As filed with the Securities and Exchange Commission on April 7, 2000
Registration No. 333-_________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Initial Registration
-----------------
SECURITY LIFE SEPARATE ACCOUNT L1
(Exact Name of Trust)
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)
Copy to:
GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ.
Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP
1290 Broadway 1275 Pennsylvania Avenue, NW
Denver, Colorado 80203-5699 Washington, D.C. 20004-2415
(202) 383-0314
(Name and Address of Agent for Service)
----------------------------
Title of securities being registered: Estate Designer variable life insurance
policies.
Approximate date of proposed public offering: as soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-_________)
Cross-Reference Table
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
1, 2 Cover; Security Life of Denver Insurance Company;
Security Life Separate Account L1
3 Inapplicable
4 Security Life of Denver Insurance Company
5, 6 Security Life Separate Account L1
7 Inapplicable
8 Financial Statements
9 Inapplicable
10(a), (b), (c), (d), (e) Policy Summary; Policy Values, Determining the
Value in the Variable Division;
Charges, Deductions and Refunds;
Surrender; Partial Withdrawals; Guaranteed
Interest Division; Transfers of Account Value;
Right to Exchange Policy; Lapse; Reinstatement;
Premiums
10(f) Voting Privileges; Right to Change Operations
10(g), (h) Right to Change Operations
10(i) Tax Considerations; Detailed Information about the
Estate Designer Policy; General Policy
Provisions; Guaranteed Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges, Deductions and Refunds; and
Group or Sponsored Arrangements, and Corporate
Purchasers
ii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
14, 15 Policy Summary; Free Look Period; General Policy
Provisions; Applying for a Policy
16 Premiums; Investment Date and Allocation of Net
Premiums; How We Calculate Accumulation Unit Values
17 Premium Payments Affect Your Coverage;
Surrender; Partial Withdrawal
18 Policy Summary; Tax Considerations; Detailed
Information about the Variable Policy; Security Life
Account L1; Persistency Refund
19 Reports to Owners; Notification and
Claims Procedures; Performance Information
(Appendix C)
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Security
Life Separate Account L1; Detailed Information
about the Estate Designer Policy
23 Inapplicable
24 Inapplicable
25 Security Life of Denver Insurance Company
26 Inapplicable
27, 28, 29, 30 Security Life of Denver Insurance Company
31, 32, 33, 34 Inapplicable
35 Inapplicable
36 Inapplicable
iii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
37 Inapplicable
38, 39, 40, 41(a) General Policy Provisions; Distribution of
the Policies; Security Life of Denver Insurance
Company
41(b), 41(c), 42, 43 Inapplicable
44 Determining the Value in the Variable Division;
How We Calculate Accumulation Unit Values
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Estate Designer Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Estate Designer
Policy
52 Determining the Value in the Variable Division;
Right to Change Operations
53(a) Tax Considerations
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
iv
<PAGE>
Prospectus
ESTATE DESIGNER
A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
issued by
SECURITY LIFE OF DENVER INSURANCE COMPANY
AND
SECURITY LIFE SEPARATE ACCOUNT L1
Consider carefully the policy charges, deductions, and refunds beginning on page
41 in this prospectus.
You should read this prospectus and keep it for future reference. A prospectus
for each underlying investment portfolio must accompany and should be read
together with this prospectus.
This policy is not available in all jurisdictions. This policy is not offered in
any jurisdiction where this type of offering is not legal. Depending on the
state where it is issued, policy features may vary. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information that is different.
We offer other products to insure the lives of two people which may or may not
better match your needs and interests.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
YOUR POLICY
o is a flexible premium variable joint and survivor universal life
insurance policy;
o is issued on two lives on whom insurance coverage may continue, in
whole or in part, until both have died;
o is issued by Security Life of Denver Insurance Company;
o is guaranteed not to lapse during the first five policy years if you
meet certain requirements; and
o is returnable by you during the free look period if you are not
satisfied.
YOUR PREMIUM PAYMENTS
o are flexible, so the premium amount and frequency may vary;
o are allocated to variable investment options and the guaranteed
interest division, based on your instructions;
o are invested in shares of the underlying investment portfolios under
each variable investment option; and
o can be invested in as many as eighteen investment options over the
policy's lifetime.
YOUR ACCOUNT VALUE
o is the sum of your holdings in the variable division, the guaranteed
interest division and the loan division;
o has no guaranteed minimum cash surrender value under the variable
division. The value varies with the value of the underlying
investment portfolio;
o has a minimum guaranteed rate of return for amounts in the guaranteed
interest division; and
o is subject to specified expenses and charges.
DEATH PROCEEDS
o are paid if the policy is still in force at the second death of the
two insured people;
o are equal to the death benefit minus an outstanding policy loan,
accrued loan interest and unpaid charges incurred before the second
insured person dies;
o are calculated under your choice of options;
* Option 1- a fixed minimum death benefit
* Option 2- a stated death benefit plus your account value;
* Option 3- a stated death benefit plus the sum of the premiums we
receive minus partial withdrawals; and
o are generally not federally income taxed if your policy continues to
meet the federal income tax definition of life insurance.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY
INSURED OR BACKED BY ANY BANK OR GOVERNMENT AGENCY.
DATE OF PROSPECTUS MAY 1, 2000
<PAGE>
ISSUED BY: Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc.
Insurance Company 1290 Broadway
ING Security Life Center Denver, CO 80203-5699
1290 Broadway (303) 860-2000
Denver, CO 80203-5699
(800) 525-9852
THROUGH ITS: Security Life Separate Account L1
ADMINISTERED BY: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362
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Estate Designer 2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY.................................................................4
Your Policy..............................................................4
Free Look Period.........................................................4
Premium Payments.........................................................4
Charges and Deductions...................................................4
Guaranteed Interest Division.............................................6
Policy Values............................................................7
Transfers of Account Value...............................................7
Special Policy Features..................................................7
Policy Modification, Termination and Continuation Features...............8
Death Benefits...........................................................8
Tax Considerations.......................................................8
SECURITY LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT OPTIONS..............................................11
Security Life of Denver Insurance Company...............................11
Security Life Separate Account L1.......................................11
Investment Portfolio Objectives.........................................12
Guaranteed Interest Division............................................15
Maximum Number of Investment Options....................................15
DETAILED INFORMATION ABOUT THE
ESTATE DESIGNER POLICY..................................................16
Applying for a Policy...................................................16
Temporary Insurance.....................................................16
Premiums................................................................17
Premium Payments Affect Your Coverage...................................19
Death Benefits..........................................................20
Riders..................................................................24
Special Features........................................................26
Policy Values...........................................................28
Transfers of Account Value..............................................29
Dollar Cost Averaging...................................................30
Automatic Rebalancing...................................................31
Policy Loans............................................................32
Partial Withdrawals.....................................................33
Lapse...................................................................34
Reinstatement...........................................................35
Surrender...............................................................35
General Policy Provisions...............................................35
Free Look Period...................................................35
Your Policy........................................................36
Age ..............................................................36
Ownership..........................................................36
Beneficiary(ies)...................................................36
Collateral Assignment..............................................37
Incontestability...................................................37
Misstatements of Age or Gender.....................................37
Suicide............................................................37
Transaction Processing.............................................37
Notification and Claims Procedures.................................38
Telephone Privileges...............................................38
Non-participation..................................................38
Distribution of the Policies.......................................38
Advertising Practices and Sales Literature.........................39
Settlement Provisions..............................................39
Administrative Information About the Policy.............................40
CHARGES, DEDUCTIONS AND REFUNDS...............................................41
Deductions from Premiums................................................42
Other Charges...........................................................42
Daily Deductions from the Separate Account..............................42
Monthly Deductions from Account Value...................................43
Policy Transaction Fees.................................................44
Persistency Refund......................................................45
Group or Sponsored Arrangements or Corporate Purchasers.................45
TAX CONSIDERATIONS............................................................46
Tax Status of the Policy................................................46
Diversification Requirements............................................46
Tax Treatment of Policy Death Benefits..................................47
Modified Endowment Contracts............................................47
Multiple Policies.......................................................47
Distributions Other than Death Benefits from
Modified Endowment Contracts.......................................47
Distributions Other than Death Benefits from Policies That Are Not
Modified Endowment Contracts.......................................48
Investment in the Policy................................................48
Policy Loans............................................................48
Section 1035 Exchanges..................................................48
Tax-exempt Policy Owners................................................48
Possible Tax Law Changes................................................48
Changes to Comply with the Law..........................................48
Other...................................................................49
ILLUSTRATIONS.................................................................50
ADDITIONAL INFORMATION........................................................54
Directors and Officers..................................................54
Regulation..............................................................55
Legal Matters...........................................................55
Legal Proceedings.......................................................55
Experts.................................................................55
Registration Statement..................................................55
INDEX OF SPECIAL TERMS........................................................56
FINANCIAL STATEMENTS..........................................................57
APPENDIX A....................................................................58
APPENDIX B....................................................................59
APPENDIX C....................................................................60
- --------------------------------------------------------------------------------
Estate Designer 3
<PAGE>
POLICY SUMMARY
YOUR POLICY
Your policy provides life insurance protection on the lives of two insured
people and insurance coverage may continue until both have died. The policy
includes the basic policy, applications, and any riders or endorsements. As long
as the policy remains in force, we pay a death benefit after the second death of
the insured people. While your policy is in force, you may access a portion of
your policy value by taking loans or partial withdrawals. You may surrender your
policy for its net cash surrender value. At the policy anniversary nearest the
younger insured person's 100th birthday you may elect to continue the policy
under the continuation of coverage option. SEE CONTINUATION OF COVERAGE, PAGE
27.
Life insurance is not a short-term investment. You should evaluate your need for
life insurance coverage and this policy's long-term investment potential and
risks before purchasing a policy.
FREE LOOK PERIOD
Within limits as specified by state law, you have the right to examine your
policy and return it for a refund of all premium payments we have received from
you or the account value, if you are not satisfied for any reason. The policy is
then void. SEE FREE LOOK PERIOD, PAGE 35.
PREMIUM PAYMENTS
The policy is a flexible premium policy because the amount and frequency of the
premium payments you make may vary within limits. You must make premium
payments:
o for us to issue your policy;
o sufficient to keep your policy in force; and
o as necessary to continue certain benefits.
The amount of premium you pay affects the length of time your policy stays in
force. SEE PREMIUMS, PAGE 17.
ALLOCATION OF NET PREMIUMS
This policy has premium-based charges which are subtracted from your payments.
We add the balance, or net premium, to your policy based on your investment
instructions. You may allocate the net premium among one or more variable
investment options and the guaranteed interest division. SEE ALLOCATION OF NET
PREMIUMS, PAGE 18.
CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUMS
SALES CHARGE -- We deduct a percentage of each premium to cover a portion of our
expenses in selling your policy. This charge is based on the length of time
since your policy or a segment became effective.
Sales Charge Percentage
Policy or Up To Policy or Above Policy or
Segment Segment Segment
Year Target Premium Target Premium
---- -------------- --------------
1 8% 4%
2 - 7 8% 1.5%
8 + 1.5% 1.5%
SEE DEDUCTIONS FROM PREMIUMS, PAGE 42.
- --------
This summary highlights some important points about your policy. The policy is
more fully described in the attached, complete prospectus. Please read it
carefully. "We," "us," "our" and the "company" refer to Security Life of Denver
Insurance Company. "You" and "your" refer to the policy owner. The owner is the
individual, entity, partnership, representative or party who may exercise all
rights over the policy and receive the policy benefits during the insured
people's lifetimes.
State variations are covered in a special policy form used in that state. This
prospectus provides a general description of the policy. Your actual policy and
any riders are the controlling documents. If you would like to review a copy of
the policy and riders, contact our customer service center, your agent or
registered representative.
- --------------------------------------------------------------------------------
Estate Designer 4
<PAGE>
We take these deductions:
CHARGES
Other Than Investment Portfolio Annual Expenses and Sales Charge
(SEE CHARGES, DEDUCTION AND REFUNDS, PAGE 41)
<TABLE>
<CAPTION>
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
<S> <C> <C>
Tax Charges Each premium payment received 2.5% for state and local taxes; 1.5%
for estimated federal income tax
treatment of deferred acquisition
costs.
Mortality & Expense Risk Daily, included in unit value 0.002055% daily (0.75% annually)
Charge
Policy Charge Monthly from account value $15 per month for first ten policy
years and $9 per month thereafter.
Monthly Administrative Charge Monthly from account value $0.06-$0.15 per $1,000 death benefit
for the first ten policy years, $0.01-
$0.025 per $1,000 death benefit for
each policy year thereafter. See your
policy schedule pages.
Cost of Insurance Charge Monthly from account value Varies based on current cost of
insurance rates and net amount at risk
on the lives of the insured people.
See your policy schedule pages.
Rider Charges Monthly from account value Varies depending on the rider benefit
you choose, except the adjustable term
insurance rider.
Partial Withdrawal Fee Transaction date from account Up to $25
value
Transfer Fee Transaction date from account Twelve free transfers per policy year,
value then $25 per transfer.
Illustrations Transaction date from account One free illustration per policy year,
value then a $25 fee may apply.
Premium Allocation Change Transaction date from account Twelve free premium allocation
value changes per policy year, then $25 per
change.
Continuation of Coverage Policy anniversary nearest One-time $400 administrative fee.
younger insured person's 100th
birthday from account value
</TABLE>
VARIABLE DIVISION
If you invest in any of the variable investment options under the variable
division, you may make or lose money depending on market conditions. The
variable investment options are described in the prospectuses for the underlying
investment portfolios. Each investment portfolio has its own investment
objective. SEE OBJECTIVES OF THE INVESTMENT PORTFOLIOS, PAGE 12.
FEES AND EXPENSES OF THE INVESTMENT PORTFOLIOS
[TO BE UPDATED BY AMENDMENT.]
The separate account purchases shares of the underlying investment portfolios,
or series, at net asset value. This price reflects investment management fees
and other expenses that are deducted from the portfolio assets. This table
describes these fees and expenses in gross amounts and in net amounts after any
expenses or fees have
- --------------------------------------------------------------------------------
Estate Designer 5
<PAGE>
been waived or reimbursed by the investment portfolio advisers.
[TO BE UPDATED BY AMENDMENT]
INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
Fees and
Investment Total Expenses Total Net
Management Other Portfolio Waived or Portfolio
Portfolio Fees Expenses Expenses Reimbursed Expenses
--------- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund % % % NA %
AIM V.I. Government Securities Fund % % % NA %
THE ALGER AMERICAN FUND
Alger American Growth Portfolio % % % NA %
Alger American Leveraged AllCap Portfolio % % % NA %
Alger American MidCap Growth Portfolio % % % NA %
Alger American Small Capitalization Portfolio % % % NA %
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio % % % NA %
VIP Money Market Portfolio % % % NA %
VIP Overseas Portfolio % % % NA %
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager Portfolio % % % NA %
VIP II Index 500 Portfolio % % % % %
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-Equity Income Fund
(formerly VIF-Industrial Income Portfolio) % % % % %
INVESCO VIF-High Yield Fund % % % NA %
INVESCO VIF-Small Company Growth Fund % % % % %
INVESCO VIF-Total Return Fund % % % % %
INVESCO VIF-Utilities Fund % % % % %
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Growth Portfolio % % % NA %
Limited Maturity Bond Portfolio % % % NA %
Partners Portfolio % % % NA %
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund % % % NA %
Worldwide Emerging Markets Fund % % % % %
Worldwide Hard Assets Fund % % % NA %
Worldwide Real Estate Fund % % % % %
</TABLE>
GUARANTEED INTEREST DIVISION
The guaranteed interest division guarantees principal and is part of our general
account. Any amount you direct into the guaranteed interest division is credited
with interest at a fixed rate. SEE GUARANTEED INTEREST DIVISION, PAGE 15.
- --------------------------------------------------------------------------------
Estate Designer 6
<PAGE>
POLICY VALUES
Your policy account value is the amount you have in the guaranteed interest
division, plus the amount you have in each variable investment option. If you
have an outstanding policy loan, your account value includes the amount in the
loan division. SEE POLICY VALUES, PAGE 28 AND PARTIAL WITHDRAWALS, PAGE 33.
YOUR ACCOUNT VALUE IN THE VARIABLE DIVISION
Accumulation units are the way we measure value in the variable division.
Accumulation unit value is the value of one unit of a variable investment option
on a valuation date. Each variable investment option has a different
accumulation unit value. SEE DETERMINING THE VALUE IN THE VARIABLE DIVISION,
PAGE 28.
The accumulation unit value for each variable investment option reflects the
investment performance of the underlying investment portfolio during the
valuation period. Each accumulation unit value reflects asset-based charges
under the policy and the expenses of the investment portfolios. SEE DETERMINING
THE VALUE IN THE VARIABLE DIVISION, PAGE 28 AND HOW WE CALCULATE ACCUMULATION
UNIT VALUES, PAGE 29.
TRANSFERS OF ACCOUNT VALUE
With some limitations, you may make twelve free transfers among the variable
investment options or to the guaranteed interest division each policy year. We
charge $25 for each transfer over twelve in a policy year. SEE TRANSFERS OF
ACCOUNT VALUE, PAGE 29 AND POLICY TRANSACTION FEES, PAGE 44.
SPECIAL POLICY FEATURES
DESIGNATED DEDUCTION OPTION
You may designate one investment option from which we will deduct all of your
monthly deductions. SEE DESIGNATED DEDUCTION INVESTMENT OPTION, PAGE 26.
RIDERS
You may attach additional benefits to your policy by rider. In most cases, we
deduct a monthly charge from your account value for these benefits. SEE RIDERS,
PAGE 24.
DOLLAR COST AVERAGING
Dollar cost averaging is a systematic plan of transferring account values to
selected investment options. It is intended to protect your policy's value from
short-term price fluctuations. However, dollar cost averaging does not assure a
profit, nor does it protect against a loss in a declining market. Dollar cost
averaging is free. SEE DOLLAR COST AVERAGING, PAGE 30.
AUTOMATIC REBALANCING
Automatic rebalancing periodically reallocates your net account value among your
selected investment options to maintain your specified distribution of account
value among those investment options. Automatic rebalancing is free. SEE
AUTOMATIC REBALANCING, PAGE 31.
LOANS
You may take loans against your policy's net account value. We charge an annual
loan interest rate of 3.75%. We credit an annual interest rate of 3% on amounts
held in the loan division as collateral for your loan. Beginning in your
eleventh policy year, where permitted by state law, we may include amounts in
the loan division for calculation of your policy's persistency refund. SEE
POLICY LOANS, PAGE 32.
PARTIAL WITHDRAWALS
You may withdraw part of your net account value any time after your first policy
anniversary. You may make only one partial withdrawal per policy year. Partial
withdrawals may reduce your policy's death benefit and will reduce your account
value. SEE PARTIAL WITHDRAWALS, PAGE 33.
PERSISTENCY REFUND
After your tenth policy anniversary, where permitted by state law, we add a
persistency refund to your account value. SEE PERSISTENCY REFUND, PAGE 45.
REFUND OF SALES CHARGE
We guarantee that if you surrender your policy within the first two policy years
and it has not lapsed, we will refund some of the sales charge we
- --------------------------------------------------------------------------------
Estate Designer 7
<PAGE>
previously deducted from the premiums we received in your first policy year. SEE
REFUND OF SALES CHARGE, PAGE 45.
POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES
RIGHT TO EXCHANGE POLICY
For 24 months after the policy date you may exchange your policy for a
guaranteed policy, unless state law requires differently. The transfer to make
this exchange is free. SEE RIGHT TO EXCHANGE POLICY, PAGE 27.
POLICY SPLIT OPTION
Under certain circumstances, you may split your policy into two separate life
insurance policies each insuring the life of one insured person. This split may
occur upon divorce between the two insured people, business dissolution, or a
possible adverse future change in the tax law, unless state law requires
otherwise. The policy split option is free. SEE POLICY SPLIT OPTION, PAGE 26.
SURRENDER
You may surrender your policy for its net cash surrender value at any time
before the second death of the insured people. All insurance coverage ends on
the date we receive your request. SEE SURRENDER, PAGE 35.
LAPSE
In general, insurance coverage continues as long as your net account value is
enough to pay the monthly deductions. However, your policy and its riders are
guaranteed not to lapse during the first five years of your policy if the
conditions of the special continuation period have been met. SEE LAPSE, PAGE 34
AND SPECIAL CONTINUATION PERIOD, PAGE 18.
REINSTATEMENT
You may reinstate your policy and its riders within five years of its lapse if
you still own the policy and the insured people meet our underwriting
requirements.
You will need to give proof of insurability as at policy issue. You will also
need to pay required reinstatement premiums.
If you had a policy loan existing when coverage ended, we will reinstate it with
accrued loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 35.
POLICY MATURITY
If at least one of the insured people is still living on the maturity date of
the policy anniversary nearest the younger insured person's 100th birthday and
you do not choose the continuation of coverage feature, you must surrender your
policy. We will pay the net account value. Your policy then ends. SEE POLICY
MATURITY, PAGE 27.
CONTINUATION OF COVERAGE
At the policy anniversary nearest the younger insured person's 100th birthday,
you may choose to let the continuation of coverage feature become effective. If
you do so, we will deduct a one-time administrative fee of $400 and keep your
policy in force. SEE CONTINUATION OF COVERAGE, PAGE 27.
DEATH BENEFITS
After the second death of the two insured people, we pay death proceeds to the
beneficiary(ies) if your policy is still in force. Based on the death benefit
option you have chosen, the base death benefit varies.
We generally require a minimum target death benefit of $500,000 to issue your
policy. If you have an adjustable term insurance rider, the minimum base
coverage required is $1,000 so long as the target death benefit is $500,000. SEE
APPLYING FOR A POLICY, PAGE 16 AND DEATH BENEFITS, PAGE 20.
You may change your death benefit amount while your policy is in force, subject
to certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
TAX CONSIDERATIONS
Under current federal income tax law, death benefits of life insurance policies
generally are not subject to income tax. In order for this treatment to apply,
the policy must qualify as a life insurance contract. We believe it is
reasonable to conclude that the policy will qualify as a life insurance
contract. SEE TAX STATUS OF THE POLICY, PAGE 46.
- --------------------------------------------------------------------------------
Estate Designer 8
<PAGE>
Assuming the policy qualifies as a life insurance contract under current federal
income tax law, your account value earnings are generally not subject to income
tax as long as they remain within your policy. However depending on
circumstances, the following events may cause taxable consequences for you:
o partial withdrawals;
o surrender; or
o lapse.
In addition, if your policy is a modified endowment contract, a loan against or
secured by the policy may cause income taxation. A penalty tax may be imposed on
a distribution from a modified endowment contract as well. SEE MODIFIED
ENDOWMENT CONTRACTS, PAGE 47.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
You should consult a qualified legal or tax adviser before you purchase your
policy.
- --------------------------------------------------------------------------------
Estate Designer 9
<PAGE>
How the Policy Works
<TABLE>
<S> <C> <C>
YOUR PREMIUM Premium Deductions
You make a premium ---------------------------->
payment
o sales charge
o tax charges
<----------------------------
NET PREMIUM
We allocate the net
premium to the investment
options you choose
|
|
-----------------------------------------
| |
\/ \/
GUARANTEED VARIABLE INVESTMENT INVESTMENT PORTFOLIOS The investment
INTEREST DIVISION OPTIONS The variable investment manager deducts
Amounts you allocate Amounts you allocate are <-- options invest in investment
are held in our general account held in our separate account --> investment portfolios ------> management fees
| | and other
----------------------------------------- portfolio expenses
|
|
o persistency refund |
o refund of sales Refunds |
charge (if ------------>| Monthly Deductions o policy charge
surrendered in years | ---------------------> o cost of insurance
1 - 3) | | charge
| | o monthly administrative
\/ | charge
ACCUMULATED VALUE | o rider charges
The total value of your --|
policy |
| | Separate Account
| | Deductions
| |---------------------> o mortality and expense
\/ | risk charge
LOAN DIVISION |
Amount set aside to |
secure a policy loan |
|
| Transaction Fees o partial withdrawal fee
---------------------> o transfer fee
o illustration fee
o premium allocation
change charge
o continuation of
coverage fee
</TABLE>
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Estate Designer 10
<PAGE>
SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
SECURITY LIFE OF DENVER INSURANCE COMPANY
Security Life of Denver Insurance Company (Security Life) is a stock life
insurance company organized under the laws of the State of Colorado in 1929. Our
headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699. We are
admitted to do business in the District of Columbia and all states except New
York. At the close of 1999, the company and its consolidated subsidiaries had
over $XXX.X billion of life insurance in force. As of December 31, 1999, our
total assets were over $XX.X billion, and our shareholder's equity was over $XXX
million.
We have a complete line of life insurance products, including:
o annuities;
o individual life;
o group life;
o pension products; and
o market life reinsurance.
Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING").
ING is one of the world's three largest diversified financial services
organizations. ING is headquartered in Amsterdam, The Netherlands. It has
consolidated assets over $XXX.X billion on a Dutch (modified U.S.) generally
accepted accounting principles basis, as of December 31, 1999.
The principal underwriter and distributor for our policies is ING America
Equities, Inc. ING America Equities is a stock corporation organized under the
laws of the State of Colorado in 1993. It is a wholly owned subsidiary of
Security Life and is registered as a broker-dealer with the SEC and the NASD.
ING America Equities, Inc. is located at 1290 Broadway, Denver, Colorado
80203-5699.
SECURITY LIFE SEPARATE ACCOUNT L1
SEPARATE ACCOUNT STRUCTURE
We established Security Life Separate Account L1 (the separate account) on
November 3, 1993, under Colorado's insurance law. It is a unit investment trust,
registered with the SEC under the Investment Company Act of 1940. The SEC does
not supervise our management of the separate account or Security Life.
The separate account is used to support our variable life insurance policies and
for other purposes allowed by law and regulation. We keep the separate account
assets separate from our general account and other separate accounts. We may
offer other variable life insurance contracts with different benefits and
charges that invest in the separate account. We do not discuss these contracts
in this prospectus. The separate account may invest in other securities not
available for the policy described in this prospectus.
The company owns all the assets in the separate account. We credit gains to or
charge losses against the separate account without regard to performance of
other investment accounts.
ORDER OF SEPARATE ACCOUNT LIABILITIES
State law provides that we may not charge general account liabilities against
separate account assets equal to its reserves and other liabilities. This means
that if we ever become insolvent, the separate account assets will be used first
to pay separate account policy claims. Only if separate account assets remain
after these claims have been satisfied can these assets be used to pay other
policy owners and creditors.
The separate account may have liabilities from assets credited to other variable
life policies offered by the separate account. If the assets of the separate
account are greater than required reserves and policy liabilities, we may
transfer the excess to our general account.
INVESTMENT OPTIONS
Investment options include the variable and the guaranteed interest divisions,
but not the loan division. The separate account has several variable investment
options which invest in shares of underlying investment portfolios. This means
that the investment performance of a policy depends on the performance of the
investment portfolios you choose. Each investment portfolio has its own
- --------------------------------------------------------------------------------
Estate Designer 11
<PAGE>
investment objective. These investment portfolios are not available directly to
individual investors. They are available only as underlying investments for
variable annuity and variable life insurance contracts and certain pension
accounts.
INVESTMENT PORTFOLIOS
Each of the investment portfolios is a separate series of an open-end management
investment company. The investment company receives investment advice from a
registered investment adviser who is not associated with us.
The investment portfolios sell shares to separate accounts of insurance
companies. These insurance companies may or may not be affiliated with us. This
is known as "shared funding." Investment portfolios may sell shares as the
underlying investment for both variable annuity and variable life insurance
contracts. This process is known as "mixed funding."
The investment portfolios may sell shares to certain qualified pension and
retirement plans that qualify under Section 401 of the Internal Revenue Code
("IRC"). As a result, a material conflict of interest may arise between
insurance companies, owners of different types of contracts and retirement
plans, or their participants.
If there is a material conflict, we will consider what should be done, including
removing the investment portfolio from the separate account. There are certain
risks with mixed and shared funding, and with selling shares to qualified
pension and retirement plans. See the investment portfolios' prospectuses.
INVESTMENT PORTFOLIO OBJECTIVES
Each investment portfolio has a different investment objective that it tries to
achieve by following its own investment strategy. The objectives and policies of
each investment portfolio affect its return and its risks. With this prospectus,
you must receive the current prospectus for each investment portfolio. We
summarize the investment objectives for each investment portfolio here. You
should read each investment portfolio prospectus.
Certain investment portfolios offered under this policy have investment
objectives and policies similar to other funds managed by the portfolio's
investment adviser. The investment results of a portfolio may be higher or lower
than those of other funds managed by the same adviser. There is no assurance and
no representation is made that the investment results of any investment
portfolio will be comparable to those of another fund managed by the same
investment adviser.
Some investment portfolio advisers (or their affiliates) may pay us compensation
for servicing, administration or other expenses. The amount of compensation is
usually based on the aggregate assets of the investment portfolio from contracts
that we issue or administer. Some advisers may pay us more or less than others.
INVESTMENT PORTFOLIO OBJECTIVES
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
<S> <C> <C>
V.I. Capital Appreciation Fund AIM Variable Insurance Seeks growth of capital through investment in common
Funds, Inc./ AIM Advisors, stocks, with emphasis on medium- and small-sized
Inc. growth companies.
V.I. Government Securities AIM Variable Insurance Seeks to achieve high current income consistent with
Fund Funds, Inc./ AIM Advisors, reasonable concern for safety of principal by investing in
Inc. debt securities issued, guaranteed or otherwise backed
by the United States Government.
</TABLE>
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Estate Designer 12
<PAGE>
INVESTMENT PORTFOLIO OBJECTIVES
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
<S> <C> <C>
American Growth Portfolio The Alger American Fund Seeks long-term capital appreciation by focusing on
growing companies that generally have broad product
lines, markets, financial resources and depth of
management.
American Leveraged AllCap The Alger American Fund Seeks long-term capital appreciation by investing in the
Portfolio equity securities of companies of any size which
demonstrate promising growth potential.
American MidCap Growth The Alger American Fund Seeks long-term capital appreciation by focusing on
Portfolio midsize companies with promising growth potential.
American Small Capitalization The Alger American Fund Seeks long-term capital appreciation by focusing on
Portfolio small, fast-growing companies that offer innovative products,
services or technologies to a rapidly expanding marketplace.
VIP Growth Portfolio Fidelity Variable Insurance Seeks capital appreciation by investing in common
Products Fund and Variable stocks of companies that it believes have above-average growth
Insurance Products Fund II/ potential, either domestic or foreign issuers.
Fidelity Management &
Research Company
VIP Money Market Portfolio Fidelity Variable Insurance Seeks as high a level of current income as is consistent
Products Fund and Variable with the preservation of capital and liquidity by investing
Insurance Products Fund II/ in U.S. dollar-denominated money market securities,
Fidelity Management & including U.S. Government securities and repurchase
Research Company agreements, and entering into reverse repurchase
agreements.
VIP Overseas Portfolio Fidelity Variable Insurance Seeks long-term growth of capital by investing at least
Products Fund and Variable 65% of total assets in foreign securities.
Insurance Products Fund II/
Fidelity Management &
Research Company
VIP II Asset Manager Portfolio Fidelity Variable Insurance Seeks high total return with reduced risk over the long
Products Fund and Variable term by allocating its assets among stocks, bonds, and
Insurance Products Fund II/ short-term instruments.
Fidelity Management &
Research Company
VIP II Index 500 Portfolio Fidelity Variable Insurance Seeks investment results that correspond to the total
Products Fund and Variable return of common stocks publicly traded in the United
Insurance Products Fund II/ States as represented by the S&P(R)500.
Fidelity Management
Research Company/ Bankers
Trust Company
</TABLE>
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Estate Designer 13
<PAGE>
INVESTMENT PORTFOLIO OBJECTIVES
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
<S> <C> <C>
VIF-Equity Income Fund INVESCO Variable Seeks high current income, with growth of capital as a
Investment Funds, Inc./ secondary objective by investing at least 65% of its
INVESCO Funds Group, assets in dividend-paying common and preferred stocks.
Inc. The rest of the fund's assets are invested in debt
securities, and lower-grade debt securities.
VIF-High Yield Fund INVESCO Variable Seeks to provide a high level of current income by
Investment Funds, Inc./ investing substantially all of its assets in lower-rated debt
INVESCO Funds Group, securities and preferred stock, including securities issued
Inc. by foreign companies.
VIF-Small Company Growth INVESCO Variable Seeks investment growth over the long term by investing
Fund Investment Funds, Inc./ at least 80% of its assets in equity securities of
INVESCO Funds Group, companies with market capitalizations of $1 billion or
Inc. less. The remainder of the fund's assets can be invested
in a wide range of securities that may or may not be
issued by small companies.
VIF-Total Return Fund INVESCO Variable Seeks to provide high total return through both growth
Investment Funds, Inc./ and current income by investing at least 30% of its assets
INVESCO Capital in common stocks of companies with a strong history of
Management, Inc. paying regular dividends and 30% of its assets in debt
securities. The remaining 40% of the fund is allocated
among these and other investments at INVESCO's discretion,
based upon current business, economic and market
conditions.
VIF-Utilities Fund INVESCO Variable Seeks capital appreciation and income by investing at
Investment Funds, Inc./ least 80% of its assets in companies doing business in
INVESCO Capital the utilities economic sector. The remainder of the
Management, Inc. fund's assets are not required to be invested in the
utilities economic sector.
Growth Portfolio Neuberger Berman Advisers Seeks growth of capital by investing mainly in common
Management Trust/ mid-capitalization companies.
Neuberger Berman
Management Inc./ Neuberger
Berman, LLC
Limited Maturity Bond Neuberger Berman Advisers Seeks the highest available current income consistent
Portfolio Management Trust/ with liquidity and low risk to principal by investing
Neuberger Berman mainly in investment-grade bonds and other debt
Management Inc./ Neuberger securities from U.S. Government and corporate issuers.
Berman, LLC
Partners Portfolio Neuberger Berman Advisers Seeks growth of capital by investing mainly in common
Management Trust/ stocks of mid- to large-capitalization companies.
Neuberger Berman
Management Inc./ Neuberger
Berman, LLC
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 14
<PAGE>
INVESTMENT PORTFOLIO OBJECTIVES
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
<S> <C> <C>
Worldwide Bond Fund Van Eck Worldwide Seeks high total return--income plus capital
Insurance Trust/ Van Eck appreciation--by investing globally, primarily in a
Associates Corporation variety of debt securities
Worldwide Emerging Markets Van Eck Worldwide Seeks long term capital appreciation by investing in
Fund Insurance Trust/ Van Eck equity securities in emerging markets around the world.
Associates Corporation
Worldwide Hard Assets Fund Van Eck Worldwide Seeks long term capital appreciation by investing
Insurance Trust/ Van Eck primarily in "hard asset securities." Hard assets include
Associates Corporation precious metals, natural resources, real estate and
commodities. Income is a secondary consideration.
Worldwide Real Estate Fund Van Eck Worldwide Seeks high total return by investing in equity securities
Insurance Trust/Van Eck of companies that own significant real estate or that
Associates Corporation principally do business in real estate.
</TABLE>
GUARANTEED INTEREST DIVISION
You may allocate all or a part of your net premium and transfer your net account
value into the guaranteed interest division. The guaranteed interest division
guarantees principal and is part of our general account. It pays interest at a
fixed rate that we declare.
The general account contains all of our assets other than those held in the
separate account (variable investment options) or other separate accounts.
The general account supports our non-variable insurance and annuity obligations.
We have not registered interests in the guaranteed interest division under the
Securities Act of 1933. Also, we have not registered the guaranteed interest
division or the general account as an investment company under the Investment
Company Act of 1940 (because of exemptive and exclusionary provisions). This
means that the general account, the guaranteed interest division and its
interests are generally not subject to regulation under these Acts.
The SEC staff has not reviewed the disclosures in this prospectus relating to
the general account and the guaranteed interest division. These disclosures,
however, may be subject to certain requirements of the federal securities law
regarding accuracy and completeness of statements made.
The amount you have in the guaranteed interest division is all of the net
premium you allocate to that division, plus transfers you make to the guaranteed
interest division plus interest earned.
Amounts you transfer out of or withdraw from the guaranteed interest division
reduce this amount. It is also reduced by deductions for charges from your
account value allocated to the guaranteed interest division.
We declare the interest rate that applies to all amounts in the guaranteed
interest division. This interest rate is never less than the minimum guaranteed
interest rate of 3% and will be in effect for at least twelve months. Interest
compounds daily at an effective annual rate that equals the declared rate. We
credit interest to the guaranteed interest division on a daily basis. We pay
interest regardless of the actual investment performance of our account. We bear
all of the investment risk for the guaranteed interest division.
MAXIMUM NUMBER OF INVESTMENT OPTIONS
There are three divisions: the variable division, the
- --------------------------------------------------------------------------------
Estate Designer 15
<PAGE>
guaranteed interest division and the loan division. Under the variable division,
there are numerous variable investment options. SEE SECURITY LIFE SEPARATE
ACCOUNT L1, PAGE 11 AND INVESTMENT PORTFOLIO OBJECTIVES , PAGE 12.
You may invest in a total of eighteen investment options over the life of your
policy. Investment options include the variable and the guaranteed interest
divisions, but not the loan division.
As an example, if you have had funds in seventeen variable investment options
and the guaranteed interest division, these are the only investment options to
which you may later add or transfer funds. However, you could still take a
policy loan and access the loan division.
You may want to use fewer investment options in the early years of your policy,
so that you can invest in others in the future. If you invest in eighteen
variable investment options, you will not be able to invest in the guaranteed
interest division.
DETAILED INFORMATION ABOUT THE ESTATE DESIGNER POLICY
This prospectus describes our standard Estate Designer universal life insurance
policy. There may be differences in the policy because of state requirements
where we issue your policy. We will describe any such differences in your
policy.
The illustrations beginning on page 50 show how the policies work.
We offer other products to insure the lives of two people which may or may not
better match your needs and interests.
APPLYING FOR A POLICY
You purchase this variable universal life policy by submitting an application to
us. On the policy date, the joint equivalent age of the two insured people must
be no less than 15 and no more than age 85. The individual age of each insured
person must be no more than 90 years of age on the policy date. There is no
maximum age difference between the two insured people.
The insured people are the two people on whose lives we issue the policy. The
insured people share some relationship and commonly include, among others:
husband and wife; business partners; parent and child; grandparent and
grandchild; and siblings. Upon the second death of the insured people we pay the
death proceeds. SEE AGE, PAGE 36.
You may request that we back-date the policy up to six months to allow either or
both of the insured people to give proof of a younger age for the purposes of
your policy.
We may reduce the minimum death benefit for group or sponsored arrangements or
corporate purchasers. Our underwriting and reinsurance procedures in effect at
the time you apply limit the maximum death benefit.
TEMPORARY INSURANCE
If you apply and qualify, we may issue temporary insurance in an amount equal to
the face amount of the permanent insurance for which you applied. The maximum
amount of temporary insurance for binding limited life insurance coverage is $3
million, which includes any other in-force coverage you have with us.
Temporary coverage begins when:
1. you have completed and signed our binding limited life insurance
coverage form;
2. we receive and accept a premium payment of at least your scheduled
premium (selected on your application); and
3. part I of the application is complete.
Temporary life insurance coverage ends on the earliest of:
o the date we return your premium payments;
o five days after we mail notice of termination to the address on your
application;
o the date your policy coverage starts;
o the date we refuse to issue a policy based on your application; or
o 90 days after you sign our binding limited life insurance coverage
form.
There is no death benefit under the temporary insurance agreement if:
- --------------------------------------------------------------------------------
Estate Designer 16
<PAGE>
o there is a material misrepresentation in your answers on the binding
limited life insurance coverage form;
o there is a material misrepresentation in statements on your
application;
o the person or persons intended to be the insured people die by
suicide or self-inflicted injury; or
o the bank does not honor your premium check.
POLICY ISSUANCE
Before we issue a policy, we require satisfactory evidence of insurability of
both insured people and payment of your initial premium. This evidence may
include a medical examination and completion of all underwriting and issue
requirements.
The policy date shown on your policy schedule determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
It is not affected by the date you receive the policy. The policy date may be
different from the date we receive your first premium payment. If the policy
date is earlier, we charge monthly deductions from the date we receive your
initial premium.
The policy date is determined one of three ways:
1. the date you designate on your application, subject to our approval;
or
2. the back-date of the policy to save age, subject to our approval and
state law.
3. if there is no designated date or back-date, the policy date is:
o the date all underwriting and administrative requirements have
been met if we receive your initial premium before we issue your
policy; or
o the date we receive your initial premium if it is after we
approve your policy for issue.
DEFINITION OF LIFE INSURANCE
We apply a test to make sure that your policy meets the federal tax definition
of life insurance. The guideline premium/cash value corridor test applies to
your policy. We may limit premium payments relative to your policy death benefit
under this test. SEE TAX STATUS OF THE POLICY, PAGE 46.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits. You
cannot make premium payments after the second death of the insured people or
after the continuation of coverage period begins. SEE CONTINUATION OF COVERAGE,
PAGE 27.
We consider any payment we receive to be a premium if you do not have an
outstanding loan and your policy is not in the continuation of coverage period.
After we deduct certain expenses from your premium payment, we add the remaining
net premium to your account value.
SCHEDULED PREMIUMS
Your premiums are flexible. You may select your scheduled premium (within our
limits) when you apply for your policy. The scheduled premium, shown in your
policy and schedule, is the amount you choose to pay over a stated time period.
THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You may
receive premium reminder notices for the scheduled premium on a quarterly,
semiannual or annual basis. You are not required to pay the scheduled premium.
You may choose to pay your premium by electronic funds transfer each month. This
option is not available for your initial premium. The financial institution that
makes your electronic funds transfer may charge for this service.
You can change the amount of your scheduled premium within our minimum and
maximum limits at any time. If you fail to pay your scheduled premium or if you
change the amount of your scheduled premium, your policy performance will be
affected. During the special continuation period, your scheduled premium should
not be less than the minimum annual premium shown in your policy.
UNSCHEDULED PREMIUM PAYMENTS
Generally speaking, you may make unscheduled
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Estate Designer 17
<PAGE>
premium payments at any time, however:
1. We may limit the amount of your unscheduled premium payments that
would result in an increase in the base death benefit amount required
by the federal income tax law definition of life insurance. We may
require satisfactory evidence that the insured people are insurable
at the time that you make the unscheduled premium payment if the
death benefit is increased due to your unscheduled premium payments;
2. We may require proof that at least one insured person is insurable if
your unscheduled premium payment will cause the net amount at risk to
increase; and
3. We will return premium payments which are greater than the
"seven-pay" limit for your policy if your payment would cause your
policy to become a modified endowment contract, unless you have
acknowledged in writing the new modified endowment contract status
for your policy.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 47 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 48.
If you have an outstanding policy loan and you make an unscheduled payment, we
will consider it a loan repayment, unless you tell us otherwise. If your payment
is a loan repayment, we do not take tax or sales charges which apply to premium
payments.
TARGET PREMIUM
Target premiums are not based on the scheduled premium. Target premiums are
actuarially determined based on the age, gender, ratings and premium classes of
the insured people. The target premium is used in determining your sales charge
and the sales compensation we pay our agents/registered representatives. It may
or may not be enough to keep your policy in force. You are not required to pay
the target premium and there is no penalty for paying more or less. The target
premium for your policy and any segments added since the policy date are listed
in the policy schedule we provide to you. SEE PREMIUMS, PAGE 17.
MINIMUM ANNUAL PREMIUM
To qualify for the special continuation period, you must pay a minimum annual
premium during each of your first five policy years.
Your minimum annual premium is based on:
o each insured person's age, gender, premium class and rating;
o the stated death benefit of your policy; and
o riders on your policy.
Your minimum annual premium is shown in the schedule pages of your policy. We
may reduce the minimum annual premium for group, or sponsored arrangements or
for corporate purchasers.
SPECIAL CONTINUATION PERIOD
The special continuation period is the first five policy years. Under the
special continuation period, we guarantee that your policy will not lapse,
regardless of its net account value, if on a monthly processing date:
o the sum of all premiums you have paid, minus partial withdrawals that
you have taken, minus policy loans that you have taken, including
accrued loan interest is greater than or equal to;
o the minimum monthly premiums for each policy month, from the first
month of your policy through the current policy monthly processing
date.
The minimum monthly premium is one-twelfth of the minimum annual premium.
During the first five years of your policy if there is not enough net account
value to pay the monthly deductions and you have satisfied our requirements, we
do not allow your policy to lapse. We do not permanently waive policy charges.
Instead, we continue to deduct these charges which may result in a negative net
account value, unless you pay enough premium to prevent this. The negative
balance is your unpaid monthly deductions owing. At the end of the special
continuation period to avoid lapse of your policy you must pay enough premium to
bring the net account value to zero plus the amount that covers your estimated
monthly deductions for the following two months. SEE LAPSE, PAGE 34.
INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS
The net premium is the balance remaining after we take premium-based charges
from your premium payment.
Your initial premium is the premium we must receive
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Estate Designer 18
<PAGE>
before coverage can begin. The initial premium is the first premium we receive
and apply to your policy. It must be at least equal to the sum of the scheduled
premiums which are due from your policy date through your investment date.
The investment date is the first date we apply the net premium we have received
to your policy. If we receive your initial premium after we approve your policy
for issue, the investment date is the date we receive your initial premium.
We apply net premiums we have received from you to your policy after:
a) we receive the amount of premium required for your insurance coverage
to begin;
b) all issue requirements have been met and received by our customer
service center;
c) we approve your policy application; and
d) we approve your policy for issue.
Amounts you designate for the guaranteed interest division will be allocated to
that division on the investment date. If your state requires the return of your
premium during the free look period, we initially invest amounts you have
designated for the variable division in the Fidelity VIP Money Market Portfolio.
We later transfer these amounts from the Money Market Portfolio to your selected
variable investment options, based on your most recent premium allocation
instructions, at the earlier of the following dates:
o five days after we mailed your policy and your state free look period
has ended; or
o you have actually received your policy, we have received your
delivery receipt and your state free look period has ended.
If your state provides for return of account value during the free look period
or no free look period, we invest amounts you designated for the variable
division directly into your selected variable investment options.
We allocate all later premium payments to your policy on the valuation date of
receipt. We use your most recent premium allocation instructions specified in
whole numbers totaling 100% and using up to eighteen investment options over the
life of your policy. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 15.
You may make twelve free premium allocation changes per year, after which a
transaction fee applies. If you change your designated deduction investment
option from which monthly deductions are taken, we consider this a premium
allocation change for which there may be a charge. SEE DESIGNATED DEDUCTION
INVESTMENT OPTION, PAGE 26 AND POLICY TRANSACTION FEES, PAGE 44.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
Unless your policy is in the special continuation period, your coverage lasts
only as long as your net account value is enough to pay the monthly charges and
your account value is more than your outstanding policy loan plus accrued loan
interest. If you do not meet these conditions, your policy will enter the 61-
day grace period and you must make a premium payment to avoid lapse. SEE LAPSE,
PAGE 34, AND GRACE PERIOD, PAGE 34.
If you pay your minimum premium each year during the first five policy years and
take no policy loan, we guarantee your policy and riders will not lapse during
the special continuation period, regardless of your net account value. SEE
SPECIAL CONTINUATION PERIOD, PAGE 18.
MODIFIED ENDOWMENT CONTRACTS
There are special federal income tax rules for distributions from life insurance
policies which are modified endowment contracts. These rules apply to policy
loans, surrenders and partial withdrawals Whether or not these rules apply
depends upon whether or not the premiums we receive are greater than the
"seven-pay" limit.
If we find that your scheduled premium causes your policy to be a modified
endowment contract on your policy date, we will require you to acknowledge that
you know the policy is a modified endowment contract. We will issue your policy
based on the scheduled premium you selected. If you do not want your policy to
be issued as a modified endowment contract, you may reduce your scheduled
premium to a level which does not cause your policy to be a modified endowment
contract. We will then issue your policy based on the revised scheduled premium.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 47.
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Estate Designer 19
<PAGE>
DEATH BENEFITS
As a joint and survivor universal life insurance policy, your policy has a joint
nature to the death benefit. We do not pay death proceeds until the second death
of the insured people. Your death benefit is calculated as of the date of the
second death of the insured people.
You can decide the amount of insurance you need, now and in the future. You can
combine the long-term advantages of permanent life insurance (base coverage)
with the flexibility and short-term advantages of term life insurance. Both
permanent and term life insurance are available with your one policy.
We generally require a minimum target death benefit of $500,000 to issue a
policy. If you have an adjustable term insurance rider, the minimum base
coverage to issue a policy is $1,000, as long as your target death benefit is at
least $500,000. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23. When we issue
your policy, we base the initial insurance coverage on the instructions in your
application. The death benefit at issue may vary from the stated death benefit
plus adjustable term insurance coverage for some 1035 exchanges. The stated
death benefit is the permanent element of your policy. The adjustable term
insurance rider is the term insurance element of your policy. SEE ADJUSTABLE
TERM INSURANCE RIDER, PAGE 24.
It may be to your economic advantage to include part of your insurance coverage
under the adjustable term insurance rider. Both the cost of insurance under the
adjustable term insurance rider and the cost of insurance for the base death
benefit are deducted monthly from your account value and generally increase with
the age of the insured people. Use of the adjustable term insurance rider may
reduce sales compensation, but may increase the monthly cost of insurance. SEE
ADJUSTABLE TERM INSURANCE RIDER, PAGE 24.
DEATH BENEFIT SUMMARY
THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES AND NO REQUESTED OR SCHEDULED
INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL
WITHDRAWALS ARE LESS THAN THE PREMIUM WE RECEIVE.
<TABLE>
<CAPTION>
OPTION 1 OPTION 2 OPTION 3
===================== ===================================== =================================== ===============================
<S> <C> <C> <C>
STATED DEATH The amount of policy death The amount of policy death The amount of policy death
BENEFIT benefit at issue, not including benefit at issue, not including benefit at issue, not including
rider coverage. This amount rider coverage. This amount rider coverage. This amount
stays level throughout the stays level throughout the stays level throughout the life
life of the contract. life of the contract. of the contract.
BASE DEATH The greater of the stated The greater of the stated The greater of the stated death
BENEFIT death benefit or the account death benefit plus the benefit plus the sum of all
value multiplied by the account value or the account premiums we receive minus
appropriate factor from the value multiplied by the partial withdrawals you have
definition of life insurance appropriate factor from the taken, or the account value
factors. definition of life insurance multiplied by the appropriate
factors. factor from the definition of
life insurance factors.
TARGET DEATH Stated death benefit plus Stated death benefit plus Stated death benefit plus
BENEFIT adjustable term insurance adjustable term insurance adjustable term insurance
rider benefit. Assuming no rider benefit. Assuming no rider benefit. Assuming no
schedule changes, this schedule changes, this schedule changes, this amount
amount remains level amount remains level remains level throughout the
throughout the life of the throughout the life of the life of the policy.
policy. policy.
</TABLE>
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Estate Designer 20
<PAGE>
<TABLE>
<CAPTION>
OPTION 1 OPTION 2 OPTION 3
===================== ===================================== =================================== ===============================
<S> <C> <C> <C>
TOTAL DEATH This is the total death This is the total death This is the total death
BENEFIT proceeds. It is the greater of proceeds. It is the greater of proceeds. It is the greater of
the target death benefit or the the target death benefit plus the target death benefit plus
base death benefit. the account value or the base the sum of all premiums we
death benefit. receive minus partial
withdrawals you have taken,
or the base death benefit.
ADJUSTABLE The adjustable term The adjustable term The adjustable term insurance
TERM insurance rider benefit is the insurance rider benefit is the rider benefit is the total death
INSURANCE total death benefit minus total death benefit minus the benefit minus the base death
RIDER BENEFIT base death benefit, but it will base death benefit, but it will benefit, but it will not be less
not be less than zero. If the not be less than zero. If the than zero. If the account
account value multiplied by account value multiplied by value multiplied by the death
the death benefit corridor the death benefit corridor benefit corridor factor is
factor is greater than the factor is greater than the greater than the stated death
stated death benefit, the stated death benefit plus the benefit plus the sum of all
adjustable term insurance account value, the adjustable premiums we receive minus
benefit will be decreased. It term insurance rider benefit partial withdrawals you have
will be decreased so that the will be decreased. It will be taken, the adjustable term
sum of the base death benefit decreased so that the sum of insurance rider benefit will be
and the adjustable term the base death benefit and decreased. It will be
insurance rider benefit is not the adjustable term insurance decreased so that the sum of
greater than the target death rider benefit is not greater the base death benefit and the
benefit. If the base death than the target death benefit adjustable term insurance
benefit becomes greater than plus the account value. If the rider benefit is not greater
the target death benefit, then base death benefit becomes than the target death benefit
the adjustable term insurance greater than the target death plus the sum of all premiums
rider benefit is zero. benefit plus the account we receive minus partial
value, then the adjustable withdrawals you have taken.
term insurance rider benefit If the base death benefit
is zero. becomes greater than the
target death benefit plus the
sum of all premiums we receive
minus partial withdrawals you
have taken, then the adjustable
term insurance rider benefit is
zero.
</TABLE>
BASE DEATH BENEFIT
Your base death benefit can be different from your stated death benefit as a
result of:
o your choice of death benefit option;
o increases or decreases in the stated death benefit; or
o a change in your death benefit option.
As long as your policy is in force, we will pay the death proceeds to your
beneficiary(ies) calculated at the date of the second death of the insured
people. The beneficiary(ies) is(are) the person (people) you name to receive the
death proceeds from your policy. The death proceeds are:
o your base death benefit; plus
o rider benefits; minus
o your outstanding policy loan with accrued loan interest; minus
o outstanding policy charges incurred before the second death of the
insured people.
There could be outstanding policy charges if the date of the second death of the
insured people happens while your policy is in the grace period or in the five-
year special continuation period.
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DEATH BENEFIT OPTIONS
You have a choice of three death benefit options: option 1, option 2 or option 3
(described below). You may choose death benefit option 3 only prior to the issue
of your policy. Your choice may result in your having a base death benefit which
is greater than your stated death benefit. You may change your death benefit
option (but not to option 3 or from option 3 to option 2) after the first policy
anniversary and before the continuation of coverage feature begins. SEE CHANGES
IN DEATH BENEFIT OPTIONS, PAGE 22 AND CONTINUATION OF COVERAGE, PAGE 27.
If you choose death benefit option 1, your base death benefit is the greater of:
1. your stated death benefit on the date of the second death of the
insured people; or
2. your account value on the date of the second death of the insured
people multiplied by the appropriate factor from the definition of
life insurance factors shown in Appendix A.
Under option 1, positive investment performance generally reduces your net
amount at risk, which lowers your policy's cost of insurance charge. Option 1
offers insurance coverage that is a set amount with potentially lower cost of
insurance charges over time.
If you choose death benefit option 2, your base death benefit is the greater of:
1. your stated death benefit plus your account value on the date of the
second death of the insured people; or
2. your account value on the date of the second death of the insured
people multiplied by the appropriate factor from the definition of
life insurance factors shown in Appendix A.
Under option 2, investment performance is reflected in your insurance coverage.
If you choose death benefit option 3, the base death benefit is the greater of:
1. your stated death benefit plus the sum of all premiums we have
received minus partial withdrawals you have taken under your policy;
or
2. your account value on the date of the second death of the insured
people multiplied by the appropriate factor from the definition of
life insurance factors shown in Appendix A.
Under option 3, the base death benefit generally will increase as you pay
premiums and decrease if you take partial withdrawals. In no event will your
base death benefit be less than your stated death benefit.
Federal income tax law requires that your death benefit be at least as much as
your account value multiplied by a factor defined by law. This factor is based
on:
o the younger insured person's age;
o the insured people's genders; and
o the guideline premium/cash value corridor test for the federal income
tax law definition of life insurance. SEE APPENDIX A, PAGE 58.
Death benefit options 2 and 3 are not available during the continuation of
coverage period. If you select option 2 or 3 on your policy, it automatically
converts to death benefit option 1 when the continuation of coverage period
begins. SEE CONTINUATION OF COVERAGE, PAGE 27.
CHANGES IN DEATH BENEFIT OPTIONS
You may request a change in your death benefit option at any time after your
policy date and before the continuation of coverage feature begins.
Your requested death benefit option change is effective on your next monthly
processing date after we accept and approve your requested change, so long as at
least one day remains before your monthly processing date. If fewer than one day
remains before your monthly processing date, your death benefit option change
will be effective on the second following monthly processing date.
A death benefit option change applies to your entire stated or base death
benefit. You may change from death benefit option 1 to option 2, from option 2
to option 1 or from option 3 to option 1. YOU MAY NOT CHANGE FROM DEATH BENEFIT
OPTION 1 OR 2 TO OPTION 3, OR OPTION 3 TO OPTION 2.
After we approve your request, we send a new policy schedule page to you. You
should attach it to your policy. We may ask you to return your policy to our
customer service center so that we can make this change for you.
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We may not approve a death benefit option change if it reduces the target or
stated death benefit below the minimum we require to issue your policy.
On the effective date of your option change, your stated death benefit changes
as follows:
Change Change Stated Death Benefit
From To Following Change:
---- -- ----------------
Option 1 Option 2 your stated death benefit
before the change minus
your account value as of the
effective date of the change.
Option 2 Option 1 your stated death benefit
before the change plus your
account value as of the
effective date of the change.
Option 3 Option 1 your stated death benefit
before the change plus the
sum of the premiums we
have received, minus partial
withdrawals you have taken
as of the effective date of the
change.
We increase or decrease your stated death benefit on the date of your death
benefit option change to keep the net amount at risk the same. There is no
change to the amount of term insurance if you have an adjustable term insurance
rider. SEE COST OF INSURANCE CHARGE, PAGE 43.
If you change your death benefit option, we adjust the stated death benefit for
each of your segments by allocating your account value to each benefit segment.
For example, if you change from death benefit option 1 to option 2, your stated
death benefit is decreased by the amount of your account value allocation to
that segment. If you change from death benefit option 2 to option 1, your stated
death benefit is increased by the amount allocated to that segment. We do not
adjust the target premium when you change your death benefit option.
Changing your death benefit option may reduce or increase your target death
benefit, as well as your stated death benefit.
CHANGES IN DEATH BENEFIT AMOUNTS
You may want to increase your policy's target or stated death benefit. You may
do so while your policy is in force and before the policy anniversary when the
joint equivalent age of the insured people is 85.
Contact your agent/registered representative or our customer service center to
request a change in your policy's death benefit. The request is effective on the
next monthly processing date after we receive and approve your request. There
may be underwriting or other requirements which must be met before your request
can be approved. Your requested change must be for at least $1,000.
After we approve your request, we will send you a new policy schedule page which
includes the:
o stated death benefit;
o benefits under applicable riders;
o guaranteed cost of insurance rates of each segment; and
o target death benefit schedule.
Keep the new schedule with your policy. We may ask you to send your policy to us
so that we can make the change for you.
We may not approve a requested change if it will disqualify your policy as life
insurance under federal income tax law. If we disapprove a change for any
reason, we provide you with a notice of our decision. SEE TAX CONSIDERATIONS,
PAGE 46.
Requested reductions in the death benefit will be applied first to decrease the
target death benefit. We decrease your stated death benefit only after your
adjustable term insurance rider coverage is reduced to zero. If you have more
than one segment, we divide decreases in stated death benefit among your benefit
segments pro rata unless state law requires differently.
There may be tax consequences as a result of a decrease in your death benefit.
SEE TAX STATUS OF THE POLICY, PAGE 46 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 47.
You cannot decrease the stated death benefit below $1,000.
You must provide satisfactory evidence that the insured people are still
insurable to increase your death benefit. Unless you tell us differently, we
assume your request for an increase in your target death benefit is also a
request for an increase to your
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Estate Designer 23
<PAGE>
stated death benefit. Thus, the amount of your adjustable term insurance rider
will not change.
You may change your target death benefit once in a policy year.
The initial death benefit segment, or first segment, is the stated death benefit
on your policy's effective date. A requested increase in stated death benefit
will cause a new segment to be created. Once we create a new segment, it is
permanent unless state law requires differently. The segment year runs from the
segment effective date to its anniversary.
Each new segment may have:
o a new minimum annual premium during the special continuation period;
o a new sales charge;
o new cost of insurance charges;
o a new incontestability period;
o a new suicide exclusion period; and
o a new target premium.
We allocate the net amount at risk among segments in the same proportion that
each segment bears to the total stated death benefit. Premiums we receive after
an increase are applied to your policy segments in the same proportion as the
target premium for each segment bears to the total target premium for all
segments. Sales charges are deducted from each segment's premium based on the
length of time that segment has been effective.
You may not reduce your death benefit in the first policy year. Requested
reductions in the death benefit will be applied first to decrease the target
death benefit. We decrease your stated death benefit only after your adjustable
term insurance rider coverage is reduced to zero. If you have more than one
segment, we divide decreases in stated death benefit among your benefit segments
pro rata unless state law requires differently.
There may be tax consequences as a result of a decrease in your death benefit.
SEE TAX STATUS OF THE POLICY, PAGE 46 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 47.
If a death benefit option change causes the stated death benefit to increase, no
new segment is created. Instead, the size of each existing segment(s) is(are)
changed. If it causes the stated death benefit to decrease, each segment is
decreased.
RIDERS
Your policy may include benefits, which we attach by use of a rider. A rider
adds an additional cost to your policy. If applicable, we deduct a monthly
charge from your account value for each rider you choose. You may cancel these
rider benefits at any time.
Periodically we may offer other riders than those listed here. You should
contact your agent/registered representative for a complete list of the riders
now available.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 47, FOR INFORMATION ON THE POSSIBLE TAX
EFFECTS OF ADDING OR CANCELING THESE BENEFITS.
ADJUSTABLE TERM INSURANCE RIDER
We generally require a minimum target death benefit of $500,000 to issue a
policy. If you have an adjustable term insurance rider, the minimum base
coverage to issue a policy is $1,000, as long as your target death benefit is at
least $500,000.
You may increase your death proceeds by adding an adjustable term insurance
rider. This rider allows you to schedule the pattern of death benefits
appropriate for anticipated needs. The amount we pay is the term death benefit
in force at the time of the second death of the two people. As the name
suggests, the adjustable term insurance rider adjusts over time to maintain your
desired level of coverage.
You specify a target death benefit when you apply for this rider. The target
death benefit can be level for the life of your policy or can be scheduled to
change at the beginning of a selected policy year(s). SEE DEATH BENEFITS, PAGE
20.
The adjustable term insurance rider death benefit is the difference between your
target death benefit and your base death benefit, but not less than zero. The
rider's death benefit automatically adjusts daily as your base death benefit
changes. Your death benefits depend on which death benefit option is in effect:
OPTION 1: If option 1 is in effect, the total death benefit is the
greater of:
a. the target death benefit; or
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Estate Designer 24
<PAGE>
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
OPTION 2: If option 2 is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the account value; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
OPTION 3: If option 3 is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the sum of the premiums
we have received minus partial withdrawals you have
taken; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
For example, under option 1, assume your base death benefit increases as a
result of an increase in your account value. The adjustable term insurance rider
adjusts to provide death benefits equal to your target death benefit in each
year:
Base Death Target Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
$501,500 $550,000 $48,500
502,500 550,000 47,500
502,250 550,000 47,750
It is possible that the amount of your adjustable term insurance may be zero if
your base death benefit increases enough. Using the same example, if the base
death benefit under your policy grew to $550,000 or more, the adjustable term
insurance would be zero.
Even when the adjustable term insurance is reduced to zero, your rider remains
in effect until you remove it from your policy. Therefore, if later the base
death benefit drops below your target death benefit, the adjustable term
insurance rider amount reappears to maintain your desired death benefit.
You may change the target death benefit schedule after it is issued, based on
our rules. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
We may deny future, scheduled increases to your target death benefit if you
cancel a scheduled change, or if you ask for an unscheduled decrease in your
target death benefit.
Partial withdrawals, changes from death benefit option 1 to option 2 and base
decreases may reduce your target death benefit. SEE PARTIAL WITHDRAWALS, PAGE 33
AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 22.
There is no defined premium for a given amount of adjustable term insurance
coverage. Instead, we deduct a separate monthly cost of insurance charge from
your account value. The cost of insurance for this rider is calculated as the
monthly cost of insurance rate for the rider coverage multiplied by the
adjustable term death benefit in effect at the monthly processing date. The cost
of insurance rates are determined by us from time to time. They are based on the
issue ages, genders, ratings and premium classes of the insured people, as well
as your policy date.
If the target death benefit is increased by you after the rider is issued, we
use the same cost of insurance rate schedule for the entire coverage for this
rider. These rates are based on the original premium classes even though
satisfactory new evidence of insurability is required for the increased
schedule. The monthly guaranteed maximum cost of insurance rates for this rider
will be stated in the policy. SEE COST OF INSURANCE CHARGE, PAGE 43.
At policy maturity, if you have an adjustable term insurance rider, the target
death benefit becomes the stated death benefit. The adjustable term insurance
rider then terminates. If you have no adjustable term insurance rider, your
stated death benefit is unchanged.
The only charge for this rider is the cost of insurance charge. There is no
sales charge for this rider. The total charges that you pay may be less if you
have greater coverage under an adjustable term insurance rider rather than as
base death benefit.
However, not all policy features apply to the adjustable term insurance rider.
The adjustable term insurance rider does not contribute to the policy account
value and there is no surrender value. It does not affect investment performance
and cannot be used toward a policy loan. The adjustable term insurance
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Estate Designer 25
<PAGE>
rider provides benefits only at the second death of the insured people.
SINGLE LIFE TERM INSURANCE RIDER
This rider provides a benefit upon the death of one of the primary insured
people under your policy. You may choose to add a single life term insurance
rider for just one insured person. Alternatively, you may add two single life
term insurance riders: one for each insured person. You may add this rider to
your policy at any time if both insured people are alive and insurable according
to our rules.
We will issue the single life term insurance rider on an insured person who is
between the ages of 15 and 85. Coverage may continue until the earlier of when:
o the insured person covered by this rider reaches age 100;
o the continuation of coverage provision becomes effective; or
o the insured person covered by this rider dies;
o the grace period expires; or
o the policy is surrendered.
SEE CONTINUATION OF COVERAGE, PAGE 27.
The minimum amount of coverage for a single life term insurance rider is $1,000.
The maximum coverage under this rider is subject to our underwriting
determinations. At issue, you may schedule the rider's death benefit to increase
or decrease.
Your request for an increase or decrease in rider coverage is effective on the
next monthly processing date after we approve your request. There may be
underwriting or other requirements which must be met before we approve your
request. A requested change in your coverage must be for at least $1,000. If you
schedule or request an increase after issue, the person insured under this rider
will be subject again to our underwriting requirements.
The charge for this rider is based on the age, gender, premium class and
underwriting characteristics of the insured person. The charge for this rider is
deducted on each monthly processing date as a cost per each $1,000 of the net
amount at risk under the rider. See the policy schedule pages for information on
your actual cost.
SPECIAL FEATURES
DESIGNATED DEDUCTION INVESTMENT OPTION
You may designate an investment option from which we will deduct your monthly
charges. You may make this designation at any time. You may not use the loan
division as your designated deduction option.
You may elect not to choose a designated deduction investment option or the
amount in your designated deduction investment option may not be enough to cover
the monthly deductions. If so, these charges are taken from the variable and
guaranteed interest divisions in the same proportion that your account value in
each has to your total net account value on the monthly processing date.
If you change your designated deduction investment option, we consider this a
premium allocation change for which there may be a charge. SEE POLICY
TRANSACTION FEES, PAGE 44.
POLICY SPLIT OPTION
Under certain circumstances, you may exchange your policy for two single life
insurance policies: one on each of the two insured people. The policy split
option has its own insurability requirements which may be met at or before the
time your policy is split. Evidence of insurability is required for a new single
life policy where coverage is greater than 50% of your original policy death
benefit or for an insured person who is subject to certain underwriting ratings.
On the effective date of the policy split, the available death benefit under
your policy will be divided between the two new single life insurance policies.
You may take less than the maximum death benefit amount available.
Unless law requires otherwise, you may use the policy split option if:
a) three months following the effective date of a final divorce decree
regarding the marriage of the two insured people;
b) there is a change to the federal estate tax law which results in
either:
i) removal of the unlimited marital deduction provision; or
ii) a reduction in the current maximum federal estate tax of at
least 50% after your policy date; or
c) there is a dissolution of business conducted or owned by the two
insured people.
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You must send us written notice of your election to use the policy split option
within 180 days of the occurrence of an eligible event. You must provide
satisfactory evidence that the event has occurred.
The effective date of the policy split is the first monthly processing date
after we approve it. The insurance coverage under the two individual life
insurance policies will start on the effective date of the policy split only if
both insured people are alive on that date. If either insured person is not
alive on that date, your exchange is void.
All terms and conditions of the new policies apply once your policy is split and
they may differ from those of this policy. Consult your new single life
insurance policies.
The premiums for each new policy will be based on each insured person's age,
gender and premium class at the time of the split of your policy. Premiums will
be due for each new policy under the terms of the new policy. The account value
of the old policy will be allocated to the new policies on the effective date in
the same proportion that the face amount was divided between the two single life
insurance policies, unless we agree to a different allocation. If this
allocation causes an increase in the face amount of either of the new single
life policies, we may limit the account value you may apply to each new policy.
Any remaining account value will be paid to you in cash and may be taxable. The
refund of sales charge does not apply on a policy split.
If you have an outstanding policy loan it will be divided and transferred to
each new single life insurance policy in the same proportion as your account
value is allocated. Any remaining loan balance must be paid before the effective
date of the policy split. Any person or entity to which you have assigned your
policy must agree to the policy split. An assignment of your policy generally
will apply to each new single life insurance policy.
If you have a single life term insurance rider on your policy at the date of the
policy split, you may have a term insurance rider insuring the same insured
person if that rider is available on the new policy. Other riders may or may not
be available on the new policies and may be subject to new proof of
insurability.
Exercising the policy split option may be treated as a taxable transaction.
Moreover, the two single life insurance policies could be treated as modified
endowment contracts. SEE TAX CONSIDERATIONS, PAGE 46.
You may not split your policy into two single life insurance policies if any of
the following has happened:
a) the continuation of coverage period has begun;
b) one of the insured people has died;
c) your policy grace period has ended; or
d) your policy has been terminated or surrendered.
You should consult a tax adviser before exercising the policy split option.
RIGHT TO EXCHANGE POLICY
During the first 24 months after your policy date, you have the right to
exchange your policy for a guaranteed policy, unless state law requires
differently. We transfer the amount you have in the variable division to the
guaranteed interest division. We allocate all of your future net premiums only
to the guaranteed interest division. We do not allow future payments or
transfers to the variable investment options after you exercise this right.
We do not charge for the transfer to make this exchange. SEE GUARANTEED INTEREST
DIVISION, PAGE 15.
POLICY MATURITY
You can surrender your policy at any time. At the policy anniversary nearest the
younger insured person's 100th birthday if you do not want the continuation of
coverage feature, the policy matures. You may then surrender the policy for the
net account value and end coverage. Part of this payment may be taxable. You
should consult your tax adviser.
CONTINUATION OF COVERAGE
The continuation of coverage feature allows your insurance coverage to continue
in force beyond policy maturity. If on the policy anniversary nearest the
younger insured person's 100th birthday you allow the continuation of coverage
feature to become effective, we:
o convert target death benefit to stated death benefit;
o terminate all riders;
o convert death benefit option 2 or 3 to death benefit option 1, if
applicable;
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Estate Designer 27
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o deduct a one-time $400 administrative fee to cover future expenses;
o transfer your net account value (excluding the amount in the loan
division) into the guaranteed interest division; and
o terminate dollar cost averaging and automatic rebalancing.
Your insurance coverage continues in force until the second death of the insured
people, unless the policy lapses or is surrendered. However:
o you may make no further premium payments;
o we deduct no further cost of insurance charges;
o your monthly deductions cease; and
o your net account value may not be transferred into the variable
investment options.
During the continuation of coverage period, you may take policy loans or partial
withdrawals from your policy. If we pay a persistency refund on the guaranteed
interest division, it will be credited to your policy. SEE PERSISTENCY REFUND,
PAGE 45.
If you have an outstanding policy loan, interest continues to accrue. If you
fail to make sufficient loan or loan interest payments, it is possible that the
loan balance plus accrued interest may become greater than your account value
and cause your policy to lapse. To avoid this lapse, you may make loan and loan
interest payments during the continuation of coverage period.
If you wish to stop coverage during the continuation of coverage period, you may
surrender your policy and receive the net account value. All normal consequences
of surrender apply. SEE SURRENDER, PAGE 35.
The continuation of coverage feature may not be available in all states. If a
state has approved this feature, it is an automatic feature and you do not need
to take any action to activate it.
The tax consequences of coverage continuing beyond the younger insured's
person's 100th birthday are uncertain. You should consult a tax adviser as to
those consequences.
POLICY VALUES
ACCOUNT VALUE
Your account value is the total amount you have in the guaranteed interest
division, the variable division and the loan division. Your account value
reflects:
o net premiums applied;
o charges deducted;
o partial withdrawals taken;
o investment performance of the variable investment options;
o interest earned on the guaranteed interest division; and
o interest earned on the loan division.
NET ACCOUNT VALUE
Your policy's net account value is your account value minus the amount of your
outstanding policy loan and accrued loan interest, if any.
CASH SURRENDER VALUE
Your cash surrender value is your account value plus any refund of sales charge
due.
NET CASH SURRENDER VALUE
Your net cash surrender value is your cash surrender value minus the amount of
your outstanding policy loan and accrued loan interest, if any.
DETERMINING VALUES IN THE VARIABLE DIVISION
The amounts in the variable division are measured by accumulation units and
accumulation unit values. The value of each variable investment option is the
accumulation unit value for that option multiplied by the number of accumulation
units you own in that option. Each variable investment option has a different
accumulation unit value.
We purchase accumulation units for you when you allocate premium or make
transfers to a variable investment option, including transfers from the loan
division.
A valuation date is one on which the net asset value of the investment portfolio
shares and unit values of the variable investment options are determined. A
valuation date is each day the New York Stock Exchange and the company's
customer service center are open for business, except for days on which an
investment portfolio does not value its shares or any other day as required by
law. Each valuation date ends at 4:00 p.m. Eastern time.
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We sell accumulation units for you:
o when amounts are transferred from a variable investment option
(including transfers to the loan division);
o for your policy's monthly deductions from your account value;
o for policy transaction charges;
o when you take a partial withdrawal;
o when you surrender your policy; and
o to pay the death proceeds.
We calculate the number of accumulation units purchased or sold by:
1. dividing the dollar amount of your transaction by:
2. the accumulation unit value for that variable investment option
calculated at the close of business on the valuation date of the
transaction.
The accumulation unit value is the value of one accumulation unit determined on
each valuation date. The accumulation unit value of each variable investment
option varies with the investment performance of the underlying portfolio. It
reflects:
o investment income;
o realized and unrealized gains and losses;
o investment portfolio expenses; and
o daily mortality and expense risk charges we take from the separate
account.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 29.
The date of a transaction is the date we receive your premium or transaction
request at our customer service center, so long as the date of receipt is a
valuation date. We use the accumulation unit value which is next calculated
after we receive your premium or transaction request and we use the number of
accumulation units attributable to your policy on the date of receipt.
We take monthly deductions from your account value on the monthly processing
date. If your monthly processing date is not a valuation date, the monthly
deduction is processed on the next valuation date.
The value of amounts allocated to the variable investment options goes up or
down depending on investment performance of the underlying investment portfolio.
FOR AMOUNTS IN THE VARIABLE INVESTMENT OPTIONS, THERE IS NO GUARANTEED MINIMUM
CASH SURRENDER VALUE.
HOW WE CALCULATE ACCUMULATION UNIT VALUES
We determine accumulation unit values on each valuation date.
We generally set the accumulation unit value for a variable investment option at
$10 when the investment option is first opened. After that first date, the
accumulation unit value on any valuation date is:
1. the accumulation unit value for the preceding valuation date
multiplied by
2. the variable investment option's accumulation experience factor for
the valuation period.
Every valuation period begins at 4:00 p.m. Eastern time on a valuation date and
ends at 4:00 p.m. Eastern time on the next valuation date.
We calculate an accumulation experience factor for each variable investment
option every valuation date as follows:
1. We take the share value of the underlying portfolio shares as
reported to us by the investment portfolio managers as of the close
of business on that valuation date.
2. We add dividends or capital gain distributions declared per share and
reinvested by the investment portfolio on the date that the share
value is affected. If applicable, we subtract a charge for taxes.
3. We divide the resulting amount by the value of the shares in the
underlying investment portfolio at the close of business on the
previous valuation date.
4. We then subtract the mortality and expense risk charge under your
policy. The daily charge is .002055% (.75% annually) of the
accumulation unit value. If the previous day was not a valuation
date, the charge is multiplied by the number of days since the last
valuation date.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable investment options or the
guaranteed interest
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division in each policy year, with a $25 fee per transaction after that. If your
state requires a refund of premium during the free look period, you may not make
transfers until after your free look period ends. We do not limit the number of
transfers you may make. Transfers for automatic rebalancing or dollar cost
averaging do not count toward your twelve free transfers. You may not make
transfers during the continuation of coverage period. SEE POLICY TRANSACTION
FEES, PAGE 44 AND CONTINUATION OF COVERAGE, PAGE 27.
You may make transfer requests in writing, or by telephone if you have telephone
privileges, to our customer service center. Your transfer takes effect on the
valuation date we receive your request. The minimum amount you may transfer is
$100. This minimum does not need to come from one investment option or be
transferred to one investment option as long as the total amount you transfer is
at least $100. However, if the amount remaining in an investment option is less
than $100 and you make a transfer request from that investment option, we
transfer the entire amount.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses through:
o increased trading and transaction costs;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o large asset swings that decrease the investment portfolio's ability
to provide maximum investment return to all policyowners.
In response to excessive trading, we may place restrictions or refuse transfers
made by third-party agents acting on behalf of owners such as market timing
services. We will refuse or place restrictions on transfers when we determine,
in our sole discretion, that transfers are harmful to the investment portfolios
or to policyowners as a whole.
GUARANTEED INTEREST DIVISION TRANSFERS
Transfers into the guaranteed interest division are not restricted.
You may transfer amounts from the guaranteed interest division only in the first
30 days of each policy year. Transfer requests received within 30 days before
your policy anniversary will be processed on your policy anniversary. A request
received by us within 30 days after your policy anniversary is effective on the
valuation date we receive it. Transfer requests made at any other time will not
be processed.
Transfers from the guaranteed interest division are limited to the largest of:
o 25% of your guaranteed interest division balance at the time of your
first transfer or withdrawal out of it in that policy year;
o the sum of the amounts you have transferred and withdrawn from the
guaranteed interest division in the prior policy year; or
o $100.
DOLLAR COST AVERAGING
If your policy has at least $10,000 invested in either qualifying source
investment portfolio, you may elect dollar cost averaging. The qualifying source
investment portfolios are the Fidelity VIP Money Market Portfolio or the
Neuberger Berman AMT Limited Maturity Bond Portfolio. The main goal of dollar
cost averaging is to protect your policy values from short-term price changes.
DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A
LOSS IN A DECLINING MARKET.
This systematic plan of transferring account values is intended to reduce the
risk of investing too much when the price of an investment portfolio's shares is
high. It is intended to reduce the risk of investing too little when the price
of an investment portfolio's shares is low. Since you transfer the same dollar
amount to other investment options each period, you purchase more units in an
investment option when the unit value is low and you purchase fewer units if the
unit value is high.
We do not count dollar cost averaging transfers toward your twelve free
transfers per policy year. There is no charge for this feature.
You may add dollar cost averaging to your policy at any time. The first dollar
cost averaging date must be at least one day after we receive your dollar cost
averaging request. If your state requires refund of all premiums we receive
during the free look period,
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dollar cost averaging cannot begin until your free look period has ended.
With dollar cost averaging, you designate either a dollar amount or a percentage
of your account value for automatic transfer from a qualifying source investment
portfolio. Each period we automatically transfer the amount you select from your
chosen source investment portfolio to one or more other variable investment
options. You may not use the guaranteed interest division or the loan division
in dollar cost averaging.
The minimum percentage you may transfer to any one investment option is 1% of
the total amount you transfer. You must transfer at least $100 on each dollar
cost averaging transfer date.
Dollar cost averaging may occur on the same day of the month on a monthly,
quarterly, semi-annual or annual basis. Unless you tell us otherwise, dollar
cost averaging automatically takes place monthly on the monthly processing date.
You may have both dollar cost averaging and automatic rebalancing at the same
time. However, the dollar cost averaging source investment portfolio cannot be
included in your automatic rebalancing program.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program one time per policy year. If
you have telephone privileges, you may change the program by telephoning our
customer service center. SEE TELEPHONE PRIVILEGES, PAGE 38.
TERMINATING DOLLAR COST AVERAGING
You may cancel dollar cost averaging by sending satisfactory notice to our
customer service center. We must receive it at least one day before the next
dollar cost averaging date.
Dollar cost averaging will terminate when:
1. you specify a termination date; or
2. your balance in the source investment portfolio reaches a dollar
amount you set; or
3. the amount in the source investment portfolio is equal to or less
than the amount to be transferred on a dollar cost averaging date. We
will transfer the remaining amount and dollar cost averaging ends.
AUTOMATIC REBALANCING
Automatic rebalancing is a method of maintaining a consistent approach to
investing account values over time and simplifying the process of asset
allocation among your chosen investment options.
Transfers made for automatic rebalancing do not count toward your twelve free
transfers per policy year. There is no charge for this feature.
If you choose this feature, on each rebalancing date we transfer amounts among
the investment options to match your pre-set automatic rebalancing allocation.
After the transfer, the ratio of your account value in each investment option to
your total account value for all investment options included in automatic
rebalancing matches the automatic rebalancing allocation percentage you set for
that investment option. This action rebalances the amounts in the investment
options that do not match your set allocation. This mismatch can happen if an
investment option outperforms the other investment options for that time period.
You may choose the automatic rebalancing feature on your application or later by
completing our customer service form. Automatic rebalancing may occur on the
same day of the month on a monthly, quarterly, semi-annual or annual basis. If
you do not specify a frequency, automatic rebalancing will occur quarterly.
If you choose automatic rebalancing on your policy application, the first
transfer occurs on the date you select (after your free look period if your
state requires return of all premiums we receive during the free look period).
If you elect this feature after your policy date, we process the first
transaction on the date you request. If you do not request a date, processing is
on the last valuation date of the calendar quarter we receive your request.
When you choose automatic rebalancing allocations, you may choose up to eighteen
total investment options. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 15.
You may have both automatic rebalancing and dollar cost averaging at the same
time. However, the source investment portfolio for your dollar cost averaging
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cannot be included in your automatic rebalancing program. You may not include
the loan division in your automatic rebalancing program.
CHANGING AUTOMATIC REBALANCING
You may change your allocation percentages for automatic rebalancing at any
time. Your allocation change is effective on the valuation date that we receive
it at our customer service center. If you reduce the amount allocated to the
guaranteed interest division, it is considered a transfer from that division.
You must meet the requirements for the maximum transfer amount and time
limitations on transfers from the guaranteed interest division. SEE TRANSFERS OF
ACCOUNT VALUE, PAGE 29.
TERMINATING AUTOMATIC REBALANCING
You may terminate automatic rebalancing at any time, as long as we receive your
notice of termination at least one day before the next automatic rebalancing
date.
POLICY LOANS
The loan division is part of our general account specifically designed to hold
money used as collateral for loans and loan interest.
You may borrow from your policy at any time after the first monthly processing
date, by using your policy as security for a loan, or as otherwise required by
state law. The amount you borrow is called a policy loan. Your policy loan is:
1. the total amount you borrow from your policy; plus
2. policy loan interest that is capitalized when due; minus
3. policy loan or interest repayments you make.
Unless state law requires differently, a new policy loan must be at least $100.
The maximum amount you may borrow on any valuation date, unless required
differently by state law, is your net account value minus the monthly deductions
to your next policy anniversary or 13 monthly deductions if you take a loan
within thirty days before your next policy anniversary.
Your request for a policy loan must be directed to our customer service center.
If you have telephone privileges, you may request a policy loan of less than
$25,000 by telephoning our customer service center. SEE TELEPHONE PRIVILEGES,
PAGE 38.
When you request a loan you may specify one investment option from which the
loan will be taken. If you do not specify one, the loan will be taken
proportionately from each active investment option you have, including the
guaranteed interest division.
Loan interest charges on your policy loan accrue daily at an annual interest
rate of 3.75%. Interest is due in arrears on each policy anniversary. If you do
not pay your interest when it is due, we add it to your policy loan.
When you take a policy loan, we transfer an amount equal to your policy loan to
the loan division. We follow this same process for loan interest due at your
policy anniversary. We credit the loan division with interest at an annual rate
of 3%. After your tenth policy year, the loan division is credited with a
persistency refund. SEE PERSISTENCY REFUND, PAGE 45.
If you request an additional loan, we add the new loan amount to your existing
policy loan. This way, there is only one loan outstanding on your policy at any
time.
LOAN REPAYMENT
You may repay your policy loan at any time while your policy is in force. We
assume that payments you make, other than scheduled premiums, are policy loan
repayments. You must tell us if you want payments to be premium payments.
When you make a loan payment, we transfer an amount equal to your payment from
the loan division to the variable investment options and the guaranteed interest
division in the same proportion as your current premium allocation, unless you
tell us otherwise.
EFFECTS OF A POLICY LOAN ON YOUR POLICY
Taking a loan decreases the amount you have in the investment options. Accruing
loan interest will change your net account value as compared to what it would
have been if you did not take a loan.
Even if you repay your loan, it has a permanent effect on your account value.
The benefits under your policy may be affected.
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The loan is a first lien on your policy. If you do not repay your policy loan,
we deduct your outstanding policy loan and accrued loan interest from the death
proceeds payable or the cash surrender value payable on surrender.
Failure to repay your loan may affect the length of time your policy remains in
force. If you do not make loan payments your policy could lapse. Policy loans
may cause your policy to lapse if your net account value is not enough to pay
your deductions each month. SEE LAPSE, PAGE 34.
Policy loans may have tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH
BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 47, AND DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS,
PAGE 48.
If you use the continuation of coverage feature and you have a policy loan, loan
interest continues to accrue.
PARTIAL WITHDRAWALS
You may request a partial withdrawal to be processed on any valuation date after
your first policy anniversary by contacting our customer service center. You
make a partial withdrawal when you withdraw part of your net account value. If
your request is by telephone, it must be for less than $25,000 and may not cause
a decrease in your death benefit. Otherwise, your request must be in writing.
SEE TELEPHONE PRIVILEGES, PAGE 38.
You may take only one partial withdrawal per policy year. The minimum partial
withdrawal you may take is $100. The maximum partial withdrawal you may take is
the amount which leaves $500 as your net account value. If you request a
withdrawal of more than this maximum, we require you to surrender your policy or
reduce the withdrawal.
When you take a partial withdrawal, we deduct your withdrawal amount plus a
service fee from your account value. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE
41.
Unless you tell us otherwise, we will make a partial withdrawal from the
guaranteed interest division and the variable investment options in the same
proportion that each has to your net account value immediately before your
withdrawal. You may select one investment option from which your partial
withdrawal will be taken. If you select the guaranteed interest division
however, the amount withdrawn from it may not be for more than your total
withdrawal multiplied by the ratio of your account value in the guaranteed
interest division to your total net account value immediately before the partial
withdrawal transaction.
Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 47 AND DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS, PAGE 48.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 1
If you selected death benefit option 1, no more than fifteen years have passed
since your policy date and the joint equivalent age of the insured people is not
yet age 81, you may make a partial withdrawal of up to the greater of 10% of
your account value, or 5% of your stated death benefit without decreasing your
stated death benefit.
Otherwise, amounts you withdraw will reduce your stated death benefit by the
amount of the withdrawal unless your policy death benefit has been increased due
to the federal income tax definition of life insurance. If your policy death
benefit has been increased due to the federal income tax definition of life
insurance at the time of the partial withdrawal, then at least part of your
partial withdrawal may be made without reducing your stated death benefit.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 2
If you have selected death benefit option 2, a partial withdrawal does not
reduce your stated or target death benefit. However because your account value
is reduced, we reduce the total death benefit by at least the partial withdrawal
amount.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 3
If you have selected death benefit option 3 and your partial withdrawal is less
than the total of premiums we have received minus the total of your partial
withdrawals, then your stated death benefit will not be reduced. However because
your account value is reduced, your total death benefit will be reduced.
If your partial withdrawal is more than the amount of
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<PAGE>
premiums we have received minus the total of your prior partial withdrawals, a
two step process is used:
1. Your withdrawal of the amount that makes premiums paid minus all
partial withdrawals equal to zero is taken; then
2. The excess withdrawal amount you requested will reduce your stated
death benefit if:
o the excess amount is greater than 10% of your account value
after step "1" above; or
o the excess amount is greater than 5% of your stated death
benefit.
Regardless of your chosen death benefit option, partial withdrawals do not
reduce your stated death benefit if:
o your base death benefit has been increased to qualify your policy as
life insurance under the federal income tax laws; and
o you withdraw an amount that is no greater than the amount that
reduces your account value to a level which no longer requires your
base death benefit to be increased to qualify as life insurance for
federal income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE
46.
We require a minimum stated death benefit and a minimum target death benefit to
issue your policy. You may not take a partial withdrawal if it reduces your
stated death benefit or target death benefit below this minimum. SEE POLICY
ISSUANCE, PAGE 45.
We will send a new policy schedule page for your policy showing the effect of
your withdrawal if there is any change to your stated death benefit or your
target death benefit. In order to make this change, we may ask that you return
the policy to our customer service center. Your withdrawal and any reductions in
the death benefits are effective as of the valuation date on which we receive
your request. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED
ENDOWMENT CONTRACTS, PAGE 47, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM
POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 48.
LAPSE
Your insurance coverage continues as long as your net account value is enough to
pay your deductions each month. Lapse does not apply if the special continuation
period is in effect and you have met all requirements. SEE SPECIAL CONTINUATION
PERIOD, PAGE 18.
If the continuation of coverage feature is active, your policy could still lapse
if there is an outstanding policy loan even though there are no further monthly
deductions.
GRACE PERIOD
Your policy enters a 61-day lapse grace period if, on a monthly processing date:
1. your net account value is zero (or less); and
2. the five-year special continuation period has expired, or you have
not paid the required special continuation period premium.
We notify you that your policy is in a grace period at least 30 days before it
ends. We send this notice to you (or a person to whom you have assigned your
policy) at your last known address in our records. We notify you of the premium
payment necessary to prevent your policy from lapsing. This amount is generally
the past due charges, plus your estimated monthly policy and rider deductions
for the next two months. If the second death of the insured people occurs during
the grace period we do pay death proceeds to your beneficiary(ies), but with
reductions for your policy loan balance, accrued loan interest and monthly
deductions owed.
If we receive your payment of the required amount before the end of the grace
period, we apply it to your account value in the same manner as your other
premium payments, then we deduct the overdue amounts from your account balance.
If you do not pay the full amount within the 61-day grace period, your policy
and its riders lapse without value. We withdraw your remaining account balance
from the variable and guaranteed interest divisions. We deduct amounts you owe
us and inform you that your policy coverage has ended.
LAPSE SUMMARY
SPECIAL CONTINUATION PERIOD
================================================================
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IF YOU MEET THE IF YOU DO NOT MEET THE
REQUIREMENTS REQUIREMENTS OR IT IS
NO LONGER IN EFFECT
------------ ---------------------
Your policy does not Your policy enters a
lapse if you do not grace period if your net
have enough net account value is not
account value to pay enough to pay the
the monthly charges. monthly charges, or if
The charges are your loan plus accrued
deducted and may loan interest is more
cause a negative than your account
account value until the value. If you do not
earlier of: 1) the date pay enough premium to
you have enough net cover the past due
account value, or 2) monthly charges and
until the end of the interest due, plus the
special continuation monthly charges and
period. interest due through the
end of the grace period,
your policy lapses.
REINSTATEMENT
If you do not pay enough premium before the end of the grace period, your policy
lapses. You may still reinstate your policy and its riders within five years of
the end of the grace period if you still own the policy and both of the insured
people are still living.
Unless state law requires differently, we will reinstate your policy and riders
if:
1. you have not surrendered your policy;
2. you provide satisfactory evidence to us that both insured people are
alive and that each is still insurable according to our normal rules
of underwriting; and
3. we receive enough premium from you to keep your policy and its riders
in force from the beginning to the end of the grace period and for
two months after the reinstatement date.
When your policy lapses, we will not reinstate your policy if one insured person
has died or become uninsurable since your policy date. If one insured person was
uninsurable at the issue of your policy and remains uninsurable, we will review
the underwriting requirements applicable to each insured person at the time you
request reinstatement to determine whether or not your policy may be reinstated.
Reinstatement is effective on the monthly processing date following our approval
of your reinstatement application. If you had a policy loan when coverage ended,
we reinstate it with accrued loan interest to the date of lapse. The cost of
insurance charges at the time of reinstatement are adjusted to reflect the time
since the lapse.
We apply net premiums received after reinstatement according to your most recent
instructions which may be the premium allocation instructions in effect at the
start of the grace period.
SURRENDER
You may surrender your policy for its net cash surrender value any time before
the second death of the insured people. You may take your net cash surrender
value in other than one payment. We compute your net cash surrender value as of
the valuation date we receive your written surrender request and policy at our
customer service center. All insurance coverage ends on the date we receive your
surrender request and policy. SEE POLICY VALUES, PAGE 28 AND SETTLEMENT
PROVISIONS, PAGE 39.
We do not pro-rate or add back charges and expenses to your account value before
the date your surrender is effective. A refund of sales charge may apply. SEE
REFUND OF SALES CHARGE, PAGE 45.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 47, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 48.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD
You have the right to examine your policy. The right to examine your policy,
often called the free look period, starts on the date you receive your policy
and is a length of time specified by state law. If for any reason you do not
want it, you may return your policy to us, your agent/registered representative
within the
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period shown on the policy's face page. If you return your policy to us within
that time period, we will consider it canceled as of your policy date.
If you cancel your policy during this free look period, you will receive a
refund as determined under state law. Generally, there are two types of free
look refunds:
o some states require a return of all premiums we receive;
o other states require payment of account value plus a refund of all
charges deducted.
Your policy will specify what type of free look refund applies in your state.
The type of free look refund allowed in your state will affect when the net
premium we receive before the end of the free look period is invested into the
variable investment options. SEE ALLOCATION OF NET PREMIUMS, PAGE 18.
YOUR POLICY
The entire contract between you and us is the combination of:
o your policy;
o a copy of your original application and any applications for benefit
increases or decreases;
o all of your riders;
o endorsements;
o policy schedule pages; and
o reinstatement applications.
If you make a change to your coverage, we give you a copy of your changed
application and new policy schedules. If you send your policy to us, we attach
these items to your policy and return it to you. Otherwise, you need to attach
them to your policy.
Unless there is fraud, we consider all statements made in an application to be
representations and not guarantees. We use no statement to deny a claim, unless
it is in an application.
A president or an officer of our company and our secretary or assistant
secretary must sign all changes or amendments we make to your policy. No other
person may change the terms or conditions of your policy.
AGE
The age stated in your policy schedule is the joint equivalent age of the
insured people we use to issue your policy. The joint equivalent age is the sum
of both insured people's ages adjusted for the difference in ages and gender,
divided by two and rounded down.
The insured people must each be no more than 90 years of age at policy issue.
The minimum joint equivalent age must be no less than 15. The maximum joint
equivalent age must be no more than 85. There is no limit on the difference in
the insured people's ages. Age is measured as the age of the insured person on
the birthday nearest the policy anniversary.
Generally, we use the joint equivalent age to calculate rates, charges and
values. We determine the joint equivalent age at any given time by adding the
number of completed policy years to the age calculated at issue and shown in the
schedule.
The younger insured person's 100th birthday is the 100th anniversary of the
younger insured person's birth regardless if he/she has survived. The policy
anniversary nearest to this date is the date used for policy maturity and
continuation of coverage.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive benefits until the second death of
the insured people. This includes the right to change the owner,
beneficiary(ies) or the method designated to pay death proceeds.
As a matter of law, all rights of ownership are limited by the rights of any
person who has been assigned rights under the policy and any irrevocable
beneficiary(ies).
You may name a new owner by giving us written notice. The effective date of the
change to the new owner is the date the prior owner signs the notice. However,
we will not be liable for any action we take before a change is recorded at our
customer service center. A change in ownership may cause the prior owner to
recognize taxable income on gain under the policy.
BENEFICIARY(IES)
You, as owner, name the beneficiary(ies) when you apply for your policy. The
primary beneficiary(ies) who survives both of the insured people receives the
death proceeds. Other surviving beneficiary(ies) receive death proceeds only if
there is no surviving primary beneficiary(ies). If more than one
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<PAGE>
beneficiary(ies) survives both insured people, they share the death proceeds
equally, unless you have told us otherwise. If none of your policy beneficiaries
has survived both insured people, we pay the death proceeds to you or to your
estate, as owner.
Once you tell us who the beneficiary(ies) is/are, we keep this information on
file. You may name a new beneficiary(ies) any time before the second death of
the insured people. We pay the death proceeds to the beneficiary(ies) whom you
have most recently named according to our records. We do not make payments to
multiple sets of beneficiaries.
COLLATERAL ASSIGNMENT
You may assign your policy by sending written notice to us. After we record the
assignment, your rights as owner and the beneficiary's(ies') rights (unless the
beneficiary(ies) was made an irrevocable beneficiary(ies) under an earlier
assignment) are subject to the assignment. It is your responsibility to make
sure the assignment is valid.
INCONTESTABILITY
If your policy has been in force and both insured people are alive for two years
from your policy date, we will not question the validity of the statements in
your application. If your policy has been in force and both insured people are
alive for two years from the effective date of a new segment or from the
effective date of an increase in any other benefit, with respect to the insured
people (such as an increase in stated death benefit) we will not contest the
statements in your application for the new segment or other increase.
If this policy has been in force and both insured people are alive for two years
from the effective date of reinstatement, we will not contest the statements in
your application for reinstatement.
MISSTATEMENTS OF AGE OR GENDER
If an insured person's age or gender has been misstated, we adjust the death
benefit to the amount which would have been purchased for each insured person's
correct age and gender. We base the adjusted death benefit on the cost of
insurance charges deducted from your account value on the last monthly
processing date before the second death of the insured people, or as otherwise
required by state law.
If unisex cost of insurance rates apply, we do not make any adjustments for a
misstatement of gender.
SUICIDE
If either insured person commits suicide (while that insured person is sane or
insane) within two years of your policy date, unless otherwise required by state
law, we limit death proceeds payable in one sum to:
1. the total of all premiums we receive to the time of death; minus
2. outstanding policy loan amounts and accrued loan interest; minus
3. partial withdrawals you have taken.
We make a limited payment to the beneficiary(ies) for a new segment or other
increase if the second death of the insured people is due to suicide (while that
insured person is sane or insane), within two years of the effective date of a
new segment or within two years of an increase in any other benefit, unless
otherwise required by state law. The limited payment we make is equal to the
cost of insurance and monthly expense charges which were deducted for such
increase.
TRANSACTION PROCESSING
Generally, within seven days of when we receive all information required to
process a payment, we pay:
o death proceeds;
o net cash surrender value upon surrender;
o partial withdrawals; and
o loan proceeds.
We may delay processing these transactions if:
o the NYSE is closed for trading;
o trading on the NYSE is restricted by the SEC;
o there is an emergency so that it is not reasonably possible to sell
securities in the variable investment options or to determine the
value of an investment option's assets; or
o a governmental body with jurisdiction over the separate account
allows suspension by its order.
SEC rules and regulations determine whether or not these conditions exist.
We execute transfers among the variable investment options as of the valuation
date of our receipt of your request at our customer service center.
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<PAGE>
We determine the death benefit as of the date of the second death of the insured
people. The death proceeds are not affected by changes in the value of the
variable investment options after that date. We pay interest at our stated rate
(or at a higher rate if required by law) from the date of the second death of
the insured people to the date of payment.
We may delay payment from our guaranteed interest division for up to six months,
unless state law requires otherwise, of:
o surrender proceeds;
o withdrawal amounts; or
o loan amounts.
We pay interest at our declared rate (or at a higher rate if required by law)
from the date we receive the request if we delay payment more than 30 calendar
days.
NOTIFICATION AND CLAIMS PROCEDURES
Except for certain authorized telephone requests, we must receive in writing any
election, designation, change, assignment or request made by the owner.
You must use a form acceptable to us. We are not liable for actions taken before
we receive and record the written notice. We may require you to return your
policy for policy changes and at the time of surrender.
If an insured person dies while your policy is in force, please let us or your
agent/registered representative know as soon as possible. We will immediately
send you instructions on how to make a claim at the second death of the insured
people or at either insured person's death if you have a single life term
insurance rider. As proof of the insured person's death, we may require you to
provide proof of the deceased insured person's age and a certified copy of the
death certificate.
The beneficiary(ies) and the deceased insured person's next of kin may need to
sign authorization forms. These forms allow us to get information about the
deceased insured person. This information may include medical records of doctors
and hospitals used by the deceased insured person.
TELEPHONE PRIVILEGES
Telephone privileges are automatically provided to you and your agent/registered
representative, unless you decline it on the application or contact our customer
service center. Telephone privileges allow you or your agent/registered
representative, if applicable, to call our customer service center to:
o make transfers;
o change premium allocations;
o change features in your dollar cost averaging and automatic
rebalancing programs;
o request partial withdrawals; or
o request a policy loan.
Our customer service center uses reasonable procedures to make sure that
instructions received by telephone are genuine. These procedures may include:
1. requiring some form of personal identification;
2. providing written confirmation of any transactions; and
3. tape recording telephone calls.
By accepting automatic telephone privileges, you authorize us to record your
telephone calls with us. If we use reasonable procedures to confirm
instructions, we are not liable for losses due to unauthorized or fraudulent
instructions. We may discontinue this privilege at any time.
NON-PARTICIPATION
Your policy does not participate in the surplus earnings of Security Life.
DISTRIBUTION OF THE POLICIES
The principal underwriter (distributor) for our policies is ING America
Equities, Inc., a wholly owned subsidiary of Security Life. It is registered as
a broker-dealer with the SEC and the NASD. We pay ING America Equities, Inc. for
acting as the principal underwriter under a distribution agreement.
We sell our policies through licensed insurance agents who are registered
representatives of other broker-dealers including, but not limited to:
1. VESTAX Securities Corporation, an indirect affiliate of Security Life
of Denver Insurance Company;
2. Locust Street Securities, Inc., an indirect affiliate of Security
Life of Denver Insurance Company;
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Estate Designer 38
<PAGE>
3. Multi-Financial Securities, Corp., an indirect affiliate of Security
Life of Denver Insurance Company; and
4. IFG Network Securities, Inc., an indirect affiliate of Security Life
of Denver Insurance Company.
All broker-dealers who sell this policy have entered into selling agreements
with us. Under these selling agreements, we pay a distribution allowance to
broker-dealers, who then pay commissions to the agent/registered representative
who sells this policy.
At the time of application for your policy, the selling agent/registered
representative will select either a levelized or a modified compensation
structure. If no selection is made, compensation will be on the levelized scale.
Under the levelized structure, the distribution allowance in policy years one
through seven is 12% of the premium we receive up to target premium and 4% of
premium we receive in excess of target premium. In policy year eight and
thereafter, the distribution allowance is 2% of all premium we receive.
Under the modified structure, the distribution allowance in policy year one is
30% of premium we receive up to target premium and 2% of premium in excess of
target premium. In policy years two through seven it is 7.5% of premium up to
target premium and 4% of premium we receive in excess of target premium. In
policy year eight and thereafter, it is 2% of all premium we receive.
Broker-dealers may receive annual renewal payments of up to 0.2% of the average
net account value for the first ten policy years; 0.15% of average net account
value for policy years eleven through twenty and 0.10% of average net account
value each policy year thereafter. If both insured people die before the seventh
policy anniversary and your policy is in force, we make a one-time additional
compensation payment for the initial sale of your policy.
Compensation arrangements may vary and depend on particular circumstances. In
addition to the distribution allowances, we may pay:
o override payments;
o expense allowances;
o special marketing fees; and
o wholesaler fees and marketing allowances, bonuses and training
allowances.
We pay all allowances from our resources which include sales charges deducted
from premiums.
ADVERTISING PRACTICES AND SALES LITERATURE
We may use advertisements and sales literature to promote this product,
including:
o indices or rankings of investment securities;
o articles on variable life insurance and other information published
in business or financial publications; and
o comparisons with other investment vehicles, including tax
considerations.
We may use information regarding the past performance of the variable investment
options. However, past performance is not indicative of future performance of
the investment options or the policies and is not reflective of the actual
investment experience of policyowners.
We may feature certain investment options and their managers, as well as
describe asset levels and sales volumes for our products. We may refer to past,
current, or prospective economic trends, investment performance and other
information we believe may be of interest to our customers.
SETTLEMENT PROVISIONS
You may elect to have the beneficiary(ies) receive the death proceeds other than
in one payment. If you make this election, you must do so before the second
death of the insured people. If you have not made this election, the
beneficiary(ies) may do so within 60 days after we receive proof of the second
death of the insured people.
You may take your net cash surrender value in other than one payment.
The investment performance of the variable investment options does not affect
payments under these settlement options. Instead, interest accrues at a fixed
rate based on the option you choose. Payment options are subject to our rules at
the time you make your selection. A periodic payment must be at least $20.
Currently, these alternate payment options are available if the proceeds are
$2,000 or more.
OPTION I: PAYOUTS FOR A DESIGNATED PERIOD
OPTION II: LIFE INCOME WITH PAYOUTS GUARANTEED FOR A DESIGNATED PERIOD
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<PAGE>
OPTION III: HOLD AT INTEREST
OPTION IV: PAYOUTS OF A DESIGNATED AMOUNT
OPTION V: OTHER OPTIONS WE OFFER AT THE TIME WE PAY THE BENEFIT
ADMINISTRATIVE INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the variable investment options' assets in shares of investment
portfolios. We are the legal owner of the shares held in the separate account
and we have the right to vote on certain issues. Among other things, we may vote
on issues described in the fund's current prospectus or issues requiring a vote
by shareholders under the Investment Company Act of 1940.
Even though we own the shares, we give you the opportunity to tell us how to
vote the number of shares attributable to your account value.
We count fractional shares. If you have a voting interest, we send you proxy
material and a form on which to give us your voting instructions.
Each investment portfolio's shares have the right to one vote. The votes of all
investment portfolios are cast together on a collective basis, except on issues
for which the interests of the portfolios differ. In these cases, voting is done
on a portfolio-by-portfolio basis.
Examples of issues that require a portfolio-by-portfolio vote are:
1. changes in the fundamental investment policy of a particular
investment portfolio; or
2. approval of an investment advisory agreement.
We vote the shares in accordance with your instructions at meetings of
investment portfolio shareholders. We vote any investment portfolio shares that
are not attributable to policies and any investment portfolio shares for which
the owner does not give us instructions, the same way we vote as if we did
receive owner instructions.
We reserve the right to vote investment portfolio shares without getting
instructions from policy owners if the federal securities laws, regulations or
their interpretations change to allow this.
You may instruct us only on matters relating to the investment portfolios
corresponding to variable investment options in which you have invested assets
as of the record date set by the investment portfolio's board for the
portfolio's shareholders meeting. We determine the number of investment
portfolio shares in each variable investment option that we attribute to your
policy by dividing your account value allocated to that variable investment
option by the net asset value of one share of the matching investment portfolio.
MATERIAL CONFLICTS
We are required to track events to identify any material conflicts arising from
using investment portfolios for both variable life and variable annuity separate
accounts. The boards of the investment portfolios, Security Life and other
insurance companies participating in the investment portfolios, have this same
duty. There may be a material conflict if:
o state insurance law or federal income tax law changes;
o investment management of an investment portfolio changes; or
o voting instructions given by owners of variable life insurance
policies and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). Therefore, there is a
possibility that a material conflict may arise between the interests of owners
in general or between certain classes of owners; and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action including removing the portfolios involved from our variable investment
options. We may take other action to protect policy owners. This could mean
delays or interruptions of the variable operations.
When state insurance regulatory authorities require us,
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<PAGE>
we may ignore voting instructions relating to changes in an investment
portfolio's adviser or its investment policies. If we do ignore voting
instructions, we give you a summary of our actions in the next semi-annual
report to owners.
Under the Investment Company Act of 1940, we must get your approval for certain
actions involving our separate account. In this case, you have one vote for
every $100 of value you have in the variable investment options. We cast votes
credited to amounts in the variable investment options, but not credited to
policies in the same proportion as votes cast by owners.
RIGHT TO CHANGE OPERATIONS
Subject to state limitations, we may from time to time make any of the following
changes to our separate account:
1. Change the investment objective.
2. Offer additional variable investment options which will invest in
portfolios we find appropriate for policies we issue.
3. Eliminate variable investment options.
4. Combine two or more variable investment options.
5. Substitute a new investment portfolio for a portfolio in which the
division currently invests. A substitution may become necessary if,
in our judgment:
o a portfolio no longer suits the purposes of your policy;
o there is a change in laws or regulations;
o there is a change in a portfolio's investment objectives or
restrictions;
o the portfolio is no longer available for investment; or
o another reason we deem a substitution is appropriate.
6. Transfer assets related to your policy class to another separate
account.
7. Withdraw the separate account from registration under the 1940 Act.
8. Operate the separate account as a management investment company under
the 1940 Act.
9. Cause one or more variable investment options to invest in a mutual
fund other than, or in addition to, the investment portfolios.
10. Stop selling these policies.
11. End any employer or plan trustee agreement with us under the
agreement's terms.
12. Limit or eliminate any voting rights for the separate account.
13. Make any changes required by the 1940 Act or its rules or
regulations.
We will not make a change until it is effective with the SEC and approved by the
appropriate state insurance departments, if necessary. We will notify you of
changes. If you wish to transfer the amount you have in the affected investment
option to another variable investment option or to the guaranteed interest
division, you may do so free of charge. Just notify us at our customer service
center.
REPORTS TO OWNERS
At the end of each policy year we send a report to you that shows:
o your total net policy death benefit (your stated death benefit plus
adjustable term insurance rider death benefit, if any);
o your account value;
o your policy loan, if any, plus accrued interest;
o your net cash surrender value;
o information about the variable investment options; and
o your account transactions during the previous year showing net
premiums, transfers, deductions, loan amounts or withdrawals.
We also send semi-annual reports with financial information on the investment
portfolios, including a list of the investment holdings of each portfolio to
you.
We send confirmation notices to you throughout the year for certain policy
transactions.
CHARGES, DEDUCTIONS AND REFUNDS
The amount of a charge may not correspond to the
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<PAGE>
cost incurred by us to provide the service or benefits associated with the
particular policy. For example, the sales charge may not cover all of the sales
and distribution expenses actually incurred by us. Proceeds from other charges,
including the mortality and expense risk charge or cost of insurance charges,
may be used to cover such expenses.
DEDUCTIONS FROM PREMIUMS
We consider any payment we receive to be a premium if you do not have an
outstanding loan and your policy is not in the continuation of coverage period.
After we deduct certain expenses from your premium payment, we add the remaining
net premium to your account value.
SALES CHARGE
We deduct a percentage from each premium payment to compensate us for the costs
we incur in selling the policies. The sales charge helps cover the costs of
distribution, preparing our sales literature, promotional expenses and other
direct and indirect expenses.
We base the percentage on the time expired since your policy date, or addition
of a segment and on your premium payments up to and above a target premium. The
sales charge deducted from your premium payments after an increase in stated
death benefit is based on each segment's target premium and the length of time
that the segment has been in effect.
Your policy schedule page shows the target premium for your policy.
Sales Charge Percentage
Policy or Up to Policy or Above Policy or
Segment Segment Segment
Year Target Premium Target Premium
---- -------------- --------------
1 8% 4%
2 - 7 8% 1.5%
8 + 1.5% 1.5%
For example, if this policy is issued to insure a male, age 85 who is
uninsurable, and a female, age 85 who is insurable but in a substandard
underwriting rating class, the target premium for sales charge purposes is $590
for each $1,000 of stated death benefit. We believe this amount represents the
maximum target premium and that most policies will have a much lower target
premium. SEE TARGET PREMIUM, PAGE 18 AND ILLUSTRATIONS OF DEATH BENEFITS,
ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 50.
We may reduce or waive the sales charge for certain group or sponsored
arrangements or for corporate purchasers. SEE GROUP OR SPONSORED ARRANGEMENTS OR
CORPORATE PURCHASERS, PAGE 45.
SEE REFUND OF SALES CHARGE, PAGE 45.
TAX CHARGES
We pay state and local taxes in almost all states. These taxes vary in amount
from state to state and may vary from jurisdiction to jurisdiction within a
state. Currently, state and local taxes range from 0.5% to 5% with some states
not imposing these types of taxes. We deduct 2.5% of each premium payment to
cover these taxes. This rate approximates the average tax rate we expect to pay
in all states.
We also deduct 1.5% of each premium payment to cover our estimated costs for the
federal income tax treatment of deferred acquisition costs. This cost is
determined solely by the amount of life insurance premiums we receive.
We reserve the right to increase or decrease your premium expense charge for
taxes as a result of changes in the tax law, within limits set by state law. We
also reserve the right to increase or decrease your premium expense charge for
the federal income tax treatment of deferred acquisition costs based on any
change in that cost to us.
OTHER CHARGES
Under current law, we pay no tax on investment income and capital gains included
in variable life insurance policy reserves. This means that no charge is
currently made to any variable investment option for our federal income taxes.
If the tax law changes and we have federal income tax chargeable to the variable
investment options, we may make such a charge in the future.
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct 0.002055% per day (0.75% annually) of
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<PAGE>
the amount you have in the variable investment options for the mortality and
expense risks we assume. This charge is deducted as part of the calculation of
the daily unit values for the variable investment options and does not appear as
a separate charge on your statement or confirmation.
The mortality risk is that insured people, as a group, may live less time than
we estimated. The expense risk is that the costs of issuing and administering
the policies and in operating the variable division are greater than the amount
we estimated.
The mortality and expense risk charge does not apply to your account value in
the guaranteed interest division or the loan division.
MONTHLY DEDUCTIONS FROM ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date.
POLICY CHARGE
The initial policy charge is $15 per month for the first ten years of your
policy. After the first ten years of your policy, the policy charge is $9 per
month.
This charge compensates us for such costs as:
o application processing;
o medical examinations;
o establishment of policy records; and
o insurance underwriting costs.
MONTHLY ADMINISTRATIVE CHARGE
For this policy, we charge a per month administrative charge of $0.06 to $0.15
per $1,000 for the first ten policy years for the lesser of target or $2,500,000
death benefit. We charge $0.01 to $0.025 per $1,000 for each policy year after
the tenth for the lesser of target or $2,500,000 death benefit. Currently, we
limit this charge to $150 per month for the first ten policy years and $25 per
month for each policy year thereafter.
This charge is designed to compensate us for ongoing costs such as:
o premium billing and collections;
o claim processing;
o policy transactions;
o record keeping;
o reporting and communications with policy owners; and
o other expenses and overhead.
COST OF INSURANCE CHARGE
The cost of insurance charge compensates us for the ongoing costs of providing
insurance coverage under the policy, including the expected cost of paying death
proceeds that may be more than your account value at the second death of the
insured people.
The cost of insurance charge is equal to our current monthly cost of insurance
rate multiplied by the net amount at risk for each portion of your death
benefit. We calculate the net amount at risk monthly, at the beginning of each
policy month. For the base death benefit, the net amount at risk is calculated
using the difference between the current base death benefit and your account
value. We determine your account value after we deduct your policy and rider
charges due on that date other than cost of insurance charges for the base death
benefit and adjustable term insurance rider.
If your base death benefit at the beginning of a month increases (due to
requirements of the federal income tax law definition of life insurance), the
net amount at risk for your base death benefit for that month also increases.
Similarly, the net amount at risk for your adjustable term insurance rider
decreases. This means that your cost of insurance charge varies from month to
month with changes in your net amount at risk, changes in the death benefit and
with the increasing age of the insured people. We allocate the net amount at
risk to segments in the same proportion that each segment has to the total
stated death benefit for all coverage segments as of the monthly processing
date.
We base your cost of insurance rates on the insured people's ages, genders,
ratings and premium classes on the policy and each segment date.
We apply unisex rates where appropriate under the law. This currently includes
the state of Montana and policies purchased by employers and employee
organizations in connection with employment-related insurance or benefit
programs.
Separate cost of insurance rates apply to:
o each segment of the base death benefit;
o your adjustable term insurance rider; and
o single life term insurance riders.
We may make changes in the cost of insurance or
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<PAGE>
rider charges for a class of insured persons. We base the new charge on changes
in expectations about:
o investment earnings;
o mortality;
o the time policies remain in effect;
o expenses; and
o taxes.
These rates are never more than the guaranteed maximum rates shown in your
policy. The guaranteed maximum rates are based on the 1980 Commissioner's
Standard Ordinary Sex Distinct Mortality Table.
The maximum rates for the initial and any new segment will be printed in the
policy schedule pages which we will provide to you.
There are no cost of insurance charges during the continuation of coverage
period.
RIDER CHARGES
On each monthly processing date, we deduct the cost of benefits under your
riders including the single life term insurance rider. Rider charges do not
include the adjustable term insurance rider. SEE RIDERS, PAGE 24.
POLICY TRANSACTION FEES
We also charge fees for certain transactions under your policy. We take these
fees from the variable and guaranteed interest divisions pro rata to the account
value in each investment option.
PARTIAL WITHDRAWALS
We deduct the lesser of a $25 service fee or 2% of the requested partial
withdrawal from your account value for each partial withdrawal you take to cover
our costs. SEE PARTIAL WITHDRAWALS, PAGE 33.
TRANSFERS
There is a $25 fee to cover our costs for each transfer over twelve free
transfers per policy year. If you include multiple transfers in one transfer
request, it counts as one transfer. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 29.
ILLUSTRATIONS
The first policy illustration you request in a policy year is free. After that,
we may charge a fee of up to $25 for each additional illustration.
PREMIUM ALLOCATION CHANGE
You may make twelve free premium allocation changes per policy year. After the
twelve free changes, we charge $25 for each additional premium allocation change
in that policy year. If you change your designated deduction investment option,
we consider it a premium allocation change. SEE MONTHLY DEDUCTIONS FROM ACCOUNT
VALUE, PAGE 43.
CONTINUATION OF COVERAGE ADMINISTRATIVE FEE
At the policy anniversary nearest the younger insured person's 100th birthday,
if your policy has not been surrendered, the continuation of coverage period
begins.
We will charge a one-time administrative fee of $400. This charge compensates us
for maintaining and servicing your policy until the second death of the insured
people. We then no longer charge your policy a monthly administrative fee or
cost of insurance charge.
DIVISIONS FROM
WHICH WE DEDUCT CHARGES, LOANS
AND PARTIAL WITHDRAWALS
<TABLE>
<CAPTION>
MONTHLY CHARGES: COST OF LOANS AND
INSURANCE CHARGES, RIDER TRANSACTION FEES PARTIAL WITHDRAWALS
CHARGES, ADMINISTRATIVE FEES
- ------------- --------------------------------------------- -------------------------------- ---------------------------------
<S> <C> <C> <C>
Choice May choose a designated deduction Proportionally among May choose any investment
investment option, including variable and guaranteed option or combination of
guaranteed interest division interest divisions investment options
Default Proportionally among variable and Proportionally among Proportionally among variable
guaranteed interest divisions variable and guaranteed and guaranteed interest divisions
interest divisions
</TABLE>
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Estate Designer 44
<PAGE>
PERSISTENCY REFUND
Where state law allows us, we pay long-term policy owners a persistency refund.
Each month your policy remains in force after your tenth policy anniversary, we
credit your account value with a refund of 0.05% of account value. This refund
is 0.6% of your account value on an annual basis.
We do not guarantee that we will pay a persistency refund on the guaranteed
interest division. If we pay a persistency refund on the guaranteed interest
division, we will pay it even if your policy is in the continuation of coverage
period.
If applicable, we add the persistency refund to the variable and guaranteed
interest divisions, but not the loan division, in the same proportion that your
account value in each investment option has to your net account value as of the
monthly processing date.
Here are two examples of how the persistency refund may affect your account
value:
EXAMPLE 1: YOUR POLICY HAS NO LOAN:
o account value = $10,000 (all in the variable division)
o monthly persistency refund rate = .0005
o persistency refund = 10,000 x .0005 = $5.00
Value Before Value After
Persistency Persistency
Refund Refund
------ ------
Variable
Division $10,000.00 $10,005.00
EXAMPLE 2: YOUR POLICY DOES HAVE A LOAN:
o account value = $10,000
o account value in the variable division = $6,000
o account value in the loan division = $4,000
o monthly persistency refund rate = .0005
o persistency refund = 10,000 x .0005 = $5.00
Value Before Value After
Persistency Persistency
Refund Refund
------ ------
Variable
Division $6,000.00 $6,005.00
Loan $4,000.00 $4,000.00
REFUND OF SALES CHARGE
If you surrender your policy within the first two policy years (guaranteed) and
it has not lapsed, we will refund a portion of the sales charge previously
deducted from your premium payments. We base the refund on premium payments we
receive in your first policy year. The refund of sales charge is not available
if your policy was purchased with the proceeds of a policy issued by us or one
of our affiliates.
REFUND OF SALES CHARGE AS A PERCENTAGE OF
FIRST POLICY YEAR PREMIUM
-----------------------------------------------------------------
We Currently Pay
We Guarantee a --------------------------------------------
Policy Year Minimum of Up to Target Premium Above Target Premium
- ------------ ----------------- ---------------------- --------------------
1 5% 10% 8%
2 2.5% 10% 4%
3 N/A 10% N/A
4+ N/A N/A N/A
GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS
Individuals, corporations or other institutions may purchase this policy. For
group or sponsored arrangements (including employees and certain family members
of employees of Security Life, its
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<PAGE>
affiliates and appointed sales agents), corporate purchasers or special exchange
programs which we may offer from time to time, we may reduce or waive the:
o administrative charge;
o minimum stated death benefit;
o minimum target death benefit;
o minimum annual premium;
o target premium;
o sales charge;
o cost of insurance charges; or
o other charges normally assessed.
We can reduce or waive these items based on expected economies. Group
arrangements include those in which there is a trustee, an employer or an
association. The group may purchase multiple policies covering a group of
individuals. Sponsored arrangements include those in which an employer or
association allows us to offer policies to its employees or members on an
individual basis.
Our sales, administration and mortality costs generally vary with the size and
stability of the group, among other factors. We take all these factors into
account when we reduce charges. A group or sponsored arrangement must meet
certain requirements to qualify for reduced charges. We make reductions to
charges based on our rules in effect when we approve a policy application. We
may change these rules from time to time.
Each sponsored arrangement or corporation may have different group premium
payments and premium requirements.
We will not be unfairly discriminatory in any variation in the administrative
charge, or other charges, fees and privileges. These variations are based on
differences in costs or services.
TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the policy and does not purport to be complete or
to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisers should be consulted for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws. No representation is made as to the likelihood of
continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be construed
in a manner which is consistent with that design. In order to qualify as a life
insurance contract for federal income tax purposes and to receive the tax
treatment normally accorded life insurance contracts under federal tax law, a
policy must satisfy certain requirements which are set forth in the Internal
Revenue Code. Specifically, the policy must meet the requirements of the
"guideline premium/cash value corridor test," as specified in Code section 7702.
The guideline premium/cash value corridor test provides for a maximum premium in
relation to the death benefit, and a minimum "corridor" of death benefit in
relation to account value. SEE APPENDIX A, PAGE 59 FOR A TABLE OF THE GUIDELINE
PREMIUM/CASH VALUE CORRIDOR TEST FACTORS.
There is very little guidance with respect to policies issued on a last survivor
basis as to how these requirements are to be applied. Nevertheless, we believe
it is reasonable to conclude that our policies satisfy the applicable
requirements. If it is subsequently determined that a policy does not satisfy
the applicable requirements, we will take appropriate and reasonable steps to
bring the policy into compliance with such requirements and we reserve the right
to restrict policy transactions or modify your policy in order to do so.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 guideline premium/cash corridor
test, Code Section 817(h) requires separate account investments, such as our
separate account, to be adequately diversified. The Treasury has issued
regulations which set the standards for measuring the adequacy of any
diversification. To be adequately diversified, each variable investment option
must meet certain tests. If your variable life policy is not adequately
diversified under these regulations, it is not treated as life insurance under
Code Section 7702. You would then be subject to federal income tax on your
policy income as you earn it. Our variable investment
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<PAGE>
options' investment portfolios have promised they will meet the diversification
standards that apply to your policy.
In certain circumstances, you, as owner of a variable life insurance contract,
may be considered the owner for federal income tax purposes of the separate
account assets used to support your contract. Any income and gains from the
separate account assets are includable in the gross income from your policy
under these circumstances. The IRS has stated in published rulings that a
variable contract owner is considered the owner of separate account assets if
the contract owner has "indicia of ownership" in those assets. "Indicia of
ownership" includes the ability to exercise investment control over the assets.
Your ownership rights under your policy are similar to, but different in some
ways from those described by the IRS in rulings in which it determined that
policy owners are not owners of separate account assets. For example, you have
flexibility in allocating your premium payments and in your policy values. These
differences could result in the IRS treating you as the owner of a pro rata
share of the separate account assets. We do not know what standards will be set
forth in the future, if any, in Treasury regulations or rulings. We reserve the
right to modify your policy, as necessary, to try to prevent you from being
considered the owner of a pro rata share of the separate account assets, or to
otherwise qualify your policy for favorable tax treatment.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY DEATH BENEFITS
We believe that the death benefit under a policy is generally excludable from
the gross income of the beneficiary(ies) under section 101(a)(1) of the Code.
However, there are exceptions to this general rule. Additionally, federal and
local transfer, estate inheritance and other tax consequences of ownership or
receipt of policy proceeds depend on the circumstances of each policy owner or
beneficiary(ies). A tax adviser should be consulted about these consequences.
Generally, the policy owner will not be taxed on any of the policy account value
until there is a distribution. When distributions from a policy occur, or when
loan amounts are taken from or secured by a policy, the tax consequences depend
on whether or not the policy is a "modified endowment contract."
Special rules also apply if you are subject to the alternative minimum tax. You
should consult a tax adviser if you are subject to the alternative minimum tax.
MODIFIED ENDOWMENT CONTRACTS
Under the Internal Revenue Code, certain life insurance contracts are classified
as "modified endowment contracts" and are given less favorable tax treatment
than other life insurance contracts. Due to the flexibility of the policies as
to premiums and benefits, the individual circumstances of each policy will
determine whether or not it is classified as a modified endowment contract. The
rules are too complex to be summarized here, but generally depend on the amount
of premiums we receive during the first seven policy years. Certain changes in a
policy after it is issued could also cause it to be classified as a modified
endowment contract. A current or prospective policy owner should consult with a
competent adviser to determine whether or not a policy transaction will cause
the policy to be classified as a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts that are issued by us (or our affiliates) to
the same policy owner during any calendar year are treated as one modified
endowment contract for purposes of determining the amount includable in the
policy owner's income when a taxable distribution occurs.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS
Once a policy is classified as a modified endowment contract, the following tax
rules apply both prospectively and to any distributions made in the prior two
years:
1. All distributions other than death benefits, including distributions
upon surrender and
- --------------------------------------------------------------------------------
Estate Designer 47
<PAGE>
withdrawals, from a modified endowment contact will be treated first
as distributions of gain taxable as ordinary income and as tax-free
recovery of the policy owner's investment in the policy only after
all gain has been distributed.
2. Loan amounts taken from or secured by a policy classified as a
modified endowment contract are treated as distributions and taxed
first as distributions of gain taxable as ordinary income and as
tax-free recovery of the policy owner's investment in the policy only
after all gain has been distributed.
3. A 10% additional income tax penalty may be imposed on the
distribution amount subject to income tax. Consult a tax adviser to
determine whether or not you may be subject to this penalty tax.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS
Distributions other than death benefits from a policy that is not classified as
a modified endowment contract are generally treated first as a recovery of the
policy owner's investment in the policy. Only after the recovery of all
investment in the policy, is there taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for federal income tax purposes, if policy
benefits are reduced during the first fifteen policy years, may be treated in
whole or in part as ordinary income subject to tax.
Loan amounts from or secured by a policy that is not a modified endowment
contract are generally not treated as distributions. Finally, neither
distributions from, nor loan amounts from or secured by, a policy that is not a
modified endowment contract are subject to the 10% additional income tax.
INVESTMENT IN THE POLICY
Your investment in the policy is generally the total of your aggregate premiums.
When a distribution is taken from the policy other than a policy loan, your
investment in the policy is reduced by the amount of the distribution that is
tax free.
POLICY LOANS
In general, interest on a policy loan will not be deductible. Moreover, the tax
consequences associated with a low cost loan such as the loan available in the
policy are uncertain. Before taking out a policy loan, you should consult a tax
adviser as to the tax consequences.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss shall be recognized on
the exchange of one life insurance policy for another life insurance policy, or
for an endowment or annuity contract. We accept 1035 exchanges with outstanding
loans. Special rules and procedures apply to Section 1035 exchanges. If you wish
to take advantage of Section 1035, you should consult your tax adviser.
TAX-EXEMPT POLICY OWNERS
Special rules may apply to a policy that is owned by a tax-exempt entity.
Tax-exempt entities should consult their tax adviser regarding the consequences
of purchasing and owning a policy. These consequences could include an effect on
the tax-exempt status of the entity and the possibility of the unrelated
business income tax.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative action is uncertain, there is always the
possibility that the tax treatment of the policy could be changed by legislation
or otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
CHANGES TO COMPLY WITH THE LAW
So that your policy continues to qualify as life insurance under the Code, we
reserve the right to refuse to accept all or part of your premium payments, or
to change your death benefit. We may refuse to allow you to make partial
withdrawals that
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Estate Designer 48
<PAGE>
would cause your policy to fail to qualify as life insurance. We also may:
o make changes to your policy or its riders; or
o take distributions from your policy to the degree that we deem
necessary to qualify your policy as life insurance for tax purposes.
If we make any change of this type, it applies the same way to all affected
policies.
The tax law limits the amount we can charge for mortality costs and other
expenses used to calculate whether your policy qualifies as life insurance for
federal income tax purposes. We must base these calculations on reasonable
mortality charges and other charges reasonably expected to be paid. The Treasury
issued proposed regulations on what it considers reasonable mortality charges.
We believe that the charges used for your policy should meet the Treasury's
current requirement for "reasonableness." We reserve the right to make changes
to the mortality charges if future regulations have standards which make changes
necessary in order to continue to qualify your policy as life insurance for
federal income tax purposes.
Additionally, assuming that you do not want your policy to be or to become a
modified endowment contract, we include a policy endorsement under which we have
the right to amend your policy, including riders. We do this to attempt to
enable your policy to continue to meet the seven-pay test for federal income tax
purposes. If the policy premium you pay is more than the seven-pay limit, we
have the right to remove any excess premium or to make any appropriate
adjustments to your policy's account value and death benefit. It is not clear,
however, whether we can take effective action pursuant to this endorsement under
all possible circumstances to prevent a policy that has exceeded the premium
limitation from being classified as a modified endowment contract.
Any increase in your death benefit will cause an increase in your cost of
insurance charges.
OTHER
Policy owners may use our policies in various arrangements, including:
o qualified plans;
o non-qualified deferred compensation or salary continuance plans;
o split dollar insurance plans;
o executive bonus plans;
o retiree medical benefit plans; and
o other plans.
The tax consequences of these plans may vary depending on the particular facts
and circumstances of each arrangement. If you want to use any of your policies
in this type of arrangement, you should consult a qualified tax adviser
regarding the tax issues of your particular arrangement.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
The IRS requires us to withhold income taxes from any portion of the amounts
individuals receive in a taxable transaction. We do not withhold income taxes if
you elect in writing not to have withholding apply. If the amount withheld for
you is insufficient to cover income taxes, you may have to pay income taxes and
possibly penalties later.
The transfer of the policy or designation of a beneficiary may have federal,
state and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate and generation-skipping transfer taxes. For example,
the transfer of the policy to, or the designation as a beneficiary of, or the
payment of proceeds to a person who is assigned to a generation which is two or
more generations below the generation assignment of the policy owner may have
generation skipping transfer tax consequences under federal tax law. The
individual situation of each policy owner or beneficiary will determine the
extent, if any, to which federal, state and local transfer and inheritance taxes
may be imposed and how ownership or receipt of policy proceeds will be treated
for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON
FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS.
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Estate Designer 49
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES AND
ACCUMULATED PREMIUMS
The following tables are intended to show how the policy works including how
benefits and values can vary over time. Each table compares these values with
total premiums we receive with interest. The policy illustrated uses the
following assumptions:
Definition
Death of Life Stated Target
Smoker Benefit Insurance Death Death
Gender Age Status* Option Test Benefit Premium Benefit
- ------ --- ------ ------ ---- ------- ------- -------
Male 50 Non-smoker 1 GP 1,000,000 $13,000 1,000,000
Preferred
Female 50 Non-smoker
Preferred
- -------------------
* "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco,
nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based
product.
The target premium for the illustrated policy is $15,906.14 (approximately $16
per $1,000 of stated death benefit).
The tables show how death benefits, account values and net cash surrender values
of a hypothetical policy could vary over an extended period of time, assuming
the variable division had constant hypothetical gross annual investment returns
of 0%, 12%, or 6% over the periods indicated in each table. Values would differ
from those shown in the tables if the annual investment returns were not
constant. The amounts shown would differ if we had used two females, two males
or smoker rates.
These illustrations assume there is no policy loan.
We illustrate premium payments as if they were made at the beginning of the
year. The third column of each table shows what would happen if an amount equal
to the assumed premiums earned interest, after taxes, of 5% compounded annually.
The net investment return on your policy is lower than the gross investment
return on the variable investment options as a result of the mortality and
expense risk charge, the portfolio management fees and portfolio expenses. We
show the effect of the net investment return in the amounts for death benefits,
account values and cash surrender values.
The tables reflect annual investment management fees of 0.66% of the portfolios'
aggregate average daily net assets. This hypothetical rate is a simple average
of the investment advisory fees applying to the investment portfolios for the
year ending December 31, 1999. We assume other portfolio expenses at the rate of
0.31% of the portfolios' average daily net assets. This is an average of all the
portfolios' other expenses for the year ending December 31, 1999 after any
expense reimbursements or waivers by investment portfolio managers has been
made. The average of all portfolios' total expenses is 0.97%.
Actual fees vary by portfolio. The portfolio fees and expenses used in the
illustrations are the net amounts shown after absorption of fees and expenses by
the portfolio's investment manager. Absent such expense reimbursements or
waivers, the total average investment management fees, average other portfolio
expenses and the average of all
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Estate Designer 50
<PAGE>
portfolios' total expenses used in the illustrations would have been higher. The
tables assume that the current expense reimbursement arrangements will continue.
However, they may not continue through 2000.
The tables assume that charges have been deducted including deductions for
premiums, cost of insurance rider charges, monthly deductions, mortality and
expense risk charge, administrative and sales charges. The tables show charges
at our current rates which includes a persistency refund. The tables also show
charges at the maximum rates we guarantee in our policies. SEE MONTHLY
DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 43. The tables reflect that we do not
currently charge against the separate account for state or federal taxes. If we
charge for the taxes in the future, it will take a higher gross rate of return
than the rates shown to produce the same death benefits, account values and
cash surrender values.
If we are asked to do so, we will give you a comparable personal illustration
based on:
o the insured people's ages and genders;
o standard premium class assumptions;
o initial stated death benefit;
o the chosen death benefit option;
o scheduled premiums consistent with your policy form; and
o special features elected on your policy.
At issue, we deliver an individualized illustration showing the scheduled
premium you chose and the insured people's actual risk classes. After we issue
the policy, if you ask us to, we will give you an illustration of future policy
benefits. We base these hypothetical future benefits on both guaranteed and
current cost factor assumptions and actual account value.
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Estate Designer 51
<PAGE>
PROSPECT: INSURED PERSON NO. 1'S NAME
MALE 50 NON-SMOKER PREFERRED PRESENTED BY:
INSURED PERSON NO. 2'S NAME
FEMALE 50 NON-SMOKER PREFERRED
SECURITY LIFE
ESTATE DESIGNER VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $13,000.00
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13000 13650 10320 10970 1000000 11623 12273 1000000 10972 11622 1000000
2 13000 27983 20390 20715 1000000 24354 24679 1000000 22333 22658 1000000
3 13000 43032 30200 30200 1000000 38290 38290 1000000 34086 34086 1000000
4 13000 58833 39733 39733 1000000 53536 53536 1000000 46227 46227 1000000
5 13000 75425 48975 48975 1000000 70204 70204 1000000 58753 58753 1000000
6 13000 92846 57906 57906 1000000 88418 88418 1000000 71657 71657 1000000
7 13000 111138 66506 66506 1000000 108315 108315 1000000 84930 84930 1000000
8 13000 130345 75588 75588 1000000 130979 130979 1000000 99448 99448 1000000
9 13000 150513 84285 84285 1000000 155746 155746 1000000 114360 114360 1000000
10 13000 171688 92574 92574 1000000 182813 182813 1000000 129656 129656 1000000
15 13000 294547 132885 132885 1000000 375594 375594 1000000 220538 220538 1000000
20 13000 451350 152978 152978 1000000 689873 689873 1000000 319494 319494 1000000
25 13000 651475 133249 133249 1000000 1223815 1223815 1309483 416815 416815 1000000
30 13000 906890 16188 16188 1000000 2113789 2113789 2219478 485907 485907 1000000
AGE 65 13000 322925 138918 138918 1000000 426528 426528 1000000 239886 239886 1000000
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
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Estate Designer 52
<PAGE>
PROSPECT: INSURED PERSON NO. 1'S NAME
MALE 50 NON-SMOKER PREFERRED PRESENTED BY:
INSURED PERSON NO. 2'S NAME
FEMALE 50 NON-SMOKER PREFERRED
SECURITY LIFE
ESTATE DESIGNER VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $13,000.00
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13000 13650 10320 11620 1000000 11623 12923 1000000 10972 12272 1000000
2 13000 27983 20390 21690 1000000 24354 25654 1000000 22333 23633 1000000
3 13000 43032 30200 31500 1000000 38290 39590 1000000 34086 35386 1000000
4 13000 58833 39733 39733 1000000 53536 53536 1000000 46227 46227 1000000
5 13000 75425 49080 49080 1000000 70314 70314 1000000 58861 58861 1000000
6 13000 92846 58263 58263 1000000 88801 88801 1000000 72027 72027 1000000
7 13000 111138 67279 67279 1000000 109170 109170 1000000 85745 85745 1000000
8 13000 130345 76960 76960 1000000 132540 132540 1000000 100916 100916 1000000
9 13000 150513 86456 86456 1000000 158281 158281 1000000 116714 116714 1000000
10 13000 171688 95765 95765 1000000 186632 186632 1000000 133162 133162 1000000
15 13000 294547 146381 146381 1000000 392994 392994 1000000 236032 236032 1000000
20 13000 451350 191700 191700 1000000 737872 737872 1000000 364403 364403 1000000
25 13000 651475 226808 226808 1000000 1316264 1316264 1442552 521899 521899 1000000
30 13000 906890 241640 241640 1000000 2282915 2282915 2457269 714510 714510 1000000
AGE 65 13000 322925 155992 155992 1000000 448575 448575 1000000 259565 259565 1000000
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
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Estate Designer 53
<PAGE>
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS
Set forth below is information regarding the directors and principal officers of
Security Life of Denver Insurance Company. Security Life's address, and the
business address of each person named, except as noted with one or two asterisks
(*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The
business address of each person denoted with one asterisk (*) is ING North
America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia
30327-4390. The business address of each person denoted with two asterisks (**)
is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400,
Charlotte, North Carolina 28273.
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
Stephen M. Christopher Chairman, President and Chief Executive Officer
Jess A. Skriletz Director, Chief Executive Officer and General
Manager, ING Reinsurance and ING
Institutional Markets
Michael W. Cunningham* Director, Executive Vice President
Mark A. Tullis* Director
P. Randall Lowery* Director
Thomas F. Conroy President, ING Reinsurance International
Gregory G. McGreevey President, ING Institutional Markets
Jerome J. Cwiok* Executive Vice President and Chief Operating
Officer
James L. Livingston, Jr. Executive Vice President and Chief Actuary
Jeffrey R. Messner Executive Vice President and Chief Marketing
Officer
John R. Barmeyer* Senior Vice President, Chief Legal Officer
Wayne D. Bidelman Senior Vice President, CCRC
Arnold A. Dicke Senior Vice President, Chief Actuary, ING
Reinsurance
Charles LeDoyen** Senior Vice President, Structured Settlements
Terry L. Morrison Senior Vice President, New Business Operations
Jeffery W. Seel* Senior Vice President, Chief Investment Officer
Mark A. Smith Senior Vice President, Insurance Services
Lawrence D. Taylor Senior Vice President, Product Management
William D. Tyler* Senior Vice President, Chief Information Officer
Gary W. Waggoner Vice President, General Counsel and Corporate
Secretary
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Estate Designer 54
<PAGE>
REGULATION
We are regulated and supervised by the Division of Insurance of the Department
of Regulatory Agencies of the State of Colorado which periodically examines our
financial condition and operations. In addition, we are subject to the insurance
laws and regulations in every jurisdiction in which we do business. As a result,
the provisions of this policy may vary somewhat from jurisdiction to
jurisdiction.
We are required to submit annual statements, including financial statements, of
our operations and finances to the insurance departments of the various
jurisdictions in which we do business to determine solvency and compliance with
state insurance laws and regulations.
We are also subject to various federal securities laws and regulations.
LEGAL MATTERS
The legal matters in connection with the policy described in this prospectus
have been passed on by the General Counsel of Security Life. Sutherland Asbill &
Brennan LLP has provided advice on certain matters relating to the federal
securities laws.
LEGAL PROCEEDINGS
Security Life, as an insurance company, is ordinarily involved in litigation. We
do not believe that any current litigation is material to Security Life's
ability to meet its obligations under the policy or to the separate account, and
we do not expect to incur significant losses from such actions. ING America
Equities, Inc., the principal underwriter and distributor of the policy, is not
engaged in any litigation of any material nature.
EXPERTS
[TO BE UPDATED BY AMENDMENT.]
REGISTRATION STATEMENT
We have filed a Registration Statement relating to the separate account and the
variable life insurance policy described in this prospectus with the SEC. The
Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. The additional information may be obtained
from the SEC's principal office in Washington, DC. There is a charge for this
material.
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Estate Designer 55
<PAGE>
INDEX OF SPECIAL TERMS
The following special terms are used in this prospectus. We explain each term on
the page(s) listed in the body of this prospectus and in the summary, if
applicable:
Account value..............................................7
Accumulation unit.........................................28
Accumulation unit value...................................29
Adjustable term insurance rider...........................20
Base death benefit........................................21
Beneficiary(ies)..........................................21
Cash surrender value......................................28
Continuation of coverage..................................27
Death proceeds............................................21
Divisions.................................................11
Free look period..........................................35
General account...........................................15
Guaranteed interest division..............................15
Initial premium...........................................19
Investment date...........................................19
Investment options........................................11
Joint equivalent age......................................36
Loan division.............................................32
Minimum annual premium....................................18
Monthly processing date...................................56
Net account value.........................................28
Net amount at risk........................................43
Net cash surrender value..................................28
Net premium............................................4, 18
Partial withdrawal........................................18
Policy.....................................................4
Policy date...............................................17
Policy loan...............................................32
Portfolios................................................11
Scheduled premium.........................................17
Segment...................................................24
Separate account..........................................11
Special continuation period...............................18
Stated death benefit......................................16
Target death benefit......................................24
Target premium............................................42
Total death benefit.......................................24
Transaction date..........................................29
Valuation date............................................28
Valuation period..........................................29
Variable division.........................................11
Variable investment option................................11
Younger insured person's 100th birthday...................36
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Estate Designer 56
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1999
and 1998, and for each of the three years in the period ended December 31, 1999,
are prepared in accordance with generally accepted accounting principles and
start on page ?.
The financial statements included for the Security Life Separate Account L1 at
December 31, 1999 and for each of the three years in the period ended December
31, 1999, are prepared in accordance with generally accepted accounting
principles and represent those divisions that had commenced operations by that
date.
The consolidated financial statements of Security Life and Subsidiaries, as well
as the financial statements included for the Security Life Separate Account L1
referred to above have been audited by Ernst & Young LLP. The consolidated
financial statements of Security Life and Subsidiaries should be distinguished
from the financial statements of the Security Life Separate Account L1 and
should be considered only as bearing upon the ability of Security Life and
Subsidiaries to meet its obligations under the policies. They should not be
considered as bearing upon the investment experience of the divisions of
Security Life Separate Account L1.
[TO BE FILED BY AMENDMENT]
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Estate Designer 57
<PAGE>
APPENDIX A
FACTORS FOR THE
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age of Younger Age of Younger Age of Younger Age of Younger
Insured Factor Insured Factor Insured Factor Insured Factor
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.05
5 2.50 30 2.50 55 1.50 80 1.05
6 2.50 31 2.50 56 1.46 81 1.05
7 2.50 32 2.50 57 1.42 82 1.05
8 2.50 33 2.50 58 1.38 83 1.05
9 2.50 34 2.50 59 1.34 84 1.05
10 2.50 35 2.50 60 1.30 85 1.05
11 2.50 36 2.50 61 1.28 86 1.05
12 2.50 37 2.50 62 1.26 87 1.05
13 2.50 38 2.50 63 1.24 88 1.05
14 2.50 39 2.50 64 1.22 89 1.05
15 2.50 40 2.50 65 1.20 90 1.05
16 2.50 41 2.43 66 1.19 91 1.04
17 2.50 42 2.36 67 1.18 92 1.03
18 2.50 43 2.29 68 1.17 93 1.02
19 2.50 44 2.22 69 1.16 94 1.01
20 2.50 45 2.15 70 1.15 95 1.00
21 2.50 46 2.09 71 1.13 96 1.00
22 2.50 47 2.03 72 1.11 97 1.00
23 2.50 48 1.97 73 1.09 98 1.00
24 2.50 49 1.91 74 1.07 99 1.00
100 1.00
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
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Estate Designer 58
<PAGE>
APPENDIX B
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age of Younger Age of Younger Age of Younger Age of Younger
Insured Factor Insured Factor Insured Factor Insured Factor
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.09
5 2.50 30 2.50 55 1.50 80 1.14
6 2.50 31 2.50 56 1.46 81 1.18
7 2.50 32 2.50 57 1.42 82 1.22
8 2.50 33 2.50 58 1.38 83 1.26
9 2.50 34 2.50 59 1.34 84 1.31
10 2.50 35 2.50 60 1.30 85 1.35
11 2.50 36 2.50 61 1.28 86 1.33
12 2.50 37 2.50 62 1.26 87 1.31
13 2.50 38 2.50 63 1.24 88 1.29
14 2.50 39 2.50 64 1.22 89 1.27
15 2.50 40 2.50 65 1.20 90 1.26
16 2.50 41 2.43 66 1.19 91 1.24
17 2.50 42 2.36 67 1.18 92 1.22
18 2.50 43 2.29 68 1.17 93 1.19
19 2.50 44 2.22 69 1.16 94 1.16
20 2.50 45 2.15 70 1.15 95 1.12
21 2.50 46 2.09 71 1.13 96 1.11
22 2.50 47 2.03 72 1.11 97 1.09
23 2.50 48 1.97 73 1.09 98 1.06
24 2.50 49 1.91 74 1.07 99 1.03
100 1.00
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Estate Designer 59
<PAGE>
APPENDIX C
PERFORMANCE INFORMATION
POLICY PERFORMANCE
The following hypothetical illustrations demonstrate how the actual investment
experience of each variable investment option of the separate account affects
the cash surrender value, account value and death benefit of a policy. These
hypothetical illustrations are based on the actual historical return of each
portfolio as if a policy had been issued on the date indicated. Each portfolio's
annual total return is based on the total return calculated for each fiscal
year. These annual total return figures reflect the net portfolio's management
fees after any voluntary waiver and other operating expenses but do not reflect
the policy level or separate account asset-based charges and deductions, which
if reflected, would result in lower total return figures than those shown.
The illustrations are based on the payment of a $13,000 annual premium, paid at
the beginning of each year, for a hypothetical policy with a $1,000,000 face
amount, the guideline premium test, death benefit option 1, issued to a
preferred, non-smoker male, age 50 and a preferred, non-smoker female, age 50.
It is assumed that all premiums are allocated to the variable investment option
illustrated for the period shown. The benefits are calculated for a specific
date. The amount and timing of premium payments and the use of other policy
features, such as policy loans, would affect individual policy benefits.
The amounts shown for the cash surrender values, account values and death
benefits take into account the charges against premiums, current cost of
insurance and monthly deductions, the daily charge against the separate account
for mortality and expense risks, and each portfolio's charges and expenses. SEE
CHARGES, DEDUCTIONS AND REFUNDS, PAGE 41. This prospectus also contains
illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF DEATH
BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE
50.
[TO BE UPDATED BY AMENDMENT.]
- --------------------------------------------------------------------------------
Estate Designer 60
<PAGE>
[TO BE UPDATED BY AMENDMENT.]
HYPOTHETICAL ILLUSTRATIONS
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
AIM V.I. GOVERNMENT SECURITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
ALGER AMERICAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
The assumptions underlying these values are described in Performance
Information, page 60.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Separate Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 61
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 % 1,000,000
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
FIDELITY VIP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 % 1,000,000
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
The assumptions underlying these values are described in Performance
Information, page 60.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Separate Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 62
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/89 % 1,000,000
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
FIDELITY VIP OVERSEAS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 % 1,000,000
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
The assumptions underlying these values are described in Performance
Information, page 60.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Separate Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 63
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
FIDELITY VIP II INDEX 500 PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
INVESCO VIF-EQUITY INCOME FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
INVESCO VIF-HIGH YIELD FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
INVESCO VIF-SMALL COMPANY GROWTH FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/98 % 1,000,000
INVESCO VIF-TOTAL RETURN FUND
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
The assumptions underlying these values are described in Performance
Information, page 60.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Separate Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 64
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
INVESCO VIF-UTILITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
NEUBERGER BERMAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 % 1,000,000
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
NEUBERGER BERMAN LIMITED MATURITY BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 % 1,000,000
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
NEUBERGER BERMAN PARTNERS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
The assumptions underlying these values are described in Performance
Information, page 60.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Separate Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 65
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
VAN ECK WORLDWIDE BOND FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 % 1,000,000
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
VAN ECK WORLDWIDE EMERGING MARKETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
VAN ECK WORLDWIDE HARD ASSETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/91 % 1,000,000
12/31/92 % 1,000,000
12/31/93 % 1,000,000
12/31/94 % 1,000,000
12/31/95 % 1,000,000
12/31/96 % 1,000,000
12/31/97 % 1,000,000
12/31/98 % 1,000,000
%
VAN ECK WORLDWIDE REAL ESTATE FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/98 % 1,000,000
The assumptions underlying these values are described in Performance
Information, page 60.
*These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Separate Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 66
<PAGE>
PART II
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 duly adopted pursuant to authority conferred
in that section.
UNDERTAKING REGARDING INDEMNIFICATION
Please refer to the Articles of Incorporation listed as Exhibits 1.A(6)(a) and
I.A(6)(b-g) and the By-Laws listed as Exhibits I.A(6)(h) and 1.A(6)(h)(i).
Security Life of Denver's (the "corporation") Certificate of Incorporation and
bylaws provide that the corporation shall have every power and duty of
indemnification of directors, officers, employees and agents, without
limitation, provided by the laws of the state of Colorado. Under Colorado law,
the corporation has the power to indemnify such persons against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any threatened, pending or completed action,
suit or proceeding, if such person acted in good faith and in a manner which
that person reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of actions by
or in the right of the corporation, such indemnification cannot be made where
such person is adjudged liable to the corporation, except pursuant to a court
order. The corporation is required to indemnify directors, officers, employees
and agents against expense actually and reasonably incurred in connection with
actions where such persons have been successful on the merits or otherwise in
defense of such actions.
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, 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
has been settled by controlling preceding, 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.
UNDERTAKING REQUIRED BY SECTION 26(E)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED
Security Life of Denver Insurance Company represents that the fees and charges
deducted under the Policy, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred and the risks assumed by
the Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents;
The facing sheet.
- --------------------------------------------------------------------------------
Estate Designer II - 1
<PAGE>
Cross-Reference table.
The prospectus.
The undertaking to file reports.
The undertaking regarding indemnification,
The undertaking required by Section 26(e)2(A) of the Investment Company
Act of 1940, as amended.
The signatures.
Written consents of the following persons:
James L. Livingston, Jr.
(See Exhibit 6B). [TO BE FILED BY AMENDMENT)
Ernst & Young, L.L.P.
(See Exhibit 7A). [TO BE FILED BY AMENDMENT)
Sutherland Asbill & Brennan LLP
(See Exhibit 7B). [TO BE FILED BY AMENDMENT]
The following exhibits:
1.
A.
(1) Resolution of the Executive Committee of the Board of Directors
of Security Life of Denver Insurance Company ("Security Life of
Denver") authorizing the establishment of the Registrant./1/
(2) Not Applicable.
(3)
(a) Security Life of Denver Distribution Agreement./1/
(i) Amendment to Security Life of Denver Insurance
Company Distribution Agreement./8/
(ii) Amendment to Security Life of Denver Insurance
Company Distribution Agreement./11/
(b) Specimen Amendment to Broker/Dealer Supervisory and
Selling Agreement for Variable Contracts with
Compensation Schedule./11/
(c) Commission Schedule for Policies./11/
(4) Not Applicable.
(5)
(a) Specimen Estate Designer Universal Life Insurance Policy
(Form No.2506(JTVUL)- 5/00)./11/
(b) Adjustable Term Insurance Rider (Form No. R2007-5/00)./4/
(c) Single Life Term Insurance Rider (Form No.R2004-8/99)./4/
(6)
(a) Security Life of Denver's Restated Articles of
Incorporation./1/
(b-g) Amendments to Articles of Incorporation through June 12,
1987./1/
- --------------------------------------------------------------------------------
Estate Designer II - 2
<PAGE>
(h) Security Life of Denver's By-Laws./1/
(i) Bylaws of Security Life of Denver Insurance
Company (Restated with Amendments through
September 30, 1997)./2/
(7) Not Applicable.
(8)
(a) Participation Agreements
(i) Participation Agreement by and among AIM
Variable Insurance Funds, Inc., Life Insurance
Company, on Behalf of Itself and its Separate
Accounts and Name of Underwriter of Variable
Contracts and Policies./3/
(ii) Sales Agreement by and among The Alger American
Fund, Fred Alger Management, Inc., and Security
Life of Denver Insurance Company./1/
(iii) Sales Agreement by and among Neuberger & Berman
Advisers Management Trust, Neuberger & Berman
Management Incorporated, and Security Life of
Denver Insurance Company./1/
(iv) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance
Company./1/
(v) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver
Insurance Company./1/
(vi) Participation Agreement among INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group,
Inc., and Security Life of Denver Insurance
Company./1/
(vii) Participation Agreement between Van Eck
Investment Trust and the Trust's investment
adviser, Van Eck Associates Corporation, and
Security Life of Denver Insurance Company./1/
(viii) Specimen Participation Agreement among Security
Life of Denver Insurance Company, The GCG Trust
and Directed Services, Inc./10/
(b)
(i) First Amendment to Fund Participation Agreement
between Security Life of Denver, Van Eck
Investment Trust and Van Eck Associates
Corporation./3/
(ii) Second Amendment to Fund Participation Agreement
between Security Life of Denver, Van Eck
Worldwide Insurance Trust and Van Eck Associates
Corporation./3/
(iii) Assignment and Modification Agreement between
Neuberger & Berman Advisers Management Trust,
Neuberger & Berman Management Incorporated,
Neuberger & Berman Advisers Management Trust,
Advisers Managers Trust and Security Life of
Denver Insurance Company./3/
(iv) First Amendment to Participation Agreement by
and among The Alger American Fund, Fred Alger
Management, Inc., Security Life of Denver
Insurance Company./1/
(v) First Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./1/
(vi) Second Amendment to Participation Agreement
among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./1/
(vii) First Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./1/
(viii) Second Amendment to Participation Agreement
among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Security
Life of Denver Insurance Company./1/
(ix) First Amendment to Participation Agreement among
Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./1/
- --------------------------------------------------------------------------------
Estate Designer II - 3
<PAGE>
(x) Third Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./8/
(xi) Third Amendment to Participation Agreement among
Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./8/
(xii) Fourth Amendment to Participation Agreement
among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Company./8/
(xiii) Fourth Amendment to Participation Agreement
among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Security
Life of Denver Insurance Company./8/
(xiv) Amendment No. 2 to Participation Agreement among
AIM Variable Insurance Funds, Inc., Security
Life of Denver Insurance Company and ING America
Equities, Inc./8/
(xv) Fourth Amendment to Participation Agreement
among Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./9/
(xvi) Amendment No. 3 to Participation Agreement among
AIM Variable Insurance Funds, Inc., Security
Life of Denver Insurance Company and ING America
Equities, Inc./9/
(xvii) Fifth Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./9/
(xviii) Fifth Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./9/
(xix) Amendment No. 4 to Participation Agreement among
AIM Variable Insurance Funds, Inc., Security
Life of Denver Insurance Company and ING America
Equities, Inc./11/
(xx) Sixth Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./11/
(xxi) Sixth Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./11/
(xxii) Fifth Amendment to Participation Agreement among
Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./11/
(c)
(i) Service Agreement between Fred Alger Management,
Inc. and Security Life of Denver Insurance
Company./6/
(ii) Expense Allocation Agreement Between A I M
Advisors, Inc., AIM Distributors, Inc. and
Security Life of Denver./7/
(iii) Service Agreement between INVESCO Funds Group,
Inc. and Security Life of Denver Insurance
Company./7/
(iv) Service Agreement between Neuberger & Berman
Management Incorporated and Security Life of
Denver Insurance Company./7/
(v) Service Agreement between Fidelity Investments
Institutional Operations Company, Inc. and
Security Life of Denver Insurance Company./7/
(vi) Side Letter between Van Eck Worldwide Insurance
Trust and Security Life of Denver./7/
(9) Not Applicable.
- --------------------------------------------------------------------------------
Estate Designer II - 4
<PAGE>
(10) Specimen Estate Designer Life Insurance Application with Binding
Limited Life Insurance Coverage Form (Form No. Q2006-9/97)./11/
2. Included as Exhibit l.A(5) above.
3.
A. Opinion and consent of Gary W. Waggoner as to securities being
registered.
4. Not Applicable.
5. Not Applicable.
6.
A. Opinion and consent of James L. Livingston, Jr. [TO BE FILED BY
AMENDMENT]
7.
B. Consent of Ernst & Young L.L.P. (TO BE FILED BY AMENDMENT]
C. Consent of Sutherland Asbill & Brennan LLP. [TO BE FILED BY AMENDMENT]
8. Not Applicable.
11. Issuance, Transfer and Redemption Procedures Memorandum.
- -------------
/1/ Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on April 27, 1998 (File No. 33-74190).
/2/ Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on October 29, 1998 (File No. 33-74190).
/3/ Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on March 2, 1998 (File No. 33-74190).
/4/ Incorporated herein by reference to the Initial Registration to the Form
S-6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account Ll, filed with the Securities and
Exchange Commission on February 22, 1999 (File No. 333-72753).
/5/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form. S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on March 30, 1999 (File Nc. 333-72753).
/6/ Incorporated herein by reference to Post-Effective Amendment 140. 7 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on April 27, 1998 (File No. 33-74190).
/7/ Incorporated herein by reference to Post-Effective Amendment No. 10 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on April 23, 1999 (File No. 33-74190).
/8/ Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on May 10, 1999 (File No. 333-72753).
/9/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on December 3, 1999 (File No.
333-90577).
/10/ Incorporated herein by reference to the Pre-Effective Amendment No. 2 to
the Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on February 2, 2000 (File No.
333-90577).
/11/ Incorporated herein by reference to the Post-Effective Amendment No. 1 to
the Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on February 29, 2000 (File No.
333-72753).
- --------------------------------------------------------------------------------
Estate Designer II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Security Life of
Denver Insurance Company and the Registrant, Security Life Separate Account Ll,
have duly caused this Registration Statement to be signed on their behalf by the
undersigned, hereunto duly authorized, and their seal to be hereunto fixed and
attested, all in the City and County of Denver and the State of Colorado on the
7th day of April, 2000.
SECURITY LIFE OF DENVER INSURANCE COMPANY (Depositor)
BY: /s/ Stephen M. Christopher
-------------------------
Stephen M. Christopher
President
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- -------------------
Gary W. Waggoner
SECURITY LIFE SEPARATE ACCOUNT Ll
(Registrant)
BY: SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
-------------------------
Stephen M. Christopher
President
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- -------------------
Gary W. Waggoner
- --------------------------------------------------------------------------------
Estate Designer II - 6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities with
Security Life of Denver Insurance Company and on the date indicated.
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Stephen M. Christopher
- ---------------------------
Stephen M. Christopher
President, Chief Executive Officer and Director
/s/ James L. Livingston, Jr.
- --------------------------
James L. Livingston, Jr.
Executive Vice President and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Shari A. Enger
- ---------------------------
Shari A. Enger
Vice President - Controller
DIRECTORS:
/s/ P. Randall Lowery
- ---------------------------
P. Randall Lowery
/s/ Michael W. Cunningham
- ---------------------------
Michael W. Cunningham
- --------------------------------------------------------------------------------
Estate Designer II - 7
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
3. A. Opinion and consent of Gary W. Waggoner as to securities being
registered.
11. Issuance, Transfer and Redemption Procedures Memorandum.
- --------------------------------------------------------------------------------
Estate Designer II - 8
[logo of Security Life of Denver appears here] EXHIBIT 3.A
April 7, 2000
Security Life of Denver
Insurance Company
Security Life Center
1290 Broadway
Denver, Colorado 80203-5699
Dear Sirs:
This opinion is furnished in connection with the Form S-6 Registration Statement
being filed by Security Life of Denver Insurance Company ("Security Life") under
the Securities Act of 1933, as amended (the "Act"), for the offering of
interests ("Interests") in Security Life Separate Account L1 ("Separate Account
L1") under the Flexible Premium Variable Life Insurance Policies ("Policies") to
be issued by Security Life. The securities being registered under the Act are to
be offered in the manner described in the Registration Statement.
I have examined or supervised the examination of all such corporate records of
Security Life and such other documents and such laws as I consider appropriate
as a basis for the opinion hereinafter expressed. On the basis of such
examination, it is my opinion that:
1. Security Life is a corporation duly organized and validly existing
under the laws of the State of Colorado.
2. Separate Account L1 was duly created as a separate investment account
of Security Life pursuant to the laws of the State of Colorado.
3. The assets of Separate Account L1 will be owned by Security Life. Under
Colorado law and the provisions of the Policies, the income, gains and
losses, whether or not realized, from assets allocated to Separate
Account L1 must be credited to or charged against such Account, without
regard to the other income, gains or losses of Security Life.
4. The Policies provide that the assets of Separate Account L1 may not be
charged with liabilities arising out of any other business Security
Life may conduct, except to the extent that assets of Separate Account
L1 exceed its liabilities arising under the Policies.
<PAGE>
April 7, 2000
Page 2
5. The Policies and the Interests in Separate Account L1 to be issued
under the Policies have been duly authorized by Security Life; and the
Policies, including the Interests therein, when issued and delivered,
will constitute validly issued and binding obligations of Security Life
in accordance with their terms.
I hereby 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 Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Gary W. Waggoner
Gary W. Waggoner
Vice President, General Counsel
and Corporate Secretary
Exhibit 11
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES
FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(l2)(III)
This document sets forth the administrative procedures that will be followed by
Security Life of Denver ("Security Life") in connection with the issuance of its
joint and survivor flexible premium variable universal life insurance policies
(the "policies") issued through Security Life Separate Account Ll (the "Separate
Account"), the transfer of assets held under the policies, and the redemption of
interests in policies.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
A. Offering of the Policy
The policy is offered on two lives to persons or entities who satisfy
certain suitability standards ("owners"). The policy may be purchased
to acquire insurance on the lives of two individuals (joint "insureds")
in whom the owner has an insurable interest. Security Life requires
satisfactory evidence of each of the insured's insurability, which may
include a medical examination. The available issue ages are 0 through
90. Age is determined on the insured's age as of the birthday nearest
the policy date. The joint equivalent age of the insured individuals is
based on the sum of both insured's ages divided by two. It cannot
exceed age 85 at time of issue, and must be at least 15.
For Estate Designer ("ED"), the minimum stated death benefit is $1,000;
however, the required minimum total death benefit is $500,000. The
total death benefit includes stated death benefit plus coverage
provided under a term rider.
Acceptance of an application depends on Security Life's underwriting
rules. Security Life reserves the right to reject an application for
any reason.
If a policy has more than one owner (joint owners), then transactions
under the policy except telephone transfers of account value require
the authorization of all owners.
B. Cost of Insurance Charges Structure, Payments and Underwriting
Standards
Security Life places the joint insureds in a premium class when the
policy is issued, based on underwriting. This original premium class
applies to the initial stated death benefit.
The current cost of insurance charge rate for a policy is based on the
age at issue, sex, and premium class of the insured, and on the policy
year, and therefore varies from time to time. Security Life currently
places insureds in the following premium classes, based on
underwriting: Standard Tobacco (ages 15-90); Standard Nontobacco (ages
15-90), or Preferred
Estate Designer February 28, 2000
1
<PAGE>
(ages 15-90). Or, insureds may be placed in a substandard rate class,
with a higher mortality risk than the standard tobacco or standard
nontobacco classes.
Additionally, an uninsurable rating may be assessed to an individual
that is rated higher than table P. The uninsurable rating will be
handled in the unideath calculation the same way a table rating is
except the percentage will be higher. The uninsurable rating is capped
at the later of age 65 or 15 years from issue.
Security Life guarantees that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the
maximum cost of insurance premiums set forth in the policies. The
guaranteed cost of insurance rate for standard classes are based on the
1980 Commissioners' Standard ordinary mortality Tables, Male or Female,
Smoker or Nonsmoker Mortality Premiums (1980 CSO Tables). The
guaranteed cost of insurance rates for substandard classes are based on
multiples of or additives to the 1980 CSO Tables.
Security Life's current cost of insurance may be less than the
guaranteed cost of insurance that is set forth in the policy. Current
cost of insurance rates will be determined based on Security Life's
expectations as to future mortality, investment earnings, expenses,
taxes, and persistency experience. These rates may change from time to
time.
Cost of insurance rates (whether guaranteed or current) for an insured
in a standard nontobacco class are equal to or lower than guaranteed
cost of insurance for an insured of the same age and sex in a standard
tobacco class. Cost of insurance rates (whether guaranteed or current)
for an insured in a standard nontobacco or tobacco class are generally
lower than guaranteed cost of insurance for an insured of the same age
and sex and tobacco status in a substandard class.
The cost of insurance for the policy will not be the same for all
owners. Insurance is based on the principle of pooling and distribution
of mortality risks which assumes that each owner is charged a cost of
insurance commensurate with the insured's mortality risk as actually
determined, reflecting factors such as age, sex, health, and
underwriting method. A uniform cost of insurance charge for all
insureds would discriminate unfairly in favor of those insureds
representing higher risks. Although there will be no uniform cost of
insurance charges for all insureds for a given stated death benefit
there will be a uniform cost of insurance charge for all insureds of
the same issue age, sex, policy duration and underwriting
classification.
If the insured's age or sex has been misstated in the application for
the policy or in any application for supplemental and/or rider
benefits, and if the misstatement becomes known during the lifetime of
the insured, then policy values will be adjusted to those based on the
correct monthly deductions (reflecting the correct age or sex) since
the policy date. If the policy's values are insufficient to cover the
monthly deduction on the prior monthly date, the grace period will be
deemed to have begun on such date, and notification will be sent to the
owner at least 61 days prior to the end of the grace period. See
"Policy Termination and Grace Period," below.
Estate Designer February 28, 2000
2
<PAGE>
The policy provides coverage on joint insureds named under the policy
and a Death Benefit payable upon the death of the second insured. The
policy will remain in force as long as the policy's cash surrender
value is sufficient to cover the charges due. Security Life guarantees
that a policy will remain in force during the special continuation
period, regardless of the sufficiency of the cash surrender value, if
the sum of the premiums paid to date, less any partial cash surrenders
and policy debt equals or exceeds the minimum monthly premium (shown in
the policy) multiplied by the number of complete policy months since
the policy date, including the current policy month. The special
continuation period is five years following the policy date.
The minimum monthly premium is calculated for each policy based on the
joint equivalent age, sex and premium class of each insured, the
requested stated death benefit and supplemental or rider benefits. The
minimum monthly premium may change as a result of changes to the stated
death benefit, the death benefit option, ratings, and supplemental or
rider benefits. Security Life will notify the owner of any change in
the minimum monthly premium.
On or after one year from the policy date, the owner may request a
reduction in the stated death benefit, by notice to Security Life,
subject to the following rules. If a change in the stated death benefit
would result in total premiums paid exceeding the premium limitations
prescribed under current tax law to qualify the policy as a life
insurance contract, Security Life will refund promptly to the owner the
excess above the premium limitations.
The minimum amount of a decrease in stated death benefit is $1,000. The
decrease in stated death benefit will become effective on the next
monthly processing date following the date that the decrease is
approved by Security Life. Security Life reserves the right to decline
a requested decrease in the stated death benefit if compliance with the
guideline premium limitations under current tax law resulting from this
decrease would result in immediate termination of the policy, or if to
effect the requested decrease, payments to the owner would have to be
made from the accumulated value for compliance with the guideline
premium limitations, and the amount of such payments would exceed the
cash surrender value under the policy.
At any time after issue the owner may request an increase in the stated
death benefit. An increase in the stated death benefit must be at least
$1,000 (unless the increase is effected pursuant to a rider providing
for automatic, scheduled increases in stated death benefit), and an
application must be submitted. An increase requires satisfactory
evidence of insurability and must meet Security Life's underwriting
rules. The increase in stated death benefit will become effective on
the next monthly processing date following the date the request is
approved. The account value will reflect a monthly deduction (as of the
effective date) based on the increased stated death benefit.
Estate Designer February 28, 2000
3
<PAGE>
Security Life will determine a cost of insurance rate for each increase
in coverage based on the joint equivalent age of the insureds at the
time of the increase. The following rules will apply for purposes of
determining the risk amount for each rate.
When an increase in stated death benefit is requested, Company conducts
underwriting before approving the increase (except as noted below) to
determine whether a different premium class will apply to the increase.
If the premium class for the increase has lower cost of insurance rates
than the original premium class, then the premium class for the
increase will also be applied to the initial stated death benefit. If
the premium class for the increase has higher cost of insurance rates
than the original premium class, the premium class for the increase
will apply only to the increase in stated death benefit, and the
original premium class will continue to apply to the initial stated
death benefit.
For the purposes of determining the risk amount associated with a
stated death benefit, Security Life will attribute the account value
solely to the initial stated death benefit unless the account value
exceeds the initial stated death benefit. If the account value exceeds
the initial stated death benefit, the excess will be considered
attributable to the increases in stated death benefit in the order of
the increases. If there is a decrease in stated death benefit after an
increase, a decrease is applied first to decrease prior increases in
stated death benefit, starting with the most recent increase.
The policy will be offered and sold pursuant to an established
mortality structure and underwriting standards in accordance with state
insurance laws. Where state insurance laws prohibit the use of
actuarial tables that distinguish between men and women in determining
premiums and policy benefits for their insured resident, Security Life
will comply.
C. Application and Payment Processing
To purchase a policy, an application must be completed and submitted
through an authorized Security Life agent. The initial premium payment
must be at least equal to the scheduled premiums from the policy date
through the investment date. The Policy Date is used to determine the
monthly processing date, coverage effective date and policy
anniversaries. The policy coverage is effective on the policy date. The
policy date is:
1) the date specified on the application;
2) the back-date of the policy to save age;
or, if neither 1) or 2) apply, it is the date all underwriting and
administrative requirements are met if the initial premium has been
received. Otherwise it is the date the initial premium is received by
Security Life.
The Investment Date is the date that Security Life allocates funds to
the Policy. It is the next valuation date following the date that we
have received the initial premium, approved the policy for issue and
have received all issue requirements. It generally is the same as the
policy date.
Estate Designer February 28, 2000
4
<PAGE>
As provided for under state insurance law, the owner, to preserve
insurance age, may be permitted to backdate the policy. In no case may
the policy date be more than six months prior to the date the
application was completed. Charges for the monthly deductions for the
backdated period are deducted on the policy date. Temporary life
insurance coverage may be provided prior to the policy date under the
terms of a temporary insurance agreement. In accordance with Security
Life's underwriting rules, temporary life insurance coverage may not
exceed $3,000,000 and will not remain in effect for more than ninety
(90) days.
Planned periodic premiums and unscheduled premiums that are not
underwritten will be credited to the policy and the net premium
invested on the valuation date they are received by the home office. If
an additional premium payment is rejected, Security Life will return
the premium payment promptly, without adjustment.
The policy date is the date from which policy months, years, and
anniversaries are measured. A policy month is a one-month period
beginning with a monthly date and ending with the day immediately
preceding the next following monthly processing date. The monthly
processing date is the same day as the policy date for each succeeding
month. The monthly deduction is deducted on each monthly processing
date.
A policy year is a period of twelve months commencing with the policy
date and ending with the day immediately preceding the next annual
date. The annual date is the same day in each policy year as the policy
date.
The issue date, if the same as the policy date, is the date from which
the suicide and contestable periods start. It is shown in the policy.
D. Allocation of Net Premiums
On the investment date, the account value is equal to the initial net
premium credited (initial premium payment less the premium expense
charges), less monthly deductions made as the policy date (up to six
months for backdated policies). On each investment date thereafter, the
account value is the sum of the variable account, the guaranteed
interest division, and the loan account. The account value will vary to
reflect the performance of the subdivisions to which amounts have been
allocated, interest credited on amounts allocated to the guaranteed
interest division, interest credited on amounts in the loan account,
charges, transfers, partial cash surrenders, loans and loan repayments.
The net account value is account value minus outstanding policy debt.
Cash surrender value is account value plus the applicable refund of
sales charge. Net cash surrender value is the cash surrender value
minus outstanding policy debt.
When applying for a policy, the owner selects a plan for paying level
premium payments at specified intervals, e.g., quarterly, semiannually
or annually, until the maturity date. If the owner elects, Security
Life will arrange for payment of planned period premiums on a monthly
basis under a pre-authorized bank draft. The owner is not required to
pay premium payments in accordance with these plans; rather, the owner
can pay more or less than planned or skip a
Estate Designer February 28, 2000
5
<PAGE>
planned periodic premium entirely. Currently, there is no minimum
amount for each premium. Security Life may establish a minimum amount
90 days after Security Life sends the owner a written notice of such
increase. Subject to certain limits (described below), the owner can
change the amount and frequency of planned periodic premiums whenever
the owner wishes by sending notice to the home office. However,
Security Life reserves the right to limit the amount of a premium
payment or the total premium payments paid.
In the application, the owner specifies the percentage of net premium
to be allocated to each variable investment option and to the
guaranteed interest division. Net premiums will generally be invested
on the valuation date that Security Life receives them and in
accordance with the allocations specified in the most recent
instructions received from the owner.
State guidelines regarding free look periods vary. Some states mandate
that if an owner exercises his/her free look right he/she is entitled
to a full premium refund. Other states mandate that should the owner
exercise his/her free look option he/she is entitled to receive the
value of the fund allocations plus the policy charges previously
deducted.
Amounts you designate for the guaranteed interest division will be
invested into that division on the investment date. If the owner's
state requires return of premium during the free look period, amounts
designated for the variable division are initially invested into the
Fidelity VIP Money Market Portfolio. Later these amounts are
transferred from the Money Market Portfolio to the selected variable
investment options, at the earlier of:
1) five days after we mailed your policy and your state free look
period has ended; or
2) you have actually received your policy, we have received your
delivery receipt and your state free look period has ended.
If the owner's state provides for return of account value during the
free look period or no free look period, amounts designated for the
variable division are invested directly into the selected variable
investment options.
The net premium allocation percentages specified in the application
will apply to subsequent premium payments until the owner instructs
otherwise. The minimum allocation percentage that may be specified for
investment option, including the guaranteed account is 1%, and all
allocation percentages must be whole numbers. The sum of allocations
must equal 100%. Security Life reserves the right to limit the number
of investment options (18) to which account value may be allocated. An
owner can change the allocation percentages at any time, by sending
notice to the home office or if telephone privileges are in effect, the
request can be received by phone. The change will apply to all premium
payments received with or after receipt of the owner's notice.
E. Additional Payment
Additional unscheduled premium payments can be made at any time while
the policy is in force. Premium payments after the initial premium
payment must be made to the home office.
Estate Designer February 28, 2000
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<PAGE>
Security Life has the right to limit the number and amount of such
premium payments. Total premium payments paid in a policy year may not
exceed guideline premium payment limitations for life insurance set
forth in the Internal Revenue Code. Security Life will promptly refund
the portion of any premium payment that is determined to be in excess
of the premium payment limit established by law to qualify a policy as
a contract for life insurance.
Security Life reserves the right to reject a requested increase in
planned periodic premiums, or unscheduled premium. Security Life also
reserves the right to require satisfactory evidence of insurability
prior to accepting a premium which increases the risk amount of the
policy. No premium payment will be accepted after the maturity date.
The owner may specify that a specific unscheduled payment is to be
applied as a repayment of policy debt.
The payment of premiums may cause a policy to be a Modified Endowment
Contract under the Internal Revenue Code. If acceptance of a premium
paid would, in Security Life's view, cause the policy to become a
modified endowment contract, then to the extent feasible Security Life
will not accept that portion of the premium that would cause the policy
to become a modified endowment contract unless the owner confirms in
writing that it is his/her intent to convert the policy to a modified
endowment contract. Security Life may return that portion of the
payment pending receipt of instructions from the owner.
F. Policy Termination and Grace Period
The policy terminates at the earliest of the end of the grace period,
the surrender of the policy by the owner or the fulfillment of Security
Life's obligations under the policy (i.e., payment of the death benefit
proceeds).
If the cash surrender value on a monthly processing date is less than
the amount of the monthly deduction to be deducted and the special
continuation period is not in effect, the policy will be in default. In
addition, if on a monthly processing date the cash value less policy
debt exceeds the amount of the monthly deduction due for the following
policy month, the policy will be in default whether or not the special
continuation period is in effect. An owner, and any assignee of record,
will be sent notice of the default.
The special continuation period is the first five policy years. If the
special continuation period is in effect, Security Life guarantees that
the client's policy will not lapse, regardless of its net cash
surrender value, if on a monthly processing date the sum of all
premiums received minus partial withdrawals and loans taken is greater
than or equal to the sum of minimum monthly premiums from the inception
of the policy to the current date. At the end of the special
continuation period the client must pay enough premium to bring the net
cash surrender value to zero plus the amount needed to pay the
following two months' monthly deductions. If sufficient payment is not
made, the policy will lapse.
Estate Designer February 28, 2000
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<PAGE>
If a policy goes into default, the owner will be allowed a 61-day grace
period to pay a premium payment sufficient to cover the monthly
deductions due during the grace period and for a period of two
additional months or a sufficient amount to avoid termination of the
policy due to excessive loans. Security Life will send notice of the
amount required to be paid during the grace period ("grace period
premium payment") to the owner's last known address and the address of
the assignee of record. The grace period will begin when the notice is
sent. An owner's policy will remain in effect during the grace period.
If the second insured person should die during the grace period, the
death benefit proceeds will still be payable to the beneficiary,
although the amount paid will reflect a reduction for the monthly
deductions due on or before the date of the insured's death and for
outstanding policy debt. If the grace period premium payment is not
paid before the grace period ends, the policy will lapse. It will have
no value and no benefits will be payable.
G. Reinstatement of a Policy Terminated for Insufficient Values
The policy may be reinstated within five years after lapse and before
the maturity date, subject to compliance with certain conditions,
including a necessary premium payment and submission of satisfactory
evidence of insurability.
H. Repayment of a Loan
An owner may repay all or part of his/her policy debt at any time while
at least one insured person is living and the policy is in force. Loan
repayments must be sent to the home office and will be credited as of
the date received. The owner may give Security Life notice that a
specific unscheduled payment made while a loan is outstanding is to be
applied as a loan repayment. When a loan repayment is made, account
value in the loan division, in an amount equivalent to the repayment,
is transferred from the loan division to the investment options in
accordance with the owner's current net premium allocation
instructions.
I. Policy Riders
Supplemental or rider benefits may be available to be added to the
policy. Monthly charges for these benefits or riders, if any, will be
deducted from the account value as part of the monthly deduction. The
following rider benefits may be available: Adjustable Term Insurance
Rider and Single Life Term Rider.
Additional rules and limits apply to these supplemental or rider
benefits, and are set forth in the applicable endorsement or rider.
II. TRANSFERS AMONG INVESTMENT DIVISIONS
Several investment options under the Separate Account are available for
allocation of Net Premiums paid under the policy, subject to certain
limitations set forth in the policy. Each
Estate Designer February 28, 2000
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<PAGE>
investment option invests in shares or units of an underlying portfolio,
Available investment options of the Separate Account invest in portfolios
of AIM Variable Insurance Funds, Inc., The Alger American Fund, Fidelity
Variable Insurance Products Fund and Variable Insurance Products Fund II,
INVESCO Variable Investment Funds, Inc., Neuberger Berman Advisors
Management Trust and Van Eck Worldwide Insurance Trust. All Funds are
registered under the Investment Company Act of 1940 as an open-end
management investment company. Additional funds may be available in the
future.
After the free-look period and prior to the maturity date, the owner may
transfer all or part of the account value from investment options investing
in one portfolio to other investment options, including the guaranteed
interest division. An amount may be transferred from the guaranteed
interest to the variable investment options. Subject to some restrictions,
the minimum transfer amount is the lesser of $100 or the entire amount in
that investment option. A transfer request that would reduce the amount in
an investment option below $100 will be treated as a transfer request for
the entire amount. Transfers from the guaranteed interest division are
permitted only within the first 30 days of a policy year. Transfer requests
received within 30 days prior to a policy anniversary will be processed on
the policy anniversary. Such transfers are limited in amount to the
greatest of: 25% of the balance in the guaranteed interest division on the
policy anniversary; the total withdrawn in the prior policy year; or $100.
With the exception of the right to exchange (described below), Security
Life reserves the right to limit the number or frequency of transfers
permitted in the future.
Security Life will make the transfer as of the end of the valuation period
during which such transfer is received by Security Life. Currently, there
is a limit (12) on the number of free transfers that can be made between
investment options in a policy year. Currently, Security Life assesses an
excess transfer charge of $25 for each transfer during a policy year in
excess of the first twelve transfers. The excess transfer charge will be
deducted from the investment option from which the requested transfer is
being made, on a pro-rata basis.
Telephone transfers will be accepted by telephone, provided the appropriate
election has been provided to Security Life. Security Life reserves the
right to suspend telephone transfer privileges at any time, for any reason,
if Security Life deems such suspension to be in the best interests of
owners.
During the first twenty-four policy months following the policy date, and
within sixty days of the later of notification of a change in the
investment policy of the separate account or the effective date of such
change, the owner may exercise a one-time Right to Exchange the policy by
requesting that all of the variable account value be transferred to the
guaranteed interest division. Exercise of the Right to Exchange is not
subject to the excess transfer charge. Following the exercise of the Right
to Exchange, net premiums may not be allocated to, and transfers of account
value to the variable account will not be permitted. The other terms and
conditions of the policy will continue to apply.
Transfers may also be effected pursuant to a Dollar Cost Averaging Plan or
Auto Rebalancing Plan elected by the owner as described in the current
prospectus for the policies.
Estate Designer February 28, 2000
9
<PAGE>
III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS
A. Surrender for Cash Surrender Value
An owner may surrender the policy at any time for its net cash
surrender value by submitting notice to the home office. Security Life
may require return of the policy. A surrender request will be processed
as of the valuation date the surrender notice and all required
documents are received. Payment generally will be made within seven
calendar days. An owner's policy will terminate and cease to be in
force if it is surrendered. It cannot later be reinstated.
Security Life will make the payment out of its general account and, at
the same time, transfer assets from the Separate Account in an amount
equal to the sum of account value (applicable to the policy) held in
each variable investment option.
B. Death Claims
The death benefit proceeds are equal to the sum of the base death
benefit for each coverage segment under the death benefit option
selected, calculated on the date of the second insured's death, plus
supplemental or rider benefits, minus outstanding policy debt including
accrued but unpaid interest, minus unpaid monthly deductions incurred
prior to the date of death. If an insured's age or sex has been
misstated in the application for the policy or in an application for
supplemental or rider benefits, and if the misstatement becomes known
after the death of the second insured person, then the death benefit
under the policy or such supplemental or rider benefits will be that
which the cost of insurance charge which was deducted from the account
value on the last monthly processing date prior to the death of the
second insured would have purchased for the correct sex and age.
Security Life will pay interest at the rate declared by us or at a
higher rate required by law.
Security Life will usually pay the death benefit proceeds to the
beneficiary within seven days after receipt at its Home Office of due
proof of death of the second insured and all other requirements
necessary to make payment. If the payment of the death benefit of a
policy is contested, payment of proceeds may be delayed.
The death benefit payable depends on the death benefit option in effect
on the date of death. Subject to certain conditions, owners may change
the death benefit option. Under Option 1, the base death benefit is the
greater of the specified amount or the applicable percentage of account
value on the date of the second insured's death. Under Option 2, the
base death benefit is the greater of the specified amount plus the
account value, or the applicable percentage of the account value on the
date of the second insured's death. Under Option 3, the base death
benefit is the greater of the specified amount plus the sum of all
premiums received, minus partial withdrawals or the applicable
percentage of the account value on the date of the second insured's
death.
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The "Applicable Percentage" is the appropriate factor from the
Definition of Life Insurance factors shown in the policy's appendix A
or B. A table showing the applicable percentages for attained ages 0 to
100 is set forth in the policy.
On or after one year from the policy date, the owner may change the
death benefit option on the policy, by notice to Security Life, subject
to the following rules. A change in the Death Benefit Option may be
requested at least one day prior to a policy anniversary. After the
change, the specified death benefit amount must still comply with the
minimums set to issue a policy. The effective date of the change will
be the next monthly processing date following the day that Security
life approves the request for change. Security Life may require
satisfactory evidence of insurability for some changes.
An owner may change from death benefit option 1 to option 2, from
option 2 to option 1 or from option 3 to option 1. NO change from death
benefit option 1 or 2 to option 3, or option 3 to option 2 is
permitted.
When a change from Option 1 to Option 2 is made, the specified death
benefit amount after the change is effected will be the specified death
benefit before the change minus the account value on the effective date
of the change. When a change from Option 2 to Option 1 is made,
specified death benefit amount after the change will be the specified
death benefit before the change plus the account value on the effective
date of the change. When a change from Option 3 to Option 1 is made,
the specified death benefit after the change is effected will be the
specified death benefit before the change plus the sum of premiums
received, minus partial withdrawals taken as of the effective date of
the change.
Security Life will make payment of the death benefit proceeds from its
general account and, at the same time, will transfer the account value
applicable to the policy out of the separate account to the general
account.
C. Policy Loan
After the first monthly processing date and while at least one insured
is living, provided the policy is not in the grace period, the owner
may borrow against the policy by submitting a request to the home
office. The minimum amount of a loan is $100. The maximum loan amount
is the net cash surrender value less monthly deductions to the next
policy anniversary or 13 monthly deductions if the loan request is
received within 30 days prior to a policy anniversary. Maximum loan
amounts may be different if required by state law.
An outstanding loan reduces the amount available for a new loan. A loan
is processed as of the date the loan notice is approved. Loan proceeds
generally will be sent to the owner within seven calendar days.
When a policy loan is made, an amount sufficient to secure the loan is
transferred out of the investment options and into the policy's loan
division. Thus, a loan will have no immediate effect on the account
value, but other policy values, such as the cash surrender value and
the
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death benefit proceeds, will be reduced immediately by the amount
borrowed. This transfer is made from the-account value in each
investment option in proportion to the account value in each on the
date of the loan, unless the owner specifies that transfers be made
from a specific investment option. An amount equal to due and unpaid
loan interest which exceeds interest credited to the loan account will
be transferred to the loan account on each policy anniversary. Such
interest will be transferred from each investment option in the same
proportion that account value bears to the total unloaned account
value.
The loan account will be credited with interest at an effective annual
rate of not less than the annual loan interest rate of 3%. Loan
interest accrues daily at a compound annual interest rate of 3.75%.
Interest is due in arrears on each policy anniversary. Outstanding
loans (including unpaid interest added to the loan) plus accrued
interest not yet due equals the policy debt.
D. Partial Withdrawals
An owner may make partial cash surrenders (known as partial
withdrawals) from the policy at any time after the first policy
anniversary. An owner must submit a request to the home office. Each
partial withdrawal must be at least $100. The maximum partial
withdrawal is the amount which will leave $5OO as the net cash
surrender value. When a partial withdrawal is taken, the amount of the
withdrawal plus a service fee is deducted from the account value. This
service fee is 2% of the amount of the withdrawal up to a maximum fee
of $25. As of the date Security Life processes the partial withdrawal
request, the cash value will be reduced by the partial withdrawal
amount.
Unless the owner requests that a partial cash surrender be deducted
from specified investment options, it will be deducted from the
investment options pro-rata in proportion to the account value in each.
If death benefit Option 1 is in effect, Security life may reduce the
specified death benefit amount. Security Life may reject a partial
withdrawal request if it would reduce the specified death benefit
amount below the amount required to issue the policy, or if the partial
withdrawal would cause the policy to fail to qualify as a life
insurance contract under applicable tax laws, as interpreted by
Security Life.
Partial withdrawals will be processed as of the valuation date the
request is received by Security Life, and generally will be paid within
seven calendar days.
E. Monthly Charges
On each monthly processing date, Security Life will deduct from the
account value the monthly deductions due, commencing as of the policy
date. An owner's policy date is the date used to determine the
applicable monthly processing date. The monthly deduction consists of
(1) cost of insurance charges, (2) the monthly administrative charge,
and (3) charges for supplemental or rider benefits. The monthly
deduction is deducted from the investment options, including
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the guaranteed interest division pro rata based on the account value in
each, unless the owner has selected a designated deduction investment
option for the policy.
F. Continuation of Coverage
The maturity date is generally the insured's 100th birthday, and is
shown in the policy.
At the policy's maturity date, the owner may surrender the policy for
its net cash surrender value. Or, he/she may allow insurance coverage
to continue under the continuation of coverage feature. if the policy
is in effect and surrendered, the target death benefit, which includes
term rider coverage, becomes the specified death benefit amount. All
riders are terminated. Policies with death benefit options 2 or 3
become policies with death benefit option 1. A one-time fee of $400 is
deducted to cover all future costs of the policy and the account value
is transferred into the Guaranteed Interest Division. No further
premium payments can be made, however, loan and interest payments are
accepted. All variable investment features terminate. Loans and partial
withdrawals may be taken. The policy will continue until the death of
the second insured person so long as it does not lapse.
G. Settlement Options
During the insured's lifetime, the owner may elect that the Beneficiary
receive the death proceeds other than in one sum. If this election has
not been made, the Beneficiary may do so within 60 days after the
second insured person's death. The owner may also elect to take the net
cash surrender value under one of these options.
Option I: Payouts for a Designated Period: Payouts will be made in
1, 2, 4 or 12 installments per year as elected for a
designated period, which may be 5 to 30 years. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000 of Account Value applied is shown in
Settlement Option Table I in the Policy.
Option II: Life Income with Payouts Guaranteed for a Designated
Period: Payouts will be made in 1, 2, 4 or 12 installments
per year throughout the payee's lifetime, or if longer,
for a period of 5, 10, 15, or 20 years as elected. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000 of Account Value applied is shown in
Settlement Option Table II in the Policy. This option is
available only for ages shown in this Table.
Option III: Hold at Interest: Amounts may be left on deposit with us
to be paid upon the death of the payee or at any earlier
date elected. Interest on any unpaid balance will be at
the rate declared by us or at any higher rate required by
law. Interest may be accumulated or paid in 1, 2, 4 or 12
installments per year, as elected. Money may not be left
on deposit for more than 30 years.
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Option IV: Payouts of a Designated Amount: Payouts will be made until
proceeds, together with interest, which will be at the
rate declared by us or at any higher rate required by law,
are exhausted. Payouts will be made in 1, 2, 4, or 12
equal installments per year, as elected.
Option V: Other: The Owner may ask us to apply the money under any
other option that we make available at the time the
benefit is paid.
Payments under these options are not affected by the investment
experience of any Division of our Variable Account. Instead, interest
accrues pursuant to the options chosen. Payment options will also be
subject to our rules at the time of selection. These alternate payment
options are only available if the proceeds applied are $2000 or more
and a periodic payment will be at least $20.
The Beneficiary or any other person who is entitled to receive payment
may name a successor to receive any amount that we would otherwise pay
to that person's estate if that person died. The person who is entitled
to receive payment may change the successor at any time.
We must approve any arrangements that involve a payee who is not a
natural person (for example, a corporation), or a payee who is a
fiduciary. Also, the details of all arrangements will be subject to our
rules at the time the arrangements take effect. This includes rules on
the minimum amount we will pay under an option, minimum amounts for
installment payments, withdrawal or commutation rights (i.e., the
rights to receive payments over time, for which we may offer a lump sum
payment), the naming of people who are entitled to receive payment and
their successors, and the ways of proving Age and survival.
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