracts.
If the Company determines pursuant to applicable law that mutual fund
shares held in the Separate Account need not be voted pursuant to instructions
received from persons otherwise having the voting interest as provided above,
then the Company may vote mutual fund shares held in the Separate Account in its
own right.
The Company may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that shares be voted
so as to cause a change in subclassification or investment objective of the
mutual fund, or disapprove an investment advisory contract of the mutual fund.
In addition, the Company may disregard voting instructions in favor of changes
initiated by a policyowner in the investment policy or the investment advisor of
the mutual fund if the Company reasonably disapproves of such changes. A change
would be disapproved only if the proposed change is contrary to state law or
prohibited by state regulatory authorities or the Company determines that the
change would be inconsistent with the investment objectives of the mutual fund
or would result in the purchase of securities for the mutual fund which vary
from the general quality and nature of investments and investment techniques
utilized by other separate accounts created by the Company or any affiliates of
the Company which have similar investment objectives. In the event that the
Company does disregard voting instructions, a summary of that action and the
reason for such actions will be included in the next semi-annual report to
policyowners.
Statement of Value
The Company will mail an annual statement to the policyowner after the end
of each policy year until the policy terminates. The statement will show:
1. the current death benefit;
2. the current accumulated and surrender values;
3. all premiums paid since the last statement;
4. all charges since the last statement;
5. any policy loans and loan interest;
6. any partial surrenders since the last statement;
7. the number of units and unit value;
8. the total value of each of the policyowner's investment accounts; and
9. any investment gain or loss since the last statement.
Any policyowner may request at any time a current statement of account
values, transactions and activities by telephoning 1-800-852-4450.
The Company will also send to the policyowner the reports required by the
Investment Company Act of 1940.
Service Available by Telephone
Policyowners may preauthorize the following telephone transactions: 1)
transfers between divisions; 2) change in premium allocation percentages; 3)
change in monthly deduction percentages; and 4) policy loans (Policy loan
proceeds will be mailed only to the policyowner's address of record.) The
policyowner may preauthorize the above transactions by submitting a form
provided by the Company. Policyowners may exercise the telephone transactions
privilege by telephoning 1-800-852-4450. Telephone transfer requests must be
received by the close of the New York Stock Exchange on a day when the Separate
Account is open for business to be effective that day. Requests made after that
time or on a day when the Separate Account is not open for business will be
effective the next business day.
Although neither the Separate Account nor the Company is responsible for
the authenticity of telephone transaction requests, the right is reserved to
refuse to accept telephone requests when in the opinion of the Company it seems
prudent to do so. The policyowner bears the risk of loss caused by fraudulent
telephone instructions the Company reasonably believes to be genuine. The
Company will employ reasonable procedures to assure telephone instructions are
genuine and if such procedures are not followed, the Company may be liable for
losses due to unauthorized or fraudulent transactions. Such identification
information such as the caller's name, daytime telephone number, social security
number and/or birthdate and sending a written confirmation of the transaction to
the policyowner's address of record. Policyowners may obtain additional
information and assistance by telephoning the toll free number.The Company may
modify or terminate telephone transfer procedures at any time.
GENERAL PROVISIONS
Addition, Deletion or Substitution of Investments
The Company reserves the right, subject to compliance with applicable law,
to make additions to, deletions from, or substitutions for the shares held by
any Division or which any Division may purchase. If shares of any mutual fund
should no longer be available for investment or if, in the judgment of the
Company's management, further investment in shares of any mutual fund should
become inappropriate in view of the purposes of the Policy, the Company may
substitute shares of any other investment company for shares already purchased,
or to be purchased in the near future under the Policies. No substitution of
securities will take place without notice to policyowners and without prior
approval of the Securities and Exchange Commission, to the extent required by
the Investment Company Act of 1940.
The investment policy of the Separate Account will not be materially
changed unless a statement of the change is filed with and not disapproved by
the Insurance Commissioner of the State of Iowa and the Superintendent of
Insurance of the State of New York, if required. Whether a change in investment
policy is material will be determined in conjunction with the appropriate state
insurance commissioner(s). The policyowner will be notified of any material
investment policy change. The policyowner may then change allocation percentages
and transfer any value in an affected Division to another Division without
charge. In the alternative, the policyowner may exchange the Policy for a
fixed-benefit, flexible premium life insurance policy offered by the Company for
this purpose. The policyowner may exercise this exchange privilege until the
later of 60 days after (i) the effective date of such change, or (ii) the
receipt of a notice of the options available. The face amount of the new policy
will be the death benefit of the Policy on the date of exchange.
Each mutual fund is subject to certain investment restrictions which may
not be changed without the approval of the majority of the outstanding voting
securities of such fund. See the accompanying prospectuses for the mutual funds.
Optional Insurance Benefits
Subject to certain requirements and approval by state insurance
departments, one or more supplementary benefits may be added to a Policy,
including those providing term insurance options, providing accidental death
coverage, waiving monthly deductions upon disability, accelerating benefits in
the event of terminal illness, providing cost of living increases in benefits,
providing a death benefit guarantee described below, providing a guaranteed
increase option and, in the case of business-owned Policies, permitting a change
of the life insured and providing enhanced policy values in the early years of a
Policy. More detailed information concerning supplementary benefits may be
obtained from an authorized agent of the Company. The cost, if any, of any
optional insurance benefits will be deducted as part of the monthly deduction.
Death Benefit Guarantee Rider
The death benefit guarantee rider provides that if the death benefit
guarantee premium requirement is satisfied the Policy will not enter its grace
period even if the net surrender value is insufficient to cover the monthly
deduction on a monthly date. This rider is automatically made a part of all
Policies at no premium. The death benefit guarantee premium requirement is
satisfied if the sum of all premiums paid less any partial surrenders and any
policy loans and unpaid loan interest equals or exceeds the sum of the monthly
death benefit guarantee premiums applicable to date plus the next monthly death
benefit guarantee premium. The death benefit guarantee premium is based on the
issue age, sex (where permitted by law), death benefit option, and risk class of
the insured. The monthly death benefit guarantee premium will be considered to
be zero for any month that deductions are being paid by the Waiver of Monthly
Deductions Rider. The death benefit guarantee premium may change if the Policy
face amount is changed, the death benefit option is changed, or a rider is added
or deleted. As a result of a change, an additional premium may be required on
the date of the change in order to satisfy the new death benefit guarantee
premium requirement. If on any monthly date the death benefit guarantee premium
requirement is not met, the policyowner will be sent a notice of the premium
required to maintain the guarantee. If the premium is not received at the
Company's home office prior to the expiration of 61 days after the date the
notice is mailed, the death benefit guarantee will no longer be in effect and
the rider will terminate. If the rider terminates, it may not be reinstated.
If this rider is in force, the death benefit guarantee premium requirement
is satisfied and the insured is alive on the policy maturity date, the Company
will pay the policyowner the excess, if any, of the face amount over the
maturity proceeds.
This rider is available only in those states where it has been approved.
The Contract
The Policy, the application attached to it, any adjustment applications,
any amendments to the application, the current data pages, and any written
notification showing change make up the entire contract between the Company and
the policyowner. Any statements made in the application or an adjustment
application will be considered representations and not warranties. No statement,
unless made in an application, will be used to void a Policy (or void an
adjustment in case of an adjustment application) or to defend against a claim. A
Policy may be modified by mutual agreement between the policyowner and the
Company. Any alteration of the Policy must be in writing and signed by one of
the Company's corporate officers. No one else, including the agent, may change
the contract or waive any provisions.
Incontestability
The Company will not contest the insurance coverage provided under a
Policy, except for any subsequent increase in face amount, after the Policy has
been in force during the lifetime of the insured for a period of two years from
the policy date. This provision does not apply to claims for total disability or
to accidental death benefits which may be provided by a rider to a Policy. Any
face amount increase made under the adjustment options has its own two-year
contestable period which begins on the effective date of the adjustment.
Misstatements
If the age or sex of the insured has been misstated in an application,
including a reinstatement application, the death benefit under the Policy will
be the Policy's accumulated value plus the amount which would be purchased by
the most recent mortality charge at the correct age and sex.
Suicide
A Policy does not cover the risk of suicide within two years from the
policy date or two years from the date of any increase in face amount with
respect to such increase, whether the insured is sane or insane. In the event of
suicide within two years of the policy date, the only liability of the Company
will be a refund of premiums paid, without interest, less any policy loans and
loan interest and any partial surrenders. In the event of suicide within two
years of an increase in face amount, the only liability of the Company in
respect to that increase in face amount will be a refund of the cost of
insurance for such increase.
Ownership
The owner of the Policy is as named in the application. The owner may
exercise every right and enjoy every privilege provided by the Policy, subject
to the rights of any irrevocable beneficiary. All privileges and rights of the
owner under a Policy end when the owner surrenders the Policy for cash, the
death proceeds of the Policy are paid, or the maturity proceeds of the Policy
are paid. Also, if the grace period ends without receipt by the Company at its
home office of the payment required to keep the Policy in force, the privileges
and rights of the owner terminate as of the monthly date on or immediately
preceding the start of the grace period. If the owner is not the insured and
dies before the insured, the insured becomes the owner unless the owner has
provided for a successor owner. The owner may be changed by filing a written
request with the Company. The Company's approval is needed and no change is
effective until the Company approves the written request for change of owner.
Once approved, the change is effective as of the date the owner signed the
written request. The Company reserves the right to require that the Policy be
sent to the Company so that the change may be recorded.
Beneficiaries
The original beneficiaries and contingent beneficiaries are designated by
the policyowner on the application. A primary and/or contingent beneficiary or
beneficiaries may be changed by written request to the Company. The Company's
approval is needed and no change is effective until the Company approves the
written request for change of beneficiary. Once approved, the change is
effective as of the date the owner signed the written request. If changed, the
primary beneficiary or contingent beneficiary is as shown in the latest written
change filed with the Company. One or more primary or contingent beneficiaries
may be named in the application or a later change request.
Benefit Instructions
While the insured is alive, the owner may file instructions for the payment
of death proceeds under one of the benefit options under the Policy. Such
instructions, or a change of instructions, must be made by written request to
the Company. If the owner changes the beneficiary, that change will revoke any
prior benefit instructions.
Postponement of Payments
Payment of any amount upon total or partial surrender, policy loan, or
proceeds payable at death or maturity and the right to transfer accumulated
value between Divisions may be postponed or suspended whenever: (1) the New York
Stock Exchange is closed other than customary weekend and holiday closings, or
trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission; (2) the Securities and Exchange Commission
by order permits postponement for the protection of policyowners; or (3) the
Securities and Exchange Commission requires that trading be restricted or
declares an emergency, as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the net
asset value of the mutual funds.
Assignment
The Policy can be assigned as collateral for a loan. The Company must be
notified in writing if the Policy has been assigned. Each assignment will be
subject to any payments made or action taken by the Company prior to its
notification of such assignment. The Company is not responsible for the validity
of an assignment. An assignment as collateral does not change the owner but the
rights of beneficiaries, whenever named, become subordinate to those of the
assignee.
Policy Proceeds
Death proceeds under a Policy will ordinarily be paid within seven days
after the Company receives due proof of death. Payments may be postponed in
certain circumstances. (See "Postponement of Payments," page 30.) During the
insured's lifetime, the policyowner may arrange for the death proceeds to be
paid in a lump sum or under one or more of the settlement options described
below. These choices are also available if the Policy is surrendered or matures.
When death proceeds are payable in a lump sum, the beneficiary may select
one or more of the settlement options.
The following options are available:
Option A
Special Benefit Arrangement - A specially designed benefit option may be
arranged with the Company's approval.
Option B
Proceeds Left at Interest - The Company will hold the amount applied on
deposit. Interest payments will be made annually, semi-annually, quarterly or
monthly, as elected.
Option C
Fixed Income - The Company will pay an income of a fixed amount or an
income for a fixed period not exceeding 30 years.
Option D
Life Income - The Company will pay an income during a person's lifetime. A
minimum guaranteed period may be used.
Option E
Joint and Survivor Life Income - The Company will pay an income during the
lifetime of two persons, and continuing until the death of the survivor. This
option includes a minimum guaranteed period of 10 years.
Option F
Joint and Two-Thirds Survivor Life Income - The Company will pay an income
during the time two persons both remain alive, and two-thirds of the original
amount during the remaining lifetime of the survivor.
Interest at a rate set by the Company, but never less than required by
state law, will be applied to determine the payment under Option B, and any such
interest in excess of the guaranteed minimum will be added to payments under
Option C.
Participating Policy
The Policies share in any divisible surplus of the Company. The Company
will determine each Policy's share of the surplus and will credit it as a
dividend at the end of each contract year. The Company does not expect to pay
any dividends under the Policy. Dividends, if any, will be paid in cash.
Right To Exchange Policy
During the first 24 policy months following issuance of a Policy, except
during a grace period, the policyowner may exchange the Policy for any other
form of fixed benefit individual life insurance policy (other than term
insurance) currently made available by the Company for this purpose on the
insured's life. At present, the Company makes a universal life insurance policy
available for exercise of this exchange right. Such request must be postmarked
or delivered to the home office of the Company before the expiration of 24
months after the policy date. At the option of the policyowner, the new policy
will provide either the same death benefit or the same amount at risk as the
Policy did at the time of the exchange request. Premiums for the new policy will
be based on the same issue age, sex and risk classification of the insured under
the Policy. An equitable adjustment in the new policy's payments and cash or
accumulated values will be made to reflect variances, if any, in the payments
and accumulated values under the Policy and the new policy. Minimum benefits of
the new policy will be fixed and guaranteed and the new policy will not
participate in the experience of the Separate Account. Policy values will be
determined as of the date the written request for exchange is received at the
Company's home office. Evidence of insurability will not be required for the
exchange. No charge will be imposed on the exercise of this exchange privilege.
Any policy loan and loan interest must be repaid prior to the exchange or
transferred to the new policy. Any benefit riders included as a part of a Policy
may be exchanged, without evidence of insurability, for similar benefit riders
on the new policy if both these conditions are met:
1. The policyowner, in the written request for exchange, indicates that
the rider or riders should be a part of the new policy; and
2. The similar benefit rider or riders were available for the new policy
on the effective date of the benefit rider for the Policy based on the
same issue age, sex and risk classification of the insured under the
Policy.
The exchange will be effective upon proper receipt by the Company of the
written request, any amount required as an adjustment and surrender of the
Policy.
The policyowner may also exchange the Policy for a fixed-benefit, flexible
premium policy in the event of a material change in investment policy of a
Division (see "Addition, Deletion or Substitution of Investments," page 28).
In addition, the policyowner has the right to exchange a face amount
increase for a fixed-benefit, flexible premium policy at any time during the
first 24 months following issuance of Policy data pages reflecting a face amount
increase, but not while the policy is in a grace period (see "Adjustment
Options," page 17).
DISTRIBUTION OF THE POLICY
The Policy will be sold by individuals who, in addition to being licensed
and appointed as life insurance agents or brokers for the Company, are also
registered representatives of the principal underwriter of the Policies, Princor
Financial Services Corporation, or of other broker-dealers which Princor
Financial Services Corporation selects and the Company approves. Princor
Financial Services Corporation is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers, Inc. For contracts
distributed by the principal underwriter commissions will range between 0% and
50% of premium received in the first year of a Policy (and between 0% and 50% of
premium received in the first year following an adjustment date), up to a target
premium determined by a rate per $1,000 of face amount which varies by the age
and sex of the insured. In addition, commissions will include 0% to 4% of
premium received in the first year of the Policy, above the target premium. For
years two and later of a Policy, commissions will range from 0% to 2% of
premiums received. A service fee of 0% to 2% is paid on all premiums received
after the first policy year. In addition, a persistency renewal commission may
be paid which ranges from 1.25% to 5.25% of premiums received in the first three
policy years, depending upon the agent's or broker's total life insurance sales
for the Company. Expense allowances may also be payable to agents and brokers
based upon premiums received. Commission amounts for contracts distributed by
broker-dealers other than the principal underwriter will vary.
For the period ended December 31, 1995, the Company paid Princor Financial
Services Corporation $1,086,240 to compensate registered representatives of the
principal underwriter.
The Company has entered into a distribution agreement with Princor
Financial Services Corporation. Princor Financial Services Corporation is the
principal underwriter for Princor Balanced Fund, Inc., Princor Blue Chip Fund,
Inc., Princor Bond Fund, Inc., Princor Capital Accumulation Fund, Inc., Princor
Cash Management Fund, Inc., Princor Emerging Growth Fund, Inc., Princor
Government Securities Income Fund, Inc., Princor Growth Fund, Inc., Princor High
Yield Fund, Inc., Princor Limited Term Bond Fund, Inc., Princor Tax-Exempt Cash
Management Fund, Inc., Princor Tax-Exempt Bond Fund, Inc., Princor Utilities
Fund, Inc. and Princor World Fund, Inc., registered investment companies
organized by the Company. Princor Financial Services Corporation is a
wholly-owned subsidiary of Principal Holding Company. Principal Holding Company
is a holding company and a wholly-owned subsidiary of the Company.
OFFICERS AND DIRECTORS OF PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
Principal Mutual Life Insurance Company is managed by a Board of Directors
which is elected by its policyowners. The directors and executive officers of
the Company, their positions with the Company, including Board Committee
memberships, and their principal occupation during the last five years, are as
follows:
DIRECTORS:
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS):
J. E. ASCHENBRENNER Senior Vice President
R. S. CRABTREE Executive Vice President
T. J. GAARD Senior Vice President
M. H. GERSIE Senior Vice President
T. J. GRAF Senior Vice President
J. B. GRISWELL Executive Vice President
R. E. KELLER Executive Vice President
G. R. NARBER Senior Vice President and General Counsel
C. E. ROHM Executive Vice President
<TABLE>
<CAPTION>
Principal Occupation
Name, Positions and Offices During Last 5 Years
- --------------------------- -------------------
<S> <C>
M. VERMEER ANDRINGA President and Chief Operating Officer, Vermeer Manufacturing Company.
Director
Member, Nominating Committee
R. M. DAVIS President and Chief Executive Officer, The Pymatuning Group, Inc.
Director
Member, Nominating Committee
D. J. DRURY Chairman and Chief Executive Officer, Principal Mutual Life Insurance Company since
Director January 1995. President and Chief Executive Officer from 1994 - 1995; President from
Chairman of the Board 1993-1994; Executive Vice President from 1992 - 1993; Executive Vice President and Chair,
Executive Committee Chief Actuary 1992; prior thereto, Senior Vice President and Chief Actuary.
C. D. GELATT, JR. President, NMT Corporation.
Director
Member, Executive and
Human Resources Committees
G. D. HURD Retired. Chairman and Chief Executive Officer, Principal Mutual Life Insurance Company
Director 1989 - 1994.
Member, Executive and
Human Resources Committee
T. M. HUTCHISON Vice Chairman, Principal Mutual Life Insurance Company since August 1994. Prior
Director thereto, Executive Vice President.
C. S. JOHNSON President and Chief Executive Officer of Pioneer Hi-Bred International, Inc. since
Director September, 1995. President and Chief Operating Officer March 1995-September 1995.
Executive Vice President 1993-March 1995. Prior thereto Senior Vice President.
W. T. KERR President & Chief Operating Officer since 1994 Meredith Corporation.
Director Executive Vice President 1991-1994. Prior thereto President, New York Times.
Member, Nominating Committee
L. LIU President, Chairman and Chief Executive Officer, IES Industries, Inc.
Director
Member, Executive and Human
Resources Committees
V. H. LOEWENSTEIN Managing Partner, Egon Zehnder International
Director
Member, Audit Committee
J. R. PRICE Managing Director, Chemical Banking Corporation.
Director
Chair, Audit Committee
B. A. RICE Principal, Rice & Associates since 1994. Prior thereto, Vice President-Human Resources,
Director Scott Paper Company.
Member, Human Resources Committee
J-P. C. ROSSO President and Chief Executive Officer, Case Corporation, since April 1994. President,
Director Honeywell, Inc., 1991-1994; Prior thereto President, Honeywell Europe.
Member, Audit Committee
D. M. STEWART President, The College Board.
Director
Chair, Nominating Committee
E. E. TALLETT President and Chief Executive Officer, Transcell Technologies, Inc. since 1992. Prior
Director thereto, President - Pharmaceutical Division, Centocor, Inc., 1989-1992.
Member, Audit Committee
D. D. THORNTON Retired since 1993. Prior thereto President, Boeing Commercial Airplane Group.
Director
Chair, Human Resources Committee
F. W. WEITZ President, Chairman of the Board and Chief Executive Officer, Essex Meadows, Inc. since
Director 1995. Prior thereto, President, Chairman of the Board, and Chief Executive Officer, The
Member, Executive and Nominating Weitz Corporation and its subsidiaries.
Committees
</TABLE>
STATE REGULATION OF PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
The Company is organized under the laws of the State of Iowa and is subject
to regulation by the Commissioner of Insurance of Iowa. An annual statement is
filed with the Iowa Division of Insurance on or before March 1 of each year
covering the operations and reporting on the financial condition of the Company
as of December 31 of the preceding year. Periodically, the Commissioner examines
the assets
and liabilities of the Company and the Separate Account and verifies their
adequacy. A full examination of the Company's operations is conducted by the
National Association of Insurance Commissioners at least every five years.
FEDERAL TAX MATTERS
The discussion contained herein is general in nature, is not an exhaustive
discussion of all tax questions that might arise under the policies, and is not
intended as tax advice. No attempt is made to consider any applicable state or
other tax laws and no representation is made as to the likelihood of
continuation of current federal income tax laws and treasury regulations or of
current interpretations of the Internal Revenue Service.
While the Company reserves the right to make changes in the Policy to
assure that it continues to qualify as life insurance for tax purposes, the
Company cannot make any guarantee regarding the future tax treatment of any
Policy. For complete information on the impact of changes with respect to the
Policy and federal and state considerations, a qualified tax advisor should be
consulted.
The ultimate effect of federal income taxes on values under the Policy and
on the economic benefit to the policyowner or beneficiary depends upon the
Company's tax status, upon the terms of the Policy and upon the tax status of
the individual concerned.
Tax Status of the Company and the Separate Account
The Company is taxed as an insurance Company under Subchapter L of the Internal
Revenue Code of 1986 (the "Code"). The Separate Account is not a separate
taxable entity and its operations are taken into account by the Company in
determining its income tax liability. All investment income and realized net
capital gains on the assets of the separate account are reinvested and taken
into account in determining Policy Values and are automatically applied to
increase the book reserves associated with the policies. Under existing federal
income tax law, neither the investment income nor any net capital gains of the
Separate Account, are taxed to the Company to the extent those items are applied
to increase reserves associated with the policies.
Charges for Taxes
The Company imposes a federal tax charge equal to 1.25% of premiums received
under the Policy to compensate for the federal income tax liability it incurs
under Section 848 of the Code by reason of its receipt of premiums under the
Policy. The Company believes that this charge is reasonable in relation to the
increased tax burden it incurs as a result of Section 848. No other charge is
currently made on the Separate Account for federal income taxes of the Company
that may be attributable to the Separate Account. Periodically, the Company
reviews the appropriateness of charges to the Separate Account for the Company's
federal income taxes, and in the future, a charge may be made for federal income
taxes incurred by the Company that are attributable to the Separate Account. In
addition, depending on the method of calculating interest on Policy Values
allocated to the Fixed Account, a charge may also be imposed for the Policy's
share of the Company's federal income taxes attributable to the Fixed Account.
Under current laws, the Company may incur state or local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, the Company
reserves the right to charge the Separate Account for the portion of such taxes,
if any, attributable to the Separate Account.
Diversification Standards
In addition to other requirements imposed by the Code, a Policy will qualify as
life insurance under the Code only if the diversification requirements of Code
Section 817(h) are satisfied by each Separate Account in which any of the Policy
Values are held. To assure that each Policy continues to qualify as life
insurance for federal income tax purposes, the Company intends to comply with
Code Section 817(h) and the regulations thereunder.
Life Insurance Status of Policy
The Company believes that the Policy meets the statutory definition of life
insurance under Code Section 7702 and that the policyowner and beneficiary of
any Policy will receive the same federal income tax treatment as that accorded
to owners and beneficiaries of fixed benefit life insurance policies.
Specifically, the death benefit under the Policy will be excludable from the
gross income of the beneficiary subject to the terms and conditions of Section
101(a)(1) of the Code. (Death benefits under a "modified endowment contract" as
discussed below are treated in the same manner as death benefits under life
insurance contracts that are not so classified.)
In addition, unless the Policy is a "modified endowment contract," in which case
the receipt of any loan under the Policy may result in recognition of income to
the policyowner, the policyowner will not be deemed to be in constructive
receipt of the Policy Values, including increments thereon, under the Policy
until proceeds of the Policy are received upon a total or partial surrender of
the Policy.
Modified Endowment Contract Status
A Policy will be a modified endowment contract if it satisfies the definition of
life insurance set out in the Internal Revenue Code, but it either fails the
additional "7-pay test" set forth in Code Section 7702A or was received in
exchange for a modified endowment contract. A Policy will fail the 7-pay test if
the accumulated amount paid under the contract at any time during the first
seven contract years exceeds the total premiums that would have been payable
under a Policy providing for guaranteed benefits upon the payment of seven level
annual premiums. A Policy received in exchange for a modified endowment contract
will be taxed as a modified endowment contract even if it would otherwise
satisfy the 7-pay test.
While the 7-pay test is generally applied as of the time the Policy is issued,
certain changes in the contractual terms of a Policy will require a Policy to be
retested to determine whether the change has caused the Policy to become a
modified endowment contract. For example, a reduction in death benefits during
the first seven contract years will cause the Policy to be retested as if it had
originally been issued with the reduced death benefit.
In addition, if a "material change" occurs at any time while the Policy is in
force, a new 7-pay test period will start and the Policy will need to be
retested to determine whether it continues to meet the 7-pay test. The term"
material change" generally includes increases in death benefits, but does not
include an increase in death benefits which is attributable to the payment of
premiums necessary to fund the lowest level of death benefits payable during the
first seven contract years, or which is attributable to the crediting of
interest with respect to such premiums.
Because the Policy provides for flexible premium payments, the Company has
instituted procedures to monitor whether increases in death benefits or
additional premium payments cause either the start of a new seven-year test
period or the taxation of distributions and loans. All additional premium
payments will be considered in these determinations.
If a Policy fails the 7-pay test, all distributions (including loans) occurring
in the year of failure and thereafter will be subject to the rules for modified
endowment contracts. A recapture provision also applies to loans and
distributions that are received in anticipation of failing the 7-pay test. Under
the Code, any distribution or loan made within two years prior to the date that
a Policy fails the 7-pay test is considered to have been made in anticipation of
the failure.
Policy Surrenders and Partial Surrenders
Upon a total surrender of a Policy, the policyowner will recognize ordinary
income for federal tax purposes to the extent that the net surrender value
exceeds the investment in the contract (the total of all premiums paid but not
previously recovered plus any other consideration paid for the Policy). The tax
consequences of a partial surrender from a Policy will depend upon whether
thepartial surrender results in a reduction of future benefits under the Policy
and whether the Policy is a modified endowment contract.
If the Policy is not a modified endowment contract, the general rule is that a
partial surrender from a Policy is taxable only to the extent that it exceeds
the total investment in the contract. An exception to this general rule applies,
however, if a reduction of future benefits occurs during the first 15 years
after a Policy is issued and there is a cash distribution associated with that
reduction. In such a case, the Code prescribes a formula under which the
policyowner may be taxed on all or a part of the amount distributed. After 15
years, cash distributions from a Policy that is not a modified endowment
contract will not be subject to federal income tax, except to the extent they
exceed the total investment in the contract. The Company suggests that a
policyowner consult with a tax advisor in advance of a proposed decrease in face
amount or a partial surrender. In addition, any amounts distributed under a
"modified endowment contract" (including proceeds of any loan) are taxable to
the extent of any accumulated income in the Policy. In general, the amount which
may be subject to tax is the excess of the Policy Value (both loaned and
unloaned) over the previously unrecovered premiums paid.
Under certain circumstances, a distribution under a modified endowment contract
(including a loan) may be taxable even though it exceeds the amount of
accumulated income in the Policy. This can occur because for purposes of
determining the amount of income received upon a distribution (or loan) from a
modified endowment contract, the Code requires the aggregation of all modified
endowment contracts issued to the same policyowner by an insurer and its
affiliates within the same calendar year. Therefore, loans and distributions
from any one such Policy are taxable to the extent of the income accumulated in
all the modified endowment contracts required to be so aggregated.
If any amount is taxable as a distribution of income under a modified endowment
contract (as a result of a total surrender, a partial surrender or a loan), it
may also be subject to a 10% penalty tax under Code Section 72(v). Limited
exceptions from the additional penalty tax are available for certain
distributions to individual policyowners. The penalty tax will not apply to
distributions: (i) that are made on or after the date the taxpayer attains age
59 1/2; or (ii) that are attributable to the taxpayer's becoming disabled; or
(iii) that are part of a series of substantial equal periodic payments (made not
less frequently than annually) made for the life or life expectancy of the
taxpayer.
Policy Loans and Interest Deductions
The Company also believes that under current law any loan received under the
Policy will be treated as a Policy debt of a policyowner and that, unless the
Policy is a modified endowment contract, no part of any loan under a Policy will
constitute income to the policyowner. If the Policy is a modified endowment
contract (see discussion above) loans will be fully taxable to the extent of the
income in the Policy (and in any other contracts with which it must be
aggregated) and could be subject to the additional 10 percent tax.
Code Section 264 imposes stringent limitations on the deduction of interest paid
or accrued on loans in connection with a Policy. In addition, under the
"personal" interest limitation provisions of Code Section 163, no deduction is
allowed for interest on any Policy loan if the proceeds are used for personal
purposes, even if the Policy and loan otherwise meet the requirements of Code
Section 264. The limitations on deductibility of personal interest may not apply
to disallow all or part of the interest expense as a deduction if the loan
proceeds are used for "trade or business" or "investment" purposes. The Company
suggests consultation with a tax advisor for further guidance.
Corporate Alternative Minimum Tax
Ownership of a Policy by a corporation may affect the policyowner's exposure to
the corporate alternative maximum tax. In determining whether it is subject to
alternative minimum tax a corporate policyowner must make two computations.
First, the corporation must take into account a portion of the current year's
increase in the built-in gain in its corporate-owned policies. Second, the
corporation must take into account a portion of the amount by which the death
benefits received under any Policy exceed the sum of (i) the premiums paid on
that Policy in the year of death, and (ii) the corporation's basis in the Policy
(as measured for alternative minimum tax purposes) as of the end of the
corporation's tax year immediately preceding the year of death.
Exchange or Assignment of Policies
A change of the policyowner or the insured or an exchange or assignment of a
Policy may have significant tax consequences depending on the circumstances. For
example, an assignment or exchange of a Policy may result in taxable income to
the transferring policyowner. Further, Code Section 101(a) provides, subject to
certain exceptions, that where a Policy has been transferred for value, only the
portion of the death benefit which is equal to the total consideration paid for
the Policy may be excluded from gross income. For complete information with
respect to Policy assignments and exchanges, a qualified tax advisor should be
consulted.
Withholding
Under Section 3405 of the Code, withholding is generally required with respect
to certain taxable distributions under insurance contracts. In the case of
periodic payments (payments made as an annuity or on a similar basis), the
withholding is at graduated rates (as though the payments were employee wages).
With respect to non-periodic distributions, the withholding is at a flat rate of
10%. A Policyholder can elect to have either non-periodic or periodic payments
made without withholding except where the policyowner's tax identification
number has not been furnished to the Company or the Internal Revenue Service has
notified the Company that the tax identification number furnished by the
policyowner is incorrect.
Taxation of Accelerated Death Benefits
The Company provides accelerated death benefits based upon a lien method. It is
unclear whether benefits paid under this rider are taxable. For information
regarding taxation of accelerated death benefits, a qualified tax advisor should
be consulted.
Other Tax Issues
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary.
EMPLOYEE BENEFIT PLANS
Employers and employee organizations should consider, in consultation with
counsel, the impact of Title VII of the Civil Rights Act of 1964 on the purchase
of a Policy in connection with an employment-related insurance or benefit plan.
The United States Supreme Court held, in the 1983 decision of Arizona Governing
Committee v. Norris, that, under Title VII, optional annuity benefits under a
deferred compensation plan could not vary on the basis of sex. Policies are
available for use in connection with such employment-related insurance and
benefit plans which do not vary in any respect between male and female insureds
of a particular age and underwriting classification.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of any of the Divisions thereof are subject. The Company is
not involved in any litigation that is of material importance in relation to its
total assets or that relate to the Separate Account.
LEGAL OPINION
Legal matters applicable to the issue and sale of the Policies, including
the right of the Company to issue Policies under Iowa insurance law, have been
passed upon by T. M. Hutchison, Executive Vice President of the Company.
INDEPENDENT AUDITORS
The financial statements of Principal Mutual Life Insurance Company
Variable Life Separate Account and Principal Mutual Life Insurance Company which
are included in this registration statement have been audited by Ernst & Young
LLP, independent auditors, for the periods indicated in their reports thereon
which appear elsewhere in the registration statement.
REGISTRATION STATEMENT
A registration statement has been filed with the Commission under the
Securities Act of 1933, as amended, with respect to the Policies offered hereby.
This Prospectus does not contain all the information set forth in the
registration statement and the amendments and exhibits to the registration
statement to all of which reference is made for further information concerning
the Separate Account, the Company and the Policy offered hereby. Statements
contained in this Prospectus as to the contents of the Policy and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this
Prospectus should be considered only as bearing on the ability of the Company to
meet its obligations under the Policy. They should not be considered as bearing
on the investment performance of the assets held in the Separate Account.
<PAGE>
Principal Mutual Life Insurance Company
Variable Life Separate Account
Report of Independent Auditors
Board of Directors and Participants
Principal Mutual Life Insurance Company
We have audited the accompanying statement of net assets of Principal Mutual
Life Insurance Company Variable Life Separate Account (comprising, respectively,
the Balanced, Bond, Capital Accumulation, Emerging Growth, High Yield, and Money
Market Divisions) as of December 31, 1995, and the related statements of
operations and changes in net assets for each of the three years in the period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Principal Mutual Life Insurance
Company Variable Life Separate Account at December 31, 1995, and the results of
its operations and the changes in its net assets for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Des Moines, Iowa
February 7, 1996
<PAGE>
Principal Mutual Life Insurance Company
Variable Life Separate Account
Statement of Net Assets
December 31, 1995
Assets
Investments (Note 1):
Balanced Division:
Principal Balanced Fund, Inc. - 200,063 shares at net
asset value of $13.97 per share (cost - $2,557,217) $ 2,794,881
Bond Division:
Principal Bond Fund, Inc. - 78,645 shares at net asset
value of $11.73 per share (cost - $878,731) 922,511
Capital Accumulation Division:
Principal Capital Accumulation Fund, Inc. - 142,987 shares
at net asset value of $27.80 per share (cost - $3,656,186) 3,975,025
Emerging Growth Division:
Principal Emerging Growth Fund, Inc. - 305,125 shares at
net asset value of $25.33 per share (cost - $6,575,712) 7,728,821
High Yield Division:
Principal High Yield Fund, Inc. - 101,791 shares at net asset
value of $8.39 per share (cost - $882,335) 854,028
Money Market Division:
Principal Money Market Fund, Inc. - 402,869 shares at net
asset value of $1.00 per share (cost - $402,869) 402,869
-----------
Net assets $16,678,135
===========
Unit
Units Value
-----------------------
Net assets are represented by:
Balanced Division 137,574 $20.31 $ 2,794,881
Bond Division 45,999 20.05 922,511
Capital Accumulation Division 184,750 21.51 3,975,025
Emerging Growth Division 283,791 27.23 7,728,821
High Yield Division 48,615 17.57 854,028
Money Market Division 27,948 14.42 402,869
-----------
Net assets $16,678,135
===========
See accompanying notes.
<PAGE>
Principal Mutual Life Insurance Company
Variable Life Separate Account
Statements of Operations
<TABLE>
<CAPTION>
Combined
----------------------------------------------
Year ended December 31
1995 1994 1993
----------------------------------------------
Investment income
Income:
<S> <C> <C> <C>
Dividends (Note 1) $ 376,014 $205,850 $148,055
Capital gains distributions 429,058 211,019 318,056
----------------------------------------------
805,072 416,869 466,111
Expenses (Note 2):
Mortality and expense risks 95,590 55,513 35,413
----------------------------------------------
Net investment income 709,482 361,356 430,698
Realized and unrealized gains (losses) on investments (Note 4)
Net realized gains (losses) on investments 254,585 31,582 153,033
Change in net unrealized appreciation/depreciation of
investments 1,956,773 (442,230) (62,738)
----------------------------------------------
Net increase (decrease) in net assets resulting from operations $2,920,840 $(49,292) $520,993
==============================================
</TABLE>
<TABLE>
<CAPTION>
Balanced Division
Year ended December 31
-----------------------------------------
1995 1994 1993
------------------------------------------
Investment income
Income:
<S> <C> <C> <C>
Dividends (Note 1) $ 85,937 $ 53,356 $ 45,460
Capital gains distributions 72,211 25,558 76,753
------------------------------------------
158,148 78,914 122,213
Expenses (Note 2):
Mortality and expense risks 17,258 12,058 9,014
------------------------------------------
Net investment income 140,890 66,856 113,199
Realized and unrealized gains (losses) on investments (Note 4)
Net realized gains (losses) on investments 28,104 6,900 21,878
Change in net unrealized appreciation/depreciation of
investments 316,677 (120,904) (16,979)
------------------------------------------
Net increase (decrease) in net assets resulting from operations $485,671 $ 47,148) $118,098
==========================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond Division
Year ended December 31
--------------------------------------
1995 1994 1993
Investment income --------------------------------------
Income:
<S> <C> <C> <C>
Dividends (Note 1) $ 47,997 $ 33,025 $28,730
Capital gains distributions - - -
--------------------------------------
47,997 33,025 28,730
Expenses (Note 2):
Mortality and expense risks 5,384 3,207 3,166
--------------------------------------
Net investment income 42,613 29,818 25,564
Realized and unrealized gains (losses) on investments (Note 4)
Net realized gains (losses) on investments 4,064 (2,792) 13,739
Change in net unrealized appreciation/depreciation of
investments 85,230 (40,136) 304
--------------------------------------
Net increase (decrease) in net assets resulting from operations $131,907 $(13,110) $39,607
======================================
</TABLE>
<TABLE>
<CAPTION>
Capital Accumulation Division
Year ended December 31
------------------------------------------
1995 1994 1993
------------------------------------------
Investment income
Income:
<S> <C> <C> <C>
Dividends (Note 1) $ 79,394 $ 56,729 $ 37,967
Capital gains distributions 293,683 54,291 110,884
------------------------------------------
373,077 111,020 148,851
Expenses (Note 2):
Mortality and expense risks 22,976 14,428 10,069
------------------------------------------
Net investment income 350,101 96,592 138,782
Realized and unrealized gains (losses) on investments (Note 4)
Net realized gains (losses) on investments 49,320 (13,565) 15,162
Change in net unrealized appreciation/depreciation of
investments 433,439 (87,735) (62,178)
------------------------------------------
Net increase (decrease) in net assets resulting from operations $832,860 $ (4,708) $ 91,766
==========================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Emerging Growth Division
Year ended December 31
---------------------------------------------
1995 1994 1993
---------------------------------------------
Investment income
Income:
<S> <C> <C> <C>
Dividends (Note 1) $ 65,593 $ 26,319 $ 14,369
Capital gains distributions 63,164 131,170 130,419
---------------------------------------------
128,757 157,489 144,788
Expenses (Note 2):
Mortality and expense risks 43,103 21,185 10,184
---------------------------------------------
Net investment income 85,654 136,304 134,604
Realized and unrealized gains (losses) on investments (Note 4)
Net realized gains (losses) on investments 172,414 42,332 98,424
Change in net unrealized appreciation/depreciation of
investments 1,127,081 (174,867) 18,087
---------------------------------------------
Net increase in net assets resulting from operations $1,385,149 $ 3,769 $251,115
=============================================
</TABLE>
<TABLE>
<CAPTION>
High Yield Division
Year ended December 31
-----------------------------------------------------
1995 1994 1993
-----------------------------------------------------
Investment income
Income:
<S> <C> <C> <C>
Dividends (Note 1) $72,460 $21,527 $15,343
Capital gains distributions - - -
-----------------------------------------------------
72,460` 21,527 15,343
Expenses (Note 2):
Mortality and expense risks 3,702 1,585 1,251
-----------------------------------------------------
Net investment income 68,758 19,942 14,092
Realized and unrealized gains (losses) on investments (Note 4)
Net realized gains (losses) on investments 683 (1,293) 3,830
Change in net unrealized appreciation/depreciation of
investments (5,654) (18,588) (1,972)
-----------------------------------------------------
Net increase in net assets resulting from operations $63,787 $ 61 $15,950
=====================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Money Market Division
Year ended December 31
1995 1994 1993
-----------------------------------------------------
Investment income
Income:
<S> <C> <C> <C>
Dividends (Note 1) $24,633 $14,894 $6,186
Capital gains distributions - - -
-----------------------------------------------------
24,633 14,894 6,186
Expenses (Note 2):
Mortality and expense risks 3,167 3,050 1,729
-----------------------------------------------------
Net investment income 21,466 11,844 4,457
Realized and unrealized gains (losses) on investments (Note 4)
Net realized gains (losses) on investments - - -
Change in net unrealized appreciation/depreciation of
investments - - -
----------------------------------------------------
Net increase in net assets resulting from operations $21,466 $11,844 $4,457
====================================================
</TABLE>
See accompanying notes.
<PAGE>
Principal Mutual Life Insurance Company
Variable Life Separate Account
Statements of Changes in Net Assets
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Balanced
Combined Division
----------------- ------------------
<S> <C> <C> <C>
Net assets at January 1, 1993 $3,571,056 $ 912,717
Increase (decrease) in net assets Operations:
Net investment income 430,698 113,199
Net realized gains on investments 153,033 21,878
Change in net unrealized appreciation/depreciation of investments (62,738) (16,979)
----------------- ------------------
Net increase in net assets resulting from operations 520,993 118,098
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 4,243,839 722,419
Contract terminations and surrenders (302,559) (41,473)
Death benefit payments (1,961) (627)
Policy loan transfers (162,427) (29,608)
Transfers to other contracts (1,444,635) (70,023)
Cost of insurance and administration charges (591,394) (126,288)
Surrender charges (30,418) (4,170)
----------------- ------------------
Increase (decrease) in net assets from policy related transactions 1,710,445 450,230
----------------- ------------------
Total increase (decrease) 2,231,438 568,328
----------------- ------------------
Net assets at December 31, 1993 5,802,494 1,481,045
<PAGE>
Net assets at January 1, 1994
Increase (decrease) in net assets Operations:
Net investment income 361,356 66,856
Net realized gains (losses) on investments 31,582 6,900
Change in net unrealized appreciation/depreciation of investments (442,230) (120,904)
----------------- ------------------
Net increase (decrease) in net assets resulting from operations (49,292) (47,148)
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 7,030,808 805,108
Contract terminations and surrenders (200,983) (61,360)
Death benefit payments (4,614) -
Policy loan transfers (131,130) (25,740)
Transfers to other contracts (2,149,666) (155,607)
Cost of insurance and administration charges (1,002,937) (178,431)
Surrender charges (41,439) (12,651)
----------------- ------------------
Increase in net assets from policy related transactions 3,500,039 371,319
----------------- ------------------
Total increase 3,450,747 324,171
----------------- ------------------
Net assets at December 31, 1994 9,253,241 1,805,216
Net assets at January 1, 1995 9,253,241 $1,805,216
Increase (decrease) in net assets Operations:
Net investment income 709,482 140,890
Net realized gains on investments 254,585 28,104
Change in net unrealized appreciation/depreciation of investments 1,956,773 316,677
----------------- ------------------
Net increase in net assets resulting from operations 2,920,840 485,671
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 9,511,939 1,036,158
Contract terminations and surrenders (514,344) (89,520)
Death benefit payments (9,358) -
Policy loan transfers (275,660) (52,264)
Transfers to other contracts (2,602,796) (145,034)
Cost of insurance and administration charges (1,539,242) (233,775)
Surrender charges (66,485) (11,571)
----------------- ------------------
Increase (decrease) in net assets from policy related transactions 4,504,054 503,994
----------------- ------------------
Total increase (decrease) 7,424,894 989,665
----------------- ------------------
Net assets at December 31, 1995 $16,678,135 $2,794,881
================= ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bond Stock
Division Division
------------------ ------------------
<S> <C> <C>
Net assets at January 1, 1993 $256,631 $1,005,168
Increase (decrease) in net assets Operations:
Net investment income 25,564 138,782
Net realized gains on investments 13,739 15,162
Change in net unrealized appreciation/depreciation of investments 304 (62,178)
------------------ ------------------
Net increase in net assets resulting from operations 39,607 91,766
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 344,656 939,904
Contract terminations and surrenders (107,373) (53,383)
Death benefit payments - (642)
Policy loan transfers (5,743) (40,134)
Transfers to other contracts (77,910) (123,748)
Cost of insurance and administration charges (43,267) (149,902)
Surrender charges (10,795) (5,367)
------------------ ------------------
Increase (decrease) in net assets from policy related transactions 99,568 566,728
------------------ ------------------
Total increase (decrease) 139,175 658,494
------------------ ------------------
Net assets at December 31, 1993 395,806 1,663,662
Net assets at January 1, 1994
Increase (decrease) in net assets Operations:
Net investment income 29,818 96,592
Net realized gains (losses) on investments (2,792) (13,565)
Change in net unrealized appreciation/depreciation of investments (40,136) (87,735)
------------------ ------------------
Net increase (decrease) in net assets resulting from operations (13,110) (4,708)
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 288,736 1,149,226
Contract terminations and surrenders (4,871) (39,008)
Death benefit payments - (3,319)
Policy loan transfers (3,819) (42,994)
Transfers to other contracts (92,188) (226,938)
Cost of insurance and administration charges (59,452) (218,560)
Surrender charges (1,004) (8,043)
------------------ ------------------
Increase in net assets from policy related transactions 127,402 610,364
------------------ ------------------
Total increase 114,292 605,656
------------------ ------------------
Net assets at December 31, 1994 510,098 2,269,318
<PAGE>
Net assets at January 1, 1995 510,098 2,269,318
Increase (decrease) in net assets Operations:
Net investment income 42,613 350,101
Net realized gains on investments 4,064 49,320
Change in net unrealized appreciation/depreciation of investment 85,230 433,439
------------------- -----------------
Net increase in net assets resulting from operations 131,907 832,860
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 444,236 1,633,021
Contract terminations and surrenders (24,317) (149,990)
Death benefit payments - (2,336)
Policy loan transfers (4,770) (56,174)
Transfers to other contracts (52,638) (218,351)
Cost of insurance and administration charges (78,861) (313,935)
Surrender charges (3,144) (19,388)
------------------- -----------------
Increase (decrease) in net assets from policy related transactions 280,506 872,847
------------------- -----------------
Total increase (decrease) 412,413 1,705,707
------------------- -----------------
Net assets at December 31, 1995 $922,511 $3,975,025
=================== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Emerging High
Growth Yield
Division Division
----------------- -----------------
<S> <C> <C>
Net assets at January 1, 1993 $1,033,749 $ 71,862
Increase (decrease) in net assets Operations:
Net investment income 134,604 14,092
Net realized gains on investments 98,424 3,830
Change in net unrealized appreciation/depreciation of investments 18,087 (1,972)
----------------- -----------------
Net increase in net assets resulting from operations 251,115 15,950
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 1,179,248 196,359
Contract terminations and surrenders (94,725) (2,641)
Death benefit payments (692) -
Policy loan transfers (60,229) (5,136)
Transfers to other contracts (236,343) (74,398)
Cost of insurance and administration charges (188,113) (22,433)
Surrender charges (9,523) (265)
------------------ ----------------
Increase (decrease) in net assets from policy related transactions 589,623 91,486
------------------ ----------------
Total increase (decrease) 840,738 107,436
------------------ ----------------
Net assets at December 31, 1993 1,874,487 179,298
Net assets at January 1, 1994
Increase (decrease) in net assets Operations:
Net investment income 136,304 19,942
Net realized gains (losses) on investments 42,332 (1,293)
Change in net unrealized appreciation/depreciation of investments (174,867) (18,588)
------------------ ----------------
Net increase (decrease) in net assets resulting from operations 3,769 61
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes
Contract terminations and surrenders 2,765,121 120,265
Death benefit payments (83,480) (9,690)
Policy loan transfers (1,295) -
Transfers to other contracts (59,784) (3,260)
Cost of insurance and administration charges (284,168) (7,501)
Surrender charges (396,646) (32,323)
(17,212) (1,998)
------------------ ----------------
Increase in net assets from policy related transactions 1,922,536 65,493
------------------ ----------------
Total increase 1,926,305 65,554
------------------ ----------------
Net assets at December 31, 1994 3,800,792 244,852
<PAGE>
Net assets at January 1, 1995 3,800,792 244,852
Increase (decrease) in net assets Operations:
Net investment income 85,654 68,758
Net realized gains on investments 172,414 683
Change in net unrealized appreciation/depreciation of investmen 1,127,081 (5,654)
------------------ ----------------
Net increase in net assets resulting from operations 1,385,149 63,787
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 4,022,336 673,413
Contract terminations and surrenders (238,336) (10,016)
Death benefit payments (4,755) -
Policy loan transfers (159,532) (3,158)
Transfers to other contracts (338,865) (52,617)
Cost of insurance and administration charges (707,162) (60,938)
Surrender charges (30,806) (1,295)
------------------ ----------------
Increase (decrease) in net assets from policy related transactions 2,542,880 545,389
------------------ ----------------
Total increase (decrease) 3,928,029 609,176
------------------ ----------------
Net assets at December 31, 1995 $7,728,821 $854,028
================== ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Money
Market
Division
------------------
<S> <C>
Net assets at January 1, 1993 $ 290,929
Increase (decrease) in net assets Operations:
Net investment income 4,457
Net realized gains on investments -
Change in net unrealized appreciation/depreciation of investments -
------------------
Net increase in net assets resulting from operations 4,457
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 861,253
Contract terminations and surrenders (2,964)
Death benefit payments -
Policy loan transfers (21,577)
Transfers to other contracts (862,213)
Cost of insurance and administration charges (61,391)
Surrender charges (298)
------------------
Increase (decrease) in net assets from policy related transactions (87,190)
------------------
Total increase (decrease) (82,733)
------------------
Net assets at December 31, 1993 208,196
Net assets at January 1, 1994
Increase (decrease) in net assets Operations:
Net investment income 11,844
Net realized gains (losses) on investments -
Change in net unrealized appreciation/depreciation of investments -
------------------
Net increase (decrease) in net assets resulting from operations 11,844
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 1,902,352
Contract terminations and surrenders (2,574)
Death benefit payments -
Policy loan transfers 4,467
Transfers to other contracts (1,383,264)
Cost of insurance and administration charges (117,525)
Surrender charges (531)
------------------
Increase in net assets from policy related transactions 402,925
------------------
Total increase 414,769
------------------
Net assets at December 31, 1994 622,965
<PAGE>
Net assets at January 1, 1995 622,965
Increase (decrease) in net assets Operations:
Net investment income 21,466
Net realized gains on investments -
Change in net unrealized appreciation/depreciation of investmen -
------------------
Net increase in net assets resulting from operations 21,466
Policy related transactions (Note 2):
Net premium payments, less sales charges and applicable premium
taxes 1,702,775
Contract terminations and surrenders (2,165)
Death benefit payments (2,267)
Policy loan transfers 238
Transfers to other contracts (1,795,291)
Cost of insurance and administration charges (144,571)
Surrender charges (281)
------------------
Increase (decrease) in net assets from policy related transactions (241,562)
------------------
Total increase (decrease) (220,096)
------------------
Net assets at December 31, 1995 $ 402,869
==================
See accompanying notes.
</TABLE>
<PAGE>
Principal Mutual Life Insurance Company
Variable Life Separate Account
Notes to Financial Statements
December 31, 1995
1. Investment and Accounting Policies
Principal Mutual Life Insurance Company Variable Life Separate Account is a
segregated investment account of Principal Mutual Life Insurance Company
(Principal Mutual) and is registered under the Investment Company Act of 1940 as
a unit investment trust, with no stated limitations on the number of authorized
units. As directed by eligible policyowners, the Separate Account invests solely
in shares of Principal Balanced Fund, Inc., Principal Bond Fund, Inc., Principal
Capital Accumulation Fund, Inc., Principal Emerging Growth Fund, Inc., Principal
High Yield Fund, Inc., and Principal Money Market Fund, Inc., diversified
open-end management investment companies organized by Principal Mutual.
Investments are stated at the closing net asset values per share on December 31,
1995.
The average cost method is used to determine realized gains and losses on
investments. Dividends are taken into income on an accrual basis as of the
ex-dividend date.
2. Expenses and Policy Charges
Principal Mutual is compensated for the following expenses and charges:
Mortality and expense risks assumed by Principal Mutual are compensated for by a
charge equivalent to an annual rate of .75% of the asset value of each policy.
An annual administration charge of $57 for each policy and a cost of insurance
charge, which is based on the Company's expected future mortality experience, is
deducted as compensation for administrative and insurance expenses,
respectively. The mortality and expense risk, annual administration, and
insurance charges amounted to $95,590, $166,464, and $1,372,778, respectively,
in 1995; $55,513, $119,268, and $883,669, respectively, in 1994; and $35,413,
$72,362, and $519,032, respectively, in 1993. A sales charge of 5.0% is deducted
from each payment made on behalf of each participant. The sales charge is
deducted from the payments by Principal Mutual prior to their transfer to the
Variable Life Separate Account. In addition, a surrender charge up to a maximum
of 25% of the minimum first year premium may be imposed upon total surrender or
termination of a policy for insufficient value.
3. Federal Income Taxes
Operations of the Separate Account are a part of the operations of Principal
Mutual. Under current practice, no federal income taxes are allocated by
Principal Mutual to the operations of Principal Mutual Life Insurance Company
Variable Life Separate Account.
<PAGE>
4. Purchases and Sales of Investment Securities
The aggregate units and cost of purchases and proceeds from sales of investments
were as follows:
<TABLE>
<CAPTION>
Capital Accumulation
Balanced Division Bond Division Division
-----------------------------------------------------------------------
Units Amount Units Amount Units Amount
-----------------------------------------------------------------------
Year ended December 31, 1995
Units purchased and reinvested
<S> <C> <C> <C> <C> <C> <C>
dividends and capital gains 56,758 $1,194,305 24,137 $492,234 87,030 $2,006,098
Units redeemed 29,073 549,421 8,980 169,115 40,420 783,150
-----------------------------------------------------------------------
Net increase 27,685 $ 644,884 15,157 $323,119 46,610 $1,222,948
=======================================================================
Year ended December 31, 1994
Units purchased and reinvested
dividends and capital gains 48,225 $884,022 17,428 $321,761 69,938 $1,260,246
Units redeemed (25,949) (445,847) (9,652) (164,541) (32,805) (553,290)
-----------------------------------------------------------------------
Net increase 22,276 $438,175 7,776 $157,220 37,133 $ 706,956
=======================================================================
Year ended December 31, 1993
Units purchased and reinvested
dividends and capital gains 45,069 $844,632 21,131 $373,386 59,306 $1,088,755
Units redeemed (16,973) (281,203) (14,639) (248,254) (23,597) (383,245)
-----------------------------------------------------------------------
Net increase 28,096 $563,429 6,492 $125,132 35,709 $ 705,510
=======================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Emerging Growth Money Market Division
Division High Yield Division
-------------------------------------------------------------------------
Units Amount Units Amount Units Amount
-------------------------------------------------------------------------
Year ended December 31, 1995
Units purchased and reinvested
<S> <C> <C> <C> <C> <C> <C>
dividends and capital gains 165,606 $4,151,094 40,295 $745,873 120,838 $1,727,408
Units redeemed 60,516 1,522,560 7,739 131,726 138,209 1,947,504
-------------------------------------------------------------------------
Net increase (decrease) 105,090 $2,628,534 32,556 $614,147 (17,371) $ (220,096)
=========================================================================
Year ended December 31, 1994
Units purchased and reinvested
dividends and capital gains 129,908 $2,922,610 7,938 $141,792 140,805 $1,917,246
Units redeemed (39,368) (863,770) (3,624) (56,357) (111,080) (1,502,477)
-------------------------------------------------------------------------
Net increase 90,540 $2,058,840 4,314 $ 85,435 29,725 $ 414,769
=========================================================================
Year ended December 31, 1993
Units purchased and reinvested
dividends and capital gains 61,758 $1,324,037 13,653 $211,702 65,053 $ 867,441
Units redeemed (31,157) (599,810) (7,155) (106,124) (71,680) (950,174)
-------------------------------------------------------------------------
Net increase (decrease) 30,601 $ 724,227 6,498 $105,578 (6,627) $ (82,733)
=========================================================================
</TABLE>
<PAGE>
5. Net Assets
Net assets at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
Net Unrealized
Accumulated Net Appreciation
Unit Transactions Investment Income (Depreciation) of
Combined Investments
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balanced Division $ 2,794,881 $ 2,273,642 $ 283,575 $ 237,664
Bond Division 922,511 805,743 72,988 43,780
Capital Accumulation Division 3,975,025 3,166,851 489,335 318,839
Emerging Growth Division 7,728,821 6,330,029 245,683 1,153,109
High Yield Division 854,028 797,025 85,310 (28,307)
Money Market Division 402,869 398,502 4,367 -
------------------------------------------------------------------------------
$16,678,135 $13,771,792 $1,181,258 $1,725,085
==============================================================================
</TABLE>
<PAGE>
Principal Mutual Life Insurance Company
Report of Independent Auditors
The Board of Directors
Principal Mutual Life Insurance Company
We have audited the accompanying statements of financial position of Principal
Mutual Life Insurance Company (the Company) as of December 31, 1995 and 1994,
and the related statements of operations and surplus and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Principal Mutual Life Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles and with reporting
practices prescribed or permitted by the Insurance Division of the Department of
Commerce of the State of Iowa.
ERNST & YOUNG LLP
Des Moines, Iowa
January 31, 1996
<PAGE>
Principal Mutual Life Insurance Company
Statements of Financial Position
December 31
1995 1994
---------------------------
(In Millions)
Assets
Bonds $21,798 $20,626
Preferred stocks 93 69
Common stocks 1,330 914
Investment in subsidiaries 546 501
Commercial mortgage loans 9,794 8,901
Residential mortgage loans 234 287
Investment real estate 1,313 1,155
Properties held for Company use 204 159
Policy loans 711 683
Cash and short-term investments 913 485
Accrued investment income 467 468
Separate account assets 12,957 9,197
Other assets 908 672
---------------------------
Total assets $51,268 $44,117
===========================
Liabilities
Insurance reserves $ 6,297 $ 6,007
Annuity reserves 25,770 24,311
Reserves for policy dividends 578 583
Other policy liabilities 748 618
Investment valuation reserves 1,041 792
Tax liabilities 241 189
Separate account liabilities 12,891 9,099
Other liabilities 1,494 591
---------------------------
Total liabilities 49,060 42,190
Surplus
Surplus notes 298 298
Unassigned and other surplus funds 1,910 1,629
---------------------------
Total surplus 2,208 1,927
---------------------------
Total liabilities and surplus $51,268 $44,117
===========================
See accompanying notes.
<PAGE>
Principal Mutual Life Insurance Company
Statements of Operations and Surplus
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
------------------------------------------
(In Millions)
Income
<S> <C> <C> <C>
Premiums and annuity and other considerations $11,940 $10,718 $ 9,983
Net income from investments 2,651 2,520 2,369
Other income 25 505 18
------------------------------------------
Total income 14,616 13,743 12,370
Benefits and expenses
Benefit payments other than dividends 9,268 8,211 6,729
Dividends to policyowners 309 317 410
Additions to policyowner reserves 3,439 3,756 3,890
Insurance expenses and taxes 1,199 1,145 1,029
------------------------------------------
Total benefits and expenses 14,215 13,429 12,058
------------------------------------------
Income before federal income taxes and realized
capital gains (losses) 401 314 312
Federal income taxes 140 130 48
------------------------------------------
Net gain from operations before realized capital gains (losses)
261 184 264
Realized capital gains (losses) 2 (32) (52)
------------------------------------------
Net income $ 263 $ 152 $ 212
==========================================
Surplus
Surplus at beginning of year $ 1,927 $ 1,641 $ 1,440
Net income 263 152 212
Issuance of surplus notes - 298 -
Increase in investment valuation reserves (249) (131) (43)
Increase in non-admitted assets and related items (45) (51) (59)
Net unrealized capital gains 326 47 57
Adjustment for prior years' federal income taxes - (63) -
Net policyowner reserve adjustments 1 31 18
Other adjustments - net (15) 3 16
------------------------------------------
Surplus at end of year $ 2,208 $ 1,927 $ 1,641
==========================================
</TABLE>
See accompanying notes.
<PAGE>
Principal Mutual Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
------------------------------------------
(In Millions)
CASH PROVIDED
Proceeds from operating activities
Premiums and annuity and other considerations
<S> <C> <C> <C>
received $11,923 $10,711 $ 9,967
Net investment income received 2,723 2,509 2,421
Benefit payments other than dividends (9,277) (8,186) (6,700)
Dividends paid to policyowners (317) (293) (396)
Insurance expenses and taxes paid (1,198) (1,159) (1,007)
Federal income taxes paid (125) (67) (119)
Transfers for separate account operations (1,549) (1,396) (1,120)
Other (3) 7 (5)
------------------------------------------
Net cash provided from operations 2,177 2,126 3,041
Proceeds from investments sold, matured or repaid
Bonds and stocks 12,028 10,951 20,072
Mortgage loans 1,276 2,043 6,852
Real estate and other invested assets 70 168 37
Tax on capital gains (22) (25) (29)
------------------------------------------
Total cash provided from investments 13,352 13,137 26,932
Issuance of surplus notes - 298 -
Other cash provided 793 - 85
------------------------------------------
Total cash provided 16,322 15,561 30,058
CASH APPLIED
Cost of investments acquired
Bonds and stocks acquired (13,234) (13,709) (22,434)
Mortgage loans acquired or originated (2,265) (1,611) (7,253)
Real estate and other invested assets acquired (195) (91) (132)
------------------------------------------
Total cash applied to investments (15,694) (15,411) (29,819)
Other cash applied (200) (135) (72)
------------------------------------------
Total cash applied (15,894) (15,546) (29,891)
SHORT-TERM BORROWINGS
Proceeds of short-term borrowings 990 3,152 1,743
Repayment of short-term borrowings (990) (3,152) (1,743)
------------------------------------------
Net cash provided by short-term borrowings - - -
------------------------------------------
Net increase in cash and short-term investments 428 15 167
Cash and short-term investments at beginning of year 485 470 303
------------------------------------------
Cash and short-term investments at end of year $ 913 $ 485 $ 470
==========================================
</TABLE>
See accompanying notes.
<PAGE>
Principal Mutual Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. Nature of Operations and Significant Accounting Policies
Description of Business
Principal Mutual Life Insurance Company (the Company) is primarily engaged in
the marketing and management of life insurance, annuity, health and pension
products. In addition, the Company provides various other financial services
through its subsidiaries.
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company's financial statements and accompanying notes
requires management to make estimates and assumptions that affect the amounts
reported and disclosed. These estimates and assumptions could change in the
future as more information becomes known, which could impact the amounts
reported and disclosed in the financial statements and accompanying notes.
Basis of Presentation
The Company's financial statements have been prepared on the basis of accounting
practices prescribed or permitted by the Insurance Division of the Department of
Commerce of the State of Iowa (statutory accounting practices), which practices
are currently regarded as generally accepted accounting principles (GAAP) for
mutual life insurance companies.
Beginning in 1996, however, under the requirements of Financial Accounting
Standards Board (FASB) Interpretation No. 40, "Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises,"
as amended, financial statements prepared on the basis of statutory accounting
practices will no longer be described as prepared "in conformity with GAAP." The
Accounting Standards Executive Committee of the American Institute of Certified
Public Accountants and the FASB issued authoritative accounting and reporting
pronouncements in January 1995, effective for calendar year 1996, addressing how
mutual life insurance companies should account for certain insurance activities.
Applying the provisions of these authoritative accounting and reporting
pronouncements may result in surplus and net income that differ from the amounts
reported under existing statutory accounting practices. The Company has not yet
determined the impact of these pronouncements on its financial statements. The
Company plans to issue general-purpose financial statements for calendar year
1996 that follow these authoritative pronouncements and will be described as
prepared in conformity with GAAP. These statutory-basis financial statements,
however, will continue to be required by insurance regulatory authorities.
The National Association of Insurance Commissioners (NAIC) currently is in the
process of recodifying statutory accounting practices, the result of which is
expected to constitute the only source of "prescribed" statutory accounting
practices. Accordingly, that project, which is not expected to be completed
before 1997, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the Company
uses to prepare its statutory-basis financial statements.
Subsidiaries
Investment in subsidiaries is reported at equity in net assets determined on a
statutory basis for insurance subsidiaries and on the basis of prescribed
valuation alternatives for non-insurance subsidiaries, resulting in carrying
values periodically approved by the Securities Valuation Office of the NAIC.
Total assets of these unconsolidated subsidiaries amounted to $2.6 billion at
December 31, 1995 and $2.1 billion at December 31, 1994, and total revenues were
$1,190 million in 1995, $911 million in 1994 and $669 million in 1993. During
1995, 1994 and 1993, the Company included $(48) million, $(2) million and $(37)
million, respectively, in net income from investments representing the current
year net losses of its subsidiaries.
Investments
Investments in bonds, short-term investments, and commercial and residential
mortgage loans are reported principally at cost (unpaid principal balance),
adjusted for amortization of premiums and accrual of discounts, both computed
using the interest method; policy loans and investments in preferred stocks
primarily at cost; common stocks at market value based on the latest quoted
market prices; and investments in real estate and properties held for Company
use generally at cost less encumbrances and accumulated depreciation. For the
loan-backed and structured securities included in the bond portfolio, the
Company recognizes income using the prospective method which results in a new
constant effective yield based on currently anticipated prepayments as
determined by broker-dealer surveys or internal estimates. Properties acquired
through loan foreclosures with cumulative carrying values of $946 million at
December 31, 1995, and $830 million at December 31, 1994, are recorded at the
lower of cost (principal balance of the former mortgage loan) or fair market
value at the time of foreclosure or receipt of deed in lieu of foreclosure. This
becomes the new cost basis of the real estate and is subject to further
potential carrying value reductions as a result of depreciation and quarterly
valuation determinations. Depreciation expense is computed primarily on the
basis of accelerated and straight-line methods over the estimated useful lives
of the assets. Other admitted assets are valued as prescribed by the Iowa
Insurance laws. Net realized capital gains and losses on investments are
determined using the specific identification basis.
The Asset Valuation Reserve (AVR) provides a reserve for losses from investments
in bonds, preferred and common stocks, mortgage loans, real estate, and other
invested assets, with related increases or decreases being recorded directly to
surplus. At December 31, 1995 and 1994, the AVR was $1,041 million and $792
million, respectively. At both December 31, 1995 and 1994, other liabilities
include additional investment reserves of $36 million and $51 million,
respectively, of which $9 million is required by statutory accounting practices
as a provision for potential losses on specific mortgages in default. Unrealized
capital gains and losses on investments, including changes in mortgage and
security reserves, are recorded directly in surplus. Comparable adjustments are
also made to the AVR.
The Interest Maintenance Reserve (IMR) primarily defers certain interest-related
gains and losses (net of tax) on fixed income securities which are amortized
into net income from investments over the estimated remaining lives of the
investments sold. At December 31, 1995 and 1994, the IMR, which is included in
other liabilities, was $109 million and $52 million, respectively.
In connection with preparation of its statement of cash flows, the Company
considers all highly liquid investments with a maturity of one year or less when
purchased to be short-term investments.
Fair Values of Financial Instruments
The Company has accumulated information to disclose the fair values of certain
financial instruments, whether or not recognized in the statement of financial
position, as required by the FASB. The FASB excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
The aggregate fair value asset amounts for investments (including cash and
short-term investments, policy loans and accrued investment income and excluding
investment in subsidiaries and investment real estate) are presented in Note 2
(carrying value: 1995 - $35.3 billion, 1994 - $32.4 billion; fair value: 1995 -
$37.5 billion, 1994 - $31.9 billion). Fair value information for derivatives
held or issued for purposes other than trading is presented in Note 3.
Information for certain of the Company's reserves and liabilities that are
investment-type contracts (insurance, annuity and other policy contracts that do
not involve significant mortality or morbidity risk) is presented in Note 4
(carrying value: 1995 - $21.4 billion, 1994 - $20.0 billion; fair value: 1995 -
$22.0 billion, 1994 - $19.5 billion). Those referenced notes also describe the
methods and assumptions utilized by the Company in estimating its fair value
disclosures for financial instruments. Those techniques utilized in estimating
the fair values of financial instruments are affected by the assumptions used,
including discount rates and estimates of the amount and timing of future cash
flows. Care should be exercised in deriving conclusions about the Company's
business, its value or financial position based on the fair value information of
certain financial instruments presented in the referenced notes.
Futures and Forward Contracts and Interest Rate and Equity Swaps
The Company uses financial futures contracts, forward purchase commitments and
interest rate swaps to hedge risks associated with interest rate fluctuations
and uses equity swaps to hedge risks associated with market fluctuations of
certain unaffiliated common stocks. Realized capital gains and losses on those
contracts which hedge risks associated with interest rate fluctuations are
amortized over the remaining lives of the underlying assets, primarily by
including them in the IMR. Realized capital gains and losses on equity swaps are
recognized in the period incurred.
Reserves for Insurance, Annuity and Accident and Health Policies
The reserves for life, health and annuity policies, all developed by actuarial
methods, are established and maintained on the basis of mortality and morbidity
tables using assumed interest rates and valuation methods that will provide, in
the aggregate, reserves that are greater than the minimum valuation required by
law or guaranteed policy cash values. The cumulative effects of changes in
valuation bases at the beginning of the year for previously established
policyowner reserves are included as adjustments to surplus. Significant
decreases in valuation bases are approved by the Insurance Division of the
Department of Commerce of the State of Iowa.
The liability for unpaid accident and health claims is determined using
statistical analyses and case basis evaluations. This liability is an estimate
of the ultimate net cost of all reported and unreported losses that are unpaid.
This liability is determined using estimates of future trends in claim severity,
frequency, and other factors that could vary as claims are ultimately settled.
Although considerable variability is inherent in such estimates, the Company
believes that the liability for unpaid claims is adequate. These estimates are
continually reviewed and, as adjustments to this liability become necessary,
such adjustments are reflected in current operations.
Recognition of Premium Revenues and Costs
For life and annuity contracts, premiums are recognized as revenues over the
premium-paying period, whereas commissions and other costs applicable to the
acquisition of new business are charged to operations as incurred.
Reinsurance
The Company reinsures certain of its risks. Reinsurance premiums, expenses, and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums ceded to other companies (1995 - $27
million, 1994 - $21 million and 1993 - $19 million) are reported as a reduction
of premium income, and insurance reserves applicable to reinsurance ceded have
also been reported as reductions of these items (1995 - $33 million and 1994 -
$24 million). The Company is contingently liable with respect to reinsurance
ceded to other companies in the event the reinsurer is unable to meet the
obligations that it has assumed.
Separate Accounts
The separate accounts presented in the financial statements represent the fair
market value of funds that are separately administered by the Company for
contracts with equity, real estate and fixed-income investments. The separate
account contract owner, rather than the Company, bears the investment risk of
these funds. The Company receives a fee for administrative and investment
advisory services.
Separate account assets and liabilities are disclosed in the aggregate in the
statements of financial position. The statements of operations include the
premiums, increases in reserves, benefits, and other items arising from the
operations of the separate accounts of the Company. The statements of surplus
reflect the gain from operations and surplus of the separate accounts. Such gain
from operations and surplus arises from the transfer by the Company of funds to
the separate accounts to facilitate their operations.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
2. Investments
Investments in debt securities, preferred stocks, and other fixed maturity
instruments are generally held for investment purposes to maturity, and,
therefore, are carried in the financial statements at amortized cost. The
Company's liabilities, to which such fixed maturity investments are closely
matched, are long-term in nature so the Company does not expect to be required
to sell such securities prior to maturity.
The carrying values and estimated market values of investments in bonds and
preferred stocks as of December 31, 1995 and 1994, are as follows (in millions):
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying Value Unrealized Unrealized Market
Gains Losses Value
---------------------------------------------------------------
December 31, 1995 Bonds:
<S> <C> <C> <C> <C>
United States Government and agencies $ 232 $ 4 $ - $ 236
States and political subdivisions 230 21 - 251
Corporate - public 4,374 328 16 4,686
Corporate - private 13,877 1,332 15 15,194
Mortgage-backed securities 3,085 134 4 3,215
---------------------------------------------------------------
21,798 1,819 35 23,582
Preferred stocks 93 12 - 105
---------------------------------------------------------------
$21,891 $1,831 $35 $23,687
===============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 Bonds:
<S> <C> <C> <C> <C>
United States Government and agencies $ 111 $ 1 $ 4 $ 108
States and political subdivisions 198 2 12 188
Corporate - public 3,986 74 142 3,918
Corporate - private 13,678 365 391 13,652
Mortgage-backed securities 2,653 2 166 2,489
---------------------------------------------------------------
20,626 444 715 20,355
Preferred stocks 69 4 2 71
---------------------------------------------------------------
$20,695 $448 $717 $20,426
===============================================================
</TABLE>
Market values of public bonds and preferred stocks have been determined by the
Company from public quotations, when available, or bonds have been assigned a
market rate by the Securities Valuation Office of the NAIC. Private placement
securities are valued by discounting the expected total cash flows. Market rates
used are applicable to the yield, credit quality and average maturity of each
security.
The carrying values and estimated market values of bonds at December 31, 1995,
by expected maturity, are as follows (in millions):
<TABLE>
<CAPTION>
Carrying Value Estimated Market
Value
------------------------------------
<S> <C> <C>
Due in one year or less $ 747 $ 768
Due after one year through five years 6,878 7,271
Due after five years through ten years 6,189 6,695
Due after ten years 3,176 3,657
------------------------------------
16,990 18,391
Mortgage-backed and other securities without
a single maturity date 4,808 5,191
------------------------------------
Total $21,798 $23,582
====================================
</TABLE>
The carrying value and estimated market value of mortgage loans at December 31,
1995 and 1994, are as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
----------------------------- ----------------------------------
Estimated Estimated Market
Carrying Value Market Carrying Value Value
Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial mortgage loans $9,794 $10,129 $8,901 $8,580
Residential mortgage loans 234 262 287 299
</TABLE>
Market values of commercial mortgage loans are valued by discounting the
expected total cash flows using market rates that are applicable to the yield,
credit quality, and maturity of each loan. Market values of residential mortgage
loans are valued by a pricing and servicing model using market rates that are
applicable to the yield, rate structure, credit quality, size, and maturity of
each loan. The carrying value for policy loans approximates the fair value.
Major categories of income from investments are summarized as follows (in
millions):
Year ended December 31
1995 1994 1993
------------------------------------------
Bonds $1,761 $1,622 $1,549
Preferred stocks 6 3 2
Common stocks 35 22 26
Investment in subsidiaries (48) (2) (37)
Mortgage loans 808 766 811
Investment real estate 211 179 129
Policy loans 48 44 44
Cash and short-term investments 29 20 6
Other 18 48 1
------------------------------------------
2,868 2,702 2,531
Less investment expenses 217 182 162
------------------------------------------
Net income from investments $2,651 $2,520 $2,369
==========================================
The major components of realized capital gains (losses) on investments reflected
in operations, and unrealized capital gains (losses) on investments reflected
directly in surplus, are summarized as follows (in millions):
<TABLE>
<CAPTION>
Realized Unrealized
--------------------------------- -----------------------------
1995 1994 1993 1995 1994 1993
--------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonds $101 $(133) $150 $ (17) $32 $(32)
Preferred stocks (1) - (11) 1 (7) 11
Common stocks 32 6 29 398 7 23
Mortgage loans (24) (34) (81) 9 3 41
Investment real estate 7 3 1 5 6 (1)
Investment in subsidiaries 1 32 - (6) 6 (5)
Other 4 45 (44) (1) - 20
------------------------------ -----------------------------
Net capital gains (losses) 120 (81) 44 389 47 57
Related federal income taxes (41) 6 (26) (63) - -
Transferred (to) from interest
maintenance reserve (77) 43 (70) - - -
------------------------------ -----------------------------
Total capital gains (losses) $ 2 $ (32) $(52) $326 $47 $57
============================== =============================
</TABLE>
Proceeds from sales of investments (excluding maturity proceeds) in debt
securities were $6.5 billion in both 1995 and 1994, and $11.9 billion in 1993.
Gross gains of $93 million, $53 million and $173 million and gross losses of $54
million, $213 million and $65 million in 1995, 1994 and 1993, respectively, were
realized on those sales. Of the 1995, 1994 and 1993 proceeds, $6.1 billion, $5.7
billion and $11.5 billion, respectively, relates to sales of mortgage-backed
securities. The Company actively manages its mortgage-backed securities
portfolio to control prepayment risk. Gross gains of $66 million, $19 million
and $152 million and gross losses of $17 million, $139 million and $29 million
in 1995, 1994 and 1993, respectively, were realized on sales of mortgage-backed
securities. At December 31, 1995, the Company had security purchases payable
totaling $426 million relating to the purchases of mortgage-backed securities at
forward dates.
The Company has a revolving credit agreement with Principal Residential
Mortgage, Inc., a wholly-owned subsidiary which conducts the Company's mortgage
banking operations, of up to $800 million, which had a balance of $458 million
outstanding at December 31, 1995.
Commercial mortgage loans and corporate private placement bonds originated or
acquired by the Company represent its primary areas of credit risk exposure. At
December 31, 1995 and 1994, the commercial mortgage portfolio is diversified by
geographic region and specific collateral property type as follows:
Geographic Distribution Property Type Distribution
- ------------------------------------------ ----------------------------------
December 31 December 31
1995 1994 1995 1994
----------------------- ---------------------------------
South Atlantic 22% 21% Industrial 43% 47%
Pacific 34 38 Office 26 24
Mid Atlantic 17 17 Retail 26 24
North Central 14 13 Other 5 5
South Central 7 6
New England 4 3
Mountain 2 2
The corporate private placement bond portfolio is diversified by issuer and
industry. Restrictive bond covenants are monitored by the Company to regulate
the activities of issuers and control their leveraging capabilities. Under the
NAIC bond classification system, 99.8% and 99.7% of the Company's bond portfolio
were carried at amortized cost at December 31, 1995 and 1994, respectively, with
the remainder carried at the lower of amortized cost or market value.
Effective December 29, 1995, the Company entered into short-term equity swap
agreements to mitigate its exposure to declines in the value of about one-half
of its marketable common stock portfolio. Under the agreements, the return on
that portion of the Company's marketable common stock portfolio was swapped for
a fixed short-term interest rate. At December 31, 1995, there was no realized or
unrealized gains or losses recorded on the equity swap agreements and,
accordingly, there was no credit exposure. The unrealized appreciation and
depreciation of marketable common stocks recognized in the Company's statement
of financial position were $814 million and $85 million, respectively, at
December 31, 1995.
Investment real estate includes properties directly owned by the Company and
investments in subsidiaries include properties owned jointly with venture
partners and operated by the partners. Joint ventures in which the Company has
an interest have mortgage loans with the Company of $2.2 billion at both
December 31, 1995 and December 31, 1994. The Company is committed to provide
additional mortgage financing for such joint ventures aggregating $304 million
at December 31, 1995.
3. Derivatives Held or Issued for Purposes Other Than Trading
The Company uses exchange-traded interest rate futures and forward contracts to
hedge against interest rate risks. The Company attempts to match the timing of
when interest rates are committed on insurance products and on new investments.
However, timing differences do occur and can expose the Company to fluctuating
interest rates. Interest rate futures and forward contracts are used to minimize
these risks. In these contracts, the Company is subject to the risk that the
counterparties will fail to perform and to the risks associated with changes in
the value of the underlying securities; however, such changes in value generally
are offset by opposite changes in the value of the hedged items. Futures
contracts are marked to market and settled daily, which minimizes the
counterparty risk. The notional amounts of futures and forward contracts ($303
million at December 31, 1995, and $80 million at December 31, 1994) represent
the extent of the Company's involvement but not the risk of loss.
The Company enters into interest rate swaps to minimize its exposure to
fluctuations in interest rates and to correct duration mismatches. The most
common use is to modify the duration of an asset or portfolio, a less common use
is to convert a floating rate asset into a fixed rate asset. The notional
principal amounts of the swaps outstanding at December 31, 1995 and 1994, were
$599 million and $586 million, respectively, and the credit exposure at December
31, 1995 and December 31, 1994 was $8 million. The Company's current credit
exposure on swaps is limited to the value of interest rate swaps that have
become favorable to the Company. The average unexpired terms of the swaps were
approximately three years at both December 31, 1995 and 1994, respectively. The
net amount payable or receivable from interest rate swaps is accrued as an
adjustment to interest income. The Company's interest rate swap agreements
include cross-default provisions when two or more swaps are transacted with a
given counterparty. Principal Mutual Life Insurance Company
3. Derivatives Held or Issued for Purposes Other Than Trading (continued)
The Company enters into currency exchange swap agreements to convert certain
foreign denominated fixed rate assets into dollar denominated fixed rate assets
and eliminate the exposure to future currency volatility on those securities. At
December 31, 1995, the Company had various foreign currency exchange agreements
with maturities ranging from 1995 to 2002, with an aggregate notional amount
involved of approximately $312 million and the credit exposure was $4 million.
The average unexpired term of the swaps was approximately five years at December
31, 1995.
4. Insurance, Annuity and Accident and Health Reserves
The carrying values and fair values of the Company's reserves and liabilities
for investment-type insurance contracts (which are only a portion of the
insurance reserves, annuity reserves, and other policy liabilities appearing in
the statement of financial position) at December 31, 1995 and 1994, are
summarized as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------------
Carrying Value Fair Carrying Value Fair
Value Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Insurance reserves $ 30 $ 33 $ 30 $ 30
Annuity reserves 20,989 21,524 19,714 19,168
Other policy liabilities 398 403 270 270
----------------------------------------------------------------------
Total $21,417 $21,960 $20,014 $19,468
======================================================================
</TABLE>
The fair values for the Company's reserves and liabilities under investment-type
contracts (insurance, annuity and other policy contracts that do not involve
significant mortality or morbidity risk) are estimated using discounted cash
flow analyses (based on current interest rates being offered for similar
contracts with maturities consistent with those remaining for the
investment-type contracts being valued) or surrender values.
The fair values for the Company's insurance contracts (insurance, annuity and
other policy contracts that do involve significant mortality or morbidity risk),
other than investment-type contracts, are not required to be disclosed. The
Company does consider, however, the various insurance and investment risks in
choosing investments for both insurance and investment-type contracts.
4. Insurance, Annuity and Accident and Health Reserves (continued)
Activity in the liability for unpaid accident and health claims, which is
included with insurance reserves in the statement of financial position, is
summarized as follows (in millions):
Year ended December 31
1995 1994 1993
------------------------------------------
Balance at beginning of year $ 844 $ 723 $ 657
Incurred:
Current year 2,665 2,735 2,307
Prior years (24) (105) (37)
------------------------------------------
Total incurred 2,641 2,630 2,270
Payments:
Current year 2,196 2,065 1,814
Prior years 481 444 390
------------------------------------------
Total payments 2,677 2,509 2,204
------------------------------------------
Balance at end of year:
Current year 469 670 493
Prior years 339 174 230
------------------------------------------
Total balance at end of year $ 808 $ 844 $ 723
==========================================
5. Federal Income Taxes
The Company files a consolidated income tax return that includes all of its
qualifying subsidiaries, and has a policy of allocating income tax expenses and
benefits to companies in the group based upon pro rata contribution of taxable
income or operating losses. The Company is taxed at corporate rates on taxable
income based on existing tax laws. Due to the inherent differences between
income for financial reporting purposes and income for tax purposes, the
Company's provision for federal income taxes may not have the customary
relationship of taxes to income.
Deferred income taxes are generally not recognized for the tax effects of
temporary differences between income for financial reporting purposes and income
for tax purposes. In 1993, 1994 and 1995, however, the Company recognized a
deferred tax asset and operating benefit for the tax effect of unamortized
deferred acquisition costs required for tax purposes. This deferred tax asset
was non-admitted in accordance with statutory accounting practices. In 1995, the
Company also recognized a deferred tax liability and surplus charge for the tax
effect of unrealized gains for common stocks identified for sale in 1996.
5. Federal Income Taxes (continued)
In December 1994, a U.S. Court of Appeals with jurisdiction over the Company
ruled that federal law did not permit mutual life insurance companies to use a
negative recomputed differential earnings rate to compute their equity tax
liability for the preceding year. Accordingly, the Company increased its
liability for federal income taxes attributable to its equity for years prior to
1994 and made a corresponding adjustment to surplus in the amount of $63
million.
6. Short-Term Borrowings
The Company issues commercial paper to meet its short-term financing needs.
There were no outstanding borrowings at December 31, 1995 or 1994. The Company
also maintains credit facilities with various banks for short-term borrowing
purposes.
7. Employee and Agent Benefits
The Company has defined benefit pension plans covering substantially all of its
employees and certain agents. The employees and agents are generally first
eligible for the pension plans when they reach age 21. The pension benefits are
based on the years of service and generally the employee's or agent's average
annual compensation during the last five years of employment. Partial benefit
accrual of pension benefits is recognized from first eligibility until
retirement based on attained service divided by potential service to age 65 with
a minimum of 35 years of potential service.
During 1995, the Company adopted Statement of Financial Standards (SFAS) No. 87,
"Employers' Accounting for Pensions," and accordingly changed its method of
accounting for the costs of defined benefit pension plans to an accrual method.
Prior to this change, the cost of pension benefits was recognized as
contributions were made to the pension trusts. The Company's policy is to fund
the cost of providing pension benefits in the years that the employees and
agents are providing service to the Company. The Company's funding policy is to
deposit the actuarial normal cost and any change in unfunded accrued liability
over a 30-year period as a percentage of compensation.
The pension plans' combined funded status, reconciled to amounts recognized in
the statements of financial position and statements of operations and surplus as
of and for the years ended December 31, 1995 and 1994, is as follows (in
millions):
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------------
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefit obligation $437 $324
==============================
Accumulated benefit obligation $457 $338
==============================
Plan assets at fair value, primarily affiliated mutual funds
and investment contracts of the Company $719 $581
Projected benefit obligation 661 462
------------------------------
Plan assets in excess of projected benefit obligation 58 119
Unrecognized net (gains) losses and funding different from that assumed
and from changes in assumptions 42 (23)
Unrecognized net transition asset as of January 1, 1994 (72) (83)
------------------------------
Prepaid pension asset (non-admitted) $ 28 $ 13
==============================
</TABLE>
Net periodic pension income included the following components (in millions):
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
------------------------------
<S> <C> <C>
Service cost $22 $26
Interest cost on projected benefit obligation 39 37
Actual return on plan assets (144) 6
Net amortization and deferral 79 (72)
------------------------------
Total net periodic pension income $ (4) $ (3)
==============================
</TABLE>
During 1994 and 1993, $10 million and $8 million, respectively, was charged to
expense and contributed to the trusts previously established to provide for
future costs of pension benefits. During 1995, $12 million was contributed to
these pension trusts. In addition, to adjust the pension accounting to the new
method required by SFAS No. 87 and to make the change effective as of January 1,
1994, surplus as of January 1, 1995 has been increased by $13 million. According
to the requirements of statutory accounting practices, pension expense for 1994
has not been restated and the 1994 pension amounts shown above are for
comparative purposes only. The pension asset at January 1, 1995 ($13 million)
and December 31, 1995 ($28 million) was non-admitted as prescribed by statutory
accounting practices.
The weighted-average assumed discount rate used in determining the projected
benefit obligation was 7% and 8.5% at December 31, 1995 and 1994, respectively.
Some of the trusts holding the plan assets are subject to federal income taxes
at a 35% tax rate while others are not subject to federal income taxes. For both
1995 and 1994, the expected long-term rates of return on plan assets were
approximately 6% (after estimated income taxes) for those trusts subject to
federal income taxes and approximately 10% for those trusts not subject to
federal income taxes. The assumed rate of increase in future compensation levels
varies by age for both the qualified and non-qualified pension plans.
In addition, the Company has defined contribution plans that are generally
available to all employees and agents who are age 21 or older and have completed
one year of service. Eligible participants may contribute up to 15% of their
compensation or $9,240 annually to the plans. The Company matches the
participant's contribution with a 50% contribution up to a maximum contribution
of 2% of the participant's compensation. During both 1995 and 1994, the Company
contributed $7 million to the defined contribution plans. During 1993, such
contributions totaled $6 million.
The Company also provides certain health care, life insurance, and long-term
care benefits for retired employees. Substantially all employees are first
eligible for these postretirement benefits when they reach age 57 and have
completed ten years of service with the Company. Partial benefit accrual of
these health, life, and long-term care benefits is recognized from first
eligibility until retirement based on attained service divided by potential
service to age 65 with a minimum of 35 years of potential service. The Company's
policy is to fund the cost of providing retiree benefits in the years that the
employees are providing service to the Company. The Company's funding policy is
to deposit the actuarial normal cost and an accrued liability over a 30-year
period as a percentage of compensation.
The postretirement plans' combined funded status, reconciled to amounts
recognized in the statement of financial position and statement of operations
and surplus as of and for the years ended December 31, 1995 and 1994, is as
follows (in millions):
<TABLE>
<CAPTION>
December 31
1995 1994
-------------------------------
Plan assets at fair value, primarily affiliated mutual funds and
<S> <C> <C>
investment contracts of the Company $208 $155
Accumulated postretirement benefit obligation:
Retirees (83) (71)
Eligible employees (40) (31)
-------------------------------
Total accumulated postretirement benefit obligation (123) (102)
-------------------------------
Plan assets in excess of accumulated postretirement benefit
obligation 85 53
Unrecognized net losses and funding different from that assumed and
from changes in assumptions 3 29
-------------------------------
Postretirement benefit asset (non-admitted) $ 88 $ 82
===============================
</TABLE>
The net periodic postretirement benefit cost included the following components
(in millions):
<TABLE>
<CAPTION>
Year ended
December 31
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Service cost $ 5 $ 4 $ 3
Interest cost on accumulated postretirement benefit cost 9 7 6
Expected return on plan assets (10) (10) (6)
Net amortization of gains and losses 1 - -
================================
Total net periodic postretirement benefit cost $ 5 $ 1 $ 3
================================
</TABLE>
The weighted-average assumed discount rate used in determining the accumulated
postretirement benefit obligation was 7% and 8.5% at December 31, 1995 and 1994,
respectively. Some of the trusts holding the plan assets are subject to federal
income taxes at a 35% tax rate while others are not subject to federal income
taxes. For both 1995 and 1994, the expected long-term rates of return on plan
assets were approximately 6% (after estimated income taxes) for those trusts
subject to federal income taxes and approximately 9% for those trusts not
subject to federal income taxes. These rates of return on plan assets vary by
benefit type and employee group.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations starts at 11.5% in 1995, declines to 9.5% in
2001, and then declines to an ultimate rate of 6.5% in 2036. If the health care
cost trend rate assumptions were increased by 1% in each year, the accumulated
postretirement benefits obligation for health plans as of December 31, 1995
would increase by 11.8% ($10 million). The effect of this 1% increase would also
increase the aggregate of the service cost and interest cost components of the
net periodic postretirement benefit cost of health plans for the year ended
December 31, 1995 by 13.5% ($1 million).
These statutory accounting provisions are similar to Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," issued by the FASB except that SFAS No. 106
includes ineligible employees in the accumulated postretirement benefit
obligation calculations. The accumulated postretirement benefit obligation for
ineligible employees was $77 million and $48 million at December 31, 1995 and
1994, respectively.
8. Surplus Notes
On March 10, 1994, the Company issued $300 million of surplus notes, including
$200 million due March 1, 2024 at a 7.875% annual interest rate and the
remaining $100 million due March 1, 2044 at an 8% annual interest rate. No
affiliates of the Company hold any portion of the surplus notes. The discount
and direct costs associated with issuing these surplus notes is being amortized
to expense over their respective terms using the interest method. For statutory
accounting purposes, these notes are considered a part of total surplus of the
Company. Each payment of interest and principal on the surplus notes may be made
only with the prior approval of the Commissioner of Insurance of the State of
Iowa (the Commissioner) and only to the extent that the Company has sufficient
surplus earnings to make such payments. For the years ended December 31, 1995
and 1994, interest of $24 million and $11 million, respectively, was approved by
the Commissioner, paid and charged to expense. Had the accrual of interest on
surplus notes not been subject to approval of the Commissioner, accrued interest
payable on surplus notes at both December 31, 1995 and 1994 would have been $8
million.
Subject to Commissioner approval, the surplus notes due March 1, 2024 may be
redeemed at the Company's election on or after March 1, 2004 in whole or in part
at a redemption price of approximately 103.6% of par. The approximate 3.6%
premium is scheduled to gradually diminish over the following ten years. These
surplus notes may then be redeemed on or after March 1, 2014, at a redemption
price of 100% of the principal amount plus interest accrued to the date of
redemption. Non-insurance companies individually held over 10% of these surplus
notes (approximately $50 million and $73 million at December 31, 1995 and 1994,
respectively).
In addition, subject to Commissioner approval, the surplus notes due March 1,
2044 may be redeemed at the Company's election on or after March 1, 2014, in
whole or in part at a redemption price of approximately 102.3% of par. The
approximate 2.3% premium is scheduled to gradually diminish over the following
ten years. These surplus notes may be redeemed on or after March 1, 2024, at a
redemption price of 100% of the principal amount plus interest accrued to the
date of redemption. Non-insurance companies individually held over 10% of these
surplus notes (approximately $43 million and $62 million at December 31, 1995
and 1994, respectively).
9. Other Commitments and Contingencies
The Company leases office space and furniture and equipment under various
operating leases. Rental expense for all operating leases totaled $48 million in
1995, $43 million in 1994 and $44 million in 1993. At December 31, 1995, future
minimum rental commitments under noncancelable operating leases for office space
and electronic data processing equipment totaled approximately $97 million.
The Company is a defendant in various legal actions arising in the normal course
of its investment and insurance operations. In the opinion of management, any
losses resulting from such actions would not have a material effect on the
financial statements.
The Company is also subject to insurance guarantee laws in the states in which
it writes business. These laws provide for assessments against insurance
companies for the benefit of policyholders and claimants in the event of
insolvency of other insurance companies. At December 31, 1995 and 1994,
approximately $18 million and $15 million, respectively, of surplus is
appropriated for possible guarantee fund assessments for which notices have not
been received.
In 1995, the Company sold its wholly-owned subsidiary, Principal National Life
Insurance Company (Principal National), at a gain of approximately $1 million.
At December 31, 1994, substantially all the assets ($513 million), liabilities
($470 million), and equity ($43 million) of Principal National were transferred
to and assumed by the Company. This resulted in increases in both other income
and additions to policyowner reserves of $470 million in 1994.
<PAGE>
APPENDIX
ILLUSTRATIONS OF POLICY VALUES AND DEATH BENEFITS
The following illustrations have been prepared to help show how values
under the Policies change with investment performance and differing death
benefit options. The illustrations show how death benefits and values would vary
over time if the return on assets held by the Mutual Funds were uniform, gross,
after tax, annual rates of 0%, 4%, 8% and 12%. The death benefits and values
would be different from those shown if the return averaged 0%, 4%, 8% and 12%,
but fluctuated above and below those averages during individual years. Both
Death Benefit Option 1 and Death Benefit Option 2 are illustrated.
The four illustrations set out show hypothetical policies issued to males
age 35 in the non-smoker rating classification. The Policies are illustrated on
the basis of $1,000 planned periodic annual premium and a face amount at issue
of $100,000. The first and third illustrations show the selection of Death
Benefit Option 1; the second and fourth, Death Benefit Option 2.
The illustrations reflect all of the contract charges. Each illustration
reflects the surrender charges and the premium expense charge which consists of
a 5% sales load and a charge for state premium taxes of 2%. The first two
illustrations reflect the Company's current administration charge of $4.75 per
month and current cost of insurance charges which are lower than the guaranteed
maximum cost of insurance charges based on the 1980 CS0 Mortality Table. The
third and fourth illustrations reflect the guaranteed maximum administration
charge of $5 per month and the guaranteed maximum cost of insurance charges.
The amounts shown for death benefits and values in all four illustrations
reflect the fact that the net investment return on the assets held by the
Divisions of the Separate Account is lower than the gross return. This is
because deductions are made from the gross return to reflect the daily charge
made to the Separate Account for assuming mortality and expense risks; the daily
investment advisory fees incurred by the Mutual Funds; and the direct operating
expenses of the Mutual Funds. The charge for mortality and expense risks
reflected in the first two illustrations is the Company's current charge which
is at an annual rate of 0.75% of the average daily assets of the Divisions. The
third and fourth illustrations reflect the guaranteed mortality and expense risk
charge which is at an annual rate of 0.90%. The investment advisory fee is
assumed to be an annual rate of .56% of the average daily net assets of the
Mutual Funds, but the maximum investment advisory fee for Principal Capital
Accumulation Fund, Inc. is 0.49%, for Principal Money Market Fund, Inc., and
Principal Bond Fund, Inc. , 0.50%, for Principal High Yield Fund, Inc., and
Principal Balanced Fund, Inc., 0.60%, and for Principal Emerging Growth Fund,
Inc., 0.65%. The charge for Mutual Fund direct operating expenses is estimated
to be an annual rate of .07% of the average daily net assets of the Mutual
Funds. This illustrated .07% charge is based on the assumption that the direct
operating expenses of the Mutual Funds will continue at levels historically
experienced. The direct operating expense of the Mutual Funds may decrease or
increase in the future making operating expenses actually incurred by the Mutual
Funds differ from the .07% assumed rate shown in the illustrations. Deducting
these charges from the gross returns of 0%, 4%, 8% and 12% results in net
investment returns in the first two illustrations of -1.37%, 2.57%, 6.52%, and
10.47% and in the third and fourth illustrations of -1.52%, 2.42%, 6.36%, and
10.30%.
The four illustrations are based on the assumption that payments are made
in accordance with a $1,000 annual planned periodic premium schedule, that no
changes in death benefit option or face amount are made, and that no policy
loans or surrenders occur. Upon request, the Company will prepare a comparable
illustration reflecting the proposed insured's actual age, sex, risk
classification and desired policy features.
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
FLEX VARIABLE LIFE
PLANNED PREMIUM $1,000 MALE AGE 35 NON-SMOKER Initial Face Amount $100,000
ASSUMING CURRENT CHARGES Death Benefit Option 1
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.37% Net) (2.57% Net) (6.52% Net)(10.47% Net)
1 $1,050 $100,000 $100,000 $100,000 $100,000
2 2,153 100,000 100,000 100,000 100,000
3 3,310 100,000 100,000 100,000 100,000
4 4,526 100,000 100,000 100,000 100,000
5 5,802 100,000 100,000 100,000 100,000
6 7,142 100,000 100,000 100,000 100,000
7 8,549 100,000 100,000 100,000 100,000
8 10,027 100,000 100,000 100,000 100,000
9 11,578 100,000 100,000 100,000 100,000
10 13,207 100,000 100,000 100,000 100,000
11 14,917 100,000 100,000 100,000 100,000
12 16,713 100,000 100,000 100,000 100,000
13 18,599 100,000 100,000 100,000 100,000
14 20,579 100,000 100,000 100,000 100,000
15 22,657 100,000 100,000 100,000 100,000
16 24,840 100,000 100,000 100,000 100,000
17 27,132 100,000 100,000 100,000 100,000
18 29,539 100,000 100,000 100,000 100,000
19 32,066 100,000 100,000 100,000 100,000
20 34,719 100,000 100,000 100,000 100,000
30(Age 65) 69,761 100,000 100,000 100,000 157,251
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.37% Net) (2.57% Net) (6.52% Net)(10.47% Net)
1 $1,050 692.35$ 724.19 $ 756.17 $ 788.20
2 2,153 1,367.57 1,459.27 1,553.85 1,651.07
3 3,310 2,023.09 2,202.71 2,392.94 2,593.65
4 4,526 2,658.31 2,953.93 3,275.44 3,623.66
5 5,802 3,272.69 3,712.37 4,203.51 4,749.75
6 7,142 3,863.77 4,475.54 5,177.56 5,979.53
7 8,549 4,431.07 5,242.88 6,200.06 7,323.61
8 10,027 4,974.12 6,013.84 7,273.72 8,793.82
9 11,578 5,491.52 6,786.91 8,400.56 10,402.41
10 13,207 5,985.62 7,564.38 9,586.57 12,166.92
11 14,917 6,459.65 8,349.44 10,839.05 14,107.66
12 16,713 6,912.11 9,140.75 12,161.16 16,242.58
13 18,599 7,343.39 9,938.76 13,558.18 18,593.58
14 20,579 7,752.03 10,742.16 15,034.06 21,183.35
15 22,657 8,138.41 11,551.43 16,594.85 24,039.02
16 24,840 8,500.20 12,364.41 18,244.57 27,188.45
17 27,132 8,836.87 13,180.70 19,989.35 30,664.58
18 29,539 9,146.13 13,998.20 21,834.29 34,502.89
19 32,066 9,427.48 14,816.50 23,786.64 38,744.71
20 34,719 9,680.44 15,635.26 25,854.37 43,436.47
30(Age 65) 69,761 9,718.86 23,020.71 54,704.87 128,894.48
<PAGE>
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.37% Net) (2.57% Net) (6.52% Net)(10.47% Net)
1 $1,050 $ 365.35 $ 397.19 $ 429.17 $ 461.20
2 2,153 1,040.57 1,132.27 1,226.85 1,324.07
3 3,310 1,696.09 1,875.71 2,065.94 2,266.65
4 4,526 2,372.18 2,667.80 2,989.31 3,337.53
5 5,802 3,027.44 3,467.12 3,958.26 4,504.50
6 7,142 3,659.39 4,271.16 4,973.18 5,775.15
7 8,549 4,267.57 5,079.38 6,036.56 7,160.11
8 10,027 4,851.49 5,891.21 7,151.09 8,671.19
9 11,578 5,409.77 6,705.16 8,318.81 10,320.66
10 13,207 5,944.74 7,523.50 9,545.69 12,126.04
11 14,917 6,459.65 8,349.44 10,839.05 14,107.66
12 16,713 6,912.11 9,140.75 12,161.16 16,242.58
13 18,599 7,343.39 9,938.76 13,558.18 18,593.58
14 20,579 7,752.03 10,742.16 15,034.06 21,183.35
15 22,657 8,138.41 11,551.43 16,594.85 24,039.02
16 24,840 8,500.20 12,364.41 18,244.57 27,188.45
17 27,132 8,836.87 13,180.70 19,989.35 30,664.58
18 29,539 9,146.13 13,998.20 21,834.29 34,502.89
19 32,066 9,427.48 14,816.50 23,786.64 38,744.71
20 34,719 9,680.44 15,635.26 25,854.37 43,436.47
30(Age 65) 69,761 9,718.86 23,020.71 54,704.87 128,894.48
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed a
representation of past or future investment results. Actual investment results
may be more or less than those shown. The death benefit, accumulated value and
surrender value for a policy would be different from those shown if actual rates
of investment return applicable to the policy averaged 0%, 4%, 8% or 12% over a
period of years, but also fluctuated above or below that average for individual
policy years. The death benefit, accumulated value and surrender value for a
policy would also be different from those shown, depending on the investment
allocations made to the investment divisions of the separate account and the
different rates of return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 4%, 8% or 12%, but
varied above or below that average for individual divisions. No representations
can be made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
FLEX VARIABLE LIFE
PLANNED PREMIUM $1,000 MALE AGE 35 NON-SMOKER Initial Face Amount $100,000
ASSUMING CURRENT CHARGES Death Benefit Option 2
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.37% Net) (2.57% Net) (6.52% Net)(10.47% Net)
1 $1,050 $100,691 $100,723 $100,755 $100,787
2 2,153 101,364 101,455 101,549 101,646
3 3,310 102,015 102,194 102,383 102,583
4 4,526 102,645 102,938 103,258 103,604
5 5,802 103,252 103,688 104,175 104,717
6 7,142 103,834 104,440 105,135 105,929
7 8,549 104,390 105,192 106,139 107,249
8 10,027 104,919 105,945 107,188 108,687
9 11,578 105,421 106,696 108,284 110,253
10 13,207 105,896 107,447 109,432 111,964
11 14,917 106,350 108,201 110,638 113,836
12 16,713 106,779 108,956 111,904 115,886
13 18,599 107,185 109,712 113,234 118,131
14 20,579 107,565 110,467 114,630 120,589
15 22,657 107,920 111,222 116,096 123,285
16 24,840 108,247 111,972 117,635 126,238
17 27,132 108,546 112,718 119,248 129,475
18 29,539 108,814 113,455 120,939 133,022
19 32,066 109,051 114,183 122,711 136,912
20 34,719 109,256 114,900 124,569 141,178
30(Age 65) 69,761 108,531 120,224 147,979 214,245
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.37% Net) (2.57% Net) (6.52% Net) (10.47% Net)
1 $1,050 $ 690.95 $ 722.74 $ 754.66 $ 786.64
2 2,153 1,363.51 1,454.93 1,549.21 1,646.13
3 3,310 2,014.94 2,193.77 2,383.15 2,582.95
4 4,526 2,644.54 2,938.42 3,258.00 3,604.12
5 5,802 3,251.62 3,688.01 4,175.41 4,717.43
6 7,142 3,833.52 4,439.63 5,135.03 5,929.35
7 8,549 4,389.57 5,192.31 6,138.59 7,249.15
8 10,027 4,919.14 5,945.08 7,187.92 8,687.08
9 11,578 5,420.62 6,695.90 8,283.94 10,253.39
10 13,207 5,896.37 7,446.76 9,431.74 11,963.62
11 14,917 6,349.72 8,200.69 10,637.83 13,836.03
12 16,713 6,778.99 8,955.75 11,903.92 15,885.47
13 18,599 7,184.52 9,711.96 13,233.93 18,130.48
14 20,579 7,564.63 10,467.33 14,629.96 20,589.42
15 22,657 7,919.69 11,221.83 16,096.31 23,284.70
16 24,840 8,247.06 11,972.41 17,634.46 26,237.90
17 27,132 8,546.12 12,717.94 19,248.06 29,474.95
18 29,539 8,814.28 13,455.26 20,938.93 33,022.41
19 32,066 9,050.98 14,183.14 22,711.05 36,911.73
20 34,719 9,255.65 14,900.33 24,568.71 41,177.64
30(Age 65) 69,761 8,530.55 20,223.68 47,978.52 114,245.03
<PAGE>
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.37% Net) (2.57% Net) (6.52% Net) (10.47% Net)
1 $1,050 $ 363.95 $ 395.74 $ 427.66 $ 459.64
2 2,153 1,036.51 1,127.93 1,222.21 1,319.13
3 3,310 1,687.94 1,866.77 2,056.15 2,255.95
4 4,526 2,358.41 2,652.29 2,971.87 3,317.99
5 5,802 3,006.37 3,442.76 3,930.16 4,472.18
6 7,142 3,629.14 4,235.25 4,930.65 5,724.97
7 8,549 4,226.07 5,028.81 5,975.09 7,085.65
8 10,027 4,796.51 5,822.45 7,065.29 8,564.45
9 11,578 5,338.87 6,614.15 8,202.19 10,171.64
10 13,207 5,855.49 7,405.88 9,390.86 11,922.74
11 14,917 6,349.72 8,200.69 10,637.83 13,836.03
12 16,713 6,778.99 8,955.75 11,903.92 15,885.47
13 18,599 7,184.52 9,711.96 13,233.93 18,130.48
14 20,579 7,564.63 10,467.33 14,629.96 20,589.42
15 22,657 7,919.69 11,221.83 16,096.31 23,284.70
16 24,840 8,247.06 11,972.41 17,634.46 26,237.90
17 27,132 8,546.12 12,717.94 19,248.06 29,474.95
18 29,539 8,814.28 13,455.26 20,938.93 33,022.41
19 32,066 9,050.98 14,183.14 22,711.05 36,911.73
20 34,719 9,255.65 14,900.33 24,568.71 41,177.64
30(Age 65) 69,761 8,530.55 20,223.68 47,978.52 114,245.03
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed a
representation of past or future investment results. Actual investment results
may be more or less than those shown. The death benefit, accumulated value and
surrender value for a policy would be different from those shown if actual rates
of investment return applicable to the policy averaged 0%, 4%, 8% or 12% over a
period of years, but also fluctuated above or below that average for individual
policy years. The death benefit, accumulated value and surrender value for a
policy would also be different from those shown, depending on the investment
allocations made to the investment divisions of the separate account and the
different rates of return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 4%, 8% or 12%, but
varied above or below that average for individual divisions. No representations
can be made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
FLEX VARIABLE LIFE
PLANNED PREMIUM $1,000 MALE AGE 35 NON-SMOKER Initial Face Amount $100,000
ASSUMING GUARANTEED CHARGES Death Benefit Option 1
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.52% Net) (2.42% Net) (6.36% Net)(10.30% Net)
1 $ 1,050 $100,000 $100,000 $100,000 $100,000
2 2,153 100,000 100,000 100,000 100,000
3 3,310 100,000 100,000 100,000 100,000
4 4,526 100,000 100,000 100,000 100,000
5 5,802 100,000 100,000 100,000 100,000
6 7,142 100,000 100,000 100,000 100,000
7 8,549 100,000 100,000 100,000 100,000
8 10,027 100,000 100,000 100,000 100,000
9 11,578 100,000 100,000 100,000 100,000
10 13,207 100,000 100,000 100,000 100,000
11 14,917 100,000 100,000 100,000 100,000
12 16,713 100,000 100,000 100,000 100,000
13 18,599 100,000 100,000 100,000 100,000
14 20,579 100,000 100,000 100,000 100,000
15 22,657 100,000 100,000 100,000 100,000
16 24,840 100,000 100,000 100,000 100,000
17 27,132 100,000 100,000 100,000 100,000
18 29,539 100,000 100,000 100,000 100,000
19 32,066 100,000 100,000 100,000 100,000
20 34,719 100,000 100,000 100,000 100,000
30(Age 65) 69,761 100,000 100,000 100,000 144,232
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.52% Net) (2.42% Net) (6.36% Net)(10.30% Net)
1 $ 1,050 $ 686.19 $ 717.92 $ 749.72 $ 781.56
2 2,153 1,354.32 1,445.51 1,539.33 1,635.78
3 3,310 2,001.84 2,180.18 2,368.58 2,567.35
4 4,526 2,628.21 2,921.30 3,239.26 3,583.62
5 5,802 3,232.92 3,668.27 4,153.35 4,692.79
6 7,142 3,813.54 4,418.54 5,111.02 5,901.98
7 8,549 4,369.66 5,171.51 6,114.52 7,221.23
8 10,027 4,900.82 5,926.57 7,166.31 8,661.70
9 11,578 5,405.67 6,682.17 8,268.11 10,234.92
10 13,207 5,882.88 7,436.78 9,421.85 11,953.82
11 14,917 6,330.22 8,187.93 10,628.78 13,832.01
12 16,713 6,746.42 8,934.06 11,891.30 15,885.75
13 18,599 7,130.23 9,673.64 13,212.10 18,133.29
14 20,579 7,479.51 10,404.21 14,593.28 20,594.35
15 22,657 7,792.11 11,123.29 16,037.30 23,291.18
16 24,840 8,064.09 11,826.60 17,545.26 26,247.40
17 27,132 8,290.65 12,508.95 19,117.78 29,489.19
18 29,539 8,466.09 13,164.18 20,755.13 33,045.88
19 32,066 8,583.83 13,785.21 22,457.19 36,950.62
20 34,719 8,638.18 14,365.67 24,225.22 41,242.47
30(Age 65) 69,761 3,879.91 15,928.14 46,033.42 118,222.74
<PAGE>
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.52% Net) (2.42% Net) (6.36% Net)(10.30% Net)
1 $ 1,050 $ 359.19 $ 390.92 $ 422.72 $ 454.56
2 2,153 1,027.32 1,118.51 1,212.33 1,308.78
3 3,310 1,674.84 1,853.18 2,041.58 2,240.35
4 4,526 2,342.08 2,635.17 2,953.13 3,297.49
5 5,802 2,987.67 3,423.02 3,908.10 4,447.54
6 7,142 3,609.16 4,214.16 4,906.64 5,697.60
7 8,549 4,206.16 5,008.01 5,951.02 7,057.73
8 10,027 4,778.19 5,803.94 7,043.68 8,539.07
9 11,578 5,323.92 6,600.42 8,186.36 10,153.17
10 13,207 5,842.00 7,395.90 9,380.97 11,912.94
11 14,917 6,330.22 8,187.93 10,628.78 13,832.01
12 16,713 6,746.42 8,934.06 11,891.30 15,885.75
13 18,599 7,130.23 9,673.64 13,212.10 18,133.29
14 20,579 7,479.51 10,404.21 14,593.28 20,594.35
15 22,657 7,792.11 11,123.29 16,037.30 23,291.18
16 24,840 8,064.09 11,826.60 17,545.26 26,247.40
17 27,132 8,290.65 12,508.95 19,117.78 29,489.19
18 29,539 8,466.09 13,164.18 20,755.13 33,045.88
19 32,066 8,583.83 13,785.21 22,457.19 36,950.62
20 34,719 8,638.18 14,365.67 24,225.22 41,242.47
30(Age 65) 69,761 3,879.91 15,928.14 46,033.42 118,222.74
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed a
representation of past or future investment results. Actual investment results
may be more or less than those shown. The death benefit, accumulated value and
surrender value for a policy would be different from those shown if actual rates
of investment return applicable to the policy averaged 0%, 4%, 8% or 12% over a
period of years, but also fluctuated above or below that average for individual
policy years. The death benefit, accumulated value and surrender value for a
policy would also be different from those shown, depending on the investment
allocations made to the investment divisions of the separate account and the
different rates of return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 4%, 8% or 12%, but
varied above or below that average for individual divisions. No representations
can be made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
<PAGE>
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
FLEX VARIABLE LIFE
PLANNED PREMIUM $1,000 MALE AGE 35 NON-SMOKER Initial Face Amount $100,000
ASSUMING GUARANTEED CHARGES Death Benefit Option 2
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.52% Net) (2.42% Net) (6.36% Net)(10.30% Net)
1 1,050 $100,685 $100,717 $100,748 $100,780
2 2,153 101,350 101,441 101,535 101,631
3 3,310 101,994 102,171 102,359 102,557
4 4,526 102,614 102,906 103,222 103,564
5 5,802 103,212 103,644 104,125 104,661
6 7,142 103,783 104,383 105,069 105,852
7 8,549 104,328 105,121 106,053 107,147
8 10,027 104,846 105,858 107,081 108,556
9 11,578 105,335 106,592 108,152 110,087
10 13,207 105,794 107,320 109,268 111,752
11 14,917 106,220 108,039 110,428 113,561
12 16,713 106,612 108,748 111,633 115,527
13 18,599 106,968 109,443 112,883 117,664
14 20,579 107,287 110,121 114,178 119,985
15 22,657 107,564 110,780 115,519 122,508
16 24,840 107,797 111,413 116,903 125,248
17 27,132 107,979 112,013 118,326 128,220
18 29,539 108,105 112,574 119,783 131,442
19 32,066 108,168 113,085 121,269 134,930
20 34,719 108,161 113,539 122,779 138,704
30(Age 65) 69,761 102,559 112,436 137,137 197,824
Accumulated Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.52% Net) (2.42% Net) (6.36% Net)(10.30% Net)
1 1,050 $ 684.79 $ 716.46 $ 748.20 $ 779.99
2 2,153 1,350.24 1,441.15 1,534.67 1,630.81
3 3,310 1,993.68 2,171.21 2,358.76 2,556.62
4 4,526 2,614.44 2,905.77 3,221.81 3,564.07
5 5,802 3,211.88 3,643.93 4,125.28 4,660.51
6 7,142 3,783.39 4,382.73 5,068.62 5,851.96
7 8,549 4,328.35 5,121.17 6,053.35 7,147.14
8 10,027 4,846.19 5,858.23 7,081.06 8,555.67
9 11,578 5,335.33 6,591.86 8,152.42 10,087.13
10 13,207 5,794.22 7,319.94 9,268.12 11,752.07
11 14,917 6,220.36 8,039.29 10,427.90 13,561.06
12 16,713 6,612.24 8,747.70 11,632.49 15,526.85
13 18,599 6,968.42 9,442.85 12,882.66 17,663.46
14 20,579 7,286.46 10,121.39 14,178.22 19,985.32
15 22,657 7,563.96 10,779.89 15,518.95 22,508.37
16 24,840 7,796.58 11,412.79 16,902.55 25,248.03
17 27,132 7,979.05 12,013.38 18,325.54 28,220.29
18 29,539 8,105.20 12,573.81 19,783.20 31,441.73
19 32,066 8,167.94 13,084.99 21,269.44 34,929.57
20 34,719 8,161.29 13,538.64 22,778.85 38,703.87
30(Age 65) 69,761 2,558.82 12,436.06 37,136.77 97,824.21
<PAGE>
Surrender Value (2)
Assuming Hypothetical Gross
Annual Investment Return of
End of
Year Accumulated
Policy Premiums (1) 0% 4% 8% 12%
(-1.52% Net) (2.42% Net) (6.36% Net)(10.30% Net)
1 1,050 $ 357.79 $ 389.46 $ 421.20 $ 452.99
2 2,153 1,023.24 1,114.15 1,207.67 1,303.81
3 3,310 1,666.68 1,844.21 2,031.76 2,229.62
4 4,526 2,328.31 2,619.64 2,935.68 3,277.94
5 5,802 2,966.63 3,398.68 3,880.03 4,415.26
6 7,142 3,579.01 4,178.35 4,864.24 5,647.58
7 8,549 4,164.85 4,957.67 5,889.85 6,983.64
8 10,027 4,723.56 5,735.60 6,958.43 8,433.04
9 11,578 5,253.58 6,510.11 8,070.67 10,005.38
10 13,207 5,753.34 7,279.06 9,227.24 11,711.19
11 14,917 6,220.36 8,039.29 10,427.90 13,561.06
12 16,713 6,612.24 8,747.70 11,632.49 15,526.85
13 18,599 6,968.42 9,442.85 12,882.66 17,663.46
14 20,579 7,286.46 10,121.39 14,178.22 19,985.32
15 22,657 7,563.96 10,779.89 15,518.95 22,508.37
16 24,840 7,796.58 11,412.79 16,902.55 25,248.03
17 27,132 7,979.05 12,013.38 18,325.54 28,220.29
18 29,539 8,105.20 12,573.81 19,783.20 31,441.73
19 32,066 8,167.94 13,084.99 21,269.44 34,929.57
20 34,719 8,161.29 13,538.64 22,778.85 38,703.87
30(Age 65) 69,761 2,558.82 12,436.06 37,136.77 97,824.21
(1) Assumes net interest of 5% compounded annually.
(2) Assumes no policy loan has been made.
The death benefit, accumulated value and surrender value will differ if premiums
are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment results are illustrative only and should not be deemed a
representation of past or future investment results. Actual investment results
may be more or less than those shown. The death benefit, accumulated value and
surrender value for a policy would be different from those shown if actual rates
of investment return applicable to the policy averaged 0%, 4%, 8% or 12% over a
period of years, but also fluctuated above or below that average for individual
policy years. The death benefit, accumulated value and surrender value for a
policy would also be different from those shown, depending on the investment
allocations made to the investment divisions of the separate account and the
different rates of return of the Fund portfolios, if the actual rates of
investment return applicable to the policy averaged 0%, 4%, 8% or 12%, but
varied above or below that average for individual divisions. No representations
can be made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter adopted under the authority conferred in that
section.
UNDERTAKING PURSUANT TO RULE 484
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter had been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
REPRESENTATIONS PURSUANT TO RULE 6e-3(T) This filing is made
pursuant to Rules 6c-3 and 6e-3(T) under the Investment Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940, with respect to the Policies described in the
prospectus. Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risks charge is within
the range of industry practice for comparable contracts.
(3) The Registrant has concluded that there is a reasonable
likelihood that the distribution financing arrangement for the
Variable Life Separate Account will benefit the separate account
and policyowners, and it will keep and make available to the
Commission on request a memorandum setting forth the basis for
this representation.
(4) The Variable Life Separate Account will invest only in
management investment companies which have undertaken to have a
board of directors, a majority of whom are not interested
persons of the Company, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2) above
is based upon an analysis of the mortality and expense risks charges contained
in other variable life insurance policies, including scheduled and flexible
premium products. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the representation in
paragraph (2) above.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
The prospectus, consisting of 78 pages;
The undertaking to file reports;
The undertaking pursuant to Rule 484;
Representations pursuant to Rule 6e-3(T);
The signatures;
Written consents of the following persons:
Ernst & Young LLP
The following exhibits
1. Copies of all exhibits required by paragraph A of the
instructions as to exhibits in Form N-8B-2 are set forth
below under designations based on such instructions
1.A1 Resolution of Executive Committee of Board of Directors of
Principal Mutual Life Insurance Company establishing the
Variable Life Separate Account
1.A3A.a Distribution Agreement between Princor Financial Services
Corporation and Principal Mutual Life Insurance Company
1.A3B.a Form of Selling Agreement
1.A3B.b Registered Representative Agreement
1.A3C Schedule of sales commissions
1.A5.a Form of Flex Variable Life Policy
1.A5.a.i Cost of Living Increase Rider
1.A5.a.ii Waiver of Monthly Deductions Rider
1.A5.a.iii Guaranteed Increase Option Rider
1.A5.a.iv Accidental Death Benefit Rider
1.A5.a.v Children Term Insurance Rider
1.A5.a.vi Spouse Term Insurance Rider
1.A5.a.vii Change of Insured Rider
1.A5.a.viii Death Benefit Guarantee Rider
1.A5.a.ix Accounting Benefit Rider
1.A5.a.x Accelerated Benefits Rider
1.A5.b Form of Flex Variable Life Policy - Unisex Version
1.A5.b.i Cost of Living Increase Rider
1.A5.b.ii Waiver of Monthly Deductions Rider
1.A5.b.iii Guaranteed Increase Option Rider
1.A5.b.iv Accidental Death Benefit Rider
1.A5.b.v Children Term Insurance Rider
1.A5.b.vi Spouse Term Insurance Rider
1.A5.b.vii Change of Insured Rider
1.A5.b.viii Death Benefit Guarantee Rider
1.A5.b.ix Accounting Benefit Rider
1.A5.b.x Accelerated Benefits Rider
1.A6.a Articles of Incorporation, as Amended of Principal Mutual
Life Insurance Company
1.A6.b By-laws of Principal Mutual Life Insurance Company
1.A10.a Form of Application for Flex Variable Life Policy
1.A10.b Form of Supplemental Application for Flex Variable
Life Policy
2. Opinion of consent of T. M. Hutchison, Senior Vice President
and General Counsel
3. No financial statements will be omitted from the prospectus
pursuant to Instruction 1(b) or (c) or Part I
4. Not applicable
5. Not applicable
6. Consent of Ernst & Young LLP
7. Description of Issuance, Transfer and Redemption Procedures
Pursuant to Rule 6e-3(T)(b)(12)(iii)
8. Powers of Attorney of Directors of Principal Mutual Life
Insurance Company
9. Opinion of Consent of Lisa Huebert, Senior Actuary
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Principal Mutual Life Insurance
Company Variable Life Separate Account, certifies that it meets the requirements
of Securities Act Rule 485(b) for effectiveness of the Registration Statement
and has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the city of Des Moines
and State of Iowa, on the 11th day of April, 1996.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
(Registrant)
By: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
(Depositor)
DAVID J. DRURY
By ______________________________________________
David J. Drury Chairman and Chief Executive
Officer
Attest:
JOYCE N. HOFFMAN
- -----------------------------------
Joyce N. Hoffman
Vice President and
Corporate Secretary
<PAGE>
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
Director, Chairman and
D. J. Drury Chief Executive Officer April 11, 1996
Second Vice President and
D. C. Cunningham Controller (Principal
Accounting Officer) April 11, 1996
Executive Vice
C. E. Rohm President (Principal
Financial Officer) April 11, 1996
(M. V. Andringa)* Director April 11, 1996
M. V. Andringa
(R. M. Davis)* Director April 11, 1996
R. M. Davis
(C. D. Gelatt, Jr.)* Director April 11, 1996
C. D. Gelatt, Jr.
(G. D. Hurd)* Director April 11, 1996
G. D. Hurd
(T. M. Hutchison)* Director April 11, 1996
T. M. Hutchison
(C.S. Johnson)* Director April 11, 1996
C.S. Johnson
(W. T. Kerr)* Director April 11, 1996
W. T. Kerr
(L. Liu)* Director April 11, 1996
L. Liu
(V. H. Loewenstein)* Director April 11, 1996
V. H. Loewenstein
(J. R. Price)* Director April 11, 1996
J. R. Price
(B. A. Rice)* Director April 11, 1996
B. A. Rice
(J-P. C. Rosso)* Director April 11, 1996
J-P. C. Rosso
(D. M. Stewart)* Director April 11, 1996
D. M. Stewart
(E. E. Tallett)* Director April 11, 1996
E. E. Tallett
(D. D. Thornton)* Director April 11, 1996
D. D. Thornton
(F. W. Weitz)* Director April 11, 1996
F. W. Weitz
DAVID J. DRURY
*By ----------------------------------------
David J. Drury
Chairman and Chief Executive Officer
----------------------------------------
Pursuant to Powers of Attorney
Previously Filed or Included Herein
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT INDEX
Page Number in
Sequential Numbering
Exhibit No. Description Where Exhibit Can Be Found
<S> <C> <C>
1.A1 Resolution of Executive Committee 16
of Board of Directors of Depositor
establishing Variable Life Separate
Account
1.A3A.a Distribution Agreement Between 19
Depositor and Principal Underwriter
1.A3B.a Form of Selling Agreement 22
1.A3B.b Registered Representative Agreement 24
1.A3C Schedule of Sales Commissions 27
1.A5.a Flex Variable Life Policy 30
1.A5.a.i Cost of Living Increase Rider 52
1.A5.a.ii Waiver of Monthly Deductions Rider 54
1.A5.a.iii Guaranteed Increase Option Rider 57
1.A5.a.iv Accidental Death Benefit Rider 59
1.A5.a.v Children Term Insurance Rider 61
1.A5.a.vi Spouse Term Insurance Rider 63
1.A5.a.vii Change of Insured Rider 65
1.A5.a.viii Death Benefit Guarantee Rider 67
1.A5.a.ix Accounting Benefit Rider 69
1.A5.a.x Accelerated Benefits Rider 70
1.A5.b Flex Variable Life Policy - Unisex Version 72
1.A5.b.i Cost of Living Increase Rider. 95
1.A5.b.ii Waiver of Monthly Deductions Rider 97
1.A5.b.iii Guaranteed Increase Option Rider 100
1.A5.b.iv Accidental Death Benefit Rider 102
1.A5.b.v Children Term Insurance Rider 104
1.A5.b.vi Spouse Term Insurance Rider 106
1.A5.b.vii Change of Insured Rider 108
1.A5.b.viii Death Benefit Guarantee Rider 110
1.A5.b.ix Accounting Benefit Rider 112
1.A5.b.x Accelerated Benefit Rider 113
1.A6.a Articles of Incorporation, as Amended, 115
of Depositor
1.A6.b By-laws of Depositor 118
1.A10.a Form of Application for the Flex 122
Variable Life Policy
1.A10.b Form of Supplemental Application 129
For the Flex Variable Life Policy
2 Opinion and consent of T. M. Hutchison 132
Senior Vice President and General Counsel
6 Consent of Ernst & Young LLP 133
7 Description of Issuance, Transf and Redemption 134
Procedures Pursuant to Rule 6e-3(T)(b)(12)(iii)
8 Powers of Attorney of Directors of 142
Principal Mutual Life Insurance
Company.
9 Opinion and consent of Lisa Huebert, 149
Senior Actuary
27 Financial Data Schedules 150
</TABLE>
Executive Committee Resolution #3120 (passed November 2, 1987)
RESOLVED that Board Resolution No. 12324 of August 19, 1985, is
replaced and superseded as follows:
WHEREAS, Principal Mutual Life Insurance Company intends to issue
individual variable life insurance policies for which a separate account must be
established;
WHEREAS, payments under these policies may be allocated by policy-
owners to one or more investment alternatives;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby created and
established a separate account, to be known as the Variable Life Separate
Account, for the receipt of payments under variable life insurance policies to
be issued by the Company.
BE IT FURTHER RESOLVED, that there are hereby established, for the
purpose of providing alternate investment choices for variable life
policyowners, six separate divisions within the Variable Life Separate Account,
an Aggressive Growth Division, a Bond Division, a Common Stock Division, a High
Yield Division, a Managed Division and a Money Market Division. All income and
expenses and all gains or losses, whether or not realized, experienced with
respect to assets for policies participating in a division of the Variable Life
Separate Account shall be credited to or charged against those assets,
unaffected by income and expenses or gains or losses experienced with respect to
assets for any other division of the Variable Life Separate Account, or any
other separate account, or the general account of the Company.
BE IT FURTHER RESOLVED, that the appropriate officers of the Company,
as shall be designated by the President or Chairman of the Board, are hereby
authorized and directed to prepare, execute and file with the Securities and
Exchange Commission in accordance with the provisions of the Securities Act of
1933, as amended, a registration statement or statements, and such amendments
thereto as may be necessary or appropriate, relating to such variable life
insurance contracts.
BE IT FURTHER RESOLVED, that the officers so designated are hereby
authorized if necessary to prepare, execute and file with the Securities and
Exchange Commission in accordance with the provisions of the Investment Company
Act of 1940, as amended, a registration statement or statements, and such
amendments thereto as may be necessary or appropriate, relating to such unit
investment trust or trusts.
BE IT FURTHER RESOLVED, that the officers so designated are hereby
authorized to take such further action as in their judgment may be necessary or
desirable to effect the registration of such variable life insurance contracts
and of such unit investment trust or trusts.
<PAGE>
Board Resolution #12503 (passed February 22-23, 1988)
RESOLVED, that Board Resolution No. 12057, October 18-19, 1982, is
amended and superseded by the following resolution, and all references in other
resolutions to that resolution, or resolutions which it replaced, are amended to
refer to this superseding resolution:
BE IT RESOLVED, that either the Chief Executive Officer, or the
President, is authorized to designate officers who shall have the power and
authority, acting directly or through other officers and employees to whom they
may delegate the power and authority:
1. To prepare an issue or amend appropriate individual life policies,
annuity contracts, disability and double indemnity riders or
contracts, and settlement option contracts; to determine the
appropriate plans of insurance, contracts, riders, amendments and
benefits to be offered; to determine underwriting practices,
including exclusions, restrictions, amount limits and
classification of risks; to determine premiums, fees or charges,
non-forfeiture values, and policy loan rates; to administer
benefit payments; and to make recommendations with respect to
dividends to be paid in connection with such policies or
contracts.
2. To prepare and issue or amend appropriate individual health
policies or contracts; to determine the appropriate plans of
insurance, contracts, riders, amendments and benefits to be
offered; to determine underwriting practices, including
exclusions, restrictions, amount limits and classification of
risks; to determine the premiums, fees or charges and
non-forfeiture values; to administer benefit payments; and to make
recommendations with respect to dividends to be paid in connection
with such policies or contracts.
3. To prepare and issue or amend appropriate group policies,
contracts, riders, amendments and other forms, including, but not
limited to, life plans, disability benefit plans, health plans,
dental plans, annuity plans and all other forms and plans,
contracts or agreements pertaining to or utilized in connection
with pension, profit sharing and other deferred compensation
plans; to determine the plans and benefits to be offered which may
include coverage on dependents as well as the participants in the
plans; to determine the underwriting practices, including the
exclusions, restrictions, amount limits, and classification of
risks; to determine premiums, fees or charges and values; to
administer benefit payments; and to make recommendations with
respect to dividends to be paid in connection with such
policies or contracts.
4. To prepare, issue or amend appropriate individual or group
contracts, policies or annuities providing for a separate account
or accounts and to establish, maintain, amend and discontinue such
account or accounts as are deemed necessary or advisable.
5. To enter into reinsurance and coinsurance contracts and treaties;
to take such actions as are required to liberalize, restrict or
otherwise change benefits, values and underwriting practices with
respect to any class or classes of persons or policyholders; to
cause the general account or any account maintained by the Company
to be segmented for the purposes of crediting investment results
separately to any class or classes of policyholders; to enter into
contracts or agreements wherein the Company undertakes to provide
formed insurance companies or other subsidiaries, the stock of
which will be owned directly or indirectly by the Company.
6. To do those other things deemed necessary or desirable to carry
out the business of Principal Mutual Life Insurance Company within
the powers of the corporation.
BE IT FURTHER RESOLVED, that either the corporate secretary or the
general counsel is authorized to certify the powers of the corporation and the
powers and authority of the officers or employees.
<PAGE>
MEMORANDUM
January 3, 1996
TO Dave Drury, Officers, S-6, x7-5921
FROM John Aschenbrenner, Ind. Staff, G-12, x7-5927
RE New Divisions for Variable Life Separate Account
In accordance with Principal Mutual Life Insurance Company Board Resolution
No. 12503 passed February 22, 1988, I have created the following new divisions
for the Variable Life Separate Account to reflect the funding options that will
be utilized by the variable life insurance policy Principal Mutual will issue in
the near future:
1. Aggressive Growth Division;
2. Asset Allocation Division;
3. Government Securities Division;
4. Growth Division;
5. World Division;
6. Fidelity Contrafund Division;
7. Fidelity Equity Income Division; and
8. Fidelity High-Income Division.
In addition, I have directed that the name of the Common Stock Division be
changed to the Capital Accumulation Division and the name of the existing
Aggressive Growth Division be changed to the Emerging Growth Division.
- -----------------------------------------
John Aschenbrenner
JA/sal
cc Barry Griswell
FIRST AMENDMENT TO DISTRIBUTION AGREEMENT FOR
FLEXIBLE VARIABLE LIFE INSURANCE POLICY
THIS AMENDMENT is made this 29th day of September, 1989, between Principal
Mutual Life Insurance Company ("Principal Mutual"), and Princor Financial
Services Corporation ("Princor").
WHEREAS, a Distribution Agreement for Flexible Variable Life Insurance Policies
was entered into between the parties on October 9, 1987; and
WHEREAS, the parties now desire to amend such agreement to add certain
provisions with respect to the distribution of Policies by outside
broker-dealers.
NOW, THEREFORE, the parties agree as follows:
1. Paragraph 9 of the Distribution Agreement is hereby amended to add the
following sentence to the end of the current paragraph:
At the request of Princor and solely for the administrative
convenience of the parties hereto, Principal Mutual may pay the dealer
concession or other compensation allowable for the sale of the
Policies directly to the broker-dealer or its registered
representatives, in which case Princor will nonetheless bear legal
responsibility for the accuracy of records kept of such transactions.
2. Paragraph 9 of the Distribution Agreement is hereby amended to change the
reference in the third sentence from "Paragraph 5" to "Paragraph 4".
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed
on the day and year written above.
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
JOHN ASCHENBRENNER
By-------------------------------------
PRINCOR FINANCIAL SERVICES CORPORATION
BRIAN NYGAARD
By-------------------------------------
<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT is made this 4th day of October, 1987,
between Principal Mutual Life Insurance Company ("Principal Mutual"), a mutual
life insurance company organized under the laws of the State of Iowa, and
Princor Financial Services Corporation ("Princor"), an affiliate of Principal
Mutual organized under the laws of the State of Iowa.
WITNESSETH
WHEREAS, Principal Mutual has established Variable Life Separate Account
("Separate Account") and registered such Separate Account as an investment
company under the Investment Company Act of 1940 to fund variable life insurance
policies ("Policies") issued by Principal Mutual Life Insurance Company;
WHEREAS, Princor is registered with the Securities and Exchange
Commission as a broker-dealer under the Securities Exchange Act of 1934 and is a
member of the National Association of Securities Dealers, Inc.; and
WHEREAS, Principal Mutual desires to issue certain variable life insurance
polies with respect to the Separate Account which will be sold and distributed
by and through Princor, and Princor is willing to sell and distribute such
Policies under the terms and conditions stated herein;
NOW, THEREFORE, the parties agree as follows:
1. Principal Mutual hereby appoints Princor as the principal underwriter of
the Policies issued with respect to the Separate Account, and Princor agrees to
use its best efforts to sell and distribute the Policies through its registered
representatives or through other broker-dealers registered under the Securities
and Exchange Act of 1934 whose registered representatives are authorized by
applicable law to sell variable life insurance policies.
2. All payments and other monies payable upon the sale, distribution,
renewal or other transaction involving the Policies shall be the property of and
be paid or remitted directly to Principal Mutual, who shall retain all such
payments and monies for its own account except to the extent such payments and
monies are allocated to the Separate Account. Princor shall not be deemed to
have any interest in such payments.
3. For the administrative convenience of the parties, Principal Mutual
shall pay to the registered representatives of Princor the commissions earned on
the sale, distribution, renewal or other transaction involving the Policies as
determined in the attached Commission Schedule, and provide Princor with
accurate records of all such commissions paid on its behalf;
4. Principal Mutual shall pay to Princor an amount equal to the expenses
incurred by Princor in the performance of this Agreement. Princor shall provide
a statement of expenses to Principal Mutual at least semi-annually in a form and
manner agreed to by the parties.
5. Princor shall be solely responsible for the supervision and control of
the conduct and activities of its registered representatives with regard to the
sale and distribution of the Policies.
6. Principal Mutual shall assume the responsibility, including the costs
thereof, for all administrative and legal functions pertaining to the Policies
not otherwise specifically assumed by Princor in this agreement, including but
not limited to the following: filing of any policies with a state securities
commission as required by applicable state securities (Blue Sky) laws; the
preparation, printing and filing of prospectuses; the development, filing, and
compliance with federal and state securities laws and regulations of the
Separate Account; contract development; SEC registration; filing and compliance
with state insurance laws and regulations; underwriting; policy issue and
policyowner service functions; developing sales and promotional material; and
training agents.
7. Principal Mutual will prepare and maintain all the books and records in
connection with the offer and sales of variable life insurance policies which
are required to be maintained and preserved in accordance with applicable
securities law; and all such books and records are to be maintained and held by
Principal Mutual on behalf of and as agent for the broker-dealer whose property
they are and shall remain; and that all such books and records will be made
available for inspection by the Securities and Exchange Commission at all times.
8. Principal Mutual shall send to each policyowner a confirmation as
required by law or regulation of any transaction made with respect to the
Policies which shall reflect the true facts of the transaction and show that
confirmation of the transaction is being sent to the policyowner on behalf of
the broker-dealer acting in the capacity of agent for the insurance company.
9. Princor and Principal Mutual may enter into agreements with other
broker-dealers duly licensed under applicable federal and state laws and with
their affiliated general agencies, if any, for the sale and distribution of the
Policies. The commission payable to registered representatives on the sale of
Policies thereunder may not exceed the amount shown on the attached Commission
Schedule. The amount of any dealer allowance or other compensation paid by
Princor to the broker-dealer shall be added to reimbursable expenses under
paragraph 5 of this agreement.
10. This agreement may be terminated by either party upon 60 days prior
written notice. Princor shall promptly notify the Securities and Exchange
Commission of any such termination.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed on the day and year written above.
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
John Aschenbrenner
By:_____________________________
PRINCOR FINANCIAL SERVICES
CORPORATION
William P. Kovacs
By:______________________________
BROKER-DEALER
MARKETING AND COMPENSATION AGREEMENT
FOR
FLEXIBLE VARIABLE LIFE INSURANCE
AGREEMENT made this ________________ day of _________________________, 19____,
by and between Princor Financial Services Corporation (hereinafter called
Distributor), _______________________________ (hereinafter called Broker) and
Principal Mutual Life Insurance Company (hereinafter called Issuer).
Marketing
In consideration of the mutual agreements herein contained, the Parties hereto
agree as follows:
1. The Distributor hereby appoints the Broker to sell Flexible Variable Life
Insurance Policies (hereinafter called Policies) issued by the Issuer. This
Agreement is a selling agreement between broker-dealers. It does not
designate any party as the broker, agent, or employee of any other party.
Words and phrases in this Agreement given special meaning in any Policies
shall have that same special meaning in this Agreement unless specifically
defined otherwise herein.
2. The Broker hereby agrees to direct its best efforts to find purchasers for
Policies issued by the Issuer. The Broker does not undertake hereby to sell
any specific number of policies issued by the Issuer.
3. The Distributor shall provide the Broker with a reasonable number of
current prospectuses and such other material as the Distributor determines
to be desirable for use in connection with the sale of Policies or the
solicitation of applications for participation thereunder.
4. The Broker warrants that it is a member in good standing of the National
Association of Securities Dealers, Inc. (NASD) and will promptly notify
Distributor of any change in Broker's status as a member of the NASD.
5. The Broker represents that it is currently a member of SIPC and, while this
agreement is in effect, will continue to be a member of SIPC. The Broker
agrees to notify the Distributor if the Broker's SIPC membership status
changes.
6. The Broker warrants that the Broker and any person associated with or
acting for the Broker in the solicitation of applications for Policies
shall be qualified pursuant to the requirements of the National Association
of Securities Dealers, Inc. and appropriate federal and state agencies
regulating securities, insurance, any other aspect of the Policies or the
sale of them. The Broker shall be responsible for seeing to such
qualifications, and will indemnify and hold the Distributor and the Issuer
harmless for any failure to have all persons engaged in solicitation
properly licensed, registered, and appointed for securities and insurance
sales.
7. The Broker shall be responsible for supervising and controlling the conduct
and activities of its Registered Representatives with regard to the sale
and distribution of Policies. The Broker agrees to indemnify and hold the
Distributor and the Issuer harmless for claims and actions of any sort
which arise from the conduct and activities of the persons involved in the
sale and distribution of the Policies.
8. The Broker shall act only in its own behalf in making agreements with
Registered Representatives or other persons in connection with the
solicitation or sales of Policies.
9. The Broker agrees to maintain all books and records relating to the sale of
Policies or interests therein required to be maintained by the Broker
pursuant to the Securities Exchange Act of 1934, in conformity with the
requirements of Rules 17a-3 and 17a-4 under such Act, and to the applicable
securities or insurance laws of any state.
10. The Broker shall transmit promptly and directly to the Distributor all
Premiums collected by or paid to the Broker. All Policies are to be
delivered promptly, and any undelivered Policies are to be returned within
the time allowed or on demand.
COMPENSATION
With respect to the Policies issued by the Issuer and distributed by the
Distributor upon applications for Policies obtained by the Broker while this
agreement is in force, it is agreed that, subject to all provisions of this
Agreement and only so long as the Agreement remains in force, the Broker shall
receive Compensation in the form of a dealer concession as provided by Schedule
A attached hereto.
1. Compensation shall only be paid with respect to Policies issued while this
Agreement is in force. Determination of the Policies applicable to this
Agreement shall be by the Issuer.
2. The Distributor may, at any time, upon written notice to the Broker, change
any and all of the rates of Compensation set out herein.
3. If the Issuer, for any reason, refunds any Premiums, or any part thereof,
on any Policy, any Compensation paid on the amount refunded shall be repaid
to the Issuer by the Broker promptly and on demand.
4. Any indebtedness of any kind due to the Distributor or Issuer from the
Broker may be offset against any amount due the Broker.
5. No assignment of the Compensation payable pursuant to this Agreement shall
be valid unless it is accepted in writing by the Issuer and Distributor.
6. The maximum amount of selling commission the Broker may pay its
Representatives shall be 50% of premium up to target premium and 4% of
premium in excess of target premium in the first year, and 4% of premium in
years 2 through 4 and 3.5% of premium in years 5 and later.
7. Broker agrees that if its Representatives are paid for a portion of their
expenses incurred in the sale of Policies out of the Broker's dealer
concession, such payment will be conditioned upon the statement of the
Representative that he or she has actual unreimbursed expenses incurred in
the sale of the Policies equal to or exceeding the payment. Under no
circumstances shall the amount Broker pays the Representative as
reimbursement for such expenses exceed in any year forty percent (40%) of
the Commission paid in that year pursuant to paragraph 6 of this Agreement
immediately previous to this paragraph 7.
GENERAL
1. The Broker shall have no authority to incur any liability or debt against
the Distributor or the Issuer; accept risks or contracts of any kind; make,
alter, authorize or discharge any contract; extend the time of payment of
any Contributions; waive payments, fail to transmit any Contributions
collected promptly to the Distributor; use any advertising or sales
material which has not first been submitted to and approved by the
Distributor and the Issuer; nor bind the Distributor or the Issuer in any
way.
2. Any modifications of this Agreement must be in writing and signed by an
authorized office of the Distributor and the Issuer.
3. This Agreement may be terminated by either the Distributor, the Broker or
the Issuer upon written notice to the last known address of the other
parties.
4. This Agreement supersedes and replaces any and all prior agreements of the
Distributor or the Issuer with the Broker on the subject of Contracts or
the sale of them.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
in triplicate on the date first above written.
______________________________ (Broker)
By _______________________________________
PRINCOR FINANCIAL SERVICES CORPORATION
By _______________________________________
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By _______________________________________
The Principal Financial Group Princor Financial Registered Representative's
Des Moines, IA 50392-0200 Services Corporation Agreement
- --------------------------------------------------------------------------------
This agreement by and between Princor Financial Services Corporation
(herein referred to as "Princor" and ___________________________________,
registered representative (herein referred to as "RR", of the City of
___________________________, State of ___________________, for the sale of
registered products is effective on the ______ day of __________________, 19____
and is subject to the following terms and conditions.
Definitions
- --------------------------------------------------------------------------------
a. Throughout this Agreement, the terms "we", "us" and "our" mean Princor. The
terms "you" and "your" mean the RR executing this agreement.
b. Commissions mean payments made pursuant to the commission schedules for
registered products which are in effect at the time of sale. Those
commission schedules are incorporated into this agreement by reference.
c. Application means application or order for the purchase of registered
products.
d. Registered products means investment company shares underwritten by us,
investment company shares and units sold through us, limited partnership
interest, variable life insurance policies, variable annuity contracts, and
such other security products that we are or become qualified to sell.
e. "Advertising", "sales literature" and "sales material" shall have the
meanings given by the applicable securities laws.
Relationship
- ---------------------------------------------------------------------------
a. To the extent permitted by applicable securities laws, your relationship
with us is that of an independent contractor. Nothing contained herein or
elsewhere shall be construed to create an employer/employee relationship.
b. Subject to any applicable regulatory and licensing requirements, you are
responsible for developing your own sales prospects and determining when
and where you will solicit business.
c. You are not required to spend a certain portion of your time as RR.
However, you will be expected to solicit new applications if appropriate
and to service accounts.
d. We reserve the right to reject any applications, orders or payments
remitted by you and to refund to investors payments made by them.
Duties and Responsibilities
- ----------------------------------------------------------------------------
You are agreeing to:
a. Solicit sales of products on our behalf .
b. Provide service to our clients.
c. Adhere strictly to the rules of the National Association of Securities
Dealers, Inc. (NASD), the acts and regulations of the Securities and
Exchange Commission (SEC), and all statutes and regulations of the states
and of the United States.
d. Follow our Field Representative OSJ Procedures (MM 66) and all other rules,
policies and directives concerning sales practices and conduct established
by us. Said procedures are incorporated herein by reference.
e. Obtain NASD registration and state licenses appropriate for your activities
as RR.
f. Acquire licenses, bonds and professional liability insurance coverage as
required by us or by the law. Provide us with evidence of such and of any
changes thereto.
g. Limit solicitations of applications to the state(s) in which you are
licensed. Solicitations shall be made only after receiving written
authorization from us.
h. Upon notification from us, pay promptly all registration and state license
renewal fees and such other costs as may be directed by us.
i. Immediately upon receipt, forward all applications and all payments.
j. Upon our demand or termination of this agreement, return all monies,
prospectuses, application forms, manuals, and other materials or supplies
furnished to you by us, or by anyone on our behalf.
Limitations
- -----------------------------------------------------------------------
You may not:
a. Incur any liability or debt against us.
b. Make contracts, promise reinstatement of contracts, or attempt to bind us.
c. Allow more time for payment of any amount by a client, applicant,
shareholder or other third party.
d. Extend credit to any person or entity in connection with a securities
account.
e. Accept payments or deposits from any client, applicant, shareholder or
third party except as expressly authorized by us.
f. Initiate legal proceedings in our name.
g. Make any representations concerning applications or products except as
contained in the current prospectus and supplementary sales materials or
sales literature approved by us.
h. Solicit in any manner in any state for which we have not given you written,
pre-approval to sell.
i. Solicit or sell any security, exempt or otherwise, that we have not given
you written, pre-approval to sell.
j. Send applications, or otherwise place orders, directly to a sponsor or
issuer other than Princor.
k. Call yourself a "financial planner", imply that you provide financial
planning services or charge fees for financial planning services unless you
first register as an investment advisor. We must review applications for
registration. You must comply with applicable federal and state
regulations.
Commissions
- -------------------------------------------------------------------------------
a. We will pay you commissions on commissionable transactions which have been
approved and accepted by us.
b. The commission rate will be determined by the commission schedules in
effect at the time of the sale.
c. Commission schedules may be changed at any time by us.
d. We may reduce the amount we pay you by an amount you owe us or our
affiliate(s).
Prior Contract
- --------------------------------------------------------------------------------
This agreement supersedes all other contracts or agreements between you and
Princor. Your right to receive commissions pursuant to prior contracts is not
affected by this agreement.
Assignment
- --------------------------------------------------------------------------------
a. This agreement is not assignable.
b. Other than as provided in Commissions (d) above, no commission payable
under this agreement may be transferred, assigned or made payable to other
than you without our prior written approval.
Disciplinary Action and Termination
- --------------------------------------------------------------------------------
a. This agreement may be terminated by either party at any time upon three
days written notice sent to the last known address of the other party.
b. We may censure or fine you, or terminate your contract without giving prior
notice if we determine that you have committed any fraudulent, dishonest or
illegal acts, violated any provision of this agreement, failed or refused
to comply with the rules, regulations and statutes of the federal or state
government, SEC, or NASD, or failed or refused to comply with our
supervisory procedures or other instructions.
c. If your NASD registration is terminated for any reason, this agreement will
terminate concurrently.
- ------------------------------------ -----------------------------------
Princor Financial Services Corp. Registered Representative Signature
FLEXIBLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
1. First Year Commissions
First Year
Percentage of
Premium Level Premium
-------------------------------------------- -------------
Premium received up to the target premium 50%
Premium received in excess of the target premium 4%
The target premium is determined according to a rate per $1,000 of face amount.
This rate varies by age and sex of the insured. The target premium rates for
Flex Variable Life are the same as the target premium rates for Universal Life
25 and Universal Life 250. Please refer to page L3 of your commission schedule
for a listing of these target premium rates.
2. Renewal Commissions
a. Paid to original writing agent who continues as servicing agent.
1. Policy Year 2nd thru 4th
2% of all premium received
2. Policy Year 5th and later
1.5% of all premium received
b. Paid to servicing agent who was not the original writing agent.
1. Policy Year 2nd through 4th
2% of all premium received that is greater than the average
annual premium attributed to the previous agent(s).
2. Policy Year 5th and later
1.5% of all premium received that is greater than the average
annual premium attributed to the previous agent(s).
c. Paid to the original writing agent who is no longer the servicing
agent.
1. Policy year 2nd through 4th
2% of premium received up to the average annual premium
attributed to the writing agent.
2. Policy year 5th and later
1.5% of premium received up to the average annual premium
attributed to the writing agent.
d. Average annual premium means the actual premium received on a policy
for the three latest policy years (including the current policy year)
divided by three.
e. Servicing agent means the agent appointed by us and accepted by the
policyowner as his or her servicing agent.
3. Service Fees
A non-vested transferable service fee of 2% will be paid on all premium
received after the first policy year.
4. Commissions on Increases in Face Amount
When a face amount increase occurs on an exiting Flex Variable Life Policy,
commissions in addition to those outlined above may be payable.
If the new face amount is greater than the highest face amount on the
policy in any of the last three years, commissions of 46% will be paid on
premium received during the first 12 months following the date of the face
amount increase that is greater than the premium level on which first year
commissions have been previously been paid. The additional premiums
received on which these commissions are paid will be limited to the total
target premium level of the policy following the face amount increase.
5. Persistency - Production
Short-term bonuses are payable on Flex Variable Life premium received according
to the provisions of the Bonus Plans section of the Commission Schedules
attached to the Representative's insurance marketing contract (the Contract)
with Principal Mutual Life Insurance Company and Principal National Life
Insurance Company then in effect. The amount of the bonus payments will depend
on the amount of total life insurance premium in force, the persistency
percentage, and the policy year.
Payments may range from 1.25% to 5.25% of the premium in the first three policy
years.
6. Commissions After Termination
The amount of renewal commissions payable after the termination of the
Registered Representative's Agreement will be governed by the Representative's
Contract with Principal Mutual Life Insurance Company and Principal National
Life Insurance Company in force at the time of the sale. Notwithstanding
anything to the contrary in the Contract, renewal commissions will be paid to
Representatives after termination of the Registered Representative's Agreement
so long as such payment is permitted by applicable securities statutes,
regulations and/or NASD rules.
7. Other
The right to alter the provisions of this Commission Schedule Amendment for
Flexible Variable Life Insurance Policies is expressly reserved to Princor
Financial Services Corporation. Any amendment or alteration will be effective
for transactions occurring after notice of such change has been given. <PAGE>
SCHEDULE A
DEALER CONCESSION
FLEXIBLE VARIABLE LIFE INSURANCE
A. First Year
Percentage of
Premium Level Premium
------------------------------------------------ -------------
Premium received up to the target premium 87.5
Premium received in excess of the target premium 7
The target premium is determined according to a rate per $1,000 of face
amount. This rate varies by age and sex of the insured. Please refer to the
following schedule for a listing of the target premium rates.
B. Years Two and Later
Percentage of
Premium
-------------
I. Sales Compensation for Renewal Years 2.5
II. Service Fees* 3.1
C. Compensation on Increases
An increase will be defined as a face amount increase. We will compare the
increased face amount of the policy against the highest policy face amount
over the latest three year period to determine if there is a policy face
amount increase during the current year.
An 80.5% dealer concession will be paid on premium received during the
first 12 months following the date of a face amount increase that is
greater than the premium level on which a high first year dealer concession
rate was previously paid. The maximum premium on which a high first year
dealer concession rate is paid will be limited to the total target premium
amount of the policy after a face amount increase has occurred.
*The service fee element of compensation is payable only so long as a registered
representative of the dealer is designated by the Issuer as the servicing agent
We will pay the death proceeds to the beneficiary subject to the provisions of
your policy, when we receive proof at our home office of the insured's death.
THE AMOUNT OF DEATH BENEFIT OR THE DURATION OF COVERAGE MAY VARY UNDER SPECIFIED
CONDITIONS. SEE PROVISIONS FOR DEATH PROCEEDS AND GRACE PERIOD.
YOUR POLICY'S ACCUMULATED VALUE MAY VARY FROM DAY TO DAY. IT MAY INCREASE OR
DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF OUR VARIABLE LIFE SEPARATE
ACCOUNT. THERE IS NO GUARANTEED MINIMUM ACCUMULATED VALUE.
The owner and the beneficiary are as named in the application unless changed as
provided in your policy. This policy is a legal contract between you, as the
owner, and us, Principal Mutual Life Insurance Company. Your policy is issued in
consideration of the application and payment of premiums. Signed for Principal
Mutual Life Insurance Company at Des Moines, Iowa on the policy date.
RIGHT TO EXAMINE POLICY--You may request a cancellation of your policy before
the latter of: (1) 45 days after the application was signed (2) 10 days after
receipt of the policy; or (3) 10 days from the delivery of the notice of the
right to cancel. We will refund any premiums paid after your policy is returned
to your agent or our home office. Your policy will be considered void from its
inception.
Please read your policy carefully so you may better use its many benefits.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. Adjustable death benefit.
Benefits payable at death or earlier maturity date. Flexible premiums payable
until maturity date or prior death. Some benefits reflect investment results.
PARTICIPATING.
A mutual company serving policyowners and beneficiaries since 1879.
INSURED John Doe ISSUE AGE-SEX 35-Male
POLICY NUMBER SAMPLE POLICY Flexible Premium Variable Life
POLICY DATE September 1, 1992 FACE AMOUNT $1,000,000
<PAGE>
- --------------------------------------------------------------------------------
INDEX
Accumulated Value 9 Loan Interest Charges 12
Adjustment Date 4 Loan Repayment 12
Adjustments 12 Maturity Proceeds 6
Age and Sex (of Insured) 21 Monthly Date 4
Alteration (of Contract) 21 Monthly Deduction 9
Assignment 21 Ownership Changes 21
Beneficiary Changes 21 Partial Surrenders 10
Benefit Instructions 21 Planned Periodic Premiums 12
Benefit Options 15 Policy Loans 11
Contract 21 Policy Years and Anniversaries 4
Cost of Insurance Rates 10 Premium Payment Limits 13
Data Page 3 Reinstatement 14
Death Benefit Changes 6 Statement of Value 23
Death Benefit Options 5 Suicide 22
Death Proceeds 5 Surrender Value 10
Divisions 7 Table of Surrender Charges 3
Face Amount 3 Termination 14
Grace Period 13 Transaction Charge 3
Incontestability 21 Transfers 8
Insured 4 Units and Unit Value 7
Investment Account Value 8 Variable Life Separate Account 6
A copy of any application and any additional benefits provided by rider follow
the last page of this policy.
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DATA PAGE PAGE 3
- --------------------------------------------------------------------------------
(Continued on Page 3-1)
INSURED John Doe ISSUE AGE-SEX 35-Male
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
SCHEDULE OF PROTECTION
FORM PROTECTION#
NO. POLICY AND RIDERS FACE AMOUNT PERIOD DEATH BENEFITS
SF32 Flexible Premium $1,000,000 To Age 95* Option 1
Variable Life
SF40 Accidental Death 250,000 To Age 70
SF34 Cost of Living To Age 55
Your planned periodic premium of $500.00 is payable monthly.
#If sufficient premiums are paid, this policy provides life insurance protection
on the insured until the maturity date, which is the policy anniversary
following the birthday on which the insured attains age 95. You may have to pay
other than the planned periodic premium shown above to keep this policy in force
to that date, and to keep any additional benefit riders in force.
The smallest payment we will accept is $30.00.
Minimum monthly premium: $450.17
* Any reference to age means the age last birthday on the prior policy
anniversary.
This policy is adjustable. If it is adjusted, we will send you written
notification showing each change. The notice is to be attached to and made a
part of this policy. The minimum face amount is $25,000. The minimum face amount
increase is $5,000.
Loan Interest Rate: 8%
Borrowed funds earn interest at a rate of 6%.
<PAGE>
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DATA PAGE 3-1
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(Continued on Page 3-2)
INSURED John Doe ISSUE AGE-SEX 35-Male
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
SEPARATE ACCOUNT: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
PREMIUM MONTHLY
ALLOCATION DEDUCTION
DIVISIONS PERCENTAGES ALLOCATIONS
Common Stock 100% 100%
Invested in Principal Capital Accumulation
Fund, Inc.
Money Market 00% 00%
Invested in Principal Money Market
Bond 00% 00%
Invested in Principal Bond Fund, Inc.
High Yield 00% 00%
Invested in Principal High Yield Fund, Inc.
Managed 00% 00%
Invested in Principal Managed Fund, Inc.
Emerging Growth 00% 00%
Invested in Principal Emerging Growth
Fund, Inc.
Minimum Allocation Percentage: 10%
<PAGE>
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DATA PAGE 3-2
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(Continued on page 3-3)
INSURED John Doe ISSUE AGE-SEX 35-Male
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
SCHEDULE OF CHARGES
Maximum monthly administration charge: $5.00
Maximum daily mortality and expense risk charge: .0024658 (.90% annual) of
accumulated value.
Premium expense charge: 5% of each premium received plus a charge for state
taxes of 2% of each premium received.
Transaction Charges: The first 4 division transfers per year are free.
Thereafter, there is a $25.00 transaction charge for each transfer. Each partial
surrender will also have a transaction charge. The transaction charge is the
lesser of $25 or 2% of the amount surrendered.
Minimum Transfer Amount: $250 or the balance of the investment account being
transferred from, if less.
Minimum Partial Surrender or Loan Amount: $500
Minimum Policy Loan Repayment: $30.00
TABLE OF SURRENDER CHARGES
(POLICY YEAR OF SURRENDER)
POLICY YEAR AMOUNT
1 $3,270.00
2 3,270.00
3 3,270.00
4 2,861.25
5 2,452.50
6 2,043.75
7 1,635.00
8 1,226.25
9 817.50
10 408.75
In the first year, surrender charges build up on a monthly basis over the first
twelve policy months.
<PAGE>
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DATA PAGE 3-2
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(Continued on page 3-4)
INSURED John Doe ISSUE AGE-SEX 35-Male
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
DETAILED SCHEDULE OF PROTECTION AND RISK CLASSES
POLICY AND EFFECTIVE
RIDERS DATE AMOUNT RISK CLASS
Flexible Premium
Variable Life September 1, 1992 $1,000,000 Standard Nonsmoker
TOTAL $1,000,000
Accidental Death September 1, 1992 $1,000,000 Standard Nonsmoker
Cost of Living The effective date is September 1, 1992. The
current cost of living base is $1,000,000. The maximum cost
of living increase is the lesser of $50,000 or 30% of the
cost of living base. The minimum cost of living increase is
$500.00.
Basis of Values: Guaranteed maximum cost of insurance rates are based on 1980
CSO Mortality, age last birthday, table NA.
<PAGE>
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DATA PAGE 3-4
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INSURED John Doe ISSUE AGE-SEX 35-Male
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
(Nonsmoker)
MONTHLY RATES PER $1,000.00
- ------------- ----------- --------------- -------------
INSURED'S MONTHLY INSURED'S MONTHLY
ATTAINED AGE RATE ATTAINED AGE RATE
============= =========== =============== =============
35 0.14417 65 1.85750
36 0.15167 66 2.05583
37 0.16167 67 2.26833
38 0.17250 68 2.49917
39 0.18417 69 2.75583
40 0.19833 70 3.04583
41 0.21333 71 3.37667
42 0.22917 72 3.75917
43 0.24667 73 4.19333
44 0.26583 74 4.67000
45 0.28750 75 5.18000
46 0.31083 76 5.71917
47 0.33583 77 6.28333
48 0.36333 78 6.87583
49 0.39333 79 7.51583
50 0.42750 80 8.22333
51 0.46667 81 9.01750
52 0.51167 82 9.91500
53 0.56333 83 10.91250
54 0.62083 84 11.99000
55 0.68500 85 13.12417
56 0.75500 86 14.29917
57 0.82917 87 15.49917
58 0.91167 88 16.71833
59 1.00500 89 17.97417
60 1.10833 90 19.28500
61 1.22333 91 20.68167
62 1.35667 92 22.21750
63 1.50667 93 24.04333
64 1.67417 94 26.50333
<PAGE>
DEFINITIONS IN THIS POLICY
ADJUSTMENT DATE--means the monthly date on or next following our approval of a
requested adjustment.
EXAMPLE: If the policy date is June 5, 1997, and if your requested
adjustment is approved on April 20, 1998, the adjustment date will be
May 5, 1998.
ATTAINED AGE--means the age last birthday on the prior policy anniversary.
MATURITY DATE--means the policy anniversary following the insured's 95th
birthday.
MONTHLY DATE--means the day of the month which is the same as the day of the
policy date.
EXAMPLE: If the policy date is June 5, 1997, the first monthly date is July
5, 1997.
MUTUAL FUND--means a registered open-end investment company offered as an
investment choice under the policy. Mutual funds currently available are shown
on the data page.
POLICY YEARS AND ANNIVERSARIES--means the policy years and anniversaries
computed from the policy date
EXAMPLE: If the policy date is June 5, 1997, the first policy year ends on
June 4, 1998. The first policy anniversary falls on June 5, 1998.
PRORATED BASIS--means in the same proportion as the value of a particular
investment account bears to the total value of all investment accounts.
THE INSURED--means the person named as the insured on the data page of this
policy. The insured may or may not be the owner.
VALUATION DATE--means the date the net asset value of a mutual fund is
determined.
VALUATION PERIOD--means the period between the time as of which the net asset
value of a mutual fund is determined on one valuation date and the time as of
which such value is determined on the next following valuation date.
WE, OUR, US--means Principal Mutual Life Insurance Company.
YOU, YOUR--means the owner of this policy.
<PAGE>
YOUR DEATH PROCEEDS
We will pay the death proceeds to the beneficiary subject to the provisions of
the policy, when we receive proof that the insured died before the maturity
date. These death proceeds, determined as of the date of the insured's death,
are:
1. The death benefit described below;
PLUS
2. Any proceeds from any benefit rider on the insured's life;
LESS
3. Any policy loans and unpaid loan interest;
LESS
4. Any overdue monthly deductions if the insured died during a grace
period.
We will pay interest on death proceeds from the date of death until date of
payment or until applied under a benefit option. It will be at a rate we
determine, but not less than required by state law.
DEATH BENEFIT
This policy provides two death benefit options. The option in effect is shown on
the data page.
Option 1.
Under Option 1, the death benefit equals the greater of:
1. The policy's face amount; or
2. The amount found by multiplying the policy's accumulated value by the
applicable percentage shown below.
Option 2.
Under Option 2, the death benefit equals the greater of:
1. The policy ' s face amount plus its accumulated value; or
2. The amount found by multiplying the policy's accumulated value by the
applicable percentage shown below.
TABLE OF APPLICABLE PERCENTAGES*
(For ages not shown, the applicable percentages shall decrease by a pro rata
portion for each full year.)
INSURED'S ATTAINED AGE %
40 and under 250
45 215
50 185
55 150
60 130
65 120
70 115
75 thru 90 105
95 100
*These percentages will be updated as required by revisions to the Internal
Revenue Code.
<PAGE>
CHANGES IN DEATH
BENEFIT OPTION
You may change the death benefit option on or after the first policy
anniversary. Any request for change must be in writing and approved by us. A
change will be effective on the monthly date on or next following the date we
approve the request. Changes in options are limited to two per policy year and
are subject to the following conditions:
1. If the change is from Option 1 to Option 2, we will reduce the face
amount. The reduction will be equal to the accumulated value on the
effective date of the change. The face amount after any reduction must
be at least the minimum face amount required by our then current
underwriting rules. We may require proof of insurability which
satisfies us.
2. If the change is from Option 2 to Option 1, we will increase the face
amount. The increase will be equal to the accumulated value on the
effective date of change. No proof of insurability is required.
YOUR MATURITY
PROCEEDS
If the insured is living on the policy's maturity date, we will pay you the
policy's accumulated value less any policy loans and unpaid loan interest.
VARIABLE LIFE SEPARATE ACCOUNT
Assets are put into our Variable Life Separate Account (separate account) to
support this policy and to support other variable life insurance policies we may
offer. We own the assets of the separate account. These assets are not part of
our general account. Income, gains, and losses of our separate account, whether
or not realized, are credited to or charged against our separate account assets,
without regard to our other income, gains or losses. The assets of the separate
account will be available to cover the liabilities of our general account only
to the extent that the assets of the separate account exceed the liabilities of
the separate account arising under the variable life insurance policies
supported by the separate account.
Our separate account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940, as amended.
DIVISIONS
Our separate account is comprised of divisions. Each division invests in a
mutual fund with a different investment objective. The data page shows the
divisions currently available. Income, gains and losses, whether or not
realized, from each division's assets are credited to or charged against that
division without regard to income, gains or losses of other divisions or our
other income, gains or losses. We may make other divisions available to you. We
will provide you with all material details of any division we offer, including
investment objectives and all charges.
We may discontinue or substitute investments in a division if such investment is
no longer appropriate or possible. The investment policy of our separate account
will not be changed without any required approvals of the Insurance Commissioner
of Iowa and the Superintendent of Insurance of New York and the Securities and
Exchange Commission. This approval process is on file with the Insurance
Commissioner of the state in which this policy was delivered.
We will notify you of any such change. You may then change your allocation
percentages and transfer any value in that division to another division without
charge. Or, you may exchange the policy for a fixed-benefit flexible premium
policy made available by us. You may exercise this right until the later of 60
days after the effective date of such change or the date you receive notice of
this right. The face amount of the new policy will be the death benefit of this
policy on the date of exchange.
YOUR INVESTMENT
ACCOUNTS
An investment account will be established for you corresponding to each division
of the separate account to which amounts are allocated or transferred under this
policy. We will maintain each of these investment accounts for you to keep track
of your values in each division.
UNITS AND
UNIT VALUE
Units are the basis for determining the investment account value. Units are
credited when amounts are allocated or transferred to a division of our separate
account. Units are cancelled when amounts are deducted or transferred from a
division of our separate account. The number of units credited or cancelled is
equal to the dollar amount divided by the unit value for the valuation period
when the transaction occurs.
Each division's unit value is determined on each valuation date. When each
division was formed, the unit value of that division was originally established
at $10.00 per unit. Thereafter, the unit value on any valuation date is
calculated by multiplying the unit value on the previous valuation date by the
net investment factor for the current valuation period. The number of units will
not change due to a subsequent change in unit value.
The unit value on any day other than a valuation date is the unit value as of
the next valuation date.
NET INVESTMENT
FACTOR
The net investment factor measures investment performance of each division. It
is used to determine changes in unit value from one valuation period to the next
valuation period. The net investment factor for a valuation period is equal to:
1. The quotient obtained by dividing:
a. The net asset value of a share of the underlying mutual fund as
of the end of such valuation period, plus the per share amount of
any dividend or other distribution made by such mutual fund
during such valuation period (less an adjustment for taxes, if
any) by
b. The net asset value of a share of such mutual fund as of the end
of the immediately preceding valuation Period;
LESS
2. A mortality and expense risks charge equal to the number of days
within such valuation period times the daily mortality and expense
risks charge shown on the data page.
The adjustment for taxes, if any, represents amounts charged against the
division for taxes or set aside by us during the valuation period to provide for
taxes attributable to that division's operation or maintenance.
The amounts derived from applying the rate specified in 2 above and the amount
of any taxes referred to above will be accrued daily and will be transferred
from the separate account at our discretion.
TRANSFERS
Your accumulated value may be transferred among the divisions. The total amount
transferred each time must be at least the minimum transfer amount shown on the
data page unless a lesser amount is in the investment account. Any request for
transfer must be in writing and approved by us. The effective transfer date is
the date we receive your request. Any additional transfer restrictions of a
particular division are shown on the data page. We reserve the right to modify
or revoke transfer privileges and charges.
Any amount transferred will result in the cancellation of units in the
investment account of the division from which the transfer occurred. The number
of units cancelled will be equal to the amount transferred divided by the unit
value of that division for the valuation period in which the transfer is
effective. Units will be credited to the investment account of the division into
which the amount is transferred. Likewise, the number of units credited will be
equal to the amount transferred divided by the unit value of that division.
All transfers with the same effective date count as one transfer. Four transfers
may be made in any policy year without a charge. For any additional transfers
during a policy year, a transaction charge will be imposed each time amounts are
transferred and will be deducted from the divisions from which the amounts are
transferred. The transaction charge is shown on the data page.
YOUR POLICY VALUES
INVESTMENT
ACCOUNT VALUE
Your investment account value for each division is equal to the number of units
in that investment account multiplied by that division's unit value.
On the later of the policy date or end of the valuation period during which the
first premium is received, the number of units in an investment account equals:
1. The first net premium allocated to that division;
LESS
2. The monthly deduction allocated to that division for the first policy
month;
DIVIDED BY
3. The unit value for that division on that valuation date.
The net premium is the premium paid less the premium expense charge. The premium
expense charge and the premium allocation percentages are shown on the data
page.
At the end of each valuation period thereafter, the number of units in an
investment account equals:
1. Units in the investment account on the previous valuation date;
PLUS
2. Units credited to the investment account when any additional net
premium is received and allocated to the division during the current
valuation period;
PLUS
3. Units credited for transfers from another division or from the loan
account during the current valuation period;
LESS
4. Any units cancelled for transfers to another division, transaction
charges, or transfers to the loan account to secure a policy loan
during the current valuation period;
LESS
5. Any units that are cancelled for partial surrenders and transaction
charges during the current valuation period;
LESS
6. Units cancelled to pay the monthly deduction allocated to the division
whenever a valuation period includes a monthly date.
ACCUMULATED VALUE
Your accumulated value is equal to the total of your investment account values
and any value in your loan account.
MONTHLY DEDUCTION
We calculate the monthly deduction as:
1. The cost of insurance (described below) and the cost of additional
benefits provided by any rider in force for the policy month;
PLUS
2. The current monthly administration charge but not greater than the
maximum shown on the data page.
The monthly deduction will be withdrawn from the separate account divisions
according to the allocation percentages you have chosen. These percentages are
shown on the data page.
Your choice for the monthly deduction allocation may be:
1. The same as the allocation percentages you have chosen for your
premiums; or
2. Determined on a prorated basis; or
3. Any other allocation which we mutually agree upon.
If the amount in a division is insufficient to allow the allocation you have
chosen, your monthly deduction will be allocated on a prorated basis.
For each division, the allocation percentages must be zero or a whole number not
less than ten nor greater than 100. The sum of the percentages for all the
divisions must equal 100. Changes in allocation percentages must be requested in
writing. Once approved by us, they are effective as of the next monthly date.
COST OF INSURANCE
We deduct the cost of insurance on each monthly date. The cost is (1) multiplied
by the result of (2) minus (3), where:
1. Is the cost of insurance rate as described in the Cost of Insurance
Rates section divided by 1,000;
2. Is the death benefit at the beginning of the policy month; and
3. Is the accumulated value at the beginning of the policy month
calculated as if the monthly deduction were zero.
COST OF
INSURANCE RATES
The monthly cost of insurance rates are based on the sex, attained age, and risk
classification of the insured. We determine these rates based on our
expectations as to our future mortality experience. Any change in these rates
applies to all individuals of the same class as the insured. The cost of
insurance rates will never be greater than shown in the Table of Guaranteed
Maximum Cost of Insurance Rates on the data page. However, different cost of
insurance rates may apply to any face amount increase.
SURRENDER VALUE
AND NET
SURRENDER VALUE
The surrender value of your policy equals the accumulated value less the
surrender charge (described below).
The net surrender value of your policy is the surrender value less any policy
loans and unpaid loan interest. As long as your policy is in force, you may
surrender it for its net surrender value by sending us a written request.
SURRENDER CHARGES
The Table of Surrender Charges is shown on the data page. Surrender charges
apply to the first 10 policy years unless they are changed due to a face amount
increase. A face amount increase has its own 10 year surrender charge period
which begins on the adjustment date. If a face amount increase is made, the
surrender charges will be a composite of all charges which apply for each year.
PARTIAL SURRENDERS
After the first policy year, you may make partial surrenders of up to 50% of the
current net surrender value subject to the following:
1. The partial surrender may not be less than the minimum amount shown on
the data page; and
2. No more than two partial surrenders may be made in any policy year.
Your policy's accumulated value is reduced by the amount of the partial
surrender plus the amount of the transaction charge. The transaction charge is
shown on the data page.
If the Option 1 death benefit is in effect, the face amount is reduced by the
amount of the partial surrender and the transaction charge.
You may tell us the amount of the partial surrender and transaction charge to be
withdrawn from each division. If you do not tell us, the partial surrender and
the transaction charge will be withdrawn from the divisions in the same
proportion as the allocations used for your monthly deductions.
The amount of the partial surrender plus the transaction charge will result in
the cancellation of units in the investment account or accounts from which the
partial surrender occurs. The number of units cancelled will be equal to the
amount of the partial surrender plus the transaction charge divided by the unit
value of the division or divisions for the valuation period in which the partial
surrender is effective.
POLICY LOANS
You may obtain a policy loan from us with this policy as sole security. You may
borrow up to (1) minus (2) where:
1. Is 90% of the surrender value; and
2. Is any outstanding policy loan and unpaid loan interest at the time
the loan request is processed at the home office of the company.
The minimum loan amount is shown on the data page.
YOUR LOAN ACCOUNT
If you take a policy loan, a portion of your accumulated value equal to the loan
will transfer from the separate account to your loan account until the loan is
repaid. The effective date of the transfer is the date of the loan.
You may tell us the amount of the policy loan to be withdrawn from each
division. If you do not tell us, the loan amount will be withdrawn from the
divisions in the same proportion as the allocation used for your monthly
deductions. Amounts held in your loan account will earn interest from the date
of transfer at the policy loan interest rate less 2%.
On each policy anniversary, this earned interest is transferred from the loan
account to the separate account. It is allocated among the divisions in the same
manner used to allocate premium payments.
All interest rates stated are effective annual rates. We apply these rates to
properly reflect the actual date we receive any repayments and any changes you
make in loan amounts during a policy month.
The loan will result in the cancellation of units in the investment account or
accounts corresponding to the division or divisions from which the loan was
withdrawn. For each investment account, the number of units cancelled will be
equal to the portion of the loan withdrawn divided by the unit value for the
valuation period in which the loan is effective.
LOAN INTEREST
CHARGE
Interest charges accrue daily at the annual loan interest rate shown on the data
page. Interest is due and payable at the end of each policy year. Any interest
not paid when due is added to the loan principal and bears interest at the same
rate. The adding of unpaid interest charges to the loan principal will cause
additional amounts to be withdrawn from the divisions in the same manner as
described above for loans.
REPAYMENT
You may repay all or part of a policy loan as long as the policy is in force and
the minimum payment amount (as shown on the data page) is met. Any policy loans
and unpaid loan interest charges not repaid at the insured's death or at
maturity are deducted from the death or maturity proceeds.
YOU SHOULD IDENTIFY THE PURPOSE OF EACH PAYMENT. IF WE CANNOT IDENTIFY ITS
PURPOSE, WE WILL CONSIDER IT TO BE A LOAN PAYMENT.
As the loan is repaid, the amount repaid is transferred from your loan account
to the divisions in the same manner used to allocate premium payments.
If you do not repay a policy loan or pay loan interest and the net surrender
value is less than the monthly deduction due on a monthly date, the Grace Period
provision will apply.
PREMIUM PAYMENTS AND REINSTATEMENT
Your first premium is due on the policy date. After that, premiums may be paid
at any time while this policy is in force. The amount of your premiums is
subject to the Premium Payment Limits provision. We will give a receipt to the
premium payor on request. The net premium is the premium paid less the premium
expense charge. The premium expense charge is shown on the data page.
Your initial net premium will be allocated to the Money Market Division of our
separate account. Net premiums will continue to be allocated to the Money Market
Division until 45 days after the policy date. After the 45-day period has
expired, your policy's accumulated value will be transferred to the divisions
indicated by your premium allocation percentages.
The premium allocation percentages are shown on the data page. Unless you change
them, these percentages apply to future allocations of premiums. For each
division, the allocation percentages must be zero or a whole number not less
than ten nor greater than 100. The sum of the percentages for all divisions must
equal 100. Changes in allocation percentages must be requested in writing. Once
approved by us, they are effective as of the date we received the request.
PLANNED PERIODIC
PREMIUMS
You may elect to pay planned periodic premiums by monthly preauthorized
withdrawal. You may also elect to pay on an annual, semi-annual, or quarterly
basis. In this event we will send you reminder notices of the amount and
frequency of your planned periodic premiums as selected in your application.
These notices serve only as a reminder of your preference. Premiums are to be
sent to the address we provide in the reminder notices. You may change the
amount and frequency of your planned periodic premiums by notifying us in
writing.
If you do not make a planned periodic premium payment or additional premium
payments, the Grace Period provision may apply.
PREMIUM PAYMENT
LIMITS
To keep this policy in force you must satisfy the requirements described in the
Grace Period provision.
The smallest payment we will accept is shown on the data page.
You may choose to make premium payments that are greater than the planned
periodic premium. However, we will refund any premiums that would disqualify
this policy as "life insurance" as defined in the Internal Revenue Code, as
amended.
If any payment increases the policy's death benefit by more than it increases
the accumulated value, we reserve the right to refund the premium payment.
Evidence of insurability which satisfies us may be required.
GRACE PERIOD
The grace period begins when we mail a notice of impending policy termination to
you. This notice will be sent to your last post office address known to us. It
will show the minimum payment required to keep your policy in force. It will
also show the 61 day grace period during which we will accept such payment.
A notice of impending policy termination will be sent if:
1. The net surrender value on any monthly date is less than the monthly
deduction; or
2. During the 12 months following the policy date, the sum of the
premiums paid is less than the minimum required premium on a monthly
date; or
3. During the 12 months following the last adjustment date of a requested
face amount increase, the sum of the premiums paid is less than the
minimum required premium on a monthly date.
The minimum required premium on a monthly date is equal to (1) times (2) where:
1. Is the minimum monthly premium shown on the data page; and
2. Is one plus the number of complete months since the policy date or
since the adjustment date of a requested face amount increase, as
applicable.
If the grace period begins because the net surrender value is less than the
monthly deduction, the minimum payment is three times the monthly deduction
which was due and unpaid.
If the grace period begins because the sum of the premiums paid is less than the
minimum required premium, the minimum payment is the past due minimum required
premium. The past due minimum required premium is:
1. The minimum required premium due on the next following monthly date;
LESS
2. The sum of the premiums paid since the policy date or last adjustment
date of a requested face amount increase, as applicable.
If the grace period ends before we receive the past due minimum required
premium, we will pay you any remaining value in the policy which would be the
excess of (a) over (b) where:
a. Is the net surrender value on the monthly date at the start of
the grace period,
b. Is the two monthly deductions applicable during the grace period.
If the insured dies during a grace period, we will pay the death proceeds to the
beneficiary.
TERMINATION
All policy privileges and rights of the owner under this policy end when:
1. You surrender your policy for cash;
2. The death proceeds are paid; or
3. The policy maturity proceeds are paid.
Also, if the grace period ends as described above, the privileges and rights of
the owner terminate as of the monthly date on or immediately preceding the start
of the grace period.
REINSTATEMENT
If this policy ends as described in the Grace Period provision, you may
reinstate it provided:
1. It is prior to the maturity date;
2. The insured is alive;
3. Not more than three years have elapsed since the policy terminated;
4. You supply evidence which satisfies us that the insured is insurable
under our underwriting rules then in effect;
5. You either repay or reinstate any policy loans and unpaid loan
interest on this policy existing at termination:
6. You make a payment of at least the greater of an amount sufficient to
allow 3 monthly deductions or the past due minimum required premium,
if any.
The reinstatement will be effective on the monthly date on or next following the
date we approve it. Your surrender charges on the effective date of
reinstatement will be those that were in effect on the date your policy ended
adjusted for the payment of past due premium, if any. You will receive new data
pages reflecting these surrender charges.
YOUR ADJUSTMENT OPTIONS
While your policy is in force (but not in a grace period) you may request an
increase or decrease in the face amount. Decreases may not be made during the
first policy year. Any adjustment is subject to our approval.
APPROVAL OF
AN ADJUSTMENT
Any increase in face amount will be in a risk classification we determine, and
will be approved if:
1. The attained age of the insured is 75 or less and the amount of the
increase is at least the minimum increase shown on the data page;
2. You supply evidence which satisfies us that the insured is insurable
under our underwriting rules then in effect; and
3. You make a payment not less than the new minimum monthly premium for
the policy after the increase in face amount. The new minimum monthly
premium, determined by us, will take into account the current
surrender value.
No adjustment will be approved if:
1. The face amount after adjustment would be less than the minimum amount
shown on the data page;
2. Your monthly deductions are being waived under any rider.
REQUESTING AN
ADJUSTMENT
Your request for an adjustment must be in a written form we specify. A request
for a face amount increase must be signed by the insured. It must show the face
amount desired after adjustment. An adjustment is effective on the adjustment
date.
A face amount increase that is not a Cost of Living Increase has its own Right
to Examine and Right to Exchange periods.
RIGHT TO EXCHANGE POLICY
You may exchange this policy for a new life policy we make available for this
purpose on the life of the insured. The new policy may not be a term insurance
policy or a variable policy. Evidence of insurability will not be required.
The exchange must be made during the first 24 months from the policy date while
your policy is in force, but not while it is in a grace period. The exchange
will be effective on receipt of written notice on a form we specify. This policy
will then terminate. The new policy will have the same policy date as this
policy.
You may choose whether the new policy will have either the same death benefit or
the same amount at risk as this policy. The amount at risk is the difference
between the accumulated value and the death benefit of the policy. Premiums for
the new policy will be based on the same issue age, sex, and risk classification
as this policy.
An equitable adjustment in the new policy's premiums and values will be made to
reflect any variations between the premiums and values under this policy and the
new policy. No additional charge will be made for this exchange privilege. Any
policy loans and unpaid loan interest must be repaid or transferred to the new
policy.
Any benefit riders included on this policy may be exchanged, without evidence of
insurability, for similar benefit riders on the new policy if:
1. You request the similar benefit rider to be included on the new
policy; and
2. The similar benefit rider was available for the new policy on the
effective date of the benefit rider for this policy based on the same
issue age, sex, and risk classification as the insured.
YOUR BENEFIT OPTIONS
You may elect to use one of these benefit options in your benefit instructions.
If no benefit instructions are in effect at the insured's death, the beneficiary
may apply unpaid death proceeds under a benefit option. You may also apply the
net surrender value of your policy at surrender or at maturity under a benefit
option.
If a benefit option is elected, this policy must be exchanged for a
supplementary contract effective when the policy proceeds first become payable.
Payments under the following options are not affected by the investment
experience of any division of our separate account after the policy proceeds are
applied under an option.
Option A. SPECIAL BENEFIT ARRANGEMENT -- A specially designed benefit option may
be arranged with our approval.
Option B. PROCEEDS LEFT AT INTEREST -- We will hold the amount applied on
deposit. Interest payments will be made annually, semi-annually, quarterly or
monthly, as elected.
Option C. FIXED INCOME -- We will pay an income of a fixed amount or an income
for a fixed period not exceeding 30 years. Refer to Option C tables to determine
the number of fixed amount payments or the amount of each fixed period payment.
On request, we will furnish benefit information not shown in the tables.
Option D. LIFE INCOME -- We will pay an income during a person's lifetime. A
minimum guaranteed period may be used, as shown in the Option D table. Payments
will be in an amount we determine, but not less than shown in the table.
Option E. JOINT AND SURVIVOR LIFE INCOME -- We will pay an income during the
lifetime of two persons, and continuing until the death of the survivor. This
option includes a minimum guaranteed period of 10 years. Payments will be in an
amount we determine, but not less than shown in the Option E table. On request,
we will furnish minimum income information for age combinations not shown in the
table.
Option F. JOINT AND TWO-THIRDS SURVIVOR LIFE INCOME -- We will pay an income
during the lifetime of two persons, and two-thirds of the original amount
continuing until the death of the survivor. Payments during the time both people
are alive will be in an amount we determine (the "original amount"), but not
less than shown in the Option F table. On request, we will furnish minimum
income information for age combinations not shown in the table.
<PAGE>
OPTION C TABLES
Minimum Monthly of Months for Which Monthly Income will be Paid. Payment on
Effective Date of Supplementary Contract.
- --------- -------- -------- -------- -------- --------- --------
Amount No. of No. of No. of
Applied Income Pymts* Income Pymts* Income Pymts*
- --------- -------- -------- -------- -------- --------- --------
$10,000 $50 274 $100 114 $175 61
25,000 150 214 250 114 400 67
50,000 250 274 500 114 750 72
100,000 450 321 1,000 114 1,500 72
- --------- -------- -------- -------- -------- --------- --------
*Minimum number of months for which full monthly income will be paid. There may
be part of a payment made one month after the last one. The partial payment will
be the balance, if any, of the amount applied less the payments, all accumulated
at interest.
Minimum Monthly Income To Be Paid for Number Of Years. First Payment on
Effective Date of Supplementary Contract.
- --------- ------------------------------------------------------------------
Amount Number of Years
Applied
--------- ------- -------- -------- -------- --------
5 10 15 20 25 30
- --------- --------- ------- -------- -------- -------- --------
$10,000 179.10 96.10 68.70 55.10 47.10 41.80
25,000 447.75 240.25 171.75 137.75 117.75 104.50
50,000 895.50 480.50 343.50 275.50 235.50 209.00
100,000 1,791.00 961.00 687.00 551.00 471.00 418.00
- --------- --------- ------- -------- -------- -------- --------
OPTION D TABLE
Minimum Monthly Life Income for Each $1,000 Applied. First Payment on Effective
Date of Supplementary Contract.
----------------- ------------------------------------------------------------
Age Minimum Guaranteed Period
Last Birthday
Male Payee
------- -------- --------- ---------- --------- --------
Inst.*
None 5 Yrs. 10 Yrs. 15 Yrs. 20 Yrs. Rfd.
-------- ------- -------- --------- ---------- --------- --------
55 4.45 4.44 4.40 4.33 4.23 4.24
56 4.54 4.53 4.48 4.41 4.29 4.31
57 4.64 4.62 4.57 4.48 4.35 4.38
58 4.74 4.72 4.66 4.56 4.42 4.46
59 4.84 4.82 4.76 4.65 4.48 4.54
60 4.96 4.94 4.87 4.74 4.55 4.63
61 5.08 5.06 4.97 4.83 4.61 4.72
62 5.21 5.18 5.09 4.92 4.68 4.82
63 5.35 5.32 5.21 5.01 4.75 4.92
64 5.50 5.46 5.33 5.11 4.81 5.02
65 5.66 5.62 5.47 5.21 4.87 5.13
66 5.83 5.78 5.60 5.31 4.94 5.25
67 6.01 5.95 5.75 5.41 4.99 5.37
68 6.21 6.13 5.89 5.52 5.05 5.50
69 6.42 6.33 6.05 5.62 5.11 5.64
70 6.64 6.53 6.21 5.72 5.16 5.78
71 6.87 6.74 6.37 5.82 5.20 5.93
72 7.12 6.97 6.54 5.91 5.25 6.09
73 7.39 7.21 6.71 6.01 5.29 6.25
74 7.67 7.46 6.88 6.10 5.32 6.42
75 7.98 7.73 7.05 6.18 5.35 6.60
-------- ------------------ --------- --------- ---------- --------
*Income payments continue until the total received equals the amount applied
under the option.
Minimum Monthly Life Income for Each $1,000 Applied. First Payment on Effective
Date of Supplementary Contract.
- ----------------- --------------------------------------------------------------
Age Minimum Guaranteed Period
Last Birthday
Female Payee
------- ------ ----------- ----------- ------------- -----------
Inst.*
None 5 Yrs 10 Yrs. 15 Yrs. 20 Yrs. Rfd.
- --------------- ------- ------ ----------- ----------- ------------- -----------
55 4.05 4.05 4.03 4.00 3.95 3.94
56 4.12 4.12 4.10 4.06 4.01 4.00
57 4.20 4.19 4.17 4.13 4.07 4.06
58 4.28 4.27 4.25 4.20 4.13 4.13
59 4.36 4.35 4.33 4.28 4.20 4.20
60 4.45 4.44 4.41 4.35 4.26 4.27
61 4.55 4.54 4.50 4.43 4.33 4.35
62 4.65 4.64 4.60 4.52 4.40 4.43
63 4.76 4.74 4.70 4.61 4.47 4.52
64 4.87 4.86 4.80 4.70 4.54 4.61
65 5.00 4.98 4.91 4.80 4.61 4.70
66 5.13 5.11 5.03 4.89 4.69 4.81
67 5.27 5.24 5.16 5.00 4.76 4.91
68 5.42 5.39 5.29 5.10 4.83 5.02
69 5.58 5.55 5.43 5.21 4.90 5.14
70 5.76 5.71 5.57 5.32 4.97 5.27
71 5.94 5.89 5.73 5.43 5.03 5.40
72 6.15 6.09 5.89 5.55 5.09 5.54
73 6.37 6.30 6.06 5.66 5.15 5.69
74 6.60 6.52 6.24 5.77 5.20 5.85
75 6.86 6.75 6.42 5.88 5.25 6.02
- ------------ ---------- ------ ----------- ----------- ------------- -----------
*Income payments continue until the total received equals the amount applied
under the option.
OPTION E TABLE
Minimum Monthly Joint and Survivor Life Income for Each $1,000 Applied. First
Payment on Effective Date of Supplementary Contract.
- ----------------- --------------------------------------------------------------
Age Last Birthday Age Last Birthday of Female Payee
of Male Payee
----------- ----------- ------------ ----------- -------------
55 60 62 65 70
- ----------------- ----------- ----------- ------------ ----------- -------------
60 3.82 4.04 4.12 4.25 4.45
62 3.85 4.09 4.19 4.33 4.57
65 3.90 4.16 4.28 4.45 4.74
70 3.95 4.26 4.40 4.62 5.01
75 3.99 4.33 4.48 4.75 5.24
- ----------------- ----------- ----------- ------------ ----------- -------------
OPTION F TABLE
Minimum Monthly Joint and Two-Thirds Survivor Life Income for Each $1,000
Applied. First Payment on Effective Date of Supplementary Contract.
- ------------------ -------------------------------------------------------------
Age Last Birthday Age Last Birthday of Female Payee
of Male Payee
------------ ---------- ----------- ----------- -------------
55 60 62 65 70
- ------------------ ------------ ---------- ----------- ----------- -------------
60 4.22 4.45 4.55 4.71 5.00
62 4.30 4.54 4.65 4.82 5.14
65 4.41 4.68 4.80 4.99 5.35
70 4.61 4.92 5.06 5.29 5.74
75 4.82 5.17 5.33 5.60 6.14
- ------------------ ------------ ---------- ----------- ----------- -------------
BENEFIT OPTION
INTEREST
Interest at a rate we set, but never less than 3% a year, will be applied to
determine the payments under Option B. Any such interest in excess of 3% will be
added to payments under Option C.
CONDITIONS
When a benefit option is elected:
1. Any amount payable to an assignee will be paid in one lump sum.
2. The amount applied must be at least $2,000 and result in periodic
payments of at least $20.
3. Benefit options are restricted if the recipient of benefits is not a
natural person.
4. Under Options D, E and F, one of the persons on whose life payments
are based must be the owner, insured or beneficiary. The size of
payments depends on the age and sex of the person or persons on whose
life payments are based. This will be determined as of the effective
date of the supplementary contract. We reserve the right to require
evidence of age, sex and continuing survival.
OWNER, BENEFICIARY, ASSIGNMENT
OWNERSHIP
The owner is as named in the application unless you change ownership as provided
below. As owner, you may exercise every right and enjoy every privilege provided
by your policy, subject to the rights of any irrevocable beneficiary. These
rights and privileges end at the insured's death.
If you are not the insured and you die before the insured, the insured becomes
the owner unless you have provided for a successor owner.
BENEFICIARY
The beneficiary(ies) named in the application will receive the death proceeds
unless you change the beneficiary designation as provided below. Any death
proceeds payable to a beneficiary who dies before the insured will be paid
equally to surviving beneficiaries named in the application, unless we have
approved another written procedure requested by you. If no beneficiary survives
the insured, the death proceeds will be paid to the owner or to the owner's
estate.
CHANGE OF OWNER
OR BENEFICIARY
You may change the owner or beneficiary of this policy. Your request must be in
writing. Our approval is needed and no change is effective until we approve it.
Once approved, the change is effective as of the date you signed the request. We
have the right to require that you send us this policy so we can record the
change.
BENEFIT INSTRUCTIONS
While the insured is alive, you may file instructions for the payment of the
death proceeds under one of the benefit options previously described. Such
instructions, or change of instructions, must be in written form approved by us.
If you change the beneficiary, it will revoke any prior benefit instructions.
ASSIGNMENT
You may assign your policy as collateral for a loan. We are not bound by any
assignment until it is received in written form at our home office. We assume no
responsibility for any assignment's validity. An assignment as collateral does
not change the owner. The rights of beneficiaries, whenever named, become
subordinate to those of the assignee.
GENERAL INFORMATION
THE CONTRACT
This policy, the attached application, any amendments to the application, the
current data page, and any Written Notification Showing Change make up the
entire contract. Any statements made in the application or an adjustment
application will be considered representations and not warranties. No statement,
unless made in an application, will be used to void your policy (or void an
adjustment in case of an adjustment application) or to defend against a claim.
Unless a separate effective date is shown on the data page, the policy date is
also the effective date.
ALTERATIONS
This policy may be altered by mutual agreement, but any alterations must be in
writing and signed by one of our corporate officers. No one else, including the
agent, may change the contract or waive any provisions.
INCONTESTABILITY
Your policy has a 2 year contestable period. We will not claim your policy is
void or deny payment of any proceeds after the policy has been in force during
the insured's lifetime for 2 years from the policy date. This provision does not
apply to claims for total disability or to accidental death benefits which may
be provided in your policy. Any face amount increase made under the adjustment
options has its own 2 year contestable period which begins on the adjustment
date.
AGE AND SEX
If the age or sex of the insured has been misstated, the death benefit will be
that which would be purchased by the most recent mortality charge at the correct
age or sex.
DEFERMENT
We will usually pay surrenders, partial surrenders, or policy loans within 7
days after we receive a written request in a form satisfactory to us. We will
usually pay any death benefit within 7 days after we receive proof at our home
office of the insured's death.
However, we may not be able to determine the value of the assets of our separate
account if:
1. The New York Stock Exchange is closed on other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission;
2. The Securities and Exchange Commission by order permits postponement
for the protection of policyowners; or
3. The Securities and Exchange Commission requires that trading be
restricted or declares an emergency, as a result of which disposal of
securities is not reasonably practicable or it is not reasonably
practicable to determine the net asset value of the mutual funds.
If any of the above events occur, we reserve the right to defer:
1. Determination and payment of any surrender, partial surrenders, or
death proceeds;
2. Payment of any policy loans;
3. Determination of the unit values of the divisions;
4. Any requested transfer between the divisions; and
5. Use of the death proceeds under Your Benefit Options.
PARTICIPATING
Your policy is eligible to share in our divisible surplus. We will determine its
share and credit it as a dividend at the end of each contract year. We do not
expect any dividends will be paid under this policy. Dividends, if any, will be
paid in cash.
SUICIDE
This policy's death proceeds will not be paid if the insured dies by suicide,
while sane or insane, within 2 years of the policy date. Instead, we will return
all premiums paid, less any partial surrenders and any policy loans and unpaid
loan interest. This amount will be paid to the beneficiary.
Any face amount increase made under the adjustment options will not be paid if
the insured dies by suicide, while sane or insane, within 2 years of the
adjustment date. Instead, we will return the sum of the cost of insurance
charges for the increased amount of protection. This amount will be paid to the
beneficiary.
BASIS OF VALUES
Guaranteed Maximum Cost of Insurance Rates are based on the mortality tables
shown on the data page.
A detailed statement of the method of calculating values and benefits has been
filed with the insurance department of the state in which this policy is
delivered. The guaranteed values are greater than or equal to those required by
any state law.
STATEMENT OF VALUE
We will mail a statement to you once each policy year until the policy ends. The
statement will show:
1. The current death benefit;
2. The current accumulated and surrender values;
3. All premiums paid since the last statement;
4. Any investment gain or loss since the last statement;
5. All charges since the last statement;
6. Any policy loans and unpaid loan interest:
7. Any partial surrenders since the last statement;
8. The number of units and unit value; and
9. The total value of each of your investment accounts.
FLEXIBLE VARIABLE ANNUITY LIFE INSURANCE POLICY. Adjustable death benefit.
Benefits payable at death or earlier maturity date. Flexible premiums payable
until maturity date or prior death. Some benefits reflect investment results.
PARTICIPATING.
COST OF LIVING INCREASE RIDER
We will periodically increase the face amount of your policy based on increases
in the Consumer Price Index for All Urban Consumers, subject to the provisions
of this rider. These increases are automatic. No evidence that the insured is
insurable is required.
LIMITATIONS AND
CONDITIONS
These limitations and conditions apply:
1. Increases are available only on every 3rd policy anniversary, as
measured from the policy date, and only when the amount of the increase
is at least the minimum cost of living increase shown on the data Dane.
2. The amount of increase will be:
a. The lesser of the calculated increase (as determined below) or
the maximum cost of living increase shown on the data page;
LESS
b. The total of any face amount increases made during the prior year
at a standard risk class (not including increases under any
Guaranteed Increase Option Rider).
3. Increases are subject to your acceptance, the provisions of this rider
and any other applicable policy provisions, including any exclusions or
limitations.
THE CALCULATED
INCREASE
The calculated cost of living increase is based on the all-item Consumer Price
Index for All Urban Consumers (CPI) as published by the United States Department
of Labor. The increase amount is determined by multiplying your policy's current
cost of living base (shown on the data page) by an increase factor. The increase
factor will be:
1. CPI 6 months prior to the cost of living increase date
DIVIDED BY
2. CPI 42 months prior to the cost of living increase
LESS
3. 1.00
If use of the Index would result in a face amount decrease, no change in the
face amount will be made.
We will substitute what we believe is an appropriate index for the Consumer
Price Index for All Urban Consumers if:
1. The Index is discontinued, delayed, or otherwise not available for this
use; or
2. The composition or base of, or method of calculating the Index changes
so that we consider it not appropriate for calculating further cost of
living increases.
MONTHLY
DEDUCTIONS
The monthly deduction will be increased to cover the costs and charges for any
increase in protection made under this rider. This increase will be based on the
risk class or classes shown on the data page.
DISABILITY BENEFITS
If your policy has a rider that provides any benefits due to disability, we will
increase such benefits when a cost of living increase occurs. For more
information, see the rider providing these benefits.
PLANNED PERIODIC
PREMIUM
Your planned periodic premium will be increased accordingly for any increase in
protection made under this rider. Increases are subject to your acceptance. We
will notify you of any increase.
LIMIT ON COST OF
LIVING BASE
Your cost of living base may not be greater than the face amounts on your policy
that have a standard risk class.
TERMINATION
This rider terminates, with no further cost of living increases available, on
the first of:
1. The policy anniversary following the insured's 55th birthday;
2. Any decrease in your policy's face amount (except as a result of a
partial surrender or a change in your death benefit option);
3. Your rejection of an automatic cost of living increase; or
4. The termination of your policy.
REINSTATEMENT
If this rider terminates under 2, 3, or 4 above it will be reinstated:
1. Whenever an underwritten increase is made in your policy's face amount,
provided that increase is issued at a standard risk class;
2. If your policy is reinstated at a standard risk class; or
3. Automatically on the policy anniversary following the insured's 21st
birthday. if terminated prior to that time.
WAIVER OF MONTHLY DEDUCTIONS RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from accumulated value of the monthly cost of waiver
rates for the benefits provided by this rider. All definitions, provisions and
exceptions of the policy apply to this rider unless changed by this rider. The
effective date is the policy date unless another date is shown on the data page.
DISABILITY BENEFITS
If the insured becomes totally disabled while this rider is in force, on each
monthly date during a waiver period we will waive (or credit to the accumulated
value if already deducted) the monthly deductions for the policy benefits.
If death benefit Option 1 is in effect when we begin to waive your monthly
deductions, we will then change it to Option 2. You may not change the death
benefit option or increase the face amount under Your Adjustment Options during
a waiver period.
We will pay the death benefit to you on the maturity date if the policy matures
while monthly deductions are being waived under this rider.
If monthly deductions for policy benefits are being waived under this rider,
your policy will remain in force whether or not your net surrender value is
sufficient to continue the monthly deductions.
You may continue to pay premiums as described in your policy.
COST OF WAIVER
RIDER
The cost for the Waiver of Monthly Deductions Rider is deducted on each monthly
date. The cost is 1 multiplied by the result of 2 minus 3, where:
1. Is the Cost of Waiver Rate as shown on the data page divided by 1,000;
2. Is the death benefit at the beginning of the policy month; and
3. Is the accumulated value at the beginning of the month.
TOTAL DISABILITY
For purposes of this rider, total disability is disability which results from
injury or sickness and prevents the insured from working for pay or profit:
1. In the insured's regular occupation during the first 2 years of the
disability; and
2. Thereafter, in any occupation for which the insured is reasonably
fitted by education, training, or experience.
Until the insured's 25th birthday, "working for pay or profit" includes
attending school full time outside the home.
Total disability also means (without regard to "working for pay or profit") the
total and irrecoverable loss of (a) sight of both eyes; (b) use of both hands or
both feet; or (c) use of one hand and one foot.
EXCEPTION
In no case will the monthly deduction be waived or credited under this rider if
the total disability results from an intentional self-injury or service in the
military forces of any country at war, declared or undeclared.
WAIVER PERIOD
A waiver period becomes effective only after the insured has remained totally
disabled for 6 continuous months. Once effective, the waiver period begins:
1. On the insured's age 5 policy anniversary if the rider was issued and
total disability began before and continues to that date; or
2. For all others, on the monthly date which follows the date total
disability began.
In no event will a waiver period begin earlier than one year prior to our
receipt of written notice of the insured's total disability.
The waiver period will continue as long as total disability continues
uninterrupted, except that the waiver period will:
1. End on the policy's maturity date (or death of the insured, whichever
is earlier) if total disability:
a. Begins prior to the insured's age 60 policy anniversary; and
b. Continues to the insured's age 65 policy anniversary.
2. End on the insured's age 65 policy anniversary, if total disability:
a. Begins on or after the insured's age 60 policy anniversary; and
b. Begins before the insured's age 63 policy anniversary.
3. End after 2 years if total disability:
a. Begins on or after the insured's age 63 policy anniversary; and
b. Begins before the insured's age 65 policy anniversary.
An age policy anniversary means the policy anniversary on or next following the
birthday designated.
EXAMPLE: If the policy date is June 5, 1997, and the insured is
65 years old on June 4, 1998, the age 65 policy anniversary is
June 5, 1998.
If during a waiver period, a waived or credited deduction would disqualify your
policy as "life insurance" as defined in the Internal Revenue Code, as amended,
we will not waive that deduction. We will resume waiving deductions when they
would not disqualify your policy as "life insurance".
PROOF OF
DISABILITY
We will require proof which satisfies us of the insured's total disability
before any monthly deduction can be waived or credited. Such proof may include
examination by doctors we select.
We may require similar proof of the insured's continued total disability from
time to time during the first 2 years of total disability and once a year
thereafter.
If such proof is not provided as we require, the waiver period will end and
monthly deductions will again be deducted from your accumulated value.
CLAIMS
The benefits of this rider will not be granted unless we receive written notice
of the claim while the insured is living and remains totally disabled. Failure
to comply, however, will not invalidate a claim if it was not reasonably
possible to give written notice within such time and notice was given as soon as
reasonably possible.
Even if your policy terminates because of the expiration of a grace period,
benefits of this rider may be granted if:
1. The total disability for which claim is made began before the end of
the grace period;
2. We receive written notice of the claim within one year after the due
date of the first unpaid monthly deduction; and
3. All other conditions for this rider are met.
If total disability begins within the grace period, any unpaid monthly deduction
due prior to the start of the waiver period must be paid before the benefits of
this rider are available.
COST OF LIVING
INCREASES OR
GUARANTEED
INCREASE OPTION
INCREASES
Refer to your policy data page to see if your policy contains:
1. A Cost of Living Increase Rider; or
2. A Guaranteed Increase Option Rider.
If so, any increase arising from either of these riders will also be covered by
this Waiver of Monthly Deductions Rider. The monthly deduction for this rider
will be increased based on the risk class or classes shown on the data page. We
will not require evidence of insurability.
If an increase under either of these riders becomes effective during a waiver
period, the monthly deduction for the increase will be waived as long as the
waiver period continues.
TERMINATION
This rider ends on the first of:
1. The termination of your policy;
2. The insured's age 65 policy anniversary, or at the end of a waiver
period which is in effect on the insured's age 65 policy anniversary;
or
3. Our receipt of your written request to cancel it. The change will be
effective on the monthly date on or next following the date we receive
the request. We may require that you send your policy to our home
office so that we can record the cancellation.
GUARANTEED INCREASE OPTION RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the cost of guaranteed
increase option benefits provided by this rider. All definitions, provisions and
exceptions of the policy apply to this rider unless changed by this rider. The
effective date is the same as the policy date unless another date is shown on
the data page.
THE INCREASE
OPTION
You may increase the face amount of your policy, subject to the provisions of
this rider, so long as your policy and this rider have not terminated. The
increase may be obtained
1. Only if the insured consents;
2. Without evidence of the insured's insurability;
3. On any option date shown in this rider;
4. Up to the maximum guaranteed increase option amount shown on the data
page on each option date: and
5. At the risk class rate and subject to any exclusions shown on the data
page.
EXERCISE OF THE
OPTION
Your written application for a guaranteed increase must be submitted within 60
days prior to an option date. The increase is subject to conditions applicable
to adjustments under Your Adjustment Options, except that no evidence of
insurability is required and the option may be exercised while premiums are
being waived under any rider. Monthly deductions will be increased as for any
increase in face amount. The effective date of the increase is the option date
(unless it is an exercise of the Advance Option Privilege).
OPTION DATES
Each policy anniversary after this rider's effective date, on which the
insured's attained age is either 25, 28, 31, 34, 37 or 40 will be an option
date.
The right to increase on any option date will expire if the right is not used on
that option date. This would not affect your right to make guaranteed increases
on any future option dates.
If you use the advance option privilege, as shown below, you forfeit the right
to a guaranteed increase on the next normal option date.
ADVANCE OPTION
PRIVILEGE
You may elect to take the guaranteed increase available under this rider prior
to and in place of the guaranteed increase available on the next normal option
date. This advance option privilege is available immediately when any of these
events occurs:
1. The marriage of the insured;
2. The birth of a liveborn child to the insured or to the insured's
marriage; or
3. The insured's legal adoption of a child.
The increase will be effective on the monthly date next following application
for use of this privilege.
If this advance option privilege becomes available due to multiple births or
adoptions, the amount of the guaranteed increase available will be the
guaranteed increase available on the next normal option date times the number of
liveborn or adopted children.
The advance option privilege will expire with respect to a particular marriage,
birth or adoption, if it is not used within 90 days of such event. This
expiration will in no way affect any future option dates or advance option
privileges.
Application for use of this privilege must be in writing. It must be made during
the lifetime of the insured. It must be sent to our home office no later than 90
days after the date of marriage, birth or adoption.
You must also include proof satisfactory to us of the marriage, birth or
adoption.
TEMPORARY DEATH
BENEFIT AT
MARRIAGE, BIRTH
OR ADOPTION
If the insured dies during the 90 day period after marriage, birth or adoption,
without having applied for the available increase, we will increase your
policy's death proceeds by the maximum increase available under this rider.
MONTHLY
DEDUCTIONS
The monthly deduction will be increased to cover the costs and charges for any
increase in protection made under this rider. The increase in the cost of
insurance and the cost of any additional benefits will be based on the risk
class shown on the data page.
FACE AMOUNT
DECREASES
Our underwriting rules do not permit a guaranteed increase option amount greater
than the policy face amount. If a face amount decrease causes a conflict with
that rule, we will reduce the guaranteed increase option amount and its monthly
deductions accordingly.
ADDITIONAL
BENEFITS
If your data page shows that any benefits due to disability are available under
your policy we will increase those benefits when a guaranteed increase option
increase occurs. For more information see the rider providing these benefits.
If your data page shows that accidental death benefits are available under this
guaranteed increase option rider, you may ask that increases under this rider
include such accidental death benefits. Our approval of such request is needed
and is subject to our underwriting limits then in effect.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the cost of insurance rate, as described in the Cost of Insurance
Rates section, divided by 1,000; and
2. Is the maximum guaranteed increase option amount as shown on the data
page.
COST OF INSURANCE
RATES
The monthly cost of insurance rates for the guaranteed increase option benefit
are based on the sex, issue age, and risk class of the insured. We determine
these rates based on our expectations as to our future mortality experience. Any
change in these rates applies to all individuals of the same class as the
insured. The cost of insurance rates will never be greater than those shown on
the data page in the Table of Guaranteed Maximum Cost of Insurance Rates for the
Guaranteed Increase Option.
TERMINATION
This rider ends on the first of:
1. The termination of your policy;
2. The policy anniversary following the insured's 40th birthday; or
3. Our receipt of your written request to cancel this rider. The change
will be effective on the monthly date on or next following the date we
receive the request. We have the right to ask that you send us this
policy so we can record the cancellation.
ACCIDENTAL DEATH BENEFIT RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the monthly cost of
accidental death benefits provided by this rider. All definitions, provisions
and exceptions of the policy apply to this rider unless changed by this rider.
The effective date is the policy date unless another date is shown on the data
page.
ACCIDENTAL DEATH BENEFIT This rider provides an accidental death benefit as
shown on the data page. We will pay the benefit to the beneficiary upon receipt
of proof satisfactory to us that:
1. The insured died on or after the policy anniversary following the
insured's first birthday;
2. The insured died as a result, directly and independently of all other
causes, of accidental bodily injury; and
3. The death is not a direct or indirect result of an Excluded Risk.
EXCLUDED RISKS
We will not pay the accidental death benefit if death results directly or
indirectly from any of the following:
1. Suicide, while sane or insane;
2. War or an act of war, or service in the military forces of any country
at war, declared or undeclared;
3. Bodily or mental disease or infirmity, or medical or surgical
treatment thereof;
4. The commission or attempted commission by the insured of an assault or
felony;
5. Operating, riding in or descending from any kind of aircraft in which
the insured is a pilot or a member of the operating crew, or in which
the insured is receiving or giving any kind of training or
instruction; or
6. The voluntary taking of or the effects of voluntarily using any drug,
narcotic or hallucinogen unless prescribed for and administered to the
insured by a licensed physician who is not a member of the insured's
family. This includes any controlled substances listed in Schedules I,
II, III or IV of the Federal Controlled Substances Act, 21 U.S.C.
Section 812, or successor statutes, as they may be amended.
AUTOPSY
We reserve the right to examine the insured's body and, unless prohibited by
law, to make an autopsy.
INCREASES
You may increase the accidental death benefit up to the current face amount of
your policy, provided:
1. The increase is for at least the minimum face amount increase as shown
on the data page;
2. The increase does not result in a total benefit exceeding our
underwriting limits then in effect; and
3. You supply evidence of insurability which satisfies us under our
underwriting rules then in effect.
FACE AMOUNT
DECREASES
Our underwriting rules do not permit accidental death benefit amounts greater
than policy face amounts. If a face amount decrease causes a conflict with that
rule, we will reduce the accidental death benefit amount and its cost,
accordingly.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the cost of insurance rate, as described in the Cost of Insurance
Rates section, divided by 1,000; and
2. Is the accidental death benefit.
COST OF INSURANCE
RATES
The monthly cost of insurance rates for the accidental death benefit are based
on the sex, attained age and risk class of the insured. We determine these rates
based on our expectations as to our future mortality experience. Any change in
these rates applies to all individuals of the same class as the insured. The
cost of insurance rates will never be greater than those shown on the data page
in the Table of Guaranteed Maximum Cost of Insurance Rates for Accidental Death
Benefits. However, different guaranteed maximum cost of insurance rates may
apply to any increase in the accidental death benefit.
TERMINATION
This rider ends on the first of:
1. Termination of your policy;
2. The policy anniversary following the insured's 70th birthday; or
3. Our receipt of your written request to cancel this rider. The change
will be effective on the monthly date on or next following the date we
receive the request. We may require that you send your policy to our
home office to record the cancellation.
CHILDREN TERM INSURANCE RIDER
Thisrider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the monthly cost of
children term insurance benefits provided by this rider. All definitions,
provisions and exceptions of the policy apply to this rider unless changed by
this rider. The effective date is the policy date unless another date is shown
on the data page.
DEFINITION
An Insured Child under this rider is:
1. Any child, stepchild or legally adopted child of the insured named in
the application for this rider who is less than 18 years of age on the
date of the application for this rider;
2. Any child of the insured born after the date of the application for
this rider; and
3. Any child less than 18 years of age legally adopted by the insured
after the date of the application for this rider.
A child will not be an insured child and will not be covered before attaining
the age of 14 days or beyond this rider's protection period.
INSURANCE BENEFIT
We will pay this rider's beneficiary its insurance amount upon receipt of proof
of an insured child's death. This rider's insurance amount is equal to the
number of units of this rider included in your policy, as shown on the data
page, times $1,000.
EXAMPLES:
3 UNITS children term x $1,000 =
$3,000 insurance amount for each child
4.5 UNITS children term x $1,000
$4,500 insurance amount for each child
PROTECTION PERIOD
This rider's protection period ends on the first of:
1. Termination of this rider (see Termination section below); or
2. As to any individual insured child, the policy anniversary next
following the insured child's 25th birthday.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the number of units; and
2. Is the rate per unit shown on the data page.
BENEFICIARY
The beneficiary named in the application for this rider will receive this
rider's insurance amount, unless the beneficiary is changed as provided in your
policy.
OWNERSHIP
The policy's owner is also the owner of this rider. Any changes in ownership of
your policy and all provisions which apply to ownership also apply to this
rider.
INCONTESTABILITY
We will not claim this rider is void or deny payment of its insurance amount
after it has been in force during the insured's lifetime for 2 years from its
effective date.
SUICIDE
This rider's insurance amount will not be paid if the insured dies by suicide,
while sane or insane, within 2 years of its effective date. Instead, we will
return all costs of children term insurance deducted for this rider. This amount
will be paid to the beneficiary.
PAID-UP BENEFIT
If the insured dies while your policy and this rider are in force with no
monthly deduction in default, this rider will become fully paid up. It will then
continue in force during its protection period, as shown on the data page,
unless surrendered. You may obtain the cash value of this rider, when fully paid
up, at any time. Your request must be in writing. The cash value will be the net
single premium for the insurance at the respective attained age of each insured
child based on the Commissioners 1980 Standard Ordinary Mortality Table,
assuming:
1. Interest at 4% a year,
2. Immediate payment of claims; and
3. Age determined on last birthday basis
The net cash value within 30 days after a policy anniversary will not be less
than the value on the anniversary.
EXCHANGE
Any insurance under this rider may be exchanged for a policy on the life of
the insured child on the earlier of:
1. The policy anniversary following the insured child's 25th birthday;
2. The policy anniversary following the insured's 65th birthday; or
3. The death of the insured.
No evidence of insurability is required provided:
1. We receive written application and payment of the first premium for the
policy no earlier than 90 days before nor later than 31 days after the
date exchange may be made as provided above; and
2. The policy face amount is not less than $1,000 per unit of this rider
and is not more than $5,000 per unit of this rider.
This policy may be any form of life policy, except term, available under our
underwriting rules then in effect. Its premium rate will be at our then
published standard risk class rate for the policy based on the insured child's
attained age. Its effective date will be the date of exchange. No insurance is
provided until the insurance under this rider terminates.
The new policy may include waiver disability or accidental death riders with our
consent and upon payment of any additional cost we determine for the riders.
If an insured child dies within 31 days of the date on which exchange would have
been allowed, we will pay a death benefit of $1,000 per unit of this rider.
REINSTATEMENT
This rider may be reinstated as part of your policy if, in addition to all other
policy conditions for reinstatement, you supply evidence which satisfies us that
each proposed insured child is insurable under our underwriting rules then in
effect.
Upon reinstatement, if any child proposed for insurance does not meet the above
conditions, this rider may still be reinstated as part of your policy but only
with an endorsement excluding such ineligible child from insurance coverage
under this rider.
TERMINATION This rider ends the first of:
1. Termination of your policy;
2. The policy anniversary following the insured's 65th birthday; or
3. Our receipt of your written request to cancel it. The change will be
effective on the monthly date on or next following the date we receive
the request. We may require you to send your policy to the
SPOUSE TERM INSURANCE RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the monthly cost of
spouse term insurance benefits provided by this rider. All definitions,
provisions and exceptions of the policy apply to this rider unless changed by
this rider. The effective date is the policy date unless another date is shown
on the data page.
DEFINITION
SPOUSE--means, for the purposes of this rider, the person named as the spouse in
the application for this rider.
INSURANCE BENEFIT
Upon receipt of proof that the spouse died before termination of this rider, we
will pay the beneficiary of this rider the face amount shown on the data page.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the cost of insurance rate, as described in the Cost of Insurance
Rates section, divided by 1,000; and
2. Is the face amount of this rider.
COST OF INSURANCE
RATES
The cost of insurance rates for spouse term insurance are based on the attained
age, sex, and risk class of the spouse and the insured. We determine these rates
based on our expectations as to our future mortality experience. Any change in
these rates applies to all individuals of the same class as the spouse and the
insured. The cost of insurance rates will never be greater than those shown on
the data page in the Table of Guaranteed Maximum Cost of Spouse Term Insurance
Rates.
PAID-UP BENEFIT
If the insured dies while your policy and this rider are in force with no
monthly deductions in default, this rider will become fully paid up. It will
then continue in force during its protection period as shown on the data page,
unless surrendered. You may obtain the cash value of this rider, when fully paid
up, at any time. Your request must be in writing. The cash value will be the net
single premium for the insurance based on the Commissioners 1980 Standard
Ordinary Mortality Table, assuming:
1. Interest at 4% a year;
2. Immediate payment of claims; and
3. Age determined on last birthday basis.
The net cash value within 30 days after a policy anniversary will not be less
than the value on the anniversary.
EXCHANGE
Any insurance under this rider may be exchanged for a policy on the life of the
spouse without evidence of insurability. This exchange must occur on or before
this rider's expiration date.
The policy may be any form of life policy, except term, available under our
underwriting rules then in effect, based on the attained age of the spouse. The
policy will be in the same risk class as shown for the spouse on this policy's
data page: Its effective date will be the date of exchange. Its face amount will
equal the face amount provided by this rider. No insurance is provided until the
insurance under this rider terminates.
The new policy may include waiver disability or accidental death riders with our
consent and upon payment of any additional cost we determine for the riders.
BENEFICIARY
The beneficiary named in the application for this rider will receive this
rider's face amount, unless the beneficiary is changed as provided in your
policy.
OWNERSHIP
Your policy's owner is also the owner of this rider. Any changes in ownership of
your policy and all provisions which apply to ownership also apply to this
rider.
MISSTATEMENT OF
AGE AND SEX
If the age and sex of either the insured or spouse is not correctly shown on the
data page, we will adjust the amount payable under this rider to reflect the
correct age and sex. The ages shown should be the ages on the respective
birthdays prior to the effective date.
INCONTESTABILITY
We will not claim this rider is void or deny payment of its insurance amount
after it has been in force during the lifetime of the spouse for 2 years from
its effective date.
SUICIDE
This rider's face amount will not be paid if the insured or spouse dies by
suicide, while sane or insane, within 2 years of its effective date. Instead,
the rider will immediately terminate, and we will return all costs of spouse
term insurance charges paid. This amount will be paid to the beneficiary.
REINSTATEMENT
This rider may be reinstated as part of your policy in a risk class we determine
based on facts in the application for reinstatement, if in addition to all other
policy conditions for reinstatement you supply evidence which satisfies us that
the spouse is insurable under our underwriting rules then in effect.
TERMINATION
This rider ends on the first of:
1. Termination of your policy;
2. Its exchange as provided above;
3. The end of the protection period for this rider as shown on the data
page; or
4. Our receipt of your written request to cancel it. The change will be
effective on the monthly date on or next following the date we receive
the request. We may require that you send your policy to the home
office to record the cancellation.
CHANGE OF INSURED RIDER
This rider is part of your policy. It is issued in consideration of the
application. We charge no premium for this rider.
CHANGE OF INSURED
PRIVILEGE
You may name a new insured for this policy provided:
1. You are the original and current owner of this policy;
2. This policy is in force and is not within the grace period;
3. Benefits are not being granted under any rider due to the insured's
disability;
4. You have an insurable interest in the life of the proposed new insured;
5. The age last birthday of the proposed new insured is 69 or under on the
Change of Insured Date; and
6. You supply evidence which satisfies us of the proposed new insured's
insurability under our underwriting rules then in effect.
LIMITATIONS AND
CONDITIONS
The change to a new insured is subject to these limitations and conditions:
1. The face amount, surrender value and accumulated value will remain the
same.
2. The minimum monthly premium after the Change of Insured Date will be
the greater of:
a. The minimum monthly premium before the Change of Insured Date, or
b. The minimum monthly premium based on the age, sex, and risk class
of the new insured.
3. Any benefit riders which are part of this policy end on the Change of
Insured Date. Riders may be added for the new insured only with our
consent.
4. Any loans or unpaid loan interest secured by your policy will remain
indebtedness and are subject to the conditions of the Policy Loans
section of your policy.
5. Your policy will remain subject to any existing assignments.
6. The Change of Insured Date will be the monthly date next following our
approval of a requested Change of Insured Application. The insurance on
the new insured will be effective on the Change of Insured Date.
EXAMPLE: If the policy date is June 5, 1997 and your requested
Change of Insured is approved on April 20, 1999, the Change of
Insured Date will be May 5, 1999.
INCONTESTABILITY
We will not claim your policy is void or deny payment of any proceeds after it
has been in force during the new insured's lifetime for 2 years from the Change
of Insured Date for the new insured, except for any claim for total disability
or accidental death benefits your policy may provide.
Any face amount increase made under Your Adjustment Options after the Change of
Insured Date has its own 2 year contestability period which begins on the
adjustment date.
SUICIDE
The death proceeds of the policy will not be paid if the new insured dies by
suicide, while sane or insane, within 2 years of the date of exchange. Instead,
we will pay the net surrender value as of the date of death.
TERMINATION
This rider ends on the first of:
1. The policy anniversary following the insured's 70th birthday;
2. Termination of your policy;
3. The death of the insured under your policy while it is in force; or
4. The application of your policy's net surrender value under a lapse or
surrender option, or the surrender of this rider.
DEATH BENEFIT GUARANTEE RIDER
This rider is part of your policy. The effective date is the policy date.
DEATH BENEFIT
GUARANTEE
If you meet the death benefit guarantee premium requirement described below, the
policy will not enter its grace period even if your net surrender value is not
sufficient to cover the monthly deduction on a monthly date.
MATURITY
GUARANTEE
On the policy maturity date, we will pay you the excess, if any, of the face
amount over your maturity proceeds if the following conditions are met:
1. This rider is in force;
2. The insured is alive; and
3. You have met the death benefit guarantee premium requirement described
below.
DEATH BENEFIT
GUARANTEE
PREMIUM
REQUIREMENT
The death benefit guarantee premium requirement on each monthly date is met if
(1) is equal to or greater than (2) where:
1. Is the sum of all premiums paid less any partial surrenders and any
policy loans and unpaid loan interest; and
2. Is the sum of the monthly death benefit guarantee premiums applicable
to date as shown on the data page plus the next monthly death benefit
guarantee premium.
The death benefit guarantee premium is based on the issue age, sex, death
benefit option, and risk class of the insured and is shown on the data page.
For any month that your deductions are being paid by our Waiver of Monthly
Deductions Rider, we will consider your monthly death benefit guarantee premium
to be zero.
CHANGES THAT
AFFECT THE DEATH
BENEFIT
GUARANTEE
PREMIUM
REQUIREMENT
Your death benefit guarantee premium may change if:
1. Your face amount is increased or decreased;
2. There is a change in your death benefit option; or
3. A rider is added or deleted.
If your death benefit guarantee premium changes we will send you written
notification of the change. Also, as the result of a change, an additional
premium may be required on the date of change in order to meet the new death
benefit guarantee premium requirement.
NOTICE
If on any monthly date the death benefit guarantee premium requirement is not
met, we will send you a notice of the premium required to maintain the
guarantee. If the premium is not received in our home office prior to the
expiration of 61 days after the date we mail our notice, the death benefit
guarantee will no longer be in effect and this rider will terminate.
REINSTATEMENT
If this rider terminates, it may not be reinstated.
TERMINATION
This rider ends on the first of:
1. The termination of your policy.
2. The expiration of 61 days after the date we mail our notice to you that
the death benefit guarantee premium has not been met and your failure
to remit the required premium.
ACCOUNTING BENEFIT RIDER
This rider is part of your policy. All definitions, provisions, and exceptions
of the policy apply to this rider unless changed by this rider. The effective
date is the Policy Date.
RIDER
PROVISIONS
The SCHEDULE OF CHAGES and TABLE OF SURRENDER CHARGES provisions in yourcurrent
Data Pages are amended as follows:
1. SCHEDULE OF CHARGES
The following paragraph is inserted as the last two sentences in the
paragraph labeled "Premium Expense Charge:"
Should you surrender this policy for its net surrender value, we will
refund you a percentage of the cumulative premium expense charges by
applying the following percentages: If you surrender your policy in
Year One - 100%; Year Two - 67%; Year Three - 33%; Year Four and later
- 0%.
2. TABLE OF SURRENDER CHARGES
The following two sentences are added to the paragraph following the
TABLE OF SURRENDER CHARGES:
Should you surrender this policy for its net surrender value the
applicable surrender charges will be reduced by the application of the
following percentages: If you surrender your policy in Year One - 100%;
Year Two - 80%; Year Three - 60%; Year Four - 40%; Year Five - 20%;
Year Six and after - 0%.
TERMINATION
This rider ends on the first of:
1. Termination of
2. Our receipt of your Written Request to cancel it. To be effective on a
specific Monthly Date your Written Request must be received by us
within 31 daysafter that date. We may require you to send your policy
to the home office to record the cancellation; or
3. Your Sixth Policy Anniversary.
ACCELERATED BENEFITS RIDER
This rider is part of your policy. All definitions, provisions, and exceptions
of the policy apply to this rider unless changed by this rider. The effective
date is the same as the policy date unless another date is shown on the data
page.
DEFINITIONS
The eligible face amount means:
Under Option 1.
The face amount of your policy.
Under Option 2.
The sum of the face amount of your policy plus its accumulated value.
BENEFIT
We will pay an accelerated benefit if the insured is terminally ill, subject to
the provisions of this rider. The maximum accelerated benefit you may receive is
the lesser of the amount shown in the data page or:
1. 75% of the eligible face amount;
MINUS
2. Any outstanding policy loans, unpaid loan interest and previously paid
accelerated benefit.
We will pay the accelerated benefit as a lump sum. Payments other than as a lump
sum may be made at your request, subject to our approval. The minimum amount if
any payment is $500. We may charge a one time administrative expense fee up to
the maximum which is shown on the data page.
INTEREST
We will charge interest on the amount of the accelerated benefit. The interest
accrues daily at the same interest rate as the policy's loan interest rate. On
the policy anniversary, the accrued interest will be added to the accelerated
benefit and bear interest at the rate then in effect. Additional interest will
not accrue if the accelerated benefit plus accrued interest equals the eligible
face amount.
EFFECT ON YOUR POLICY
The accelerated benefit will first be used to repay any outstanding policy loans
and unpaid loan interest. The accelerated benefit plus accrued interest will be
treated as a lien against the policy values. Your access to the net surrender
value of your policy through policy loans, partial surrenders or full surrender
is limited to any excess of the net surrender value over the accelerated benefit
and accrued interest on the accelerated benefit. Death proceeds, as defined in
the policy, will be reduced by the amount of the accelerated benefit plus
accrued interest. Any benefits payable under other riders attached to your
policy are not affected by any benefit paid under this rider.
PROOF OF TERMINAL ILLNESS
Before payment of any accelerated benefit, we will require you provide us with
proof satisfactory to us that the insured's life expectancy is 12 months or less
from the date of application for the accelerated benefit. this proof will
include the certification of a licensed physician, who is not yourself or a
member of your family. We reserve the right to obtain a second medical opinion
at our expense.
CLAIMS
We must receive your written request for an accelerated benefit in a form
acceptable to us. Upon receipt of your request, we will provide a claim form
within 10 working days.
CONDITIONS
The payment of any accelerated benefit is subject to the following conditions:
1. The policy must be in force other than as extended term or paid-up term
insurance.
2. The policy must not be assigned except to us as a security for a loan.
3. The payment of an accelerated benefit must be approved by any
irrevocable beneficiary.
4. This rider provides for the accelerated payment of the death benefit of
your life insurance policy. This is not meant to cause you to
involuntarily access proceeds ultimately payable to the beneficiary.
Therefore, you are not eligible for this benefit:
a. If you are required by law to use this benefit to meet the claims
of creditors, whether in bankruptcy or otherwise; or
b. If you are required by a government agency to use this benefit in
order to apply for , obtain, or otherwise keep a government
benefit or entitlement.
TERMINATION
This rider ends on the first of:
1. The termination of the policy to which this rider is attached; or
2. Our receipt of your written request to cancel this rider. We have the
right to require that you send us this policy so we can record the
cancellation.
REINSTATEMENT
This rider may be reinstated as part of your policy if it is terminated under 1
or 2 above.
We will pay the death proceeds to the beneficiary subject to the provisions of
your policy, when we receive proof at our home office of the insured's death.
THE AMOUNT OF DEATH BENEFIT OR THE DURATION OF COVERAGE MAY VARY UNDER SPECIFIED
CONDITIONS. SEE PROVISIONS FOR DEATH PROCEEDS AND GRACE PERIOD.
YOUR POLICY'S ACCUMULATED VALUE MAY VARY FROM DAY TO DAY. IT MAY INCREASE OR
DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF OUR VARIABLE LIFE SEPARATE
ACCOUNT. THERE IS NO GUARANTEED MINIMUM ACCUMULATED VALUE.
The owner and the beneficiary are as named in the application unless changed as
provided in your policy. This policy is a legal contract between you, as the
owner, and us, Principal Mutual Life Insurance Company. Your policy is issued in
consideration of the application and payment of premiums. Signed for Principal
Mutual Life Insurance Company at Des Moines, Iowa on the policy date.
RIGHT TO EXAMINE POLICY--You may request a cancellation of your policy before
the latter of: (1) 45 days after the application was signed (2) 10 days after
receipt of the policy; or (3) 10 days from the delivery of the notice of the
right to cancel. We will refund any premiums paid after your policy is returned
to your agent or our home office. Your policy will be considered void from its
inception.
Please read your policy carefully so you may better use its many benefits.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. Adjustable death benefit.
Benefits payable at death or earlier maturity date. Flexible premiums payable
until maturity date or prior death. Some benefits reflect investment results.
PARTICIPATING.
A mutual company serving policyowners and beneficiaries since 1879.
INSURED John Doe ISSUE AGE 35
POLICY NUMBER SAMPLE POLICY Flexible Premium Variable Life
POLICY DATE September 1, 1992 FACE AMOUNT $1,000,000
<PAGE>
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INDEX
Accumulated Value 9 Loan Interest Charges 12
Adjustment Date 4 Loan Repayment 12
Adjustments 14 Maturity Proceeds 6
Age (of Insured) 20 Monthly Date 4
Alteration (of Contract) 20 Monthly Deduction 9
Assignment 20 Ownership Changes 20
Beneficiary Changes 20 Partial Surrenders 10
Benefit Instructions 20 Planned Periodic Premiums 12
Benefit Options 15 Policy Loans 11
Contract 20 Policy Years and Anniversaries 4
Cost of Insurance Rates 10 Premium Payment Limits 13
Data Page 3 Reinstatement 14
Death Benefit Changes 6 Statement of Value 22
Death Benefit Options 5 Suicide 21
Death Proceeds 5 Surrender Value 10
Divisions 7 Table of Surrender Charges 3
Face Amount 3 Termination 14
Grace Period 13 Transaction Charge 3
Incontestability 20 Transfers 8
Insured 4 Units and Unit Value 7
Investment Account Value 8 Variable Life Separate Account 6
A copy of any application and any additional benefits
provided by rider follow the last page of this policy.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DATA PAGE 3
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(Continued on Page 3-1)
INSURED John Doe ISSUE 35
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
SCHEDULE OF PROTECTION
FORM PROTECTION#
NO. POLICY AND RIDERS FACE AMOUNT PERIOD DEATH BENEFITS
SF32 Flexible Premium $1,000,000 To Age 95* Option 1
Variable Life
SF40 Accidental Death 250,000 To Age 70
SF34 Cost of Living To Age 55
Your planned periodic premium of $500.00 is payable monthly.
#If sufficient premiums are paid, this policy provides life insurance protection
on the insured until the maturity date, which is the policy anniversary
following the birthday on which the insured attains age 95. You may have to pay
other than the planned periodic premium shown above to keep this policy in force
to that date, and to keep any additional benefit riders in force.
The smallest payment we will accept is $30.00.
Minimum monthly premium: $442.67
* Any reference to age means the age last birthday on the prior policy
anniversary.
This policy is adjustable. If it is adjusted, we will send you written
notification showing each change. The notice is to be attached to and made a
part of this policy. The minimum face amount is $25,000. The minimum face amount
increase is $5,000.
Loan Interest Rate: 8%
Borrowed funds earn interest at a rate of 6%.
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DATA PAGE 3-1
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INSURED John Doe ISSUE 35
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
SEPARATE ACCOUNT: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
VARIABLE LIFE SEPARATE ACCOUNT
PREMIUM MONTHLY
ALLOCATION DEDUCTION
DIVISIONS PERCENTAGES ALLOCATIONS
Common Stock 100% 100%
Invested in Principal Capital Accumulation
Fund, Inc.
Money Market 00% 00%
Invested in Principal Money Market
Bond 00% 00%
Invested in Principal Bond Fund, Inc.
High Yield 00% 00%
Invested in Principal High Yield Fund, Inc.
Managed 00% 00%
Invested in Principal Managed Fund, Inc.
Emerging Growth 00% 00%
Invested in Principal Emerging Growth
Fund, Inc.
Minimum Allocation Percentage: 10%
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DATA PAGE PAGE 3-2
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INSURED John Doe ISSUE 35
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
SCHEDULE OF CHARGES
Maximum monthly administration charge: $5.00
Maximum daily mortality and expense risk charge: .0024658 (.90% annual) of
accumulated value.
Premium expense charge: 5% of each premium received plus a charge for state
taxes of 2% of each premium received.
Transaction Charges: The first 4 division transfers per year are free.
Thereafter, there is a $25.00 transaction charge for each transfer. Each partial
surrender will also have a transaction charge. The transaction charge is the
lesser of $25 or 2% of the amount surrendered.
Minimum Transfer Amount: $250 or the balance of the investment account being
transferred from, if less.
Minimum Partial Surrender or Loan Amount: $500
Minimum Policy Loan Repayment: $30.00
TABLE OF SURRENDER CHARGES
(POLICY YEAR OF SURRENDER)
POLICY YEAR AMOUNT
1 $3,220.00
2 3,220.00
3 3,220.00
4 2,817.50
5 2,415.00
6 2,012.50
7 1,610.00
8 1,207.50
9 805.00
10 402.50
In the first year, surrender charges build up on a monthly basis over the first
twelve policy months.
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DATA PAGE PAGE 3-3
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INSURED John Doe ISSUE 35
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
DETAILED SCHEDULE OF PROTECTION AND RISK CLASSES
POLICY AND EFFECTIVE
RIDERS DATE AMOUNT RISK CLASS
Flexible Premium
Variable Life September 1, 1992 $1,000,000 Standard Nonsmoker
TOTAL $1,000,000
Accidental Death September 1, 1992 $1,000,000 Standard Nonsmoker
Cost of Living The effective date is September 1, 1992. The current
cost of living base is $1,000,000. The maximum cost of living
increase is the lesser of $50,000 or 30% of the cost of living
base. The minimum cost of living increase is $500.00.
Basis of Values: Guaranteed maximum cost of insurance rates are based on 1980
CSO Mortality, age last birthday, table NB.
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DATA PAGE PAGE 3-4
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INSURED John Doe ISSUE 35
POLICY NUMBER SAMPLE POLICY DATE September 1, 1992
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
(Nonsmoker)
MONTHLY RATES PER $1,000.00
- ----------------- ----------- --------------- ------------
INSURED'S MONTHLY INSURED'S MONTHLY
ATTAINED AGE RATE ATTAINED AGE RATE
================= =========== =============== ============
35 0.14083 65 1.71833
36 0.14833 66 1.89333
37 0.15833 67 2.09083
38 0.16917 68 2.29750
39 0.18083 69 2.52667
40 0.19500 70 2.78750
41 0.21000 71 3.08667
42 0.22583 72 3.43583
43 0.24250 73 3.83250
44 0.26083 74 4.27167
45 0.28167 75 4.74417
46 0.31333 76 5.24500
47 0.32750 77 5.76917
48 0.35333 78 6.32333
49 0.38167 79 6.92333
50 0.41417 80 7.58917
51 0.45167 81 8.34167
52 0.49333 82 9.19500
53 0.54167 83 10.14750
54 0.59500 84 11.18167
55 0.65417 85 12.27750
56 0.71750 86 13.42417
57 0.78417 87 14.60917
58 0.85750 88 15.83333
59 0.94083 89 17.10833
60 1.03250 90 18.45750
61 1.13667 91 19.91667
62 1.25750 92 21.53833
63 1.39583 93 23.46583
64 1.54917 94 26.04250
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DEFINITIONS IN THIS POLICY
ADJUSTMENT DATE--means the monthly date on or next following our approval of a
requested adjustment.
EXAMPLE: If the policy date is June 5, 1997, and if your requested
adjustment is approved on April 20, 1998, the adjustment date will be May
5, 1998.
ATTAINED AGE--means the age last birthday on the prior policy anniversary.
MATURITY DATE--means the policy anniversary following the insured's 95th
birthday.
MONTHLY DATE--means the day of the month which is the same as the day of the
policy date.
EXAMPLE: If the policy date is June 5, 1997, the first monthly date is July
5, 1997.
MUTUAL FUND--means a registered open-end investment company offered as an
investment choice under the policy. Mutual funds currently available are shown
on the data page.
POLICY YEARS AND ANNIVERSARIES--means the policy years and anniversaries
computed from the policy date
EXAMPLE: If the policy date is June 5, 1997, the first policy year ends on
June 4, 1998. The first policy anniversary falls on June 5, 1998.
PRORATED BASIS--means in the same proportion as the value of a particular
investment account bears to the total value of all investment accounts.
THE INSURED--means the person named as the insured on the data page of this
policy. The insured may or may not be the owner.
VALUATION DATE--means the date the net asset value of a mutual fund is
determined.
VALUATION PERIOD--means the period between the time as of which the net asset
value of a mutual fund is determined on one valuation date and the time as of
which such value is determined on the next following valuation date.
WE, OUR, US--means Principal Mutual Life Insurance Company.
YOU, YOUR--means the owner of this policy.
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YOUR DEATH PROCEEDS
We will pay the death proceeds to the beneficiary subject to the provisions of
the policy, when we receive proof that the insured died before the maturity
date. These death proceeds, determined as of the date of the insured's death,
are:
1. The death benefit described below;
PLUS
2. Any proceeds from any benefit rider on the insured's life;
LESS
3. Any policy loans and unpaid loan interest;
LESS
4. Any overdue monthly deductions if the insured died during a grace
period.
We will pay interest on death proceeds from the date of death until date of
payment or until applied under a benefit option. It will be at a rate we
determine, but not less than required by state law.
DEATH BENEFIT
This policy provides two death benefit options. The option in effect is shown on
the data page.
Option 1.
Under Option 1, the death benefit equals the greater of:
1. The policy's face amount; or
2. The amount found by multiplying the policy's accumulated value by the
applicable percentage shown below.
Option 2.
Under Option 2, the death benefit equals the greater of:
1. The policy ' s face amount plus its accumulated value; or
2. The amount found by multiplying the policy's accumulated value by the
applicable percentage shown below.
TABLE OF APPLICABLE PERCENTAGES*
(For ages not shown, the applicable percentages shall decrease by a pro rata
portion for each full year.)
INSURED'S ATTAINED AGE %
40 and under 250
45 215
50 185
55 150
60 130
65 120
70 115
75 thru 90 105
95 100
*These percentages will be updated as required by revisions to the Internal
Revenue Code.
CHANGES IN DEATH
BENEFIT OPTION
You may change the death benefit option on or after the first policy
anniversary. Any request for change must be in writing and approved by us. A
change will be effective on the monthly date on or next following the date we
approve the request. Changes in options are limited to two per policy year and
are subject to the following conditions:
1. If the change is from Option 1 to Option 2, we will reduce the face
amount. The reduction will be equal to the accumulated value on the
effective date of the change. The face amount after any reduction must
be at least the minimum face amount required by our then current
underwriting rules. We may require proof of insurability which
satisfies us.
2. If the change is from Option 2 to Option 1, we will increase the face
amount. The increase will be equal to the accumulated value on the
effective date of change. No proof of insurability is required.
YOUR MATURITY
PROCEEDS
If the insured is living on the policy's maturity date, we will pay you the
policy's accumulated value less any policy loans and unpaid loan interest.
VARIABLE LIFE SEPARATE ACCOUNT
Assets are put into our Variable Life Separate Account (separate account) to
support this policy and to support other variable life insurance policies we may
offer. We own the assets of the separate account. These assets are not part of
our general account. Income, gains, and losses of our separate account, whether
or not realized, are credited to or charged against our separate account assets,
without regard to our other income, gains or losses. The assets of the separate
account will be available to cover the liabilities of our general account only
to the extent that the assets of the separate account exceed the liabilities of
the separate account arising under the variable life insurance policies
supported by the separate account.
Our separate account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940, as amended.
DIVISIONS
Our separate account is comprised of divisions. Each division invests in a
mutual fund with a different investment objective. The data page shows the
divisions currently available. Income, gains and losses, whether or not
realized, from each division's assets are credited to or charged against that
division without regard to income, gains or losses of other divisions or our
other income, gains or losses. We may make other divisions available to you. We
will provide you with all material details of any division we offer, including
investment objectives and all charges.
We may discontinue or substitute investments in a division if such investment is
no longer appropriate or possible. The investment policy of our separate account
will not be changed without any required approvals of the Insurance Commissioner
of Iowa and the Superintendent of Insurance of New York and the Securities and
Exchange Commission. This approval process is on file with the Insurance
Commissioner of the state in which this policy was delivered.
We will notify you of any such change. You may then change your allocation
percentages and transfer any value in that division to another division without
charge. Or, you may exchange the policy for a fixed-benefit flexible premium
policy made available by us. You may exercise this right until the later of 60
days after the effective date of such change or the date you receive notice of
this right. The face amount of the new policy will be the death benefit of this
policy on the date of exchange.
YOUR INVESTMENT
ACCOUNTS
An investment account will be established for you corresponding to each division
of the separate account to which amounts are allocated or transferred under this
policy. We will maintain each of these investment accounts for you to keep track
of your values in each division.
UNITS AND
UNIT VALUE
Units are the basis for determining the investment account value. Units are
credited when amounts are allocated or transferred to a division of our separate
account. Units are cancelled when amounts are deducted or transferred from a
division of our separate account. The number of units credited or cancelled is
equal to the dollar amount divided by the unit value for the valuation period
when the transaction occurs.
Each division's unit value is determined on each valuation date. When each
division was formed, the unit value of that division was originally established
at $10.00 per unit. Thereafter, the unit value on any valuation date is
calculated by multiplying the unit value on the previous valuation date by the
net investment factor for the current valuation period. The number of units will
not change due to a subsequent change in unit value.
The unit value on any day other than a valuation date is the unit value as of
the next valuation date.
NET INVESTMENT
FACTOR
The net investment factor measures investment performance of each division. It
is used to determine changes in unit value from one valuation period to the next
valuation period. The net investment factor for a valuation period is equal to:
1. The quotient obtained by dividing:
a. The net asset value of a share of the underlying mutual fund as
of the end of such valuation period, plus the per share amount of
any dividend or other distribution made by such mutual fund
during such valuation period (less an adjustment for taxes, if
any) by
b. The net asset value of a share of such mutual fund as of the end
of the immediately preceding valuation Period;
LESS
2. A mortality and expense risks charge equal to the number of days within
such valuation period times the daily mortality and expense risks charge shown
on the data page.
The adjustment for taxes, if any, represents amounts charged against the
division for taxes or set aside by us during the valuation period to provide for
taxes attributable to that division's operation or maintenance.
The amounts derived from applying the rate specified in 2 above and the amount
of any taxes referred to above will be accrued daily and will be transferred
from the separate account at our discretion.
TRANSFERS
Your accumulated value may be transferred among the divisions. The total amount
transferred each time must be at least the minimum transfer amount shown on the
data page unless a lesser amount is in the investment account. Any request for
transfer must be in writing and approved by us. The effective transfer date is
the date we receive your request. Any additional transfer restrictions of a
particular division are shown on the data page. We reserve the right to modify
or revoke transfer privileges and charges.
Any amount transferred will result in the cancellation of units in the
investment account of the division from which the transfer occurred. The number
of units cancelled will be equal to the amount transferred divided by the unit
value of that division for the valuation period in which the transfer is
effective. Units will be credited to the investment account of the division into
which the amount is transferred. Likewise, the number of units credited will be
equal to the amount transferred divided by the unit value of that division.
All transfers with the same effective date count as one transfer. Four transfers
may be made in any policy year without a charge. For any additional transfers
during a policy year, a transaction charge will be imposed each time amounts are
transferred and will be deducted from the divisions from which the amounts are
transferred. The transaction charge is shown on the data page.
YOUR POLICY VALUES
INVESTMENT
ACCOUNT VALUE
Your investment account value for each division is equal to the number of units
in that investment account multiplied by that division's unit value.
On the later of the policy date or end of the valuation period during which the
first premium is received, the number of units in an investment account equals:
1. The first net premium allocated to that division;
LESS
2. The monthly deduction allocated to that division for the first policy
month;
DIVIDED BY
3. The unit value for that division on that valuation date.
The net premium is the premium paid less the premium expense charge. The premium
expense charge and the premium allocation percentages are shown on the data
page.
At the end of each valuation period thereafter, the number of units in an
investment account equals:
1. Units in the investment account on the previous valuation date;
PLUS
2. Units credited to the investment account when any additional net
premium is received and allocated to the division during the current
valuation period;
PLUS
3. Units credited for transfers from another division or from the loan
account during the current valuation period;
LESS
4. Any units cancelled for transfers to another division, transaction
charges, or transfers to the loan account to secure a policy loan
during the current valuation period;
LESS
5. Any units that are cancelled for partial surrenders and transaction
charges during the current valuation period;
LESS
6. Units cancelled to pay the monthly deduction allocated to the division
whenever a valuation period includes a monthly date.
ACCUMULATED VALUE
Your accumulated value is equal to the total of your investment account values
and any value in your loan account.
MONTHLY DEDUCTION
We calculate the monthly deduction as:
1. The cost of insurance (described below) and the cost of additional
benefits provided by any rider in force for the policy month;
PLUS
2. The current monthly administration charge but not greater than the
maximum shown on the data page.
The monthly deduction will be withdrawn from the separate account divisions
according to the allocation percentages you have chosen. These percentages are
shown on the data page.
Your choice for the monthly deduction allocation may be:
1. The same as the allocation percentages you have chosen for your
premiums; or
2. Determined on a prorated basis; or
3. Any other allocation which we mutually agree upon.
If the amount in a division is insufficient to allow the allocation you have
chosen, your monthly deduction will be allocated on a prorated basis.
For each division, the allocation percentages must be zero or a whole number not
less than ten nor greater than 100. The sum of the percentages for all the
divisions must equal 100. Changes in allocation percentages must be requested in
writing.
Once approved by us, they are effective as of the next monthly date.
COST OF INSURANCE
We deduct the cost of insurance on each monthly date. The cost is (1) multiplied
by the result of (2) minus (3), where:
1. Is the cost of insurance rate as described in the Cost of Insurance
Rates section divided by 1,000;
2. Is the death benefit at the beginning of the policy month; and
3. Is the accumulated value at the beginning of the policy month
calculated as if the monthly deduction were zero.
COST OF
INSURANCE RATES
The monthly cost of insurance rates are based on the sex, attained age, and risk
classification of the insured. We determine these rates based on our
expectations as to our future mortality experience. Any change in these rates
applies to all individuals of the same class as the insured. The cost of
insurance rates will never be greater than shown in the Table of Guaranteed
Maximum Cost of Insurance Rates on the data page. However, different cost of
insurance rates may apply to any face amount increase.
SURRENDER VALUE
AND NET
SURRENDER VALUE
The surrender value of your policy equals the accumulated value less the
surrender charge (described below).
The net surrender value of your policy is the surrender value less any policy
loans and unpaid loan interest. As long as your policy is in force, you may
surrender it for its net surrender value by sending us a written request.
SURRENDER CHARGES
The Table of Surrender Charges is shown on the data page. Surrender charges
apply to the first 10 policy years unless they are changed due to a face amount
increase. A face amount increase has its own 10 year surrender charge period
which begins on the adjustment date. If a face amount increase is made, the
surrender charges will be a composite of all charges which apply for each year.
PARTIAL SURRENDERS
After the first policy year, you may make partial surrenders of up to 50% of the
current net surrender value subject to the following:
1. The partial surrender may not be less than the minimum amount shown on
the data page; and
2. No more than two partial surrenders may be made in any policy year.
Your policy's accumulated value is reduced by the amount of the partial
surrender plus the amount of the transaction charge. The transaction charge is
shown on the data page.
If the Option 1 death benefit is in effect, the face amount is reduced by the
amount of the partial surrender and the transaction charge.
You may tell us the amount of the partial surrender and transaction charge to be
withdrawn from each division. If you do not tell us, the partial surrender and
the transaction charge will be withdrawn from the divisions in the same
proportion as the allocations used for your monthly deductions.
The amount of the partial surrender plus the transaction charge will result in
the cancellation of units in the investment account or accounts from which the
partial surrender occurs. The number of units cancelled will be equal to the
amount of the partial surrender plus the transaction charge divided by the unit
value of the division or divisions for the valuation period in which the partial
surrender is effective.
POLICY LOANS
You may obtain a policy loan from us with this policy as sole security. You may
borrow up to (1) minus (2) where:
1. Is 90% of the surrender value; and
2. Is any outstanding policy loan and unpaid loan interest at the time
the loan request is processed at the home office of the company.
The minimum loan amount is shown on the data page.
YOUR LOAN ACCOUNT
If you take a policy loan, a portion of your accumulated value equal to the loan
will transfer from the separate account to your loan account until the loan is
repaid. The effective date of the transfer is the date of the loan.
You may tell us the amount of the policy loan to be withdrawn from each
division. If you do not tell us, the loan amount will be withdrawn from the
divisions in the same proportion as the allocation used for your monthly
deductions. Amounts held in your loan account will earn interest from the date
of transfer at the policy loan interest rate less 2%.
On each policy anniversary, this earned interest is transferred from the loan
account to the separate account. It is allocated among the divisions in the same
manner used to allocate premium payments.
All interest rates stated are effective annual rates. We apply these rates to
properly reflect the actual date we receive any repayments and any changes you
make in loan amounts during a policy month.
The loan will result in the cancellation of units in the investment account or
accounts corresponding to the division or divisions from which the loan was
withdrawn. For each investment account, the number of units cancelled will be
equal to the portion of the loan withdrawn divided by the unit value for the
valuation period in which the loan is effective.
LOAN INTEREST
CHARGE
Interest charges accrue daily at the annual loan interest rate shown on the data
page. Interest is due and payable at the end of each policy year. Any interest
not paid when due is added to the loan principal and bears interest at the same
rate. The adding of unpaid interest charges to the loan principal will cause
additional amounts to be withdrawn from the divisions in the same manner as
described above for loans.
REPAYMENT
You may repay all or part of a policy loan as long as the policy is in force and
the minimum payment amount (as shown on the data page) is met. Any policy loans
and unpaid loan interest charges not repaid at the insured's death or at
maturity are deducted from the death or maturity proceeds.
YOU SHOULD IDENTIFY THE PURPOSE OF EACH PAYMENT. IF WE CANNOT IDENTIFY ITS
PURPOSE, WE WILL CONSIDER IT TO BE A LOAN PAYMENT.
As the loan is repaid, the amount repaid is transferred from your loan account
to the divisions in the same manner used to allocate premium payments.
If you do not repay a policy loan or pay loan interest and the net surrender
value is less than the monthly deduction due on a monthly date, the Grace Period
provision will apply.
PREMIUM PAYMENTS AND REINSTATEMENT
Your first premium is due on the policy date. After that, premiums may be paid
at any time while this policy is in force. The amount of your premiums is
subject to the Premium Payment Limits provision. We will give a receipt to the
premium payor on request. The net premium is the premium paid less the premium
expense charge. The premium expense charge is shown on the data page.
Your initial net premium will be allocated to the Money Market Division of our
separate account. Net premiums will continue to be allocated to the Money Market
Division until 45 days after the policy date. After the 45-day period has
expired, your policy's accumulated value will be transferred to the divisions
indicated by your premium allocation percentages.
The premium allocation percentages are shown on the data page. Unless you change
them, these percentages apply to future allocations of premiums. For each
division, the allocation percentages must be zero or a whole number not less
than ten nor greater than 100. The sum of the percentages for all divisions must
equal 100. Changes in allocation percentages must be requested in writing. Once
approved by us, they are effective as of the date we received the request.
PLANNED PERIODIC
PREMIUMS
You may elect to pay planned periodic premiums by monthly preauthorized
withdrawal. You may also elect to pay on an annual, semi-annual, or quarterly
basis. In this event we will send you reminder notices of the amount and
frequency of your planned periodic premiums as selected in your application.
These notices serve only as a reminder of your preference. Premiums are to be
sent to the address we provide in the reminder notices. You may change the
amount and frequency of your planned periodic premiums by notifying us in
writing.
If you do not make a planned periodic premium payment or additional premium
payments, the Grace Period provision may apply.
PREMIUM PAYMENT
LIMITS
To keep this policy in force you must satisfy the requirements described in the
Grace Period provision.
The smallest payment we will accept is shown on the data page.
You may choose to make premium payments that are greater than the planned
periodic premium. However, we will refund any premiums that would disqualify
this policy as "life insurance" as defined in the Internal Revenue Code, as
amended.
If any payment increases the policy's death benefit by more than it increases
the accumulated value, we reserve the right to refund the premium payment.
Evidence of insurability which satisfies us may be required.
GRACE PERIOD
The grace period begins when we mail a notice of impending policy termination to
you. This notice will be sent to your last post office address known to us. It
will show the minimum payment required to keep your policy in force. It will
also show the 61 day grace period during which we will accept such payment.
A notice of impending policy termination will be sent if:
1. The net surrender value on any monthly date is less than the monthly
deduction; or
2. During the 12 months following the policy date, the sum of the
premiums paid is less than the minimum required premium on a monthly
date; or
3. During the 12 months following the last adjustment date of a requested
face amount increase, the sum of the premiums paid is less than the
minimum required premium on a monthly date.
The minimum required premium on a monthly date is equal to (1) times (2) where:
1. Is the minimum monthly premium shown on the data page; and
2. Is one plus the number of complete months since the policy date or
since the adjustment date of a requested face amount increase, as
applicable.
If the grace period begins because the net surrender value is less than the
monthly deduction, the minimum payment is three times the monthly deduction
which was due and unpaid.
If the grace period begins because the sum of the premiums paid is less than the
minimum required premium, the minimum payment is the past due minimum required
premium. The past due minimum required premium is:
1. The minimum required premium due on the next following monthly date;
LESS
2. The sum of the premiums paid since the policy date or last adjustment
date of a requested face amount increase, as applicable.
If the grace period ends before we receive the past due minimum required
premium, we will pay you any remaining value in the policy which would be the
excess of (a) over (b) where:
a. Is the net surrender value on the monthly date at the start of
the grace period,
b. Is the two monthly deductions applicable during the grace period.
If the insured dies during a grace period, we will pay the death proceeds to the
beneficiary.
TERMINATION
All policy privileges and rights of the owner under this policy end when:
1. You surrender your policy for cash;
2. The death proceeds are paid; or
3. The policy maturity proceeds are paid.
Also, if the grace period ends as described above, the privileges and rights of
the owner terminate as of the monthly date on or immediately preceding the start
of the grace period.
REINSTATEMENT
If this policy ends as described in the Grace Period provision, you may
reinstate it provided:
1. It is prior to the maturity date;
2. The insured is alive;
3. Not more than three years have elapsed since the policy terminated;
4. You supply evidence which satisfies us that the insured is insurable
under our underwriting rules then in effect;
5. You either repay or reinstate any policy loans and unpaid loan
interest on this policy existing at termination:
6. You make a payment of at least the greater of an amount sufficient to
allow 3 monthly deductions or the past due minimum required premium,
if any.
The reinstatement will be effective on the monthly date on or next following the
date we approve it. Your surrender charges on the effective date of
reinstatement will be those that were in effect on the date your policy ended
adjusted for the payment of past due premium, if any. You will receive new data
pages reflecting these surrender charges.
YOUR ADJUSTMENT OPTIONS
While your policy is in force (but not in a grace period) you may request an
increase or decrease in the face amount. Decreases may not be made during the
first policy year. Any adjustment is subject to our approval.
APPROVAL OF
AN ADJUSTMENT
Any increase in face amount will be in a risk classification we determine, and
will be approved if:
1. The attained age of the insured is 75 or less and the amount of the
increase is at least the minimum increase shown on the data page;
2. You supply evidence which satisfies us that the insured is insurable
under our underwriting rules then in effect; and
3. You make a payment not less than the new minimum monthly premium for
the policy after the increase in face amount. The new minimum monthly
premium, determined by us, will take into account the current
surrender value.
No adjustment will be approved if:
1. The face amount after adjustment would be less than the minimum amount
shown on the data page;
2. Your monthly deductions are being waived under any rider.
REQUESTING AN
ADJUSTMENT
Your request for an adjustment must be in a written form we specify. A request
for a face amount increase must be signed by the insured. It must show the face
amount desired after adjustment. An adjustment is effective on the adjustment
date.
A face amount increase that is not a Cost of Living Increase has its own Right
to Examine and Right to Exchange periods.
RIGHT TO EXCHANGE POLICY
You may exchange this policy for a new life policy we make available for this
purpose on the life of the insured. The new policy may not be a term insurance
policy or a variable policy. Evidence of insurability will not be required.
The exchange must be made during the first 24 months from the policy date while
your policy is in force, but not while it is in a grace period. The exchange
will be effective on receipt of written notice on a form we specify. This policy
will then terminate. The new policy will have the same policy date as this
policy.
You may choose whether the new policy will have either the same death benefit or
the same amount at risk as this policy. The amount at risk is the difference
between the accumulated value and the death benefit of the policy. Premiums for
the new policy will be based on the same issue age, sex, and risk classification
as this policy.
An equitable adjustment in the new policy's premiums and values will be made to
reflect any variations between the premiums and values under this policy and the
new policy. No additional charge will be made for this exchange privilege. Any
policy loans and unpaid loan interest must be repaid or transferred to the new
policy.
Any benefit riders included on this policy may be exchanged, without evidence of
insurability, for similar benefit riders on the new policy if:
1. You request the similar benefit rider to be included on the new
policy; and
2. The similar benefit rider was available for the new policy on the
effective date of the benefit rider for this policy based on the same
issue age, sex, and risk classification as the insured.
YOUR BENEFIT OPTIONS
You may elect to use one of these benefit options in your benefit instructions.
If no benefit instructions are in effect at the insured's death, the beneficiary
may apply unpaid death proceeds under a benefit option. You may also apply the
net surrender value of your policy at surrender or at maturity under a benefit
option
If a benefit option is elected, this policy must be exchanged for a
supplementary contract effective when the policy proceeds first become payable.
Payments under the following options are not affected by the investment
experience of any division of our separate account after the policy proceeds are
applied under an option.
Option A. SPECIAL BENEFIT ARRANGEMENT -- A specially designed benefit option may
be arranged with our approval.
Option B. PROCEEDS LEFT AT INTEREST -- We will hold the amount applied on
deposit. Interest payments will be made annually, semi-annually, quarterly or
monthly, as elected.
Option C. FIXED INCOME -- We will pay an income of a fixed amount or an income
for a fixed period not exceeding 30 years. Refer to Option C tables to determine
the number of fixed amount payments or the amount of each fixed period payment.
On request, we will furnish benefit information not shown in the tables.
Option D. LIFE INCOME -- We will pay an income during a person's lifetime. A
minimum guaranteed period may be used, as shown in the Option D table. Payments
will be in an amount we determine, but not less than shown in the table.
Option E. JOINT AND SURVIVOR LIFE INCOME -- We will pay an income during the
lifetime of two persons, and continuing until the death of the survivor. This
option includes a minimum guaranteed period of 10 years. Payments will be in an
amount we determine, but not less than shown in the Option E table. On request,
we will furnish minimum income information for age combinations not shown in the
table.
Option F. JOINT AND TWO-THIRDS SURVIVOR LIFE INCOME -- We will pay an income
during the lifetime of two persons, and two-thirds of the original amount
continuing until the death of the survivor. Payments during the time both people
are alive will be in an amount we determine (the "original amount"), but not
less than shown in the Option F table. On request, we will furnish minimum
income information for age combinations not shown in the table.
<PAGE>
OPTION C TABLES
Minimum Monthly of Months for Which Monthly Income will be Paid. Payment on
Effective Date of Supplementary Contract.
- --------- --------- ----------- ------------ ----------- ------------- ---------
Amount No. of No. of No. of
Applied Income Pymts* Income Pymts* Income Pymts*
- --------- --------- ----------- ------------ ----------- ------------- ---------
$10,000 $50 274 $100 114 $175 61
25,000 150 214 250 114 400 67
50,000 250 274 500 114 750 72
100,000 450 321 1,000 114 1,500 72
- --------- --------- ----------- ------------ ----------- ------------- ---------
*Minimum number of months for which full monthly income will be paid. There may
be part of a payment made one month after the last one. The partial payment will
be the balance, if any, of the amount applied less the payments, all accumulated
at interest.
Minimum Monthly Income To Be Paid for Number Of Years. First Payment on
Effective Date of Supplementary Contract.
- ---------- -------------------------------------------------------------------
Amount Number of Years
Applied
---------- -------- --------- ----------- ------------- -----------
5 10 15 20 25 30
- ---------- ---------- -------- --------- ----------- ------------- -----------
$10,000 179.10 96.10 68.70 55.10 47.10 41.80
25,000 447.75 240.25 171.75 137.75 117.75 104.50
50,000 895.50 480.50 343.50 275.50 235.50 209.00
100,000 1,791.00 961.00 687.00 551.00 471.00 418.00
- ---------- ---------- -------- --------- ----------- ------------- -----------
<PAGE>
OPTION D TABLE
Minimum Monthly Life Income for Each $1,000 Applied. First Payment on Effective
Date of Supplementary Contract.
- ---------------- ---------------------------------------------------------------
Age Minimum Guaranteed Period
Last Birthday
of Payee
-------- --------- ---------- --------- ----------- ---------
Inst.*
None 5 Yrs. 10 Yrs. 15 Yrs. 20 Yrs. Rfd.
- ---------------- -------- --------- ---------- --------- ----------- ---------
55 4.05 4.05 4.03 4.00 3.95 3.94
56 4.12 4.12 4.10 4.06 4.01 4.00
57 4.20 4.19 4.17 4.13 4.07 4.06
58 4.28 4.27 4.25 4.20 4.13 4.13
59 4.36 4.35 4.33 4.28 4.20 4.20
60 4.45 4.44 4.41 4.35 4.26 4.27
61 4.55 4.54 4.50 4.43 4.33 4.35
62 4.65 4.64 4.60 4.52 4.40 4.43
63 4.76 4.74 4.70 4.61 4.47 4.52
64 4.87 4.86 4.80 4.70 4.54 4.61
65 5.00 4.98 4.91 4.80 4.61 4.70
66 5.13 5.11 5.03 4.89 4.69 4.81
67 5.27 5.24 5.16 5.00 4.76 4.91
68 5.42 5.39 5.29 5.10 4.83 5.02
69 5.58 5.55 5.43 5.21 4.90 5.14
70 5.76 5.71 5.57 5.32 4.97 5.27
71 5.94 5.89 5.73 5.43 5.03 5.40
72 6.15 6.09 5.89 5.55 5.09 5.54
73 6.37 6.30 6.06 5.66 5.15 5.69
74 6.60 6.52 6.24 5.77 5.20 5.85
75 6.86 6.75 6.42 5.88 5.25 6.02
- ---------------- -------- --------- ---------- --------- ----------- ---------
*Income payments continue until the total received equals the amount applied
under the option.
<PAGE>
OPTION E TABLE
Minimum Monthly Joint and Survivor Life Income for Each $1,000 Applied. First
Payment on Effective Date of Supplementary Contract.
- ------------------ -------------------------------------------------------------
Age Last Birthday Age Last Birthday of Younger Payee
of Older Payee
----------- ---------- ------------ ----------- -------------
55 60 62 65 70
- ------------------ ----------- ---------- ------------ ----------- -------------
60 3.75 3.91
62 3.79 3.98 4.05
65 3.84 4.07 4.16 4.29
70 3.91 4.19 4.31 4.50 4.81
75 3.96 4.29 4.43 4.67 5.09
- ------------------ ----------- ---------- ------------ ----------- -------------
OPTION F TABLE
Minimum Monthly Joint and Two-Thirds Survivor Life Income for Each $1,000
Applied. First Payment on Effective Date of Supplementary Contract.
- --------------------- ---------------------------------------------------------
Age Last Birthday Age Last Birthday of Younger Payee
of Older Payee
---------- ----------- ------------ ----------- ---------
55 60 62 65 70
- --------------------- ---------- ----------- ------------ ----------- ---------
60 4.06 4.26
62 4.13 4.34 4.43
65 4.24 4.47 4.58 4.74
70 4.44 4.71 4.84 5.04 5.41
75 4.65 4.97 5.12 5.36 5.83
- --------------------- ---------- ----------- ------------ ----------- ---------
<PAGE>
BENEFIT OPTION
INTEREST
Interest at a rate we set, but never less than 3% a year, will be applied to
determine the payments under Option B. Any such interest in excess of 3% will be
added to payments under Option C.
CONDITIONS
When a benefit option is elected:
1. Any amount payable to an assignee will be paid in one lump sum.
2. The amount applied must be at least $2,000 and result in periodic
payments of at least $20.
3. Benefit options are restricted if the recipient of benefits is
not a natural person.
4. Under Options D, E and F, one of the persons on whose life
payments are based must be the owner, insured or beneficiary. The
size of payments depends on the age and sex of the person or
persons on whose life payments are based. This will be determined
as of the effective date of the supplementary contract. We
reserve the right to require evidence of age, sex and continuing
survival.
OWNER, BENEFICIARY, ASSIGNMENT
OWNERSHIP
The owner is as named in the application unless you change ownership as provided
below. As owner, you may exercise every right and enjoy every privilege provided
by your policy, subject to the rights of any irrevocable beneficiary. These
rights and privileges end at the insured's death.
If you are not the insured and you die before the insured, the insured becomes
the owner unless you have provided for a successor owner.
BENEFICIARY
The beneficiary(ies) named in the application will receive the death proceeds
unless you change the beneficiary designation as provided below. Any death
proceeds payable to a beneficiary who dies before the insured will be paid
equally to surviving beneficiaries named in the application, unless we have
approved another written procedure requested by you. If no beneficiary survives
the insured, the death proceeds will be paid to the owner or to the owner's
estate.
CHANGE OF OWNER
OR BENEFICIARY
You may change the owner or beneficiary of this policy. Your request must be in
writing. Our approval is needed and no change is effective until we approve it.
Once approved, the change is effective as of the date you signed the request. We
have the right to require that you send us this policy so we can record the
change.
BENEFIT INSTRUCTIONS
While the insured is alive, you may file instructions for the payment of the
death proceeds under one of the benefit options previously described. Such
instructions, or change of instructions, must be in written form approved by us.
If you change the beneficiary, it will revoke any prior benefit instructions.
ASSIGNMENT
You may assign your policy as collateral for a loan. We are not bound by any
assignment until it is received in written form at our home office. We assume no
responsibility for any assignment's validity. An assignment as collateral does
not change the owner. The rights of beneficiaries, whenever named, become
subordinate to those of the assignee.
GENERAL INFORMATION
THE CONTRACT
This policy, the attached application, any amendments to the application, the
current data page, and any Written Notification Showing Change make up the
entire contract. Any statements made in the application or an adjustment
application will be considered representations and not warranties. No statement,
unless made in an application, will be used to void your policy (or void an
adjustment in case of an adjustment application) or to defend against a claim.
Unless a separate effective date is shown on the data page, the policy date is
also the effective date.
ALTERATIONS
This policy may be altered by mutual agreement, but any alterations must be in
writing and signed by one of our corporate officers. No one else, including the
agent, may change the contract or waive any provisions.
INCONTESTABILITY
Your policy has a 2 year contestable period. We will not claim your policy is
void or deny payment of any proceeds after the policy has been in force during
the insured's lifetime for 2 years from the policy date. This provision does not
apply to claims for total disability or to accidental death benefits which may
be provided in your policy. Any face amount increase made under the adjustment
options has its own 2 year contestable period which begins on the adjustment
date.
AGE AND SEX
If the age or sex of the insured has been misstated, the death benefit will be
that which would be purchased by the most recent mortality charge at the correct
age or sex.
DEFERMENT
We will usually pay surrenders, partial surrenders, or policy loans within 7
days after we receive a written request in a form satisfactory to us. We will
usually pay any death benefit within 7 days after we receive proof at our home
office of the insured's death.
However, we may not be able to determine the value of the assets of our separate
account if:
1. The New York Stock Exchange is closed on other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission;
2. The Securities and Exchange Commission by order permits postponement
for the protection of policyowners; or
3. The Securities and Exchange Commission requires that trading be
restricted or declares an emergency, as a result of which disposal of
securities is not reasonably practicable or it is not reasonably
practicable to determine the net asset value of the mutual funds.
If any of the above events occur, we reserve the right to defer:
1. Determination and payment of any surrender, partial surrenders, or
death proceeds;
2. Payment of any policy loans;
3. Determination of the unit values of the divisions;
4. Any requested transfer between the divisions; and
5. Use of the death proceeds under Your Benefit Options.
PARTICIPATING
Your policy is eligible to share in our divisible surplus. We will determine its
share and credit it as a dividend at the end of each contract year. We do not
expect any dividends will be paid under this policy. Dividends, if any, will be
paid in cash.
SUICIDE
This policy's death proceeds will not be paid if the insured dies by suicide,
while sane or insane, within 2 years of the policy date. Instead, we will return
all premiums paid, less any partial surrenders and any policy loans and unpaid
loan interest. This amount will be paid to the beneficiary.
Any face amount increase made under the adjustment options will not be paid if
the insured dies by suicide, while sane or insane, within 2 years of the
adjustment date. Instead, we will return the sum of the cost of insurance
charges for the increased amount of protection. This amount will be paid to the
beneficiary.
BASIS OF VALUES
Guaranteed Maximum Cost of Insurance Rates are based on the mortality tables
shown on the data page.
A detailed statement of the method of calculating values and benefits has been
filed with the insurance department of the state in which this policy is
delivered. The guaranteed values are greater than or equal to those required by
any state law.
STATEMENT OF VALUE
We will mail a statement to you once each policy year until the policy ends. The
statement will show:
1. The current death benefit;
2. The current accumulated and surrender values;
3. All premiums paid since the last statement;
4. Any investment gain or loss since the last statement;
5. All charges since the last statement;
6. Any policy loans and unpaid loan interest:
7. Any partial surrenders since the last statement;
8. The number of units and unit value; and
9. The total value of each of your investment accounts.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. Adjustable death benefit.
Benefits payable at death or earlier maturity date. Flexible premiums payable
until maturity date or prior death. Some benefits reflect investment results.
PARTICIPATING.
COST OF LIVING INCREASE RIDER
We will periodically increase the face amount of your policy based on increases
in the Consumer Price Index for All Urban Consumers, subject to the provisions
of this rider. These increases are automatic. No evidence that the insured is
insurable is required.
LIMITATIONS AND
CONDITIONS
These limitations and conditions apply:
1. Increases are available only on every 3rd policy anniversary, as
measured from the policy date, and only when the amount of the increase
is at least the minimum cost of living increase shown on the data Dane.
2. The amount of increase will be:
a. The lesser of the calculated increase (as determined below) or
the maximum cost of living increase shown on the data page;
LESS
b. The total of any face amount increases made during the prior year
at a standard risk class (not including increases under any
Guaranteed Increase Option Rider).
3. Increases are subject to your acceptance, the provisions of this rider
and any other applicable policy provisions, including any exclusions or
limitations.
THE CALCULATED
INCREASE
The calculated cost of living increase is based on the all-item Consumer Price
Index for All Urban Consumers (CPI) as published by the United States Department
of Labor. The increase amount is determined by multiplying your policy's current
cost of living base (shown on the data page) by an increase factor. The increase
factor will be:
1. CPI 6 months prior to the cost of living increase date
DIVIDED BY
2. CPI 42 months prior to the cost of living increase
LESS
3. 1.00
If use of the Index would result in a face amount decrease, no change in the
face amount will be made.
We will substitute what we believe is an appropriate index for the Consumer
Price Index for All Urban Consumers if:
1. The Index is discontinued, delayed, or otherwise not available for this
use; or
2. The composition or base of, or method of calculating the Index changes
so that we consider it not appropriate for calculating further cost of
living increases.
MONTHLY
DEDUCTIONS
The monthly deduction will be increased to cover the costs and charges for any
increase in protection made under this rider. This increase will be based on the
risk class or classes shown on the data page.
DISABILITY BENEFITS
If your policy has a rider that provides any benefits due to disability, we will
increase such benefits when a cost of living increase occurs. For more
information, see the rider providing these benefits.
PLANNED PERIODIC
PREMIUM
Your planned periodic premium will be increased accordingly for any increase in
protection made under this rider. Increases are subject to your acceptance. We
will notify you of any increase.
LIMIT ON COST OF
LIVING BASE
Your cost of living base may not be greater than the face amounts on your policy
that have a standard risk class.
TERMINATION
This rider terminates, with no further cost of living increases available, on
the first of:
1. The policy anniversary following the insured's 55th birthday;
2. Any decrease in your policy's face amount (except as a result of a
partial surrender or a change in your death benefit option);
3. Your rejection of an automatic cost of living increase; or
4. The termination of your policy.
REINSTATEMENT
If this rider terminates under 2, 3, or 4 above it will be reinstated:
1. Whenever an underwritten increase is made in your policy's face amount,
provided that increase is issued at a standard risk class;
2. If your policy is reinstated at a standard risk class; or
3. Automatically on the policy anniversary following the insured's 21st
birthday. if terminated prior to that time.
WAIVER OF MONTHLY DEDUCTIONS RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from accumulated value of the monthly cost of waiver
rates for the benefits provided by this rider. All definitions, provisions and
exceptions of the policy apply to this rider unless changed by this rider. The
effective date is the policy date unless another date is shown on the data page.
DISABILITY BENEFITS
If the insured becomes totally disabled while this rider is in force, on each
monthly date during a waiver period we will waive (or credit to the accumulated
value if already deducted) the monthly deductions for the policy benefits.
If death benefit Option 1 is in effect when we begin to waive your monthly
deductions, we will then change it to Option 2. You may not change the death
benefit option or increase the face amount under Your Adjustment Options during
a waiver period.
We will pay the death benefit to you on the maturity date if the policy matures
while monthly deductions are being waived under this rider.
If monthly deductions for policy benefits are being waived under this rider,
your policy will remain in force whether or not your net surrender value is
sufficient to continue the monthly deductions.
You may continue to pay premiums as described in your policy.
COST OF WAIVER
RIDER
The cost for the Waiver of Monthly Deductions Rider is deducted on each monthly
date. The cost is 1 multiplied by the result of 2 minus 3, where:
1. Is the Cost of Waiver Rate as shown on the data page divided by 1,000;
2. Is the death benefit at the beginning of the policy month; and
3. Is the accumulated value at the beginning of the month.
TOTAL DISABILITY
For purposes of this rider, total disability is disability which results from
injury or sickness and prevents the insured from working for pay or profit:
1. In the insured's regular occupation during the first 2 years of the
disability; and
2. Thereafter, in any occupation for which the insured is reasonably
fitted by education, training, or experience.
Until the insured's 25th birthday, "working for pay or profit" includes
attending school full time outside the home.
Total disability also means (without regard to "working for pay or profit") the
total and irrecoverable loss of (a) sight of both eyes; (b) use of both hands or
both feet; or (c) use of one hand and one foot.
EXCEPTION
In no case will the monthly deduction be waived or credited under this rider if
the total disability results from an intentional self-injury or service in the
military forces of any country at war, declared or undeclared.
WAIVER PERIOD
A waiver period becomes effective only after the insured has remained totally
disabled for 6 continuous months. Once effective, the waiver period begins:
1. On the insured's age 5 policy anniversary if the rider was issued and
total disability began before and continues to that date; or
2. For all others, on the monthly date which follows the date total
disability began.
In no event will a waiver period begin earlier than one year prior to our
receipt of written notice of the insured's total disability.
The waiver period will continue as long as total disability continues
uninterrupted, except that the waiver period will:
1. End on the policy's maturity date (or death of the insured, whichever
is earlier) if total disability:
a. Begins prior to the insured's age 60 policy anniversary; and
b. Continues to the insured's age 65 policy anniversary.
2. End on the insured's age 65 policy anniversary, if total disability:
a. Begins on or after the insured's age 60 policy anniversary; and
b. Begins before the insured's age 63 policy anniversary.
3. End after 2 years if total disability:
a. Begins on or after the insured's age 63 policy anniversary; and
b. Begins before the insured's age 65 policy anniversary.
An age policy anniversary means the policy anniversary on or next following the
birthday designated.
EXAMPLE: If the policy date is June 5, 1997, and the insured is
65 years old on June 4, 1998, the age 65 policy anniversary is
June 5, 1998.
If during a waiver period, a waived or credited deduction would disqualify your
policy as "life insurance" as defined in the Internal Revenue Code, as amended,
we will not waive that deduction. We will resume waiving deductions when they
would not disqualify your policy as "life insurance".
PROOF OF
DISABILITY
We will require proof which satisfies us of the insured's total disability
before any monthly deduction can be waived or credited. Such proof may include
examination by doctors we select.
We may require similar proof of the insured's continued total disability from
time to time during the first 2 years of total disability and once a year
thereafter.
If such proof is not provided as we require, the waiver period will end and
monthly deductions will again be deducted from your accumulated value.
CLAIMS
The benefits of this rider will not be granted unless we receive written notice
of the claim while the insured is living and remains totally disabled. Failure
to comply, however, will not invalidate a claim if it was not reasonably
possible to give written notice within such time and notice was given as soon as
reasonably possible.
Even if your policy terminates because of the expiration of a grace period,
benefits of this rider may be granted if:
1. The total disability for which claim is made began before the end of
the grace period;
2. We receive written notice of the claim within one year after the due
date of the first unpaid monthly deduction; and
3. All other conditions for this rider are met.
If total disability begins within the grace period, any unpaid monthly deduction
due prior to the start of the waiver period must be paid before the benefits of
this rider are available.
COST OF LIVING
INCREASES OR
GUARANTEED
INCREASE OPTION
INCREASES
Refer to your policy data page to see if your policy contains:
1. A Cost of Living Increase Rider; or
2. A Guaranteed Increase Option Rider.
If so, any increase arising from either of these riders will also be covered by
this Waiver of Monthly Deductions Rider. The monthly deduction for this rider
will be increased based on the risk class or classes shown on the data page. We
will not require evidence of insurability.
If an increase under either of these riders becomes effective during a waiver
period, the monthly deduction for the increase will be waived as long as the
waiver period continues.
TERMINATION
This rider ends on the first of:
1. The termination of your policy;
2. The insured's age 65 policy anniversary, or at the end of a waiver
period which is in effect on the insured's age 65 policy anniversary;
or
3. Our receipt of your written request to cancel it. The change will be
effective on the monthly date on or next following the date we receive
the request. We may require that you send your policy to our home
office so that we can record the cancellation.
GUARANTEED INCREASE OPTION RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the cost of guaranteed
increase option benefits provided by this rider. All definitions, provisions and
exceptions of the policy apply to this rider unless changed by this rider. The
effective date is the same as the policy date unless another date is shown on
the data page.
THE INCREASE
OPTION
You may increase the face amount of your policy, subject to the provisions of
this rider, so long as your policy and this rider have not terminated. The
increase may be obtained
1. Only if the insured consents;
2. Without evidence of the insured's insurability;
3. On any option date shown in this rider;
4. Up to the maximum guaranteed increase option amount shown on the data
page on each option date: and
5. At the risk class rate and subject to any exclusions shown on the data
page.
EXERCISE OF THE
OPTION
Your written application for a guaranteed increase must be submitted within 60
days prior to an option date. The increase is subject to conditions applicable
to adjustments under Your Adjustment Options, except that no evidence of
insurability is required and the option may be exercised while premiums are
being waived under any rider. Monthly deductions will be increased as for any
increase in face amount. The effective date of the increase is the option date
(unless it is an exercise of the Advance Option Privilege).
OPTION DATES
Each policy anniversary after this rider's effective date, on which the
insured's attained age is either 25, 28, 31, 34, 37 or 40 will be an option
date.
The right to increase on any option date will expire if the right is not used on
that option date. This would not affect your right to make guaranteed increases
on any future option dates.
If you use the advance option privilege, as shown below, you forfeit the right
to a guaranteed increase on the next normal option date.
ADVANCE OPTION
PRIVILEGE
You may elect to take the guaranteed increase available under this rider prior
to and in place of the guaranteed increase available on the next normal option
date. This advance option privilege is available immediately when any of these
events occurs:
1. The marriage of the insured;
2. The birth of a liveborn child to the insured or to the insured's
marriage; or
3. The insured's legal adoption of a child.
The increase will be effective on the monthly date next following application
for use of this privilege.
If this advance option privilege becomes available due to multiple births or
adoptions, the amount of the guaranteed increase available will be the
guaranteed increase available on the next normal option date times the number of
liveborn or adopted children.
The advance option privilege will expire with respect to a particular marriage,
birth or adoption, if it is not used within 90 days of such event. This
expiration will in no way affect any future option dates or advance option
privileges.
Application for use of this privilege must be in writing. It must be made during
the lifetime of the insured. It must be sent to our home office no later than 90
days after the date of marriage, birth or adoption.
You must also include proof satisfactory to us of the marriage, birth or
adoption.
TEMPORARY DEATH
BENEFIT AT
MARRIAGE, BIRTH
OR ADOPTION
If the insured dies during the 90 day period after marriage, birth or adoption,
without having applied for the available increase, we will increase your
policy's death proceeds by the maximum increase available under this rider.
MONTHLY DEDUCTIONS
The monthly deduction will be increased to cover the costs and charges for any
increase in protection made under this rider. The increase in the cost of
insurance and the cost of any additional benefits will be based on the risk
class shown on the data page.
FACE AMOUNT
DECREASES
Our underwriting rules do not permit a guaranteed increase option amount greater
than the policy face amount. If a face amount decrease causes a conflict with
that rule, we will reduce the guaranteed increase option amount and its monthly
deductions accordingly.
ADDITIONAL
BENEFITS
If your data page shows that any benefits due to disability are available under
your policy we will increase those benefits when a guaranteed increase option
increase occurs. For more information see the rider providing these benefits.
If your data page shows that accidental death benefits are available under this
guaranteed increase option rider, you may ask that increases under this rider
include such accidental death benefits. Our approval of such request is needed
and is subject to our underwriting limits then in effect.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the cost of insurance rate, as described in the Cost of Insurance
Rates section, divided by 1,000; and
2. Is the maximum guaranteed increase option amount as shown on the data
page.
COST OF INSURANCE
RATES
The monthly cost of insurance rates for the guaranteed increase option benefit
are based on the issue age and risk class of the insured. We determine these
rates based on our expectations as to our future mortality experience. Any
change in these rates applies to all individuals of the same class as the
insured. The cost of insurance rates will never be greater than those shown on
the data page in the Table of Guaranteed Maximum Cost of Insurance Rates for the
Guaranteed Increase Option.
TERMINATION
This rider ends on the first of:
1. The termination of your policy;
2. The policy anniversary following the insured's 40th birthday; or
3. Our receipt of your written request to cancel this rider. The change
will be effective on the monthly date on or next following the date we
receive the request. We have the right to ask that you send us this
policy so we can record the cancellation.
ACCIDENTAL DEATH BENEFIT RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the monthly cost of
accidental death benefits provided by this rider. All definitions, provisions
and exceptions of the policy apply to this rider unless changed by this rider.
The effective date is the policy date unless another date is shown on the data
page.
ACCIDENTAL DEATH
BENEFIT
This rider provides an accidental death benefit as shown on the data page. We
will pay the benefit to the beneficiary upon receipt of proof satisfactory to us
that:
1. The insured died on or after the policy anniversary following the
insured's first birthday;
2. The insured died as a result, directly and independently of all other
causes, of accidental bodily injury; and
3. The death is not a direct or indirect result of an Excluded Risk.
EXCLUDED RISKS
We will not pay the accidental death benefit if death results directly or
indirectly from any of the following:
1. Suicide, while sane or insane;
2. War or an act of war, or service in the military forces of any country
at war, declared or undeclared;
3. Bodily or mental disease or infirmity, or medical or surgical
treatment thereof;
4. The commission or attempted commission by the insured of an assault or
felony;
5. Operating, riding in or descending from any kind of aircraft in which
the insured is a pilot or a member of the operating crew, or in which
the insured is receiving or giving any kind of training or
instruction; or
6. The voluntary taking of or the effects of voluntarily using any drug,
narcotic or hallucinogen unless prescribed for and administered to the
insured by a licensed physician who is not a member of the insured's
family. This includes any controlled substances listed in Schedules I,
II, III or IV of the Federal Controlled Substances Act, 21 U.S.C.
Section 812, or successor statutes, as they may be amended.
AUTOPSY
We reserve the right to examine the insured's body and, unless prohibited by
law, to make an autopsy.
INCREASES
You may increase the accidental death benefit up to the current face amount of
your policy, provided:
1. The increase is for at least the minimum face amount increase as shown
on the data page;
2. The increase does not result in a total benefit exceeding our
underwriting limits then in effect; and
3. You supply evidence of insurability which satisfies us under our
underwriting rules then in effect.
FACE AMOUNT
DECREASES
Our underwriting rules do not permit accidental death benefit amounts greater
than policy face amounts. If a face amount decrease causes a conflict with that
rule, we will reduce the accidental death benefit amount and its cost,
accordingly.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the cost of insurance rate, as described in the Cost of Insurance
Rates section, divided by 1,000; and
2. Is the accidental death benefit.
COST OF INSURANCE
RATES
The monthly cost of insurance rates for the accidental death benefit are based
on the attained age and risk class of the insured. We determine these rates
based on our expectations as to our future mortality experience. Any change in
these rates applies to all individuals of the same class as the insured. The
cost of insurance rates will never be greater than those shown on the data page
in the Table of Guaranteed Maximum Cost of Insurance Rates for Accidental Death
Benefits. However, different guaranteed maximum cost of insurance rates may
apply to any increase in the accidental death benefit.
TERMINATION
This rider ends on the first of:
1. Termination of your policy;
2. The policy anniversary following the insured's 70th birthday; or
3. Our receipt of your written request to cancel this rider. The change
will be effective on the monthly date on or next following the date we
receive the request. We may require that you send your policy to our
home office to record the cancellation.
CHILDREN TERM INSURANCE RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the monthly cost of
children term insurance benefits provided by this rider. All definitions,
provisions and exceptions of the policy apply to this rider unless changed by
this rider. The effective date is the policy date unless another date is shown
on the data page.
DEFINITION
An Insured Child under this rider is:
1. Any child, stepchild or legally adopted child of the insured named in
the application for this rider who is less than 18 years of age on the
date of the application for this rider;
2. Any child of the insured born after the date of the application for
this rider; and
3. Any child less than 18 years of age legally adopted by the insured
after the date of the application for this rider.
A child will not be an insured child and will not be covered before attaining
the age of 14 days or beyond this rider's protection period.
INSURANCE BENEFIT
We will pay this rider's beneficiary its insurance amount upon receipt of proof
of an insured child's death. This rider's insurance amount is equal to the
number of units of this rider included in your policy, as shown on the data
page, times $1,000.
EXAMPLES:
3 UNITS children term x $1,000 =
$3,000 insurance amount for each child
4.5 UNITS children term x $1,000
$4,500 insurance amount for each child
PROTECTION PERIOD
This rider's protection period ends on the first of:
1. Termination of this rider (see Termination section below); or
2. As to any individual insured child, the policy anniversary next
following the insured child's 25th birthday.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the number of units; and
2. Is the rate per unit shown on the data page.
BENEFICIARY
The beneficiary named in the application for this rider will receive this
rider's insurance amount, unless the beneficiary is changed as provided in your
policy.
OWNERSHIP
The policy's owner is also the owner of this rider. Any changes in ownership of
your policy and all provisions which apply to ownership also apply to this
rider.
INCONTESTABILITY
We will not claim this rider is void or deny payment of its insurance amount
after it has been in force during the insured's lifetime for 2 years from its
effective date.
SUICIDE
This rider's insurance amount will not be paid if the insured dies by suicide,
while sane or insane, within 2 years of its effective date. Instead, we will
return all costs of children term insurance deducted for this rider. This amount
will be paid to the beneficiary.
PAID-UP BENEFIT
If the insured dies while your policy and this rider are in force with no
monthly deduction in default, this rider will become fully paid up. It will then
continue in force during its protection period, as shown on the data page,
unless surrendered. You may obtain the cash value of this rider, when fully paid
up, at any time. Your request must be in writing. The cash value will be the net
single premium for the insurance at the respective attained age of each insured
child based on the Commissioners 1980 Standard Ordinary Mortality Table,
assuming:
1. Interest at 4% a year,
2. Immediate payment of claims; and
3. Age determined on last birthday basis
The net cash value within 30 days after a policy anniversary will not be less
than the value on the anniversary.
EXCHANGE
Any insurance under this rider may be exchanged for a policy on the life of the
insured child on the earlier of:
1. The policy anniversary following the insured child's 25th birthday;
2. The policy anniversary following the insured's 65th birthday; or
3. The death of the insured.
No evidence of insurability is required provided:
1. We receive written application and payment of the first premium for the
policy no earlier than 90 days before nor later than 31 days after the
date exchange may be made as provided above; and
2. The policy face amount is not less than $1,000 per unit of this rider
and is not more than $5,000 per unit of this rider.
This policy may be any form of life policy, except term, available under our
underwriting rules then in effect. Its premium rate will be at our then
published standard risk class rate for the policy based on the insured child's
attained age. Its effective date will be the date of exchange. No insurance is
provided until the insurance under this rider terminates.
The new policy may include waiver disability or accidental death riders with our
consent and upon payment of any additional cost we determine for the riders.
If an insured child dies within 31 days of the date on which exchange would have
been allowed, we will pay a death benefit of $1,000 per unit of this rider.
REINSTATEMENT
This rider may be reinstated as part of your policy if, in addition to all other
policy conditions for reinstatement, you supply evidence which satisfies us that
each proposed insured child is insurable under our underwriting rules then in
effect.
Upon reinstatement, if any child proposed for insurance does not meet the above
conditions, this rider may still be reinstated as part of your policy but only
with an endorsement excluding such ineligible child from insurance coverage
under this rider.
TERMINATION This rider ends the first of:
1. Termination of your policy;
2. The policy anniversary following the insured's 65th birthday; or
3. Our receipt of your written request to cancel it. The change will be
effective on the monthly date on or next following the date we receive
the request. We may require you to send your policy to the home office
to record the cancellation.
SPOUSE TERM INSURANCE RIDER
This rider is part of your policy. It is issued in consideration of the
application and deduction from the accumulated value of the monthly cost of
spouse term insurance benefits provided by this rider. All definitions,
provisions and exceptions of the policy apply to this rider unless changed by
this rider. The effective date is the policy date unless another date is shown
on the data page.
DEFINITION
SPOUSE--means, for the purposes of this rider, the person named as the spouse in
the application for this rider.
INSURANCE BENEFIT
Upon receipt of proof that the spouse died before termination of this rider, we
will pay the beneficiary of this rider the face amount shown on the data page.
COST OF INSURANCE
We deduct the cost of insurance for the benefits provided by this rider on each
monthly date. The cost is 1 multiplied by 2, where:
1. Is the cost of insurance rate, as described in the Cost of Insurance
Rates section, divided by 1,000; and
2. Is the face amount of this rider.
COST OF INSURANCE
RATES
The cost of insurance rates for spouse term insurance are based on the attained
age and risk class of the spouse and the insured. We determine these rates based
on our expectations as to our future mortality experience. Any change in these
rates applies to all individuals of the same class as the spouse and the
insured. The cost of insurance rates will never be greater than those shown on
the data page in the Table of Guaranteed Maximum Cost of Spouse Term Insurance
Rates.
PAID-UP BENEFIT
If the insured dies while your policy and this rider are in force with no
monthly deductions in default, this rider will become fully paid up. It will
then continue in force during its protection period as shown on the data page,
unless surrendered. You may obtain the cash value of this rider, when fully paid
up, at any time. Your request must be in writing. The cash value will be the net
single premium for the insurance based on the Commissioners 1980 Standard
Ordinary Mortality Table B, assuming:
1. Interest at 4% a year;
2. Immediate payment of claims; and
3. Age determined on last birthday basis.
The net cash value within 30 days after a policy anniversary will not be less
than the value on the anniversary.
EXCHANGE
Any insurance under this rider may be exchanged for a policy on the life of the
spouse without evidence of insurability. This exchange must occur on or before
this rider's expiration date.
The policy may be any form of life policy, except term, available under our
underwriting rules then in effect, based on the attained age of the spouse. The
policy will be in the same risk class as shown for the spouse on this policy's
data page: Its effective date will be the date of exchange. Its face amount will
equal the face amount provided by this rider. No insurance is provided until the
insurance under this rider terminates.
The new policy may include waiver disability or accidental death riders with our
consent and upon payment of any additional cost we determine for the riders.
BENEFICIARY
The beneficiary named in the application for this rider will receive this
rider's face amount, unless the beneficiary is changed as provided in your
policy.
OWNERSHIP
Your policy's owner is also the owner of this rider. Any changes in ownership of
your policy and all provisions which apply to ownership also apply to this
rider.
MISSTATEMENT OF
AGE
If the age of either the insured or spouse is not correctly shown on the data
page, we will adjust the amount payable under this rider to reflect the correct
age. The ages shown should be the ages on the respective birthdays prior to the
effective date.
INCONTESTABILITY
We will not claim this rider is void or deny payment of its insurance amount
after it has been in force during the lifetime of the spouse for 2 years from
its effective date.
SUICIDE
This rider's face amount will not be paid if the insured or spouse dies by
suicide, while sane or insane, within 2 years of its effective date. Instead,
the rider will immediately terminate, and we will return all costs of spouse
term insurance charges paid. This amount will be paid to the beneficiary.
REINSTATEMENT
This rider may be reinstated as part of your policy in a risk class we determine
based on facts in the application for reinstatement, if in addition to all other
policy conditions for reinstatement you supply evidence which satisfies us that
the spouse is insurable under our underwriting rules then in effect.
TERMINATION
This rider ends on the first of:
1. Termination of your policy;
2. Its exchange as provided above;
3. The end of the protection period for this rider as shown on the data
page; or
4. Our receipt of your written request to cancel it. The change will be
effective on the monthly date on or next following the date we receive
the request. We may require that you send your policy to the home
office to record the cancellation.
CHANGE OF INSURED RIDER
This rider is part of your policy. It is issued in consideration of the
application. We charge no premium for this rider.
CHANGE OF INSURED
PRIVILEGE
You may name a new insured for this policy provided:
1. You are the original and current owner of this policy;
2. This policy is in force and is not within the grace period;
3. Benefits are not being granted under any rider due to the insured's
disability;
4. You have an insurable interest in the life of the proposed new insured;
5. The age last birthday of the proposed new insured is 69 or under on the
Change of Insured Date; and
6. You supply evidence which satisfies us of the proposed new insured's
insurability under our underwriting rules then in effect.
LIMITATIONS AND
CONDITIONS
The change to a new insured is subject to these limitations and conditions:
1. The face amount, surrender value and accumulated value will remain the
same.
2. The minimum monthly premium after the Change of Insured Date will be
the greater of:
a. The minimum monthly premium before the Change of Insured Date, or
b. The minimum monthly premium based on the age, sex, and risk class
of the new insured.
3. Any benefit riders which are part of this policy end on the Change of
Insured Date. Riders may be added for the new insured only with our
consent.
4. Any loans or unpaid loan interest secured by your policy will remain
indebtedness and are subject to the conditions of the Policy Loans
section of your policy.
5. Your policy will remain subject to any existing assignments.
6. The Change of Insured Date will be the monthly date next following our
approval of a requested Change of Insured Application. The insurance on
the new insured will be effective on the Change of Insured Date.
EXAMPLE: If the policy date is June 5, 1997 and your requested
Change of Insured is approved on April 20, 1999, the Change of
Insured Date will be May 5, 1999.
INCONTESTABILITY
We will not claim your policy is void or deny payment of any proceeds after it
has been in force during the new insured's lifetime for 2 years from the Change
of Insured Date for the new insured, except for any claim for total disability
or accidental death benefits your policy may provide.
Any face amount increase made under Your Adjustment Options after the Change of
Insured Date has its own 2 year contestability period which begins on the
adjustment date.
SUICIDE
The death proceeds of the policy will not be paid if the new insured dies by
suicide, while sane or insane, within 2 years of the date of exchange. Instead,
we will pay the net surrender value as of the date of death.
TERMINATION
This rider ends on the first of:
1. The policy anniversary following the insured's 70th birthday;
2. Termination of your policy;
3. The death of the insured under your policy while it is in force; or
4. The application of your policy's net surrender value under a lapse or
surrender option, or the surrender of this rider.
DEATH BENEFIT GUARANTEE RIDER
This rider is part of your policy. The effective date is the policy date.
DEATH BENEFIT
GUARANTEE
If you meet the death benefit guarantee premium requirement described below, the
policy will not enter its grace period even if your net surrender value is not
sufficient to cover the monthly deduction on a monthly date.
MATURITY
GUARANTEE
On the policy maturity date, we will pay you the excess, if any, of the face
amount over your maturity proceeds if the following conditions are met:
1. This rider is in force;
2. The insured is alive; and
3. You have met the death benefit guarantee premium requirement described
below.
DEATH BENEFIT
GUARANTEE
PREMIUM
REQUIREMENT
The death benefit guarantee premium requirement on each monthly date is met if
(1) is equal to or greater than (2) where:
1. Is the sum of all premiums paid less any partial surrenders and any
policy loans and unpaid loan interest; and
2. Is the sum of the monthly death benefit guarantee premiums applicable
to date as shown on the data page plus the next monthly death benefit
guarantee premium.
The death benefit guarantee premium is based on the issue age, death benefit
option, and risk class of the insured and is shown on the data page.
For any month that your deductions are being paid by our Waiver of Monthly
Deductions Rider, we will consider your monthly death benefit guarantee premium
to be zero.
CHANGES THAT
AFFECT THE DEATH
BENEFIT
GUARANTEE
PREMIUM
REQUIREMENT
Your death benefit guarantee premium may change if:
1. Your face amount is increased or decreased;
2. There is a change in your death benefit option; or
3. A rider is added or deleted.
If your death benefit guarantee premium changes we will send you written
notification of the change. Also, as the result of a change, an additional
premium may be required on the date of change in order to meet the new death
benefit guarantee premium requirement.
NOTICE
If on any monthly date the death benefit guarantee premium requirement is not
met, we will send you a notice of the premium required to maintain the
guarantee. If the premium is not received in our home office prior to the
expiration of 61 days after the date we mail our notice, the death benefit
guarantee will no longer be in effect and this rider will terminate.
REINSTATEMENT
If this rider terminates, it may not be reinstated.
TERMINATION
This rider ends on the first of:
1. The termination of your policy.
2. The expiration of 61 days after the date we mail our notice to you that
the death benefit guarantee premium has not been met and your failure
to remit the required premium.
ACCOUNTING BENEFIT RIDER
This rider is part of your policy. All definitions, provisions, and exceptions
of the policy apply to this rider unless changed by this rider. The effective
date is the Policy Date.
RIDER
PROVISIONS
The SCHEDULE OF CHAGES and TABLE OF SURRENDER CHARGES provisions in yourcurrent
Data Pages are amended as follows:
1. SCHEDULE OF CHARGES
The following paragraph is inserted as the last two sentences in the
paragraph labeled "Premium Expense Charge:"
Should you surrender this policy for its net surrender value, we will
refund you a percentage of the cumulative premium expense charges by
applying the following percentages: If you surrender your policy in
Year One - 100%; Year Two - 67%; Year Three - 33%; Year Four and later
- 0%.
2. TABLE OF SURRENDER CHARGES
The following two sentences are added to the paragraph following the
TABLE OF SURRENDER CHARGES:
Should you surrender this policy for its net surrender value the
applicable surrender charges will be reduced by the application of the
following percentages: If you surrender your policy in Year One - 100%;
Year Two - 80%; Year Three - 60%; Year Four - 40%; Year Five - 20%;
Year Six and after - 0%.
TERMINATION
This rider ends on the first of:
1. Termination of
2. Our receipt of your Written Request to cancel it. To be effective on a
specific Monthly Date your Written Request must be received by us
within 31 daysafter that date. We may require you to send your policy
to the home office to record the cancellation; or
3. Your Sixth Policy Anniversary.
ACCELERATED BENEFITS RIDER
This rider is part of your policy. All definitions, provisions, and exceptions
of the policy apply to this rider unless changed by this rider. The effective
date is the same as the policy date unless another date is shown on the data
page.
DEFINITIONS
The eligible face amount means:
Under Option 1.
The face amount of your policy.
Under Option 2.
The sum of the face amount of your policy plus its accumulated value.
BENEFIT
We will pay an accelerated benefit if the insured is terminally ill, subject to
the provisions of this rider. The maximum accelerated benefit you may receive is
the lesser of the amount shown in the data page or:
1. 75% of the eligible face amount;
MINUS
2. Any outstanding policy loans, unpaid loan interest and previously paid
accelerated benefit.
We will pay the accelerated benefit as a lump sum. Payments other than as a lump
sum may be made at your request, subject to our approval. The minimum amount if
any payment is $500. We may charge a one time administrative expense fee up to
the maximum which is shown on the data page.
INTEREST
We will charge interest on the amount of the accelerated benefit. The interest
accrues daily at the same interest rate as the policy's loan interest rate. On
the policy anniversary, the accrued interest will be added to the accelerated
benefit and bear interest at the rate then in effect. Additional interest will
not accrue if the accelerated benefit plus accrued interest equals the eligible
face amount.
EFFECT ON YOUR POLICY
The accelerated benefit will first be used to repay any outstanding policy loans
and unpaid loan interest. The accelerated benefit plus accrued interest will be
treated as a lien against the policy values. Your access to the net surrender
value of your policy through policy loans, partial surrenders or full surrender
is limited to any excess of the net surrender value over the accelerated benefit
and accrued interest on the accelerated benefit. Death proceeds, as defined in
the policy, will be reduced by the amount of the accelerated benefit plus
accrued interest. Any benefits payable under other riders attached to your
policy are not affected by any benefit paid under this rider.
PROOF OF TERMINAL ILLNESS
Before payment of any accelerated benefit, we will require you provide us with
proof satisfactory to us that the insured's life expectancy is 12 months or less
from the date of application for the accelerated benefit. this proof will
include the certification of a licensed physician, who is not yourself or a
member of your family. We reserve the right to obtain a second medical opinion
at our expense.
CLAIMS
We must receive your written request for an accelerated benefit in a form
acceptable to us. Upon receipt of your request, we will provide a claim form
within 10 working days.
CONDITIONS
The payment of any accelerated benefit is subject to the following conditions:
1. The policy must be in force other than as extended term or paid-up term
insurance.
2. The policy must not be assigned except to us as a security for a loan.
3. The payment of an accelerated benefit must be approved by any
irrevocable beneficiary.
4. This rider provides for the accelerated payment of the death benefit of
your life insurance policy. This is not meant to cause you to
involuntarily access proceeds ultimately payable to the beneficiary.
Therefore, you are not eligible for this benefit:
a. If you are required by law to use this benefit to meet the claims
of creditors, whether in bankruptcy or otherwise; or
b. If you are required by a government agency to use this benefit in
order to apply for , obtain, or otherwise keep a government
benefit or entitlement.
TERMINATION
This rider ends on the first of:
1. The termination of the policy to which this rider is attached; or
2. Our receipt of your written request to cancel this rider. We have the
right to require that you send us this policy so we can record the
cancellation.
REINSTATEMENT
This rider may be reinstated as part of your policy if it is terminated under 1
or 2 above.
ARTICLES OF INCORPORATION
Principal Mutual Life Insurance Company
711 High Street DES MOINES, IOWA 50392
AMENDED AND SUBSTITUTED ARTICLES OF INCORPORATION
AS AMENDED
Effective July 1, 1991
ARTICLE I.
The name of the corporation shall be Principal Mutual Life Insurance Company, by
which name (or by the names Bankers Life Company and Princor Mutual Life
Insurance Company which it may use in its discretion and where permitted
continue to use or adopt) it shall do business and shall have and retain all its
property, rights and privileges.
ARTICLE II.
The corporation shall be located and have its principal place of business in the
city of Des Moines, Polk County, lowa. The principal office of the corporation
is the registered office, and the President is the registered agent of the
company.
ARTICLE III.
The purpose of this corporation are and it shall have full power to engage in,
pursue, maintain and transact a general life, health and accident insurance and
annuity business, and to insure other risks, perform other services and engage
in other businesses allowed by law. It may issue participating or
nonparticipating contracts. It shall further have the power to enter into
contracts with respect to proceeds of such insurance, to accept and reinsure
risks, to enter into coinsurance agreements, to issue and perform policies and
contracts of all types, including but not limited to individual and group, to
act as trustee or advisor in any capacity, and to offer all services, including
those of a financial accounting or data processing nature, to all persons,
partnerships, corporations and other business organizations, directly or
indirectly incidental to its business. It shall have all the rights, powers and
privileges granted or permitted by the Constitution and laws of the state of
Iowa governing the conduct of insurance companies and by Titles XIX and XX of
the Code of Iowa 1966 and all acts amendatory thereof or additional thereto.
The corporation shall be empowered: To sue and be sued, complain and defend, in
its corporate or assumed name, to have a corporate seal which may be altered at
pleasure, and to use the same by causing it, or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced; to purchase, take,
receive, lease, or otherwise acquire, own, hold, improve, use and otherwise deal
in and with, real or tangible or intangible personal property, or any interest
therein, wherever situated; to sell, convey, mortgage, pledge, lease, exchange,
transfer and otherwise dispose of all or any part of its property and assets; to
lend money to, and otherwise assist its employees, agents, officers and
directors unless prohibited by law; to purchase, take, receive, subscribe for,
or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, lend,
pledge, or otherwise dispose of, and otherwise use and deal in and with, shares,
options, warrants or other interests in, or obligations of, other domestic or
foreign corporations, associations, partnerships or individuals, or direct or
indirect obligations of the United States or of any other government, state,
territory, governmental district or municipality or of any instrumentality
thereof unless prohibited by law; to make contracts and guaranties and incur
liabilities; to lend and borrow money for its corporate purposes, invest and
reinvest its funds, and take and hold real and personal property as security for
the payment of funds so loaned or invested; to acquire or organize subsidiaries;
to conduct its business, carry on its operations, and have offices and exercise
the powers granted in any state, territory, district, or possession of the
United States, or in any foreign country; to make donations for the public
welfare, and for religious, charitable, scientific or educational purposes; to
pay pensions and establish pension plans, pension trusts, profit-sharing plans
and other incentive, insurance and welfare plans for any or all of its
directors, officers, agents and employees; to enter into general partnerships,
limited partnerships, whether the corporation be a limited or general partner,
joint ventures, syndicates, pools, associations and other arrangements for
carrying on any or all of the purposes for which the corporation is organized,
jointly or in common with others; to indemnify officers, directors, employees
and agents, as allowed by law, subject to such limitations as may be established
by the Board of Directors; and to have and exercise all powers necessary or
convenient to effect any or all of the purposes for which the corporation is
organized.
ARTICLE IV.
The corporation shall have perpetual existence and succession.
ARTICLE V.
The private property of the members, directors and other officers and managers
of this corporation shall in no case be liable for the corporate debts, but
shall be exempt therefrom.
ARTICLE Vl.
The corporate powers of the corporation shall be exercised by the Board of
Directors, and by such officers and agents as the Board may authorize, elect or
appoint. The Board of Directors shall consist of not less than nine (9) nor more
than twenty-one (21) directors, the number to be determined from time to time by
a majority of the entire Board of Directors. The directors shall be divided into
three classes, as nearly equal numerically as possible, determined by terms
expiring in successive years. Each director shall serve a term of approximately
three years except as otherwise provided or where it is necessary to fix a
shorter term in order to preserve classification. No decrease in the number of
directors shall shorten the term of any incumbent director. Each director shall
serve until a successor is elected and shall be eligible for re-election. The
Board of Directors shall have the power to fill any vacancy in their number. The
term of office of each director shall begin at the annual meeting at which such
director is elected by the members or at the time elected by the Board of
Directors. The term of office of each director shall not extend beyond the
annual meeting next following the date such director attains age 70, or such
younger age as may be established for all directors by the Board of Directors,
except that the terms of directors holding office prior to the annual meeting in
1984 may extend to the annual meeting next following the date such director
attains age 72 and except that for officer-directors, other than one who is or
has been Chief Executive Officer, the term as a director shall not extend beyond
the annual meeting next following the date such director retires as an active
officer of this corporation. Directors need not be members.
The Board of Directors shall have the power to adopt such By-Laws and rules and
regulations for the transaction of the business of the corporation not
inconsistent with these Amended and Substituted Articles or the laws of the
state of Iowa, and to amend or repeal such By-Laws, rules and regulations. The
By-Laws shall provide procedures for the nomination and election of directors.
The Board of Directors may fix reasonable compensation of the directors for
their services. The Board of Directors shall elect from their number at the
first board meeting after the annual meeting of the corporation a President, and
shall authorize, eleet or appoint at such first meeting or at any meeting
thereafter such other officers, agents or committees as in their judgment may be
necessary or advisable.
A director of this corporation shall not be personally liable to the corporation
or its members for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for a breach of the director's duty of loyalty to the
corporation or its members, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, or (iii)
for a transaction from which the director derives an improper personal benefit.
The liability of directors shall be deemed further limited or eliminated to the
fullest extent permitted by changes in the law governing this corporation and
approved by a majority of the entire Board of Directors. Any repeal or
modification of the provisions of this paragraph shall not adversely affect the
duty, liability, rights or protection of a director existing at the time of such
repeal or modification.
ARTICLE Vll.
The annual meeting of this corporation shall be held at the Home Office in Des
Moines, lowa, on the third Monday in May of each year for the election of a
director or directors and the transaction of any other business properly coming
before the annual meeting.
Special meetings of the corporation may be called by the directors at any time
and shall be so called upon the written request of five per cent (5%) of the
members, which request shall specify the matters proposed to be acted upon.
Notice of the time and place of each annual and each special meeting shall be
published at least one time in a newspaper of general circulation in the city
where the meeting is to be held not less than 30 nor more than 90 days prior to
the date of the meeting. No person shall be elected a director by the members at
any meeting except an annual meeting and then only if duly nominated in
accordance with the requirements of the By-Laws and named in the notice of the
annual meeting as a nominee for the class of director to be so elected. Each
notice of a meeting shall state the purpose of the meeting. These Amended and
Substituted Articles may be amended at any meeting only if the notice of the
meeting describes or sets out the proposed amendment.
At every annual or special meeting each member shall be entitled to one vote, to
be cast by ballot signed by such member and mailed or personally delivered by
such member to the Home Office. The Secretary of the corporation will, during
any 60 consecutive regular business days immediately preceding the date of the
annual or any special meeting, give or mail to each member making a request
therefor a ballot, and shall if the Board of Directors so direct mail a ballot
to each member. No ballot received in any manner after the adjournment of any
such meeting, or which in not signed by a member, shall be counted upon matters
acted upon at the meeting. There will be no cumulative voting by proxy,
ARTICLE VIII.
This corporation shall have no capital stock, but shall be purely mutual as a
legal reserve company.
ARTICLE IX.
Except as otherwise provided in this Article, each person who, and each entity
which, is regarded as present owner under the provisions of an original contract
of insurance or annuity issued by this corporation, or, absent determination by
such provisions, under the By-Laws or rules of the corporation, shall be a
member of this corporation and entitled to the privileges of such member as
defined herein, in the By-Laws or in the contract of insurance or annuity, but
so long only as the said original contract of insurance or annuity has not
matured or been surrendered and remains in force. The membership privileges of
those issued an original contract of insurance or annuity on or before April 8,
1980, but not the owner on that date, shall be preserved.
ARTICLE X.
These Articles of Incorporation may be amended at any annual meeting, or any
special meeting called for that purpose, upon notice given as required by
Article VII, upon a majority vote in favor of the amendment cast by the members
voting at such meeting by ballot or in person. The amendment shall be binding
upon all members of the corporation. Any amendment will not affect contracts of
the members nor terminate rights, powers, privileges, and franchises of the
corporation existing as of the time of amendment.
BY-LAWS
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
711 HIGH STREET DES MOINES, IOWA 50392
Adopted and Effective April 8, 1969
As Amended through August 15, 1994
ARTICLE I
MEETINGS OF THE COMPANY, ELECTION OF
DIRECTORS AT ANNUAL MEETING
SECTION 1. Meetings of the Company. The annual meeting of the Company shall be
held in accordance with the provisions of the Articles at the hour of 9:00
o'clock A.M.., Des Moines time. Any special meeting of the Company shall be held
at the time and place specified in the notice of such special meeting. The
Chairman of the Board or the acting Chairman of the Board shall preside at
meetings of the Company. The Secretary of the Corporation shall act as the
Secretary of the meeting. If either person is unable to act in the designated
capacity, the members present shall elect a member to serve as chairman pro tem
or secretary pro tem.
SECTION 2. Notices and Ballots. The Secretary of the Corporation shall cause
notice of each meeting to be published and shall mail or make ballots available
to members as required by the Articles and shall if so directed by the Board
mail a ballot to each member. No name of a candidate for election to the Board
shall be included in the ballot unless the candidate has been nominated as
provided in these By-Laws.
SECTION 3. Election of Directors and Voting on Propositions; Failure of
Election. At each annual meeting the ballots cast for candidates for election to
the Board, and at each annual meeting or special meeting the ballots cast
concerning any proposition, shall be referred to the Board for canvass at the
first meeting of the Board following such meeting of the Company. In the event a
candidate for election to the Board, who is included in a class for which the
number of candidates nominated for election is greater than the number to be
elected, dies or withdraws before election, then there shall be no election of
Directors in that class and the vacancy or vacancies created may be filled by
the Board, to serve until the next following annual meeting of the Company, when
a new election shall be held for the unexpired term of such vacancy or
vacancies.
The candidate or candidates receiving the highest number of votes in each class
shall be declared elected Director or Directors, and any proposition or any
other matter submitted shall be declared carried or lost in accordance with the
majority of votes cast for or against it. No person other than a candidate may
be elected a Director.
ARTICLE II
NOMINATION OF DIRECTORS AND
ELECTION BY BOARD
SECTION 1. Nomination by Board. The Board shall each year nominate candidates
for election as Directors to succeed those whose terms are expiring.
SECTION 2. Nomination by Members. Members of the Company may nominate candidates
for election as Directors to succeed those whose terms are expiring, upon
delivery to the Secretary of the Corporation a certificate or certificates of
nomination signed by members residing in at least five states and numbering in
each such state not less than 1/25 of 1% of the total membership of the entire
Company as of a date one hundred eighty days prior to the date of the annual
meeting and including the address and policy or contract number of each member
so signing.
SECTION 3. Qualification of Candidates. To qualify as a candidate, whether
nominated by the Board or by members, written certificate or certificates of
nomination shall be filed with the Secretary of the Corporation not more than
one hundred eighty days nor less than ninety days before the date of the annual
meeting of the Company and shall be accompanied by a written statement of the
nominee of his willingness to serve.
SECTION 4. Assignment to Class. Each nomination of a candidate shall be to a
class to which one or more Directors are to be elected at the next annual
meeting of the Company. If any nomination made by the members of the Company
fails to assign the candidate to any class, the Board shall make such
assignment.
SECTION 5. Filling Vacancies. Any vacancy upon the Board (except vacancies
resulting from failure of election as provided in Article I, Section 3), whether
resulting from death or resignation of a Director, increase in number of
Directors, or for any other reason, may be filled by the Board at any regular or
special meeting, and each such newly elected Director shall be assigned by the
Board to a class.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. Number of Directors. The Board shall consist of thirteen Directors or
such larger or smaller number, within the limits specified by the Articles, as a
majority of the entire Board may determine at any regular or special meeting of
the Board.
SECTION 2. Meetings. Regular meetings of the Board shall be held without notice
once in each calendar quarter on such date and at such hour and place as may be
fixed by the Board, except that the meeting in the second quarter shall be held
in the Home Office of the Company in Des Moines on the date of the annual
meeting. The date, hour and place of any regular meeting other than the meeting
in the second quarter may be changed by the Chairman of the Board, if any, or
the President, by written notice to all Directors at least thirty days before
the regular meeting date, provided that the date to which any meeting is changed
shall not be more than fifteen days earlier or later than the date fixed by the
Board. Special meetings of the Board may be called at any time upon five days'
written notice given by the Chairman of the Board, if any, the President or any
two Directors. In the alternative, upon oral or written notice received prior to
the time of the meeting by at least two-thirds of the Directors, the Chairman of
the Board, or acting Chairman of the Board, may call a special meeting of the
Board to be held through communications equipment which permits all participants
to communicate with each other, with such participation constituting attendance
at such meeting. Any Director may waive call or notice required to be given
either before or after the time stated therein. Any meeting may be continued to
the succeeding day if the Board does not complete the business coming before it
on the meeting date.
At all meetings of the Board, regular or special, a majority of its number shall
constitute a quorum for the transaction of business. If at any meeting less than
a quorum is present, the meeting may be adjourned from time to time to a
subsequent date, at which date the meeting may be held without notice if a
quorum is then present.
SECTION 3. Officers of the Board; Duties. The Board shall elect from its number
a Chairman of the Board to serve at the pleasure of the Board. The Chairman of
the Board shall, if present, preside at each meeting of the Board and shall have
such powers and shall perform such duties as may be assigned to him by these
By-Laws or by or pursuant to authorization of the Board or, if the Chairman of
the Board is not the chief executive officer of the Company, by the chief
executive officer.
The Board may at any meeting of the Board elect a Secretary of the Board and
such other officers, assistants and committees of the Board as the Board may
deem necessary to serve during the pleasure of the Board, each of whom shall
have and perform such duties as may be assigned to him by the Board or by the
Chairman of the Board. The Secretary of the Board shall keep a record of all
proceedings of the Board.
The Board shall by resolution establish a procedure to provide for an acting
Chairman of the Board in the event the current Chairman of the Board is unable
to serve or act in that capacity.
SECTION 4. Compensation of Directors. Directors who are not officers of the
Company shall be entitled to an annual retainer and an additional amount for
attendance at each regular or special meeting of the Board or meetings of
committees of the Company, plus expense of attending such meetings, if any, as
may be fixed by the Board.
ARTICLE IV
OFFICERS OF THE COMPANY
SECTION 1. President. The Board shall, at the first meeting of the Board
following the annual meeting of the Company, or at any meeting thereafter to
fill a vacancy in the office, elect from its number a President of the Company
to serve for one year or until his successor is elected.
SECTION 2. Chief Executive Officer. The Board shall empower either the Chairman
of the Board, if one is elected, or the President to serve as the chief
executive officer of the Company.
SECTION 3. Other Officers Elected by Board. At any meeting of the Board it may
elect such officers of the Company, in addition to a President, as the Board may
deem necessary, to serve at the pleasure of the Board.
SECTION 4. Other Officers. The Board may authorize the Company to elect or
appoint other officers, each of whom shall serve at the pleasure of the Company.
SECTION 5. Duties of Officers. The chief executive officer shall supervise the
carrying out of policies adopted or approved by the Board, shall exercise a
general supervision and superintendence over all the business and affairs of the
Company, and shall possess such other powers and perform such other duties as
may be incident to his function.
The President, if not the chief executive officer, shall have such powers and
perform such duties as may be assigned to him by these By-Laws or by or pursuant
to authorization of the Board or by the chief executive officer.
Other officers elected by the Board shall have such powers and perform such
duties as may be assigned to them by or pursuant to authorization of the Board
or by the chief executive officer.
Officers elected or appointed by the Company shall have such powers and perform
such duties as may be assigned to them by the Company.
SECTION 6. Compensation of Officers. The compensation of all officers elected by
the Board shall be fixed by the Board. The compensation of officers elected or
appointed by the Company shall be fixed as provided by resolution of the Board
of Directors.
ARTICLE V
COMMITTEES
SECTION 1. Executive Committee. An Executive Committee is hereby created
composed of five Directors and shall include the Chairman of the Board and the
chief executive officer if other than the Chairman of the Board. Members of the
Executive Committee shall be appointed by and serve at the pleasure of the
Board. If the Board has elected a Chairman of the Board he shall, if present,
preside at each meeting of the Executive Committee. In the absence or vacancy in
the office of the Chairman of the Board, the chief executive officer shall
preside. If the Chairman of the Board is also the chief executive officer, any
other member of the Executive Committee, as determined by the members of the
Executive Committee present, shall preside at a meeting of the Committee in the
absence of the Chairman of the Board. The Secretary of the Board shall act as
secretary of the Executive Committee and shall keep a record of all proceedings.
A majority of the members of the Executive Committee shall constitute a quorum.
SECTION 2. Powers of Executive Committee. The Executive Committee shall have and
may exercise the powers of the Board in the management and affairs of the
Company except when the Board is in session and except the power to make, alter
or repeal By-Laws or to nominate candidates for election to, fill vacancies in
or change the number of members of the Board. Actions of the Executive
Committee, except when the rights or acts of third parties would be adversely
affected, shall be subject to the approval of the Board, which approval shall be
implied unless contrary action is taken by the Board.
SECTION 3. Other Committees. Other committees composed of members or directors,
officers, agents, or employees of the Company or of any subsidiary or affiliate
of the Company may be appointed and their respective functions, terms and duties
prescribed from time to time by the Board of Directors, by the chief executive
officer subject to the approval of the Board, or by the chief executive officer.
ARTICLE VI
EXECUTION AND SIGNING OF INSTRUMENTS
AND CHECKS: FACSIMILE SIGNATURES
SECTION 1. Execution of Instruments. Instruments affecting or relating to real
estate or the investment of funds of the Company may be executed as authorized
by resolution of the Board or as may be authorized by such officers of the
Company as the Board designates.
SECTION 2. Disposition of Funds. The funds of the Company shall be paid out,
transferred or otherwise disposed of only in such manner and under such controls
as may be authorized by resolution of the Board or as may be authorized by such
officers of the Company as the Board designates.
SECTION 3. Survival of Validity of Instrument Bearing Facsimile signature. If
any officer whose facsimile signature has been placed upon any form of
instrument shall have ceased to be such officer before an instrument in such
form is issued, such instrument may be issued with the same effect as if he had
been such officer at the time of its issue.
ARTICLE VII
INDEMNITY
The Board shall have the power to indemnify, or authorize the officers of the
Company to indemnify, directly and through insurance coverage, each person now
or hereafter a Director, officer, employee or other representative of the
Company, and that person's heirs and legal representatives, against all damages,
awards, costs and expenses, including counsel fees, reasonably incurred or
imposed in connection with or resulting from any action, suit or proceeding, or
the settlement thereof prior to final adjudication, to which such person is or
may be made a party by reason of being or having been a Director, officer,
employee or other representative of the Company or by reason of service at the
request of the Company in any capacity with another entity or organization. Such
rights or indemnification shall be in addition to any rights to which any
Director, officer, employee or other representative of the Company, former,
present or future, may otherwise be entitled as a matter of law and subject to
such limitations permitted by law as may be established by the Board.
ARTICLE VIII
AMENDMENT OF BY-LAWS
These By-Laws may be amended, altered or repealed by the Board at any regular or
special meeting of the Board, provided written notice expressing in substance
the proposed change shall have been given to each Director at least five days
prior to the date of such regular or special meeting to each Director who does
not waive notice. Notice may be waived by any Director by filing a written
waiver of notice with the Secretary of Board before, on or after the meeting
date.
ARTICLE IX
MEANINGS OF WORDS AND TERMS
When used in these By-Laws, the following words and terms shall have the meaning
assigned to them in this Article.
Company - Principal Mutual Life Insurance Company (which also may be
known as Bankers Life Company and Princor Mutual Life
Insurance Company)
Board - Board of Directors of the Company
By-Laws - these By-Laws of the Board, as from time to time amended
Articles - Articles of Incorporation of the Company, as from time to
time amended
member - a member of the Company, as defined in the Articles
Director - a person duly elected to the Board of the Company
class - that group of Directors whose terms expire on the date of the same
annual meeting of the Company.
candidate- a person duly nominated for election to the Board pursuant to the
provisions of the Articles and By-Laws
711 High Street Principal Mutual Life and Disability
Des Moines, Iowa 50392-0001 Life Insurance Company Insurance Application
All references to "you" and "your" in this application means the Proposed
Insured.
- --------------------------------------------------------------------------------
Personal Proposed Insured's Name (First, Middle Initial, Last) Date of Birth
Information
(Always ___________________________________________________________________
complete Address City County State Zip
this section)
-------------------------------------------------------------------
Sex Social Security Number Birthplace Driver's License
__ M __ F (State or Country) Number
- --------------------------------------------------------------------------------
Life Annual Earned Income Unearned Income Occupation Employer/
Only Address
- --------------------------------------------------------------------------------
Life Face Amount Type Plan Unscheduled Premium,
Coverage (Term, Whole (or Premium, if AL) if applicable
Applied For Life, etc.)
-----------------------------------------------------------------------------
If joint life (Survivorship, First-To-Die)
other lives to be covered
-----------------------------------------------------------------------------
If Universal or Variable Life __ Option 1 (Death Benefit = Face Amount)
- Planned Premium __ Option 2 (Death Benefit = Face Amount
+ Accum. Value)
- -------------------------------------------------------------------------------
Life Rider 1 Amount, if applicable If Child Term, or Benefits/
____________________________________ Spouse Term, or Riders Rider 2 Amount, if
applicable Payor Benefits Applied For ____________________________________ Then
Submit Supplemental App.
Rider 3 Amount, if applicable _____________________________
____________________________________ If PAPA Rider:
Rider 4 Amount, if applicable Total Annual Premium $_______
____________________________________ (Dividends must be additions)
- -------------------------------------------------------------------------------
Beneficiary Primary Relationship to Social Security Number
of Life Proposed Insured
Insurance __________________________________________________________________
------------------------------------------------------------------
------------------------------------------------------------------
Contingent Relationship to Social Security Number
Proposed Insured
- -------------------------------------------------------------------------------
Proceeds __ to be left at interest.
Beneficiary to have election and withdrawal rights.
Pay interest ______________ (frequency)
- -------------------------------------------------------------------------------
Life Owner Name Relationship to Proposed Insured Taxpayer ID Number
(if other __________________________________________________________________
than the Address City County State ZIP
Proposed __________________________________________________________________
Insured) If Proposed Insured is under age 15, Ownership is
__ Permanent __ Temporary __ Age 18 __ Age 21 __ Age
25 (at which time the Insured becomes Owner)
- --------------------------------------------------------------------------------
Life __ AL - Improve Policy __ Purchase Additional Insurance
Dividend __ Paid in Cash
__ AL - Loan Enhancement __ Accumulate at Interest
__ *EPO - Return Cash Value
__ AL - Reduce/Unscheduled __ Reduce Premium
__ * EPO - Return of Premium
* Balance as Checked
- -------------------------------------------------------------------------------
Life __ Annual __ Semi-Annual
Method of __ Quarterly __ List Bill List existing reference number _______
Premium __ Preauthorized Withdrawal (monthly) Payment List existing policy
number(s)__________________________________
- --------------------------------------------------------------------------------
Other Life Company Amount Amount ADB Waiver of Year of Purpose
Insurance In Force Pending Amount Premium Issue (Business or
Personal)? If
business, type
(Key Person,
Buy, Sell, etc.)
(list all __________________________________________________________________
life
insurance in __________________________________________________________________
force or
currently __________________________________________________________________
being applied
for) __________________________________________________________________
Will this insurance replace any exisitng coverage? __ No __ Yes
If "yes", enclose replacement forms.
If "yes", company name(s) ________________________________________
Policy number(s) _________________________________________________
Will all pending coverage be accepted? __ No __ Yes Explain
- --------------------------------------------------------------------------------
Activities 1. Have you, are you, or do you plan to:
*a. be a member of any Armed Forces or Military Unit?
__ No __ Yes
*b. pilot any type of aircraft?
__ No __ Yes
*c. engage in scuba/skin diving, motor vehicle racing,
skydiving or any other hazardous sporting activity?
__ No __ Yes
*d. live or travel outside the United States?
__ No __ Yes
2. In the last 5 years have you:
a. been in a motor vehicle accident; been charged with
driving while intoxicated; had more than one moving
traffic violation?
__ No __ Yes
b. used cocaine, marijuana, amphetamines, barbiturates
or other controlled substances?
__ No __ Yes
c. been arrested for other than traffic violations?
__ No __ Yes
3. Have you ever had any life, health or disability insurance
rated, ridered or declined?
__ No __ Yes
If "yes", give details, or *complete special statement:
- --------------------------------------------------------------------------------
Personal 4. a. Full Name and Address of personal physician/health
History care provider (if none, so indicate)
-----------------------------------------------------------------
b. Date last seen Reason and results Doctor's Phone No.
-----------------------------------------------------------------
(always c. Height Weight Weight loss in the last year? __No __ Yes
complete If "yes, number of pounds
this section) Reason for weight loss
------------------------------------------------------------------
5. a. Do you use tobacco or nicotine products?
__ Never __ Current __ Past - date last used ___________
b. If current or past use, type/amount per day?
__ Cigarettes _Pipe/Cigar __ Chew __ Patch/gum
6. a. Do you drink alcohol?
__ Never __ Current __ Past - date last used/
reason quit ______________
b. If current or past use, type/amount per week?
__ Beer/Wine __ Other ___________________________________
------------------------------------------------------------------
7. a. Have you ever been advised to limit or discontinue the
use of alcohol or drugs? __ No __ Yes
b. Have you sought or received treatment or counseling
because of alcohol or drug use? __ No __ Yes
c. Have you participated in a support group or program
because of alcohol or drug use? __ No __ Yes
If "yes" give details:
------------------------------------------------------------------
8. a. Has any parent or sibling died before age 60?
__ No __ Yes If yes, age(s) at death ___________________
b. Relationship(s) __________________________________________
cause(s) of death ________________________________________
- --------------------------------------------------------------------------------
Medical 9. Within the last 10 years have you had, been treated for or History
diagnosed as having (check all that apply):
a. __ high blood pressure __ heart attack __ chest pain
(always __ any other disease or disorder of the heart or
complete circulatory system (specify) __________________________
this section) __ None
b. __ athsma __ bronchitis __ emphysema
__ any other disease or disorder of the lungs or
respitory system (specify) ___________________________
__ None
c. __ seizure __ stroke __ headaches
__ any other disease or disorder of the brain or nervous
system (specify) ______________________________________
d. __ irritable bowel syndrome __ hepatitis __ colitis __
ulcer __ cirrhosis __ gallbladder disorder __ pancreas
disorder __ any other disease or disorder of the liver,
stomach
or digestive tract (specify) __________________________
__ none
e. __ sugar in urine __ protein in urine __ blood in urine
__ any other disease or disorder of the urinary tract,
bladder or kidneys
(specify)______________________________________ __none
f. __ diabetes __ thyroid disorder __ glandular disorder
__ any other disease or disorder of the endocrine system
(specify)______________________________________ __none
g. __ HIV infection __ positive HIV test __ AIDS
__ any other disease or disorder of the immune system
(specify)______________________________________ __none
h. __ back pain __ neck pain __ disc problems
__ spinal sprain or strain __ sciatica __ arthritis __
spinal sprain or strain __ carpal tunnel syndrome __ any
other disease or disorder of the bones, joints or
muscles.
(specify)______________________________________ __none
i. __ chronic fatigue __ Chronic Fatigue Syndrome
__ Lyme's Disease __ Epstein Barr __ none
j. __ anxiety __ depression __ stress
__ any other psychological or emotional disorder or
symptoms
(specify)______________________________________ __none
k. __ cancer __ tumor __ cyst __ growth __ none
------------------------------------------------------------------
10. Within the last 10 years have yhou had (check all that apply):
a. __ complications of pregnancy __ sexually transmitted
disease
__ disease or disorder of the prostate, uterus, ovaries or
breasts (specify)______________________________ __none
__ any other disease or disorder of the reproductive
system (specify)_______________________________ __none
b. any disease or disorder of the:
__ eyes __ ears __ nose __ throat __ skin
(specify)______________________________________ __none
------------------------------------------------------------------
11. Within the last 10 years have you:
a. had any other illness, injury or health
condition not already indicated above? __ No __ Yes
b. had any medication, treatment, surgery,
medical test or hospitalization? __ No __ Yes
c. seen a doctor, chiropractor, psychiatrist,
psychologist, counselor, therapist or
other health practitioner? __ No __ Yes
------------------------------------------------------------------
12. Are you now under medication or treatment? __ No __ Yes
------------------------------------------------------------------
13. Are you currently pregnant? __ No __ Yes
- --------------------------------------------------------------------------------
For Life Skip to Conditional Receipt and Authorization
Insurance
- --------------------------------------------------------------------------------
For each item checked (except "none" or "No"), list question
number and give details, including (1) diagnosis, (2) dates
of first and last treatment; (3) types and results of
treatment, and (4) doctor's full names and addresses:
<PAGE>
LOGO 711 High Street Principal Mutual
Des Moines, Iowa 50392-0001 LIfe Insurance Company Conditional Receipt
(In this Receipt, "we", "us", or "our" is the Company.)
- --------------------------------------------------------------------------------
Name of proposed insured
- --------------------------------------------------------------------------------
Advance payment of: (Life) (Overhead Expense) (Disability Income)
$ $ $
- --------------------------------------------------------------------------------
has been received this date as a premium deposit with the application bearing
the same number and dates as this Receipt.
- --------------------------------------------------------------------------------
Agent or Broker Date of Receipt
- --------------------------------------------------------------------------------
This receipt is not a "binder." No agent, broker or medical examiner may accept
risks, determine insurability or bind the company in any way. No agent or broker
may waive or change any terms of this Receipt, or of the policy(ies) applied
for, or any other rights of the Company.
The agent or broker has NO AUTHORITY to accept any premium or to issue this
receipt: (1) if it is apparent that any Condition Precedent to coverage under
this Receipt is not or cannot be satisfied; or (2) in the case of an application
for Disability Buy-Out coverage. This conditional Receipt shall be ineffective
if issued without authority.
INSURANCE PROVIDED:
If all of the Conditions Precedent set forth in this Receipt are fulfilled
exactly, insurance under this Receipt will take effect on the start date. The
start date is the date upon which all of our initial application requirements
have been completed. Our initial application requirements consist of full
completion and signing of the application and all necessary supplements, and any
medical exams and tests required by our published rules.
The insurance provided by this Receipt shall be that applied for on the
application, subject to all of the Limitations set forth in this Receipt. Any
insurance provided by this Receipt will end on the stop date, which is the
earliest of:
a. 75 days after the start date;
b. the date we mail the proposed owner a premium refund and a notice that we
will not consider the application on a prepaid basis;
c. the date we mail the proposed owner a premium refund and a notice that no
policy will be issued on the application;
d. the date a policy is presented to the proposed owner (whether or not
accepted by the proposed owner).
This Receipt does not commit us to issue any policy. However, in determining
whether we'd issue the policy applied for, we would determine the insurability
as of the Start Date. We have until the actual delivery of the policy to make
this determination. If an event giving rise to a claim occurs at any time before
physical delivery and acceptance of a policy by the owner, the claim will be
considered solely under this Receipt even if a policy is issued. If any
provision of this Receipt is unenforceable under state law, all other terms and
conditions shall continue in full force and effect.
CONDITIONS PRECEDENT -- All of the following conditions must be fulfilled
exactly. Otherwise, there is NO insurance under this Receipt and the receipt is
void.
1. On the start date, the proposed insured must be insurable, as determined by
our underwriters under our underwriting rules and practices. If a condition
affecting such insurability existed in fact on the start date, it shall be
considered in the determination of insurability.
2. The premium deposit(s) must be at least a full month's premium for each
policy applied for.
3. The premium deposit(s) must be paid at the time the application is signed,
and this Receipt must be issued at the same time.
4. The premium deposit(s) must be received in our home office and must be
honored on first presentation for payment.
LIMITATIONS
1. Except as limited by this Receipt, our liability is governed by the terms of
the policy(ies) applied for.
2. No death benefit is payable under this Receipt if the proposed insured dies
by suicide while sane or insane. In such case, our sole liability shall be
to pay the premium we received to the named beneficiary(ies).
3. No benefit is payable under this Receipt if there is any incorrect, untrue,
incomplete or omitted statement of material fact in any part of the
application, incuding any medical questionnaire that becomes a part of the
application. No knowledge of any fact on the part of any agent, broker,
medical examiner or other person shall be considered knowledge of the
Company unless such fact is stated in the application.
4. Life Insurance -- The total death benefit (including any accidental death
benefit applied for) payable under this Receipt and all other Receipts that
may be in effect with us is limited as follows:
a. If the proposed insured is insurable on a standard or more
favorable basis -- $1,000,000 or the amount applied for, whichever
is less.
b. If the proposed insured is insurable on a basis less favorable
than standard -- $100,000 or the amount applied for, whichever is
less.
5. Disability Income or Overhead Expense Insurance -- Any Disability Income or
Overhead Expense insurance payable under this Receipt will be subject to the
elimination period elected on the application. For each type of coverage
applied for, the total monthly benefit (including Social Security Substitute
or Social Insurance Substitute) payable under this Receipt and all other
Receipts that may be in effect with us is limited to the lesser of: 1)
$5,000 per month, 2) the benefits applied for, or 3) benefits you qualify
for based on our underwriting rules and practices.
PREMIUMS -- If a policy is issued from this application and accepted by the
proposed owner, we will apply the premium deposit to the first premium due for
such policy. If no policy is put into force but a benefit is paid under this
Receipt, we will keep the earned portion of the premium deposit and refund the
balance, if any. If no policy is put into force and no benefit is paid under
this Receipt, the premium deposit will be refunded. If this Receipt is issued
for more than one type of coverage, the provisions of this paragraph shall apply
separately with respect to each type.
<PAGE>
- --------------------------------------------------------------------------------
711 High Street Principal Mutual Insurance Application
Des Moines, Iowa 50392-0001 Life Insurance Company and Authorization
- --------------------------------------------------------------------------------
As part of our routine underwriting procedure, you may receive a phone call from
the Home Office in Des Moines. The purpose of this call is to obtain personal
and financial information needed to evaluate your insurability. Your answers
will be kept strictly confidential. Do you prefer to be interviewed rather
than another family member? __ Yes __ No May we call you at work? __ Yes __ No
May we talk to your spouse? __ Yes __ No
- --------------------------------------------------------------------------------
Home Phone (include area code) Business Phone (include area code)
( ) ( )
Spouse's Business Phone ( )l
- --------------------------------------------------------------------------------
Special Instructions
- --------------------------------------------------------------------------------
Statement In Application: I represent that all statements in this application
are true and complete and were correctly recorded before I signed my name below.
I understand and agree that the statements in the application, including
statements by the proposed insured in any medical questionnaire that becomes a
part of this application, shall be the basis of any insurance issued. I also
understand that misrepresentations could mean denial during the contestable
period of an otherwise valid claim.
When Insurance Effective: Except as may be provided by the Conditional Receipt,
I understand and agree that the Company shall incur no liability: (1) unless a
policy issued on this application has been physically delivered to and accepted
by the owner and the first premium paid; and (2) unless, at the time of such
delivery and payment, the person to be insured is actually in the state of
health and insurability represented in this application and in any medical
questionnaire or amendment that becomes a part of this application. If these
conditions are met, the policy will then be deemed effective on the Policy Date
stated in the policy.
Limitation of Authority: I understand and agree that no agent, broker or medical
examiner has any authority to determine insurability, or to make, change or
discharge any contract, or to waive any of the Company's rights. The Company's
right to truthful and complete answers to all questions on this application and
in any medical questionnaire that becomes a part of this application may not be
waived. No knowledge of any fact on the part of any agent, broker, medical
examiner or other person shall be considered knowledge of the Company unless
such fact is stated in the application.
__ This application is COD or __ I have paid $_____ for Life; _____ for
Disability Insurance. If money was paid, I have been given the Conditional
Receipt. In return I have read, understand, and agree to its terms.
Authorization: I authorize any doctor, hospital, clinic, health care provider,
insurance (or reinsuring) company, consumer reporting agency, my insurance
agent/broker, employer, family member, friend, neighbor, lawyer, accountant,
roommate or business associate having personal information (including physical,
mental, drug or alcohol use history) regarding me or any named dependent, to
provide the Company, its representatives or reinsurers, any such data.
I authorize the Company to conduct a Personal Telephone Interview in connection
with my application for insurance. I authorize the MIB, Inc. to furnish the
above data to the Company or its reinsurers. I authorize the Company to release
any such data to its reinsurers, to MIB, Inc., or as required by law or as
provided in the Notice of Information Practices. Data released may include
results of my medical examinations or tests requested by the Company. I
understand that the data obtained by use of this Authorization will be used by
the Company to determine eligibility for insurance. I have received a copy of
the "Notice of Insurance Information Practices", which includes notice required
by any Fair Credit Reporting Act. It also describes MIB, Inc. I agree that this
authorization shall be valid for two years from the earlier of: (1) the date of
this application, or (2) the date of my policy. I may revoke this authorization
for information not then obtained. Such revocation must be in writing. It will
not be effective until received at the Company's Home Office. I agree a
photocopy of this authorization shall be as valid as the original. I have
received a copy of this authorization. Taxpayer I.D. Certification: As owner of
this contract, I certify under penalties of perjury:
1. The taxpayer identification number shown on this application is correct.
2. I am not subject to IRS backup withholding.
Note: Check this box __ if you are currently subject to backup withholding.
Proposed Insured Signatures
- --------------------------------------------------------------------------------
Proposed Insured (if over age 9) Spouse (if Spouse Term is being applied for)
- --------------------------------------------------------------------------------
Parent (if Proposed Insured is under age 15 Payor (if Payor Benefits
and Parent has not signed as Owner) are being applied for)
- --------------------------------------------------------------------------------
Owner's Signature (If other than Proposed Insured)
Owner of Insurance Title, if corporation (an officer other than the Proposed
Insured must sign)
- --------------------------------------------------------------------------------
Signed at City State Date Witness (Agent/Broker)
Agent/Broker's License Number
- --------------------------------------------------------------------------------
Cosignature by resident licensed Date
Agent/Broker's, if applicable in your state Agent/Broker's License Number
- --------------------------------------------------------------------------------
LOGO 711 High Street Principal Mutual Variable Life Insurance
Des Moines, IA 50392-0001 Life Insurance Company Supplemental Application
- -------------------------------------------------------------------------------
1. Print full name of Proposed Insured Policy Number Birthdate
- --------------------------------------------------------------------------------
Complete: Page 1 for New Business. Pages 1 & 2 for Adjustments to Existing
Business and Term Conversions.
- --------------------------------------------------------------------------------
2. The following questions apply to the proposed insured or applicant if other
than the proposed insured.
Yes No
a) Have you received the current prospectus for this policy? --- ---
b) Do you understand a statement of values is available
upon request? --- ---
c) Do you understand monies paid will be held in the Money
Market Division for 45 days after receipt by the Home
Office of your initial premium payment and this
application? --- ---
d) Are you satisfied this policy will meet your insurance
needs and financial objectives? --- ---
e) Do you understand there is no guarantee of accumulated
value in this policy? --- ---
f) Do you understand the death benefit and policy duration
may vary depending upon the separate accounts'
investment experience? --- ---
- --------------------------------------------------------------------------------
3. Allocation Percentages:
(Enter 0 or minimum of 10% per Division. Indicate whole numbers only.)
Premiums (Premiums include the initial payment required as the first
premium and all planned periodic premiums. The net premium is the premium
paid less premium expense charge. Net premiums received by the company
during the first 45 days will be allocated to the Money Market Division. On
the 46th day, the Accumulated Value and net premiums will be reallocated to
the separate account divisions according to the allocation percentages you
choose.)
Balanced Division -----% Emerging Growth Division -----%
Bond Division -----% High Yield Division -----%
Capital Accumulation Division -----% Money Market Division -----%
Total 100%
4. NOTE: IF THIS SECTION IS NOT COMPLETED, MONTHLY DEDUCTIONS WILL BE
ALLOCATED IN THE SAME MANNER AS PREMIUMS.
Monthly Deductions (Monthly Deductions include the cost of insurance and the
cost of additional benefits provided by any rider plus the current monthly
administration charge. This amount is withdrawn from the separate account
divisions according to the allocation percentages you choose.)
-- Allocated in the same manner as premiums.
Check
One -- Prorated based on balances of the policyowner's investment
accounts.
-- As below
Balanced Division -----% Emerging Growth Division -----%
Bond Division -----% High Yield Division -----%
Capital Accumulation Division -----% Money Market Division -----%
Total 100%
- --------------------------------------------------------------------------------
The policy date is the date on which both the application and a premium payment
in an amount at least equal to the required minimum initial premium for the
policy were received in the home office of the company.
- --------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------
Signature of Applicant or Owner (if Signature of Proposed Insured
other than Proposed Insured). If
Corporation, Officer (indicate
title) other than Prosposed
Insured must sign.
Signed at ----------------------------- Witness-----------------------------
city State Date
Page 1
<PAGE>
LOGO 711 High Street Principal Mutual Variable Life Insurance
Des Moines, IA 50392-0001 Life Insurance Company Supplemental Application
(Adjustments/Term
Conversions)
- --------------------------------------------------------------------------------
1. Policy Number--------------------------------------------------------------
- --------------------------------------------------------------------------------
2. Employer-------------------------------------------------------------------
Address--------------------------------------------------------------------
Occupation-----------------------------------------------------------------
Duties---------------------------------------------------------------------
Annual earned income $------------------
Annual unearned income $------------------
- --------------------------------------------------------------------------------
- --------------------------------------- ------------------------------------
Signature of Applicant or Owner (if Signature of Proposed Insured
other than Proposed Insured). If
Corporation, Officer (indicate
title) other than Prosposed
Insured must sign.
Signed at ----------------------------- Witness-----------------------------
city State Date
Page 2
November 19, 1987
Board of Directors
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50309
RE: Variable Life Separate Account
Gentlemen:
The establishment of the Variable Life Separate Account by the Board of
Directors of Principal Mutual Life Insurance Company as a separate account for
assets applicable to variable life insurance policies, pursuant to the then
existing provisions of the Code of Iowa applicable to the establishment of
separate accounts by Iowa domicled life insurance companies, was supervised by
the office of General Counsel of the Company. I have supervised the preparation
of the Registration Statement on Form S-6 to be filed by Principal Mutual Life
Insurance Company with the Securities and Exchange Commission under the
Securities Act of 1933 with respect to the Flexible Premium Variable Life
Insurance Policies.
It is my opinion that:
1. The Variable Life Separate Account is a separate account of the Company
duly created and validly existing pursuant to Iowa law, currently
consisting of six distinct Divisions.
2. The Flexible Premium Variable Life Insurance Policies, when issued in
accordance with the Prospectuses contained or referred to in the
Registration Statement and upon compliance with applicable local law, will
be legal and binding obligations of the Company enforceable in accordance
with their terms.
3. All income and expenses and all gains and losses, whether or not realized,
experienced with respect to assets for these policies participating in a
Division of the Variable Life Separate Account, shall be credited to or
charged against those assets, unaffected by income and expenses or gains
and losses experienced with respect to assets for any other policies
participating in the same or any other Division of the Variable Life
Separate Account, or constituting any other Separate Account, or
constituting the general account of the Company.
4. The assets for the policies participating in a Division of the Variable
Life Separate Account, equal to the reserves and other liabilities arising
under the policies, shall not be charged with any liabilities arising from
any other policies issued by the Company participating in the same or any
other Division of the Variable Life Separate Account.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as in my judgment are necessary or
appropriate.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Opinion" in the
prospectus contained in the Registration Statement.
Very truly yours,
T. M. HUTCHISON
T. M. Hutchison
Senior Vice President, General Counsel
and Secretary
mcf
JNH/L/BD/1116
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated February 7, 1996 (with respect to Principal
Mutual Life Insurance Company Variable Life Separate Account) and January 31,
1996 (with respect to Principal Mutual Life Insurance Company), in the
Registration Statement (Post Effective Amendment No. 13 to Form S-6 No.
33-13481) and related Prospectus of Principal Mutual Life Insurance Company
Variable Life Separate Account Flex Variable Life - Flexible Premium Variable
Life Insurance Policies.
ERNST & YOUNG LLP
Des Moines, Iowa
April 11, 1996
DESCRIPTION OF PRINCIPAL MUTUAL LIFE INSURANCE COMPANY'S ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES FOR POLICIES PURSUANT TO RULE
6e-3(T)(b)(12)(iii) UNDER THE INVESTMENT COMPANY ACT OF 1940
This document sets forth the information called for under Rule
6e-3(T)(b)(12)(iii) under the Investment Company Act of 1940 ("1940 Act"). The
rule provides exemptions from sections 22(c), 22(d), 22(e) and 27(c)(1) of the
1940 Act, and Rule 22c-1 thereunder, for issuance (including face amount
increase), transfer and redemption procedures under Flex Variable Life, the
flexible premium variable life insurance policy ("Policy") to the extent
necessary to comply with other provisions of Rule 6e-3(T), state insurance law
or established administrative procedures of Principal Mutual Life Insurance
Company (the "Company"). To qualify for the exemptions, procedures must be
reasonable, fair and not discriminatory to the interests of the affected
contractholders and for all other holders of contracts of the same class or
series funded by the Separate Account, and must be disclosed in the registration
statement filed by the Separate Account.
Principal Mutual Life Insurance Company believes its procedures meet the
requirements of Rule 6e-3(T)(b)(12)(iii), as described below.
1. Purchases and Related Transactions
Set out below is a summary of the major contract provisions and
administrative procedures relating to "purchase" transactions. Because
of the insurance nature of the contract, the procedures involved differ
in certain significant respects from the purchase procedures for mutual
funds and contractual plans.
(a) Application and Contract Issue
To purchase a Policy, a completed application must be submitted to the
Company through the registered representative selling the Policy. The
Company will not issue policies to insure persons over the age 75.
Applicants must furnish satisfactory evidence of insurability, and
acceptance is subject to the Company's insurance underwriting
guidelines and suitability rules and procedures. The Company reserves
the right to reject any application or related premium if in the view
of the Company, the Company's insurance underwriting guidelines and
suitability rules and procedures are not satisfied. The minimum face
amount for a Policy at issue is $25,000. The Company reserves the right
to revise its rules from time to time to specify either a higher or
lower minimum face amount.
The "policy" date is the date assigned to a Policy to indicate the date
coverage under the Policy commences. The Company does not date Policies
on the 29th, 30th or 31st day of any month of the year. Policies which
would otherwise be dated on these days except for this rule, will be
dated on the 28th of the month. The policy date is shown on the
Policy's Data Page. If a payment in at least the required minimum
initial premium amount is submitted with the completed application,
then a conditional receipt is delivered to the applicant by the agent
selling the Policy, reflecting receipt of the initial payment and any
interim coverage.
Subject to variations by state based on differing state requirements,
the terms of the conditional receipt are described in this paragraph.
If all of the conditions precedent set forth in the conditional receipt
are fulfilled exactly, interim coverage under the conditional receipt
will take effect on the date upon which all initial application
requirements have been completed. The initial application requirements
consist of full completion and signing of the application and all
necessary supplements, and any medical exams and tests required by the
Company's published rules. The amount of the interim coverage is: the
lesser of $1,000,000 or the amount applied for, if the proposed insured
is insurable on a standard or more favorable basis; or, the lesser of
$100,000 or the amount applied for, if the proposed insured is
insurable only on a basis less favorable than standard. Interim
coverage provided under the conditional receipt ends on the earliest
of: (1) 75 days after the date coverage commenced under the conditional
receipt, (2) the date the Company mails the proposed owner a premium
refund and a notice that the Company will not consider the application
on a prepaid basis, (3) the date the Company mails the proposed owner a
premium refund and a notice that no policy will be issued on the
application, or (4) the date a Policy is presented to the proposed
owner (whether or not accepted by the proposed owner).
Pending receipt of approval from the states of California and New York
of the conditional receipt described above, a different conditional
receipt will continue to be used in those states. Under the conditional
receipt in use in California and New York, interim coverage starts on
the later of: (1) the date of completion of the application and
supplements thereto or (2) the date any required medical exam or other
medical tests are completed. However, if all the conditions of the
receipt are met except any required medial exam or test, insurance is
provided under the conditional receipt not to exceed the maximum amount
available based on the Company's underwriting rules without the medical
exam or test. The amount of the interim coverage is the lesser of
$1,000,000 or the amount applied for if the proposed insured is
insurable at the Company's standard rate or at the rate applied for or
at a better rate, or the lesser of $100,000 or the amount applied for
if the proposed insured is insurable only at a higher premium rate than
the Company's standard premium rate and the premium rate applied for.
Interim coverage provided under the conditional receipt ends on the
earlier of: (1) five days after a nonacceptance notice is mailed by the
Company to the applicant, (2) the day before the policy date when the
Policy is issued as applied for, (3) the date a Policy issued other
than as applied for is presented to the applicant for acceptance, or
(4) 75 days after the date coverage commenced under the conditional
receipt.
If the Company rejects an application or a policyowner chooses to
cancel the Policy during the free look period, the Company will refund
all amounts paid under the Policy. The postmark date on the envelope
containing the flexible contract shall determine whether contract has
been submitted within the designated period. The refund will ordinarily
be made within seven days. Consequently, during underwriting and the
free look period, the Company bears the investment risk with respect to
any amounts paid under the Policy. However, if the policyowner does not
exercise the free look privilege, the Policy's accumulated value will
reflect investment performance during the free look period.
(b) Payment of Premiums
Premiums must be paid to the Company at its home office. There is no
fixed schedule of premium payments on a Policy either as to the amount
or timing of the payments, although a minimum premium is required
during the first twelve policy months (the "Minimum Required Premium").
Thereafter, the Policy will remain in force as long as the accumulated
value, less any loans and unpaid loan interest, is sufficient to pay
the monthly charges imposed in connection with the Policy.
A policyowner may determine, within the specified limits set forth below, a
planned periodic premium schedule to fit the policyowner's insurance needs and
financial abilities. The Company will send premium reminder notices in
accordance with planned periodic premium schedules. Premium payments may also be
made by unscheduled premium payment made to the Company at its home office, or
by payroll deduction where allowed by law and approved by the Company.
(i) Initial Premiums
To apply for a Policy, a completed application, including any
required supplements, must be submitted to the Company through
the agent or broker selling the Policy. If interim coverage is
desired, a payment in at least the required minimum initial
premium amount must be submitted along with the completed
application and any required supplements. The required minimum
initial premium amount for any Policy (including a Policy
issued on an application submitted without an accompanying
payment) is three times the minimum monthly premium shown on
the Policy's data pages. The minimum monthly premium is the
amount that, if paid, will keep the Policy in force for one
month, taking into account the Policy's current monthly
deduction and surrender charge. However, in no event will a
minimum monthly premium be less than $30, except that for
Policies issued to insure persons ages 0 to 14 years, the
minimum monthly premium may be no less than $15.
(ii) Maximum Premiums
In no event can the total of all premiums paid exceed the
current maximum premium limitations required by the Internal
Revenue Code in order to qualify the Policy as a life
insurance contract. The premium limitations are imposed to
assure favorable federal income tax treatment of the Policy
and its death benefit. If at any time a premium is paid which
would result in total premiums exceeding the current maximum
premium limitation, the Company will only accept that portion
of the premium which will make total premiums equal the
maximum. Any part of the premium in excess of the maximum will
be returned and no further premiums will be accepted until
allowed by the current maximum premium limitations required by
the Internal Revenue Code.
(iii) Minimum Premium
The current minimum annual planned periodic premium is $360
for issue ages 15-75 and $180 for issue ages 0-14. The Company
reserves the right to change minimum annual planned periodic
premium amounts. No premium payment may be less than $30.
Premium payments less than the minimum amount will be returned
to the policyowner.
(iv) Evidence of Insurability
If any premium payment would increase a Policy's death benefit
by more than it increases the Policy's accumulated value,
evidence of insurability under the Company's current
underwriting guidelines then in effect may be required.
(c) Allocation of Premiums
The initial premium payment, less the premium expense charge, is
allocated to the Money Market Division of the Separate Account. Any
additional premium payments made during the first 45 days from the
policy date, less premium expense charges, will be allocated to the
Money Market Division. On the 46th day after the policy date,
accumulated value held in the Money Market Division is automatically
transferred to the Divisions of the Separate Account in accordance with
the policyowner's direction for allocation of premium payments.
For each Division, the allocation percentages must be zero or a whole
number not less than ten nor greater than 100. The policyowner may
change the allocation of future premium payments among the Divisions of
the Separate Account by written request to the Company without payment
of any fee or penalty. New allocation percentages, once approved by the
Company, will be effective as of the date written request was received
at the home office of the Company.
(d) Monthly Deduction
There is a monthly deduction from the Policy's accumulated value in the
Divisions of the Separate Account equal to the cost of insurance and
the cost of additional benefits provided by riders attached to the
Policy and a monthly administration charge, which is guaranteed not to
exceed $5.00 per month.
The cost of insurance charge is calculated on each monthly date. It is
based on the sex (where allowed by law), issue age, attained age and
risk classification of the insured. Current monthly cost of insurance
rates will be determined by the Company based on its expectations as to
future mortality experience. Cost of insurance rates are guaranteed not
to exceed the maximum charge based on the 1980 Smoker and Nonsmoker
Commissioners Standard Ordinary Mortality Tables, age last birthday.
Unisex rates will also be available for use in connection with
employment-related insurance and benefit plans.
(e) Change in Face Amount
A policyowner may make a written request to increase the face amount of
a Policy at any time, so long as the Policy is not in a grace period or
premiums are not being waived under a rider. A policyowner may make a
written request to decrease the face amount at any time on or after the
first Policy anniversary so long as the Policy is not in a grace period
or premiums are not being waived under a rider. Any written request for
adjustment of face amount must be approved by the Company and is
subject to these additional conditions.
(i) Any request for an increase in face amount must be applied
for by a supplemental application, signed by the insured, and
shall be subject to evidence of insurability satisfactory to
the Company under its insurance underwriting guidelines and
suitability rules and procedures then in effect. The minimum
increase in face amount is $5,000. The age of the insured must
be 75 or less at the time of the request.
(ii) A request for a decrease in face amount must be applied
for by a supplemental application, signed by the insured, and
may not reduce the face amount of the Policy below $25,000.
(iii) Any increase in face amount will be in a risk
classification the Company determines.
(iv) Any adjustment approved by the Company will become
effective on the monthly date that coincides with or next
follows the Company's approval of the request.
Any increase in face amount will carry its own free look period and
exchange right, which apply only to the increase in face amount, not
the entire Policy. If a face amount increase is canceled pursuant to
the above right or if the Company does not approve a requested face
amount increase, the Company will refund to the policyowner the portion
of any premiums paid with the adjustment application and during this
free look for face amount increase period which are attributable to the
increase, unless directed otherwise by the policyowner. The portion of
the premiums paid attributable to the face amount increase is
determined by use of the ratio of guideline annual premiums for the
increase to guideline annual premiums for the Policy. The Company will
also reverse the amount of any monthly deduction attributable to the
face amount increase and return it to the Policy's accumulated value,
unless the policyowner and the Company agree on another method of
refund. The refunded amount will ordinarily be disbursed by the Company
to the policyowner within seven days after the request for cancellation
is received in the Company's home office.
The exchange right may be exercised during the first 24 policy months
following issuance of Policy data pages reflecting an increased face
amount, but not while the Policy is in a grace period. On the date of
exchange, a portion of the Policy's accumulated value attributable to
the increase will be transferred to the fixed benefit policy. The
portion of the Policy Value attributable to the increase in face amount
is determined by use of the ratio of guideline annual premiums for the
increase to guideline annual premiums for the Policy determined at the
adjustment date for the face amount increase. Premium payments made
under the Policy after exercise of this exchange right will be credited
only to the Policy.
A new policy will be issued upon exercise of the exchange right which
will require payment of its own premiums. A portion of any policy loan
and loan interest may be required to be repaid prior to the exchange or
transferred to the new Policy.
(f) Reinstatement
If the Policy lapses, the policyowner may reinstate the Policy subject
to certain conditions.
An application for reinstatement may be made any time within three
years of lapse. (For policies issued in Alabama, the policyowner is
allowed by law to make application for reinstatement at any time within
five years of the Policy's termination). Satisfactory proof of
insurability based upon the Company's current underwriting guidelines
and payment of an amount that, after deduction of premium expense
charges, is sufficient to allow at least three monthly deductions are
required. Payment of monthly deductions for the period of lapse is not
required. If a loan was outstanding at the time of lapse, the Company
will require repayment or reinstatement of the loan and any unpaid loan
interest before permitting reinstatement of the Policy. Loan interest
will not be charged for the period of lapse. Reinstatement will be
effective on the next monthly date following the Company's approval of
the reinstatement application.
The policy date of the Policy will remain the original policy date and
will not be changed at reinstatement, although surrender charges for
total surrender following reinstatement will resume at the rate charged
at the time of the Policy's termination, as adjusted for the payment of
past due premiums, if any.
(g) Repayment of Loan and Loan Interest
A policy loan may be repaid in whole or in part at any time while the
Policy is in force. The minimum loan repayment amount is $30 or the
outstanding loan amount, if less. Loan repayments will be applied
effective the date payment is received in the Home Office. If the
policyowner does not designate a payment as a premium payment, the
Company will apply payments received as loan repayments. When a loan
repayment is made, accumulated value securing the policy loan in the
loan account equal to the loan repayment will be allocated among the
Divisions of the Separate Account in the proportion currently
designated by a policyowner for allocation of premium payments. Unless
the Company is instructed otherwise, the balance of a payment not
needed to repay a loan, will be applied to the Divisions of the
Separate Account according to the premium allocation then in effect.
(h) Misstatements of Age or Sex
If the age or sex of the insured has been misstated in an application,
the death benefit under the Policy will be that which would be
purchased by the most recent mortality charge at the correct age and
sex.
2. Redemptions and Related Transactions
Set out below is a summary of the major contract provisions and
administrative procedures relating to "redemption transactions".
Because of the insurance nature of the contract, the procedures
involved differ in certain significant respects from procedures for
mutual funds and contractual plans.
(a) Full Surrender and Partial Surrenders
So long as the Policy is in effect, a policyowner may elect to
surrender the Policy and receive its net surrender value determined as
of the date the Company receives the policyowner's written request.
A policyowner may, after the first policy year, request a partial
surrender of the accumulated value of the Policy, but no more than two
times per policy year with a maximum allowable amount for each partial
surrender of 50% of the net surrender value. There is a transaction
charge of the lesser of $25 or two percent of the amount surrendered
for each partial withdrawal. A partial surrender will be processed
effective the date written request is received in the Home Office.
The Policy's accumulated value reduces by the amount of the partial
surrender plus the amount of the transaction charge. If the option 1
death benefit is in effect at the time of a partial surrender, then the
Policy's face amount also reduces by the amount of the partial
surrender and the transaction charge. The minimum amount of a partial
surrender is $500. Proceeds will ordinarily be paid within seven days
of receipt of a request for surrender.
The net surrender value is the amount of the Policy's accumulated value
less the amount of any surrender charge that is deducted or would be
deducted if the requested transaction were a surrender, less
outstanding policy loans and loan interest.
A policyowner may designate the amount of the partial surrender to be
withdrawn from each of the Divisions. If no designation is made, the
amount of the partial surrender will be withdrawn from the Divisions in
the same proportion as the most recent monthly deduction. The
transaction charge is deducted on a prorated basis from the Divisions
from which accumulated value is surrendered unless the policyowner
directs the Company to deduct the transaction charge from only one
Division.
During the first ten years of a Policy, a surrender charge will be
assessed in connection with total surrender of a Policy. The surrender
charge is a rate per $1,000 of face amount and depends upon the sex
(where allowed by law) and attained age of the insured on the policy
date and how long the Policy has been in force.
In addition, each underwritten face increase carries its own set of ten
year surrender charges, causing any total surrender made after an
adjustment date to be subject to a composite surrender charge.
Surrender charges following a Policy's reinstatement commence at the
rate in effect at the time of the Policy's termination. A policyowner
will never be assessed the surrender charge if total surrender or
termination of the Policy does not occur within the first ten policy
years or ten years following an adjustment date.
(b) Benefit Claims
As long as the Policy remains in force, the Company will, upon proof of
the insured's death, and pursuant to the terms of the Policy, pay the
death proceeds to the named beneficiary in accordance with the
designated death benefit option. The amount of the death benefit
payable will be determined as of the date of death, or on the next
following valuation date if the date of death is not a valuation date.
Benefit claims will ordinarily be paid within seven days from the date
all necessary claim requirements are received.
Unless a settlement option is elected, the proceeds will be paid in one
lump sum with interest from the date of the insured's death to the date
of payment at a rate determined by the Company, but not less than
required by state law. The Company offers beneficiaries and
policyowners a wide variety of settlement options.
The Policy provides two death benefit options: Option 1 and Option 2.
The policyowner designates the death benefit option in the application.
Under Option 1 the death benefit is the greater of the Policy's current
face amount or the policy's value on the date of death multiplied by
the applicable percentage as determined by the then effective tax
corridor percentage table as shown in the policy. The Option 2 death
benefit is the Policy's current face amount plus its accumulated value
on the date of death, but not less than the Policy's accumulated value
on that date multiplied by the applicable percentage described above.
The amount of the benefit payable at maturity is the accumulated value
less any policy loans and loan interest on the maturity date. This
benefit will only be paid if the insured is living on the policy
maturity date. The Policy will mature on the policy anniversary
following the insured's 95th birthday.
(c) Policy Loans
As long as the Policy remains in force and the Policy has loan value, a
policyowner may borrow money from the Company at any time using the
Policy as the only security for the loan. Up to 90% of the surrender
value, minus any unpaid loan and loan interest may be borrowed.
(Policies issued in Alabama are required by law to provide a different
calculation of loan value.) The loan value is determined as of the loan
date. The loan date is the date a loan request is processed at the home
office of the Company. The minimum loan amount is $500.
Proceeds of policy loans ordinarily will be disbursed within seven days
from the date of written request for a loan at the Company's Home
Office.
When a policy loan is made, a portion of the Policy's accumulated value
sufficient to secure the loan will be transferred to the Company's
general account from the Divisions in the proportions requested by the
policyowner. A loan account is then established for the policyowner. A
Policy's Loan Account is part of the Company's general account. If no
request for allocation of the loaned amount is made by the policyowner,
the loan will be prorated among the Divisions in the same proportion as
was the most recent monthly deduction.
Any loan interest that is due and unpaid will also be transferred in
the same manner as described above for policy loans. Accumulated value
equal to policy loans in the general account will accrue interest daily
at an effective annual rate of six percent. Interest earned on the
loaned portion of the accumulated value is allocated annually to the
Division or Divisions of the Separate Account in the proportion
currently designated by a policyowner for the allocation of premium
payments.
The Company will charge interest on any unpaid policy loan. Interest
accrues daily at an effective annual interest rate of eight percent.
Interest is due and payable at the end of the policy year. Any interest
not paid when due is added to the loan principal and bears interest at
the rate of eight percent. Adding unpaid interest to the loan principal
will cause additional amounts to be withdrawn from the Divisions in the
same manner as described above for loans.
If on any monthly date the net surrender value is not sufficient to pay
the monthly deduction, the 61-day grace period provision will apply.
Unpaid policy loans and loan interest reduce the net surrender value
and may cause it to be less than the Monthly Policy Charge on a monthly
date.
Upon repayment, the Policy's accumulated value securing the repaid
portion of the loan in the Loan Account will be transferred to the
Divisions of the Separate Account, applying the same percentages
currently in effect for the allocation of premium payments. Any unpaid
policy loans and loan interest are subtracted from life insurance
proceeds payable at the insured's death, from accumulated value upon
total surrender, and from accumulated value payable at maturity. The
claim of the Company for repayment of policy loans and unpaid loan
interest has priority over the claims of any assignee, any beneficiary
or any other person.
(d) Policy Termination and Grace Period
Failure to make a planned periodic premium payment will not necessarily
cause the Policy to terminate. The Policy will remain in force as long
as the net surrender value is at least equal to the monthly deduction
on the monthly date and as long as the sum of the premiums paid during
the 12 months following the policy date is more than the minimum
required premium.
A notice of impending policy termination will be sent if:
1. The net surrender value on any monthly date is less than the
monthly deduction; or
2. During the 12 months following the policy date, the sum of
the premiums paid is less than the Minimum Required Premium
on a Monthly Date.
The minimum required premium on a monthly date is equal to (1) times
(2) where:
1. Is the minimum monthly premium shown on the data page; and
2. Is one plus the number of completed months since the policy
date.
The grace period begins when the Company mails to the policyowner a
notice of impending policy termination. This notice will be sent to the
policyowner's last post office address known to the Company. It will
show the minimum payment required to keep the Policy in force. It will
also show the 61 day grace period during which such payment will be
accepted.
If the grace period begins because the net surrender value is less than
the monthly deduction, the minimum payment is three times the monthly
deduction which was due and unpaid.
If the grace period begins because the sum of the premiums paid is less
than the minimum required premium, the minimum payment is the past due
minimum required premium. The past due minimum required premium is:
1. the minimum required premium due on the next following monthly
date;
Less
2. the sum of the premiums paid since the policy date.
If the grace period ends before the Company receives the past due
minimum required premium, the Company will pay to the policyowner any
remaining value in the Policy which would be the excess of (1) over (2)
where:
1. Is the net surrender value on the monthly date at the start of
the grace period; and
2. Is the two monthly deductions applicable during the grace
period.
The Policy will continue in force through the grace period, but if
sufficient payment is not received by the Company, the Policy will
terminate as of the monthly date on or immediately preceding the start
of the grace period. If the insured dies during the grace period, the
death benefit payable under the Policy will be reduced by the amount of
the monthly deduction due and unpaid as well as the amount of any
unpaid policy loans and loan interest.
(e) Suicide
The Policy does not cover the risk of suicide within two years from the
Policy date or two years from the date of any increase in face amount
with respect to such increase, whether the insured is sane or insane.
In the event of suicide within two years of the Policy date, the only
liability of the Company will be a refund of premiums paid, without
interest, less any policy loans, any partial surrenders, and any
surrender charges. In the event of suicide within two years of an
increase in face amount, the only liability of the Company in respect
to such increase in face amount will be a refund of the cost of
insurance charges for such increase.
(f) Postponement of Payment
Payment of any amount upon complete or partial surrender, policy loan,
or benefits payable at death or maturity may be postponed whenever:
(i) The New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on
the New York Stock Exchange is restricted as
determined by the Commission.
(ii) The Commission by order permits postponement for the
protection of policyowners.
(iii) An emergency exists, as determined by the Commission,
as a result of which disposal of securities is not
reasonably practicable or it is not reasonably
practicable to determine the value of the Separate
Account assets.
3. Transfers
Accumulated value may be transferred between the Divisions of the
Separate Account. The total amount transferred each time must be at
least $250, unless a lesser amount constitutes the policyowner's
interest in a Division. All transfers with the same effective date
count as one transfer. Four transfers may be made in any one policy
year without charge to the policyowner. Thereafter, a transaction
charge of $25 is imposed to cover administrative costs for each
transfer. The transaction charge is deducted on a prorated basis from
the divisions from which accumulated value is transferred, unless the
Policyowner directs the Company to deduct the transaction charge from
only one Division. If the transfer of a Policy's entire accumulated
value in a Division is requested, the amount that is transferred will
be the accumulated value in the Division, less any transaction charge.
The Company has reserved the right to revoke or modify transfer
privileges and charges.
4. Right to Exchange Policy and Adjustment Computation Required by Rule
6e-3(T)(b)(13)(v)(B)
Once during the first 24 policy months following the policy date
(except at any time a Policy is in the grace period) the policyowner
may exchange the Policy for a Universal Life insurance policy or any
other policy currently made available by the Company for this purpose
on the insured's life. Such request must be postmarked or delivered to
the home office of the Company before the expiration of 24 months after
the policy date.
The new policy will provide for either the same death benefit or the
same amount at risk as the Policy did at the time of conversion, at the
option of the policyowner. Premiums for the new policy will be based on
the same issue age, sex, and risk classification of the insured under
the Policy. An equitable adjustment in the new policy's payments and
cash or accumulated values will be made to reflect variances, if any,
in the payments and accumulated values under the Policy and the new
conversion policy. If the sum of the premiums paid under the Policy to
date are equal to or greater than the Universal Life minimum premiums
required to meet the no lapse guarantee, no additional payment will be
required from the policyowner. If they are not, a payment by the
policyowner at the date of conversion would be required. Minimum
benefits of the new Policy will be fixed and guaranteed. Policy values
will be determined as of the date written request is received at the
Company's Home Office. Evidence of insurability will not be required.
No charge will be imposed on transfers resulting from the exercise of
this exchange privilege; however, any unpaid policy loans and loan
interest must be repaid prior to the exchange or transferred to the new
conversion Policy. The exchange will be effective upon proper receipt
by the Company of the written request and return of the Policy. The new
conversion Policy will have the same Policy date as the Policy. The
exchange will be subject to any applicable tax consequences related to
such an exchange.
The policyowner may also exchange the Policy for a fixed-benefit, flexible
premium policy in the event of a material change in investment policy of a
Division.
5. Annual Report
Each year a report will be sent to the policyowner which shows the
following:
1. The current death benefit;
2. The current accumulated and surrender values;
3. All premiums paid since the last statement;
4. Any investment gain or loss since the last statement;
5. All charges since the last statement;
6. Any policy loans and loan interest;
7. Any partial surrenders since the last statement;
8. The number of units and unit value; and
9. The total value of each of the policyowner's investment
accounts.
The Company will also send the required confirmation notices.
4/9/96
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
M. Vermeer Andringa
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
R. M. Davis
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
D. J. Drury
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
C. D. Gelatt, Jr.
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
G. D. Hurd
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
T. M. Hutchison
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
C. S. Johnson
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
W. T. Kerr
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
L. Liu
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
V. H. Loewenstein
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
J. R. Price
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
B. A. Rice
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
J-P. C. Rosso
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
D. M. Stewart
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
E. E. Tallett
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
D. D. Thornton
---------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Principal
Mutual Life Insurance Company, an Iowa corporation (the "Company"), hereby
constitutes and appoints D. J. Drury, G. D. Hurd, T. M. Hutchison and F. W.
Weitz, and each of them (with full power to each of them to act alone), the
undersigned's true and lawful attorney-in-fact and agent, with full power of
substitution to each, for and on behalf and in the name, place and stead of the
undersigned, to execute and file any of the documents referred to below relating
to registration under the Securities Act of 1933 with respect to flexible
premium variable life insurance contracts, with premiums received in connection
with such contracts held in the Principal Mutual Life Insurance Company Variable
Life Separate Account on Form S-6 or other forms under the Securities Act of
1933, and any and all amendments thereto and reports thereunder with all
exhibits and all instruments necessary or appropriate in connection therewith,
each of said attorneys-in-fact and agents and his or their substitutes being
empowered to act with or without the others or other, and to have full power and
authority to do or cause to be done in the name and on behalf of the undersigned
each and every act and thing requisite and necessary or appropriate with respect
thereto to be done in and about the premises in order to effectuate the same, as
fully to all intents and purposes as the undersigned might or could do in
person; hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned director has hereunto set his hand this 11th
day of April, 1996.
F. W. Weitz
---------------------------------------------
April 11, 1996
Board of Directors
Principal Mutual Life Insurance Company
The Principal Financial Group
Des Moines, IA 50392
Directors
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 13 to Registration Statement No. 33-13481 on Form S-6
("Registration Statement"), which covers premiums expected to be received under
Flexible Premium Variable Life Insurance Policies ("Policies") offered by
Principal Mutual Life Insurance Company.
In my opinion, the illustrations of accumulated premiums, death benefits,
accumulated values and surrender values for the Policies shown in the Appendix
to the prospectus included in the Registration Statement, based on the
assumptions stated in the illustrations, are consistent with the provisions of
the Policies. The rate structure of the Policies has not been designed so as to
make the relationship between premiums and benefits as shown in these
illustrations appear to be correspondingly more favorable to a prospective
purchaser of a Policy for male, age 35, than the prospective purchasers of the
Policy for females or males at other ages.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Sincerely
LISA HUEBERT
Lisa Huebert
Assistant Actuary
LH:cms/9501
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> DEC-31-1995
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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<INVESTMENTS-AT-VALUE> 402,869
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<SENIOR-EQUITY> 0
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<ACCUM-APPREC-OR-DEPREC> 0
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<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (3,167)
<NET-INVESTMENT-INCOME> 21,466
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 21,466
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (241,562)
<NUMBER-OF-SHARES-SOLD> 120,838
<NUMBER-OF-SHARES-REDEEMED> (138,209)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (220,096)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<EXPENSE-RATIO> 0
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