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PROSPECTUS SUPPLEMENT
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
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VEL II ACCOUNT
(Supplement to Prospectus Dated April 30, 1996
and Revised August 30, 1996)
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PREFERRED LOAN OPTION
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The following is inserted under the Section "LOAN PRIVILEGE" in the SUMMARY
and as the last section under POLICY LOANS:
PREFERRED LOAN OPTION - A preferred loan option is available under the
Policies. The preferred loan option will be available upon written
request. It may be revoked by you at any time. If this option has been
selected, after the tenth policy anniversary Policy Value in the General
Account equal to the loan amount will be credited with interest at an
effective annual yield of at least 7.5%. Our current practice is to credit
a rate of interest equal to the rate being charged for the preferred loan.
There is some uncertainty as to the tax treatment of preferred loans.
Consult a qualified tax adviser (and see "FEDERAL TAX CONSIDERATIONS").
THE PREFERRED LOAN OPTION IS NOT AVAILABLE IN ALL STATES.
The following replaces the third paragraph under "FEDERAL TAX CONSIDERATIONS -
TAXATION OF THE POLICIES":
The Company believes that non-preferred loans received under a Policy will
be treated as indebtedness of the policy owner for federal income tax
purposes. Under current law, these loans will not constitute income for
the Policyowner while the Policy is in force (but see "MODIFIED ENDOWMENT
POLICIES"). However, there is a risk that a preferred loan may be
characterized by the IRS as a withdrawal and taxed accordingly. At the
present time, the IRS has not issued any guidance on whether loans with
the attributes of a preferred loan should be treated differently than a
non-preferred loan. This lack of specific guidance makes the tax
treatment of preferred loans uncertain. In the event IRS guidelines
are issued in the future, you may revoke your request for a preferred
loan.
Section 264 of the Internal Revenue Code restricts the deduction of
interest on Policy loans. Consumer interest paid on Policy loans under an
individually owned Policy is not tax deductible. No tax deduction for
interest is allowed on Policy loans exceeding $50,000 in aggregate, if the
Insured is an officer or employee of, or is financially interested in, any
business carried on by the taxpayer.
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TWELVE TRANSFERS WITHOUT CHARGE
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The sections "SUMMARY - Transfer Charge," "THE POLICY - Transfer Privilege,"
"CHARGES AND DEDUCTIONS - DOLLAR COST AVERAGING OPTION AND AUTOMATIC
REBALANCING OPTION," and "MORE INFORMATION ABOUT THE GENERAL ACCOUNT --
TRANSFERS, SURRENDERS, PARTIAL WITHDRAWALS AND POLICY LOANS," are amended to
indicate that the first twelve transfers of Policy Value in a Policy year,
rather than the first six transfers, will be free of charge.
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VEL 93
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PAID-UP INSURANCE OPTION
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Effective January 6, 1997, upon written request a Policyowner may exercise a
paid-up insurance option. Paid-up life insurance is fixed insurance, usually
having a reduced face amount, for the lifetime of the insured with no further
premiums due. If the Policyowner elects this option, certain Policyowner rights
and benefits may be limited.
The paid-up fixed insurance will be in the amount that the surrender value of
the Policy can purchase for a net single premium at the Insured's age and
underwriting class on the date this option is elected. The Company will
transfer any policy value in the Variable Account to the General Account on the
date it receives the written request to elect the option. If the
surrender value exceeds the net single premium, the Company will pay the excess
to the Policyowner. The net single premium is based on the Commissioners 1980
Standard Ordinary Mortality Tables, Smoker or Non-Smoker (Table B for unisex
policies) with increases in the tables for non-standard risks. Interest will
not be less than 4.5%.
IF THE PAID-UP INSURANCE OPTION IS ELECTED, THE FOLLOWING POLICYOWNER RIGHTS AND
BENEFITS WILL BE AFFECTED:
- - As described above, the paid-up insurance benefit is computed differently
from the net death benefit, and the death benefit options will not apply.
- - The Company will transfer the policy value in the Variable Account to the
General Account on the date it receives the written request to elect the
option. The Company will not allow transfers of policy value from the
General Account back to the Variable Account.
- - The Policyowner may not make further payments.
- - The Policyowner may not increase or decrease the face amount or make
partial withdrawals.
- - Riders will continue only with the Company's consent.
After electing paid-up fixed insurance, the Policyowner may surrender the
Policy for its net cash value. The cash value is equal to the net single
premium for paid-up insurance at the Insured's attained age. The net cash
value is the cash value less any outstanding loans.
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CHANGES IN DIRECTORS AND OFFICERS
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Edward J. Parry III, and J. Barry May have been elected as Directors of the
Company. Mr. Parry has been Vice President and Treasurer of the Company since
1993; Assistant Vice President from 1992 to 1993; and was previously a
Manager, Price Waterhouse, from 1987 to 1992. He is also a Director and
Officer of Allmerica Financial Life Insurance and Annuity Company. Mr. May
has been President of the Hanover Insurance Company since September, 1996. He
previously served as Eastern Regional Vice-President and Regional Vice
President of the New England Region of the Hanover Insurance Company. Mr. May
is also a Director of Allmerica Financial.
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Prospectus Supplement dated November 25, 1996.
