As filed with the Securities and Exchange Commission on March 2, 2000.
Registration No. 333-90577
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
Post-Effective Amendment No. 1
-----------------
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)
----------------------------
It is proposed that this filing will become effective:
on April 15, 1999 pursuant to paragraph (a) of Rule 485 X 60 days after
filing pursuant to paragraph (a) of Rule 485 on May 1, 1999 pursuant to
paragraph (b) of Rule 485 immediately upon filing pursuant to paragraph (b)
of Rule 485 this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Title of securities being registered: Corporate Benefits variable life insurance
policies.
Approximate date of proposed public offering: as soon as practicable after the
effective date of this Registration Statement.
Form V-112-00
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-90577)
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
Values in the Variable Division; Charges and
Deductions; 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
Corporate Benefits Policy; General Policy
Provisions; Guaranteed Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges and Deductions;
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; Allocation of Net Premiums; How We
Calculate Accumulation Unit Values
17 Payment; Surrender; Partial Withdrawals
18 Policy Summary; Tax Considerations; Detailed
Information about the Corporate Benefits Policy;
Security Life Separate Account L1
19 Reports to Owners; Notification and
Claims Procedures; Performance Information
(Appendix B)
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Security
Life Separate Account L1; Detailed Information
about the Corporate Benefits 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 Values in the Variable Division;
How We Calculate Accumulation Unit Values
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Corporate Benefits Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Corporate Benefits
Policy
52 Determining Values 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
Prospectus
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
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 and deductions beginning on page 39 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.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
YOUR POLICY
o is a flexible premium variable universal life insurance
policy;
o is issued by Security Life of Denver Insurance Company;
o is designed primarily for use on a multi-life basis when the
insured people share a common employment or business
relationship; 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 when the insured person
dies;
o are equal to the death benefit minus an outstanding policy loan,
accrued loan interest and unpaid charges incurred before the 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
Form V-112-00
<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
- --------------------------------------------------------------------------------
Corporate Benefits 2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY.................................................................4
Your Policy...............................................................4
Free Look Period..........................................................4
Premium Payments..........................................................4
Charges and Deductions....................................................4
Transfers of Account Value................................................7
Special Policy Features...................................................7
Policy Modification, Termination and Continuation
Features..............................................................8
Death Benefits............................................................8
Tax Considerations........................................................9
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
OBJECTIVES....................................................................12
Guaranteed Interest Division.............................................15
Maximum Number of Investment Options.....................................16
DETAILED INFORMATION ABOUT THE
CORPORATE BENEFITS POLICY................................................16
Applying for a Policy....................................................16
Temporary Insurance......................................................17
Premiums.................................................................17
Premium Payments Affect Your Coverage....................................19
Death Benefits...........................................................19
Special Features.........................................................25
Policy Values............................................................26
Transfers of Account Value...............................................28
Dollar Cost Averaging....................................................28
Automatic Rebalancing....................................................29
Policy Loans.............................................................30
Partial Withdrawals......................................................31
Lapse....................................................................32
Reinstatement............................................................33
Surrender................................................................33
General Policy Provisions................................................33
Free Look Period.....................................................33
Your Policy..........................................................33
Age ................................................................34
Ownership............................................................34
Beneficiary(ies).....................................................34
Collateral Assignment................................................34
Incontestability.....................................................34
Misstatements of Age or Gender.......................................35
Suicide..............................................................35
Transaction Processing...............................................35
Notification and Claims Procedures...................................35
Telephone Privileges.................................................36
Non-participation....................................................36
Distribution of the Policies.........................................36
Advertising Practices and Sales Literature...........................37
Settlement Provisions................................................37
Administrative Information About the Policy..............................37
CHARGES AND DEDUCTIONS........................................................39
Deductions from Premiums.................................................39
Deferred Sales Charge....................................................39
Monthly Deductions from Account Value....................................41
Policy Transaction Fees..................................................42
Group or Sponsored Arrangements or Corporate
Purchasers...........................................................43
TAX CONSIDERATIONS............................................................43
Tax Status of the Policy.................................................43
Diversification Requirements.............................................44
Tax Treatment of Policy Death Benefits...................................44
Modified Endowment Contracts.............................................45
Multiple Policies........................................................45
Distributions Other than Death Benefits from
Modified Endowment Contracts.........................................45
Distributions Other than Death Benefits from
Policies That Are Not Modified Endowment
Contracts............................................................45
Investment in the Policy.................................................45
Policy Loans.............................................................46
Section 1035 Exchanges...................................................46
Tax-exempt Policy Owners.................................................46
Possible Tax Law Changes.................................................46
Changes to Comply with the Law...........................................46
Other....................................................................46
ILLUSTRATIONS.................................................................48
ADDITIONAL INFORMATION........................................................62
Directors and Officers...................................................62
Regulation...............................................................63
Legal Matters............................................................63
Legal Proceedings........................................................63
Experts..................................................................63
Registration Statement...................................................63
FINANCIAL STATEMENTS..........................................................65
APPENDIX A....................................................................67
APPENDIX B....................................................................68
- --------------------------------------------------------------------------------
Corporate Benefits 3
<PAGE>
POLICY SUMMARY*
YOUR POLICY
This policy is available only to groups of ten or more insured people.
Generally, we require a minimum total group first year premium of at least
$250,000. However, depending on underwriting circumstances, we may reduce the
minimum total group first year premium in some cases. We generally require a
minimum target death benefit of $50,000 per policy. We may reduce the minimum
target death benefit if the average target death benefit at policy issuance for
the group is at least $50,000. SEE POLICY ISSUANCE, PAGE 17.
Your policy provides life insurance protection on the insured person. 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 at the death of the
insured person. 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 account value. At the policy anniversary nearest the insured
person's 100th birthday, the policy may be surrendered or continued under the
continuation of coverage option. SEE CONTINUATION OF COVERAGE, PAGE 26.
We designed this policy primarily for use on a multi-life basis where the
insured people share common employment or a business relationship. The policy
may be owned individually or by a corporation, trust, association or similar
entity.
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 33.
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; and
o sufficient to keep your policy in force.
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
INITIAL SALES CHARGE
We deduct a percentage of each premium to cover a portion of our expenses in
selling your policy. This charge is 2% of premiums we receive in the first
policy or segment year up to target premium.
- --------
*This summary highlights some of the important points about your policy. The
policy is more fully described in the attached, complete prospectus. Please read
the prospectus 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 person's lifetime.
State variations are covered in a special policy form for use in that state.
This prospectus provides a general description of the policy. Your actual policy
and riders are the controlling documents. If you would like to review a copy of
the policy and riders, contact our customer service center.
- --------------------------------------------------------------------------------
Corporate Benefits 4
<PAGE>
Thereafter, this charge is 0.5% of the premiums we receive. This charge is a
guaranteed maximum. SEE DEDUCTIONS FROM PREMIUMS, PAGE 39.
Premiums are subject to both initial and deferred sales charges, which in the
aggregate can equal as much as 4% of premiums we receive in the first policy or
segment year up to the target premium, and 1% of premiums we receive in the
first policy or segment year in excess of target.
DEFERRED SALES CHARGE
In addition to the initial sales charge, we impose a deferred sales charge. The
deferred sales charge is based on a percentage of the premiums that you pay
during the first ten policy or segment years. It is deducted from the account
value at the beginning of each policy year for seven years after a year in which
a premium payment is made. A deferred sales charge is calculated for premiums
paid for each policy segment. This charge is a guaranteed maximum. SEE DEFERRED
SALES CHARGE, PAGE 39, AND CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
Policy or | Deferred Sales Charge |
Segment | (% of Premium)* |
Year When --------------------------- Deducted at
Premium | up to in Excess | Beginning of
Payment | Target of Target | Policy or
are Made | Premium Premium | Segment Years
- -------------| ----------------------- |--------------
| |
1 | 2% 1% | 2 - 8
2 | 1.75% N/A | 3 - 9
3 | 1.75% N/A | 4 - 10
4 | 1.75% N/A | 5 - 11
5 | 0.5% N/A | 6 - 12
6 | 0.5% N/A | 7 - 13
7 | 0.5% N/A | 8 - 14
8 | 0.5% N/A | 9 - 15
9 | 0.5% N/A | 10 - 16
10 | 0.5% N/A | 11 - 17
* THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE
DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS.
We take these deductions:
CHARGES
Other Than Investment Portfolio Annual Expenses and Sales Charge
(SEE CHARGES AND DEDUCTION, PAGE 39)
<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 0.01667% MONTHLY
CHARGE 0.002055% (0.20% ANNUALLY)
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 $12 PER MONTH FOR THE FIRST POLICY YEAR
THEN $6 PER MONTH FOR EACH POLICY
YEAR THEREAFTER.
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.
PARTIAL WITHDRAWAL FEE TRANSACTION DATE FROM ACCOUNT UP TO $25
VALUE
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 5
<PAGE>
<TABLE>
<CAPTION>
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
- ------ ----------------------- ---------------
<S> <C> <C>
TRANSFER FEE TRANSACTION DATE FROM ACCOUNT TWELVE FREE TRANSFERS PER POLICY YEAR, VALUE THEN
$10 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 INSURED ONE-TIME $400 ADMINISTRATIVE FEE.
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 INVESTMENT PORTFOLIO OBJECTIVES, PAGE 12.
FEES AND EXPENSES OF THE INVESTMENT
PORTFOLIOS
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 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 MidCap Growth Portfolio % % % NA %
Alger American Small Capitalization Portfolio % % % NA %
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio % % % NA %
VIP Overseas Portfolio % % % NA %
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Index 500 Portfolio % % % % %
GCG TRUST
Equity Income Portfolio % % % NA %
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 6
<PAGE>
<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>
Growth Portfolio % % % NA %
Hard Assets Portfolio % % % NA %
Limited Maturity Bond Portfolio % % % NA %
Liquid Asset Portfolio % % % NA %
Mid-Cap Growth Portfolio % % % NA %
Research Portfolio % % % NA %
Total Return Portfolio % % % % %
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-Equity Income Fund % % % % %
INVESCO VIF-High Yield Fund % % % NA %
INVESCO VIF-Small Company Growth Fund % % % % %
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Partners Portfolio % % % NA %
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund % % % NA %
Worldwide Emerging Markets Fund % % % % %
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.
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 7 AND PARTIAL WITHDRAWALS, PAGE 31.
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 VALUES IN THE VARIABLE DIVISION, PAGE
26.
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
VALUES IN THE VARIABLE DIVISION, PAGE 26 AND HOW WE CALCULATE ACCUMULATION UNIT
VALUES, PAGE 27.
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 28.
SPECIAL POLICY FEATURES
DESIGNATED DEDUCTION OPTION
You may designate one investment option from which we will deduct all of your
monthly deductions and your deferred sales charge. SEE DESIGNATED DEDUCTION
OPTION, PAGE 25.
RIDERS
You may attach additional benefits to your policy with the adjustable term
insurance rider. SEE RIDERS, PAGE 24.
- --------------------------------------------------------------------------------
Corporate Benefits 7
<PAGE>
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 28.
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 29.
LOANS
You may take loans against your policy's net account value. We charge an annual
loan interest rate of 3.25%. We credit an annual interest rate of 3% on amounts
held in the loan division as collateral for your loan. SEE POLICY LOANS, PAGE
30.
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 31.
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 25.
SURRENDER
You may surrender your policy for its net cash surrender value at any time while
the insured person is living. All insurance coverage ends on the date we receive
your request. SEE SURRENDER, PAGE 33.
LAPSE
In general, insurance coverage continues as long as your net account value is
enough to pay the monthly deductions. SEE LAPSE, PAGE 32.
REINSTATEMENT
You may reinstate your policy and the adjustable term insurance rider within
five years of its lapse if you still own the policy and the insured person is
still living and meets our underwriting requirements.
You will need to give proof of insurability 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 33.
POLICY MATURITY
If the insured person is still living on the maturity date or the policy
anniversary nearest the 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 26.
CONTINUATION OF COVERAGE
At the policy anniversary nearest the 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 $200 and keep your policy in
force. SEE CONTINUATION OF COVERAGE, PAGE 26.
DEATH BENEFITS
At the insured person's death, 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.
There is no minimum stated death benefit to issue a policy. Generally, there is
a minimum target death benefit of $50,000 to issue your policy. SEE APPLYING FOR
A POLICY, PAGE 16 AND DEATH BENEFITS,
- --------------------------------------------------------------------------------
Corporate Benefits 8
<PAGE>
PAGE 19.
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 43.
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 45.
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.
- --------------------------------------------------------------------------------
Corporate Benefits 9
<PAGE>
How the Policy Works
<TABLE>
<S> <C> <C>
YOUR PREMIUM Premium Deductions
You make a premium ---------------------------->
payment
o initial sales charge
o deferred 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
|
|
|
|
| Monthly Deductions o cost of insurance
| ---------------------> charge
| | o monthly administrative
| | charge
\/ |
ACCUMULATED VALUE |
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>
- --------------------------------------------------------------------------------
Corporate Benefits 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
- --------------------------------------------------------------------------------
Corporate Benefits 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, other than the GCG Trust, is not associated
with us.
Currently, some variable investment options invest in a portfolio of the GCG
Trust. Directed Services, Inc. ("DSI") serves as the manager to each portfolio
of the GCG Trust. The GCG Trust and DSI have retained several portfolio managers
to manage the assets of each portfolio of the GCG Trust.
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>
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.
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 12
<PAGE>
INVESTMENT PORTFOLIO OBJECTIVES
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/
SUB-ADVISER
<S> <C> <C>
American MidCap Growth The Alger American Fund Seeks long-term capital appreciation by
Portfolio focusing on midsize companies with
promising growth potential.
American Small Capitalization The Alger American Fund Seeks long-term capital appreciation by
Portfolio focusing on small, fast-growing companies
that offer innovative products, services or
technologies to a rapidly expanding
marketplace.
VIP Overseas Portfolio Fidelity Variable Insurance Seeks long-term growth of capital by
Products Fund and Variable investing at least 65% of total assets in
Insurance Products Fund II/ foreign securities.
Fidelity Management &
Research Company
VIP II Index 500 Portfolio Fidelity Variable Insurance Seeks investment results that correspond to
Products Fund and Variable the total return of common stocks publicly
Insurance Products Fund II/ traded in the United States as represented by
Fidelity Management the S&P(R)500.
Research Company/ Bankers
Trust Company
Equity Income Portfolio GCG Trust/Directed Seeks substantial dividend income as well as
Services, Inc./T. Rowe Price long-term growth of capital. Invests
Associates, Inc. primarily in common stocks of
well-established companies paying
above-average dividends. Sub-advised by T.
Rowe Price Associates, Inc.
Growth Portfolio GCG Trust/Directed Seeks capital appreciation. Invests primarily
Services, Inc./Janus Capital in common stocks of growth companies that
Corporation have favorable relationships between
price/earnings ratios and growth rates in
sectors offering the potential for
above-average returns. Sub-advised by Janus
Capital Corporation.
Hard Assets Portfolio GCG Trust/Directed Seeks long-term capital appreciation. Invests
Services, Inc./Baring primarily in hard asset securities. Hard asset
International Investment companies produce a commodity which the
Limited (an affiliate) portfolio manager is able to price on a daily
or weekly basis. Sub-advised by Baring
International Investment Limited (an
affiliate).
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 13
<PAGE>
INVESTMENT PORTFOLIO OBJECTIVES
<TABLE>
<CAPTION>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/
SUB-ADVISER
<S> <C> <C>
Limited Maturity Bond GCG Trust/Directed Seeks highest current income consistent with
Portfolio Services, Inc./ING low risk to principal and liquidity. Also seeks
Investment Management, to enhance its total return through capital
LLC (an affiliate) appreciation when market factors,
such as falling interest rates and rising bond
prices, indicate that capital appreciation may be
available without significant risk to principal.
Invests primarily in diversified limited maturity
debt securities with average maturity dates of five
years or shorter and in no cases more than seven
years. Sub-advised by ING Investment Management, LLC
(an affiliate).
Liquid Asset Portfolio GCG Trust/Directed Seeks high level of current income consistent
Services, Inc./ING with the preservation of capital and liquidity.
Investment Management, Invests primarily in obligations of the U.S.
LLC (an affiliate) Government and its agencies and
instrumentalities, bank obligations, commercial
paper and short-term corporate debt securities. All
securities will mature in less than one year.
Sub-advised by ING Investment Management, LLC (an
affiliate).
Mid-Cap Growth Portfolio GCG Trust/Directed Seeks long-term growth of capital. Invests
Services, Inc./Massachusetts primarily in equity securities of companies
Financial Services Company with medium market capitalization which the
portfolio manager believes have
above-average growth potential. Sub-advised
by Massachusetts Financial Services
Company.
Research Portfolio GCG Trust/Directed Seeks long-term growth of capital and future
Services, Inc./Massachusetts income. Invests primarily in common stocks
Financial Services Company or securities convertible into common stocks
of companies believed to have better than
average prospects for long-term growth.
Sub-advised by Massachusetts Financial
Services Company.
Total Return Portfolio GCG Trust/Directed Seeks above-average income (compared to a
Services, Inc./Massachusetts portfolio entirely invested in equity securities)
Financial Services Company consistent with the prudent employment of
capital. Invests primarily in a combination of
equity and fixed income securities.
Sub-advised by Massachusetts Financial
Services Company.
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 14
<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
Investment Funds, Inc./ capital as a secondary objective by investing
INVESCO Funds Group, at least 65% of its assets in dividend-paying
Inc. common and preferred stocks. 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
Investment Funds, Inc./ income by investing substantially all of its
INVESCO Funds Group, assets in lower-rated debt securities and
Inc. preferred stock, including securities issued by
foreign companies.
VIF-Small Company Growth INVESCO Variable Seeks investment growth over the long term
Fund Investment Funds, Inc./ by investing at least 80% of its assets in
INVESCO Funds Group, equity securities of companies with market
Inc. capitalizations of $1 billion or 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.
Partners Portfolio Neuberger Berman Advisers Seeks growth of capital by investing mainly
Management Trust/ in common stocks of mid- to
Neuberger Berman large-capitalization companies.
Management Inc./ Neuberger
Berman, LLC
Worldwide Bond Fund Van Eck Worldwide Seeks high total return--income plus capital
Insurance Trust/ Van Eck appreciation--by investing globally,
Associates Corporation primarily in a variety of debt securities.
Worldwide Emerging Markets Van Eck Worldwide Seeks long term capital appreciation by
Fund Insurance Trust/ Van Eck investing in equity securities in emerging
Associates Corporation markets around the world.
Worldwide Real Estate Fund Van Eck Worldwide Seeks high total return by investing in equity
Insurance Trust/ Van Eck securities of companies that own significant
Associates Corporation real estate or 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
- --------------------------------------------------------------------------------
Corporate Benefits 15
<PAGE>
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 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 CORPORATE BENEFITS POLICY
This prospectus describes our standard Corporate Benefits variable 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.
APPLYING FOR A POLICY
You purchase this variable universal life policy by submitting an application to
us. On the policy date, the insured person must be no less than 15 years of age
and no more than age 85. The insured person is the person on whose life we issue
a policy and upon whose death we pay death proceeds. SEE AGE, PAGE 34.
You may request that we back-date the policy up to six months to allow the
insured person to give proof of a younger age for the purposes of your policy.
This policy is available only to groups of ten or more insured people.
Generally, we require a minimum total group first year premium of at least
$250,000. However depending on underwriting circumstances, we may reduce the
minimum total group first year premium in some cases.
We generally require a minimum target death benefit of $50,000 to issue your
policy. We may reduce the minimum target death benefit so long as the average
target death benefit at policy issuance for the group or sponsored arrangement
is at least $50,000. There
- --------------------------------------------------------------------------------
Corporate Benefits 16
<PAGE>
is no minimum required stated death benefit. 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:
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
the insured person 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 cash value accumulation 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 43.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits. You
cannot make premium payments after the death of the insured person or after the
continuation of coverage period begins. SEE CONTINUATION OF COVERAGE, PAGE 26.
- --------------------------------------------------------------------------------
Corporate Benefits 17
<PAGE>
We consider any payment we receive to be a premium if you do not have an
outstanding loan. 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.
UNSCHEDULED PREMIUM PAYMENTS
Generally speaking, you may make unscheduled 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 person is 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 the 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 45 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 46.
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 out 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, premium class and rating of the
insured person. The sales target premium is used in determining your sales
charge, deferred sales charge and the distribution allowance 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.
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 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
- --------------------------------------------------------------------------------
Corporate Benefits 18
<PAGE>
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 GCG Trust Liquid Asset Portfolio. We
later transfer these amounts from the Liquid Asset Portfolio to your selected
variable investment options, based on your most recent premium allocation
instructions, at the earlier of the following dates:
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 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 16.
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
OPTION, PAGE 25 AND POLICY TRANSACTION FEES, PAGE 42.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
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 32, AND GRACE PERIOD, PAGE 32.
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 45.
DEATH BENEFITS
Death benefits are calculated as of the date of death of the insured person.
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.
There is no minimum stated death benefit to issue a policy. We generally require
a minimum target death benefit of $50,000 to issue your policy. Our underwriting
and reinsurance procedure in effect at the time you apply limit the maximum
death benefit. 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
- --------------------------------------------------------------------------------
Corporate Benefits 19
<PAGE>
stated death benefit is the permanent element of your policy. The adjustable
term insurance rider is the term insurance element of your policy.
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 person. 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, 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 The amount of policy death The amount of policy death The amount of policy death
DEATH benefit at issue, not including benefit at issue, not including benefit at issue, not including
BENEFIT rider coverage. This amount rider coverage. This amount rider coverage. This amount
stays level throughout the life of stays level throughout the life of stays level throughout the life of
the contract. the contract. the contract.
BASE DEATH The greater of the stated death The greater of the stated death The greater of the stated death
BENEFIT benefit or the account value benefit plus the account value, benefit plus the sum of all
multiplied by the appropriate or the account value multiplied premiums we receive minus
factor from the definition of life by the appropriate factor from partial withdrawals you have
insurance factors. the definition of life insurance taken, or the account value
factors. multiplied by the appropriate
factor from the definition of life
insurance factors.
TARGET Stated death benefit plus Stated death benefit plus Stated death benefit plus
DEATH adjustable term insurance rider adjustable term insurance rider adjustable term insurance rider
BENEFIT benefit. Assuming no schedule benefit. Assuming no schedule benefit. Assuming no schedule
changes, this amount remains changes, this amount remains changes, this amount remains level
level throughout the life of the level throughout the life of the throughout the life of the policy.
policy. policy.
TOTAL DEATH This is the total death proceeds. This is the total death proceeds. This is the total death proceeds.
BENEFIT It is the greater of the target It is the greater of the target It is the greater of the target
death benefit or the base death death benefit plus the account death benefit plus the sum of all
benefit. value, or the base death benefit. premiums we receive minus
partial withdrawals you have
taken, or the base death benefit.
ADJUSTABLE The adjustable term insurance The adjustable term insurance The adjustable term insurance
TERM rider benefit is the total death rider benefit is the total death rider benefit is the total death
INSURANCE benefit minus base death benefit, benefit minus the base death benefit minus the base death
RIDER but it will not be less than zero. benefit, but it will not be less benefit, but it will not be less
BENEFIT If the account value multiplied than zero. If the account value than zero. If the account value
by the death benefit corridor multiplied by the death benefit multiplied by the death benefit
factor is greater than the stated corridor factor is greater than the corridor factor is greater than the
death benefit, the adjustable stated death benefit plus the stated death benefit plus the sum
term insurance benefit will be account value, the adjustable of all premiums we receive
decreased. It will be decreased term insurance rider benefit will minus partial withdrawals you
so that the sum of the base death be decreased. It will be have taken, the adjustable term
benefit and the adjustable term decreased so that the sum of the insurance rider benefit will be
insurance rider benefit is not base death benefit and the decreased. It will be decreased
greater than the target death adjustable term insurance rider so that the sum of the base death
benefit. If the base death benefit benefit is not greater than the benefit and the adjustable term
becomes greater than the target target death benefit plus the insurance rider benefit is not
death benefit, then the adjustable account value. If the base death greater than the target death
term insurance rider benefit is benefit becomes greater than the benefit plus the sum of all
zero. target death benefit plus the premiums we receive minus
account value, then the partial withdrawals you have
adjustable term insurance rider taken. If the base death benefit
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>
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Corporate Benefits 20
<PAGE>
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 when the insured person dies. 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 due before the insured person's date of
death.
There could be outstanding policy charges if the insured dies while your policy
is in the grace period.
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 SEE CONTINUATION OF COVERAGE, PAGE 26.
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 insured person's death; or
2. your account value on the date of the insured person's death multiplied
by the appropriate factor from the definition of life
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Corporate Benefits 21
<PAGE>
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. 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
insured person's death; or
2. your account value on the date of the insured person's death 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 insured person's death 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 as 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 insured person's age;
o the insured person's gender.
o the cash value accumulation test for the federal income tax law
definition of life insurance. SEE APPENDIX A, PAGE 67.
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 26.
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. We may
require proof of insurability to change from death benefit option 1 to 2.
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.
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
(a) the sum of the premiums we have received, minus (b)
partial withdrawals you have taken as of the effective
date of the change.
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Corporate Benefits 22
<PAGE>
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 41.
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
insured person turns age 75.
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 43.
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 43 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 45.
You cannot decrease the stated death benefit below $1,000.
You must provide satisfactory evidence that the insured person is 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 stated death benefit. Thus, the amount of your
adjustable term insurance rider will not change.
You may change the 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 initial sales charge;
o a new deferred 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
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Corporate Benefits 23
<PAGE>
segment has been effective.
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.
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. You may cancel these rider benefits at
any time.
Periodically we may offer other riders than the one listed here. You should
contact your agent/registered representative for a complete list of the riders
now available.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 45 FOR INFORMATION ON THE POSSIBLE TAX
EFFECTS OF ADDING OR CANCELING THESE BENEFITS.
ADJUSTABLE TERM INSURANCE RIDER
There is no maximum stated death benefit to issue a policy. We generally require
a minimum target death benefit of $50,000 to issue your policy.
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 death of the insured person. 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 policy year(s). SEE DEATH BENEFITS, PAGE 23.
The adjustable term insurance rider 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
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
------- ------- ----------------------
$201,500 $250,000 $48,500
202,500 250,000 47,500
202,250 250,000 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 $250,000 or more, the adjustable term
insurance would be zero.
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Corporate Benefits 24
<PAGE>
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
31, 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 age, gender, ratings and premium class of the person insured, 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 class 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 41.
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 rider
provides benefits only at the insured person's death.
SPECIAL FEATURES
DESIGNATED DEDUCTION INVESTMENT OPTION
You may designate an investment option from which we will deduct your monthly
charges and your deferred sales charge. You may make this designation at any
time. You may not use the loan division as your designated deduction investment
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 and deferred sales charge. 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 42.
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.
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Corporate Benefits 25
<PAGE>
POLICY MATURITY
You can surrender your policy at any time. At the policy anniversary nearest the
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
insured person's 100th birthday you choose to allow the continuation of coverage
feature to become effective, we:
o convert death benefit option 2 or 3 to death benefit option 1, if
applicable;
o terminate all riders;
o deduct a one-time $200 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
death of the insured person, 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 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 33.
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 insured 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. Your cash surrender
value is the same as your net account value.
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.
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Corporate Benefits 26
<PAGE>
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. Our customer service
center may not be open for business on: New Year's Day, Martin Luther King,
Jr.'s birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the
day after Thanksgiving, Christmas Day and the day before or after Christmas.
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; and
o investment portfolio expenses.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES,
PAGE 27.
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.
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Corporate Benefits 27
<PAGE>
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.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable investment options or the
guaranteed interest 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 42 AND CONTINUATION OF COVERAGE, PAGE
26.
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 GCG Trust Liquid Asset Portfolio or the GCG Trust
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.
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Corporate Benefits 28
<PAGE>
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, 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 36.
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,
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Corporate Benefits 29
<PAGE>
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 16.
You may have both automatic rebalancing and dollar cost averaging at the same
time. However, the source investment portfolio for your dollar cost averaging
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 28.
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 36.
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 3.25%. 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%.
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.
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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.
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 32.
Policy loans may have tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH
BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS,
PAGE 45.
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 36.
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, PAGE 39.
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 45, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 45.
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 insured person 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.
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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 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 43.
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 43.
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 45, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM
POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 45.
LAPSE
Your insurance coverage continues as long as your net account value is enough to
pay your deductions each month.
If the continuation of coverage feature is active, your policy could 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
your net account value is zero (or less).
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
past due charges, plus your estimated monthly policy deductions for the next two
months. If the insured person dies during the grace period we 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 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 rider lapses 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.
REINSTATEMENT
If you do not pay enough premium before the end of the grace period, your policy
lapses. You may still
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reinstate your policy and its rider within five years of the end of the grace
period if you still own the policy and the insured person is still living.
Unless state law requires differently, we will reinstate your policy and rider
if:
1. you have not surrendered your policy;
2. you provide satisfactory evidence to us that the insured person is
alive and still insurable according to our normal rules of
underwriting; and
3. we receive enough premium from you to keep your policy and its rider in
force from the beginning to the end of the grace period and for two
months after the reinstatement date.
Reinstatement is effective on 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 cash surrender value any time while the
insured person is living. You may take 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 7 AND SETTLEMENT
PROVISIONS, PAGE 37.
We do not pro-rate or add back charges and expenses to your account value before
the date your surrender is effective.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 45.
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 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
Some groups under this policy may choose to use a master policy with policy
certificates, rather than a series of individual policies.
The entire contract between you and us is the combination of:
o your policy (or certificate);
o a copy of your original application and any
applications for benefit increases or decreases;
o the adjustable term insurance rider;
o endorsements;
o 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 schedules. If you send your policy to us, we attach
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Corporate Benefits 33
<PAGE>
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.
GUARANTEED ISSUE
We only offer this policy on a guaranteed issue basis. We issue these policies
up to a preset face amount with evidence of insurability requirements.
AGE
We issue your policy at the insured person's age stated in your policy schedule.
This is based on the insured person's age as of the nearest birthday to the
policy date. We determine the insured person's age at any given time by adding
the number of completed policy years to the age calculated at issue and shown in
the schedule. At issue of your policy, the insured person must be no less than
age 15 and no more than age 85.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive benefits during the insured
person's lifetime before the maturity date. 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 the insured person receives the death
proceeds. Other surviving beneficiary(ies) receive death proceeds only if there
is no surviving primary beneficiary(ies). If more than one beneficiary(ies)
survives the insured person, they share the death proceeds equally, unless you
have told us otherwise. If none of your policy beneficiaries has survived the
insured person, 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 during the insured person's lifetime. 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 the insured person is 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 the insured person is
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
person (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 the insured person is 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 the insured person's age or gender has been misstated, we adjust the death
benefit to the amount
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Corporate Benefits 34
<PAGE>
which would have been purchased for the 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 insured
person's death, 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 the 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 death of the insured person 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 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.
We determine the death benefit as of the insured person's date of death. 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 insured person's date of death 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 insured person's death. 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
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Corporate Benefits 35
<PAGE>
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;
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. During the first policy year, the distribution allowance
is 16% of the premium that we receive up to target premium and 2% of premium we
receive in excess of target premium. In each of policy years two through four,
the distribution allowance is 7% of the premium we receive up to target premium
and 1% of premium we receive in excess of target premium. In each of policy
years five through ten, the distribution allowance is 2% of the premium we
receive up to target premium.
Broker-dealers receive annual renewal payments of up to 0.20% of the average net
account value for the first ten years of your policy and 0.10% of average net
account value each year thereafter.
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
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<PAGE>
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 death of
the insured person. If you have not made this election, the beneficiary(ies) may
do so within 60 days after we receive proof of the insured person's death.
You may take your 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
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
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Corporate Benefits 37
<PAGE>
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, 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.
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Corporate Benefits 38
<PAGE>
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 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 AND DEDUCTIONS
The amount of a charge may not correspond to the cost incurred by us to provide
the service or benefits associated with the particular policy. For example, the
sales charges 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
INITIAL SALES CHARGE
We deduct a percentage from each of your premium payments to compensate us for
the costs we incur in selling the policies. In the first policy or segment year
this charge is 2% of the premiums you pay up to target premium. Each year
thereafter, we deduct 0.5% of all premium payments we receive.
The initial sales charge helps to cover the costs of distribution, preparing our
sales literature, promotional expenses, and other direct and indirect expenses.
The amount charged is not specifically related to sales expenses in a particular
year.
Premiums are subject to both initial and deferred sales charges, which in the
aggregate can equal as much as 4% of premiums we receive in the first year up to
the target premium and 1% of premiums paid in the first year in excess of
target.
DEFERRED SALES CHARGE
In addition to the initial sales charge, we impose a deterred sales charge.
We deduct an annual deferred sales charge that is a percentage of your premium
payments in each of the first ten policy or segment years. The charge is
deducted from your account value on each of the seven policy or segment
anniversaries following the year of the premium payment. Each policy segment has
its own deferred sales charge. We allocate your premium payments among policy
segments to determine the deferred sales charges under your policy if you have
more than one segment. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23.
In light of this schedule, you should consider the timing of premium payments.
The deferred sales charge is lower for premiums paid in years five and later.
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Corporate Benefits 39
<PAGE>
Policy or | Deferred Sales Charge |
Segment | (% of Premium)* |
Year When --------------------------- Deducted at
Premium | up to in Excess | Beginning of
Payment | Target of Target | Policy or
are Made | Premium Premium | Segment Years
- -------------| ----------------------- | -------------
| |
1 | 2% 1% | 2 - 8
2 | 1.75% N/A | 3 - 9
3 | 1.75% N/A | 4 - 10
4 | 1.75% N/A | 5 - 11
5 | 0.5% N/A | 6 - 12
6 | 0.5% N/A | 7 - 13
7 | 0.5% N/A | 8 - 14
8 | 0.5% N/A | 9 - 15
9 | 0.5% N/A | 10 - 16
10 | 0.5% N/A | 11 - 17
* THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE
DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS.
The deferred sales charge compensates us for a portion of the costs we incur in
selling the policies.
DEFERRED SALES CHARGE EXAMPLE
(BASED ON TWO YEARS OF PREMIUM PAYMENTS)
Assume a policy has:
o a target premium of $8,000;
o premium payments of $10,000 in each of the first two years; and
o no change in death benefit.
The $10,000 premium payment for the first year incurs a deferred sales charge of
$180 each year for years two through eight:
2% of premium up to target plus 1% of premium payments over target [.02 x
$8,000 + (.01 x $2,000) = $180].
The $10,000 premium payment for the second year incurs a deferred sales charge
of $140 each year for years three through nine:
1.75% of all premium [.0175 x $8,000 = $140].
The deferred sales charge deduction is made on the monthly processing date at
the policy (or segment) anniversary.
Deferred Total
Policy or Deferred Sales Charge Deferred
Segment Sales Charge on Second Sales Charge
Year of on First Year Year Deducted at
Premium Premium Premium Policy
Payments Of $10,000 Of $10,000 Anniversary
-------- ---------- ---------- -----------
1
2 $180 $180
3 $180 $140 $320
4 $180 $140 $320
5 $180 $140 $320
6 $180 $140 $320
7 $180 $140 $320
8 $180 $140 $320
9 $140 $140
10
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.
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Corporate Benefits 40
<PAGE>
MONTHLY DEDUCTIONS FROM ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a charge each month for the mortality and expense risks we assume.
This charge is 0.01667% per month (0.20% annually) of the amount you have in the
variable investment options on the monthly processing date. This charge is
deducted as a separate charge which appears on your confirmation.
The mortality risk we assume is that insured people, as a group, may live less
time than we estimated. We assume risk that expenses we incur in issuing and
administering the policies and in operating the variable investment options are
greater than the amount we estimated when we set these charges.
MONTHLY ADMINISTRATIVE CHARGE
For this policy, we charge a per month administrative charge of $12 per month
for the first policy year and $6 per month for each policy year beyond that.
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 insured person's death.
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 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 person. 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 person's age, gender, group
size, total group premium, rating and premium class 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 each segment of the base death benefit
and your adjustable term insurance rider.
We may make changes in the cost of insurance 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 which we will provide to you. This may result in higher cost of
insurance charges than those that would apply if the policy were on an
individual instead of group basis.
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Corporate Benefits 41
<PAGE>
There are no cost of insurance charges during the continuation of coverage
period.
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 31.
TRANSFERS
There is a $10 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 28.
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 41.
CONTINUATION OF COVERAGE ADMINISTRATIVE FEE
At the policy anniversary nearest the 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 $200. This charge compensates us
for maintaining and servicing your policy until the death of the insured person.
We then no longer charge your policy a monthly administrative fee or cost of
insurance charge.
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Corporate Benefits 42
<PAGE>
DIVISIONS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS
<TABLE>
<CAPTION>
MONTHLY CHARGES: COST OF
INSURANCE CHARGES,
ADMINISTRATIVE FEES AND
ANNUAL DEDUCTION OF POLICY LOANS AND
DEFERRED SALES CHARGE TRANSACTION FEES PARTIAL WITHDRAWALS
- -------------- ------------------------------------- ------------------------------------- ---------------------------------
<S> <C> <C> <C>
CHOICE May choose a designated Proportionally among variable May choose any investment
deduction investment option, and guaranteed interest divisions option or combination of
including guaranteed interest investment options
- -------------- ------------------------------------- ------------------------------------- ----------------------------------
DEFAULT Proportionally among variable Proportionally among variable Proportionally among variable
and guaranteed interest divisions and guaranteed interest divisions and guaranteed interest divisions
</TABLE>
GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS
Groups of individuals, corporations or other institutions may purchase this
policy. For group or sponsored arrangements we may reduce or waive the:
o administrative charge;
o minimum target death benefit;
o target premium;
o initial sales charge;
o deferred sales charge;
o cost of insurance charges; or
o other charges normally assessed.
These arrangements include sales to employees and certain family members of
employees of Security Life of Denver, its affiliates and appointed sales agents
and special exchange programs we may offer.
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.
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Corporate Benefits 43
<PAGE>
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 Section 7702. However, there is very little guidance, 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.
Specifically this policy must meet the requirements of the "cash value
accumulation test" as specified in Code Section 7702.
Under the cash value accumulation test, there is no limit to the amount that may
be paid in premiums as long as there is enough death benefit in relation to
account value at all times. The death benefit at all times must be at least
equal to an actuarially determined factor, depending on the insured person's age
and sex at any point in time, multiplied by the account value. SEE APPENDIX A,
PAGE 67, FOR A TABLE OF THE CASH VALUE ACCUMULATION TEST FACTORS.
We will at all times assure that the policy meets the statutory definition which
qualifies the policy as life insurance for federal income tax purposes. In
addition, as long as the policy remains in force, increases in account value as
a result of interest or investment experience will not be subject to federal
income tax unless and until there is a distribution from the policy, such as a
partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE 44.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 tests, 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
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.
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Corporate Benefits 44
<PAGE>
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 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.
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Corporate Benefits 45
<PAGE>
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 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.
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Corporate Benefits 46
<PAGE>
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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Corporate Benefits 47
<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 policies illustrated use the
following assumptions:
Definition
Death of Life Stated Target
Smoker* Benefit Insurance Death Death
Gender Age Status Option Test Benefit Premium Benefit
- ------ --- ------ ------ ---- ------- ------- -------
Male 35 Non-smoker 1 CVAT $251,206 $10,000 $251,206
Male 35 Non-smoker 1 CVAT $125,603 $10,000 $251,206
Male 45 Non-smoker 1 CVAT $180,526 $10,000 $180,526
Male 45 Non-smoker 1 CVAT $90,263 $10,000 $180,526
Male 55 Non-smoker 1 CVAT $131,692 $10,000 $131,692
Male 55 Non-smoker 1 CVAT $65,846 $10,000 $131,692
- ----------------------------
* "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 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%, 6%, or 12% 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 female, unisex 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 X.XX% 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
X.XX% 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 X.XX%.
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Corporate Benefits 48
<PAGE>
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 portfolios' total expenses used in the
illustrations would have been higher (X.XX%, X.XX% and X.XX%, respectively). The
tables assume that the current expense reimbursement arrangements will continue.
However, they may not continue through 2000.
The effect of these portfolio charges and expenses, and mortality and expense
risk charges result in a net rate of return of:
o X.XX% on a 0% gross rate of return;
o X.XX% on a 6% gross rate of return; and
o XX..X% on a 12% gross rate of return.
The tables assume that charges have been deducted including deductions for
premiums, cost of insurance rider charges, monthly deductions and annual
deferred sales charge, mortality and expense risk charge, administrative and
sales charges. The tables show charges at our current rates. The tables also
show charges at the maximum rates we guarantee in our policies. SEE MONTHLY
DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 41. 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
surrender values.
If we are asked to do so, we will give you a comparable personal illustration
based on:
o each insured person's age and gender;
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.
For individual policies, at issue we deliver an individualized illustration
showing the scheduled premium you chose and the insured person's actual risk
class. This Corporate Benefits policy is issued only to groups. For this policy,
we deliver an illustration similar to the individualized illustration. However,
this illustration shows a single life scheduled premium and premium or risk
class that is representative of the particular group covered by this policy.
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.
- --------------------------------------------------------------------------------
Corporate Benefits 49
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $251,206 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 8646 8646 251206 9731 9731 251206 9188 9188 251206
2 10000 21525 17206 17206 251206 20531 20531 251206 18836 18836 251206
3 10000 33101 25481 25481 251206 32300 32300 251206 28756 28756 251206
4 10000 45256 33472 33472 251206 45145 45145 251206 38962 38962 251206
5 10000 58019 41177 41177 251206 59186 59186 251206 49466 49466 251206
6 10000 71420 48722 48722 251206 74695 74695 256876 60416 60416 251206
7 10000 85491 56105 56105 251206 91706 91706 305380 71832 71832 251206
8 - 89766 53853 53853 251206 99834 99834 322063 73694 73694 251206
9 - 94254 51754 51754 251206 108962 108962 340505 75807 75807 251206
10 - 98967 49781 49781 251206 119159 119159 360813 78160 78160 251206
15 - 126309 40779 40779 251206 189104 189104 491480 93044 93044 251206
20 - 161206 29770 29770 251206 299375 299375 672396 110947 110947 251206
25 - 205744 13798 13798 251206 468796 468796 919778 131192 131192 257399
30 - 262588 - - - 725522 725522 1256604 153523 153523 265901
AGE 65 - 275717 - - - 790314 790314 1337212 158143 158143 267577
</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 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.
- --------------------------------------------------------------------------------
Corporate Benefits 50
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $251,206 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 9040 9040 251206 10149 10149 251206 9594 9594 251206
2 10000 21525 18002 18002 251206 21424 21424 251206 19680 19680 251206
3 10000 33101 26691 26691 251206 33731 33731 251206 30074 30074 251206
4 10000 45256 35110 35110 251206 47182 47182 251206 40791 40791 251206
5 10000 58019 43261 43261 251206 61903 61903 251206 51848 51848 251206
6 10000 71420 51271 51271 251206 78170 78170 268826 63392 63392 251206
7 10000 85491 59138 59138 251206 96120 96120 320079 75447 75447 251238
8 - 89766 57413 57413 251206 105357 105357 339883 78013 78013 251669
9 - 94254 55890 55890 251206 115795 115795 361860 80903 80903 252822
10 - 98967 54540 54540 251206 127530 127530 386162 84106 84106 254672
15 - 126309 49471 49471 251206 209968 209968 545708 104455 104455 271479
20 - 161206 44363 44363 251206 346271 346271 777724 130277 130277 292602
25 - 205744 37995 37995 251206 568847 568847 1116078 161866 161866 317581
30 - 262588 28827 28827 251206 928214 928214 1607666 199796 199796 346047
AGE 65 - 275717 26466 26466 251206 1022742 1022742 1730480 208195 208195 352266
</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 investments 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.
- --------------------------------------------------------------------------------
Corporate Benefits 51
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $125,603 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $125,603 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 8876 8876 251206 9993 9993 251206 9434 9434 251206
2 10000 21525 17413 17413 251206 20803 20803 251206 19074 19074 251206
3 10000 33101 25747 25747 251206 32674 32674 251206 29073 29073 251206
4 10000 45256 33877 33877 251206 45748 45748 251206 39459 39459 251206
5 10000 58019 41818 41818 251206 60167 60167 251206 50262 50262 251206
6 10000 71420 49634 49634 251206 76153 76153 261891 61574 61574 251206
7 10000 85491 57321 57321 251206 93709 93709 312051 73422 73422 251206
8 - 89766 55381 55381 251206 102464 102464 330547 75764 75764 251206
9 - 94254 53528 53528 251206 112225 112225 350702 78331 78331 251206
10 - 98967 51693 51693 251206 123021 123021 372507 81069 81069 251206
15 - 126309 42152 42152 251206 195743 195743 508736 97174 97174 252556
20 - 161206 29851 29851 251206 309902 309902 696039 116285 116285 261176
25 - 205744 11874 11874 251206 485297 485297 952152 137692 137692 270152
30 - 262588 - - 251206 751075 751075 1300861 161149 161149 279110
AGE 65 - 275717 - - 251206 818152 818152 1384313 166002 166002 280875
</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 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.
- --------------------------------------------------------------------------------
Corporate Benefits 52
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $125,603 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $125,603 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 9340 9340 251206 10486 10486 251206 9913 9913 251206
2 10000 21525 18353 18353 251206 21857 21857 251206 20070 20070 251206
3 10000 33101 27178 27178 251206 34367 34367 251206 30631 30631 251206
4 10000 45256 35817 35817 251206 48140 48140 251206 41615 41615 251206
5 10000 58019 44273 44273 251206 63314 63314 251206 53043 53043 251206
6 10000 71420 52608 52608 251206 80106 80106 275485 65002 65002 251206
7 10000 85491 60821 60821 251206 98665 98665 328553 77515 77515 258125
8 - 89766 59464 59464 251206 108603 108603 350355 80588 80588 259977
9 - 94254 58255 58255 251206 119762 119762 374255 83957 83957 262364
10 - 98967 57130 57130 251206 132197 132197 400293 87567 87567 265154
15 - 126309 52249 52249 251206 218184 218184 567061 109183 109183 283768
20 - 161206 47033 47033 251206 359839 359839 808198 136192 136192 305888
25 - 205744 40578 40578 251206 591155 591155 1159845 169234 169234 332037
30 - 262588 31359 31359 251206 964632 964632 1670743 208909 208909 361830
AGE 65 - 275717 28994 28994 251206 1062873 1062873 1798380 217694 217694 368338
</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 investments 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.
- --------------------------------------------------------------------------------
Corporate Benefits 53
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $180,526 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 8378 8378 180526 9447 9447 180526 8912 8912 180526
2 10000 21525 16663 16663 180526 19926 19926 180526 18262 18262 180526
3 10000 33101 24661 24661 180526 31343 31343 180526 27869 27869 180526
4 10000 45256 32377 32377 180526 43812 43812 180526 37753 37753 180526
5 10000 58019 39812 39812 180526 57457 57457 180526 47929 47929 180526
6 10000 71420 47095 47095 180526 72564 72564 183006 58553 58553 180526
7 10000 85491 54222 54222 180526 89102 89102 218211 69649 69649 180526
8 - 89766 51674 51674 180526 96676 96676 229896 71155 71155 180526
9 - 94254 49237 49237 180526 105154 105154 243011 72874 72874 180526
10 - 98967 46868 46868 180526 114583 114583 257352 74784 74784 180526
15 - 126309 34840 34840 180526 178231 178231 349689 86705 86705 180526
20 - 161206 18061 18061 180526 275554 275554 477260 100180 100180 180526
25 - 205744 - - - 419906 419906 650854 114168 114168 180526
30 - 262588 - - - 629963 629963 885728 128550 128550 180741
AGE 65 - 169267 13634 13634 180526 300116 300116 507796 102937 102937 180526
</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 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.
- --------------------------------------------------------------------------------
Corporate Benefits 54
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $180,526 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 9009 9009 180526 10116 10116 180526 9562 9562 180526
2 10000 21525 17925 17925 180526 21339 21339 180526 19599 19599 180526
3 10000 33101 26557 26557 180526 33578 33578 180526 29930 29930 180526
4 10000 45256 34908 34908 180526 46946 46946 180526 40572 40572 180526
5 10000 58019 42983 42983 180526 61573 61573 180526 51544 51544 180526
6 10000 71420 50910 50910 180526 77729 77729 196032 62996 62996 180526
7 10000 85491 58689 58689 180526 95528 95528 233949 74951 74951 183555
8 - 89766 56860 56860 180526 104579 104579 248690 77403 77403 184065
9 - 94254 55221 55221 180526 114792 114792 265285 80168 80168 185267
10 - 98967 53740 53740 180526 126257 126257 283574 83230 83230 186935
15 - 126309 47695 47695 180526 206255 206255 404673 102560 102560 201223
20 - 161206 40527 40527 180526 336259 336259 582400 126446 126446 219004
25 - 205744 30022 30022 180526 543840 543840 842952 154662 154662 239726
30 - 262588 12712 12712 180526 870627 870627 1224101 187277 187277 263312
AGE 65 - 169267 38766 38766 180526 370455 370455 626810 131734 131734 222894
</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 investments 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.
- --------------------------------------------------------------------------------
Corporate Benefits 55
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $90,263 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $90,263 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 8573 8573 180526 9671 9671 180526 9122 9122 180526
2 10000 21525 16794 16794 180526 20113 20113 180526 18420 18420 180526
3 10000 33101 24807 24807 180526 31575 31575 180526 28056 28056 180526
4 10000 45256 32616 32616 180526 44217 44217 180526 38067 38067 180526
5 10000 58019 40245 40245 180526 58198 58198 180526 48500 48500 180526
6 10000 71420 47764 47764 180526 73756 73756 186012 59453 59453 180526
7 10000 85491 55170 55170 180526 90808 90808 222388 70965 70965 180526
8 - 89766 52900 52900 180526 98971 98971 235354 72934 72934 180526
9 - 94254 50662 50662 180526 108040 108040 249680 75090 75090 180526
10 - 98967 48372 48372 180526 118018 118018 265068 77371 77371 180526
15 - 126309 35278 35278 180526 184073 184073 361151 90460 90460 180526
20 - 161206 16248 16248 180526 284601 284601 492930 105333 105333 182437
25 - 205744 - - - 433707 433707 672246 121314 121314 188037
30 - 262588 - - - 650683 650683 914860 137595 137595 193459
AGE 65 - 169267 11210 11210 180526 309972 309972 524472 108459 108459 183513
</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 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.
- --------------------------------------------------------------------------------
Corporate Benefits 56
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $90,263 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $90,263 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 9308 9308 180526 10452 10452 180526 9880 9880 180526
2 10000 21525 18274 18274 180526 21770 21770 180526 19987 19987 180526
3 10000 33101 27040 27040 180526 34211 34211 180526 30485 30485 180526
4 10000 45256 35612 35612 180526 47901 47901 180526 41393 41393 180526
5 10000 58019 43991 43991 180526 62980 62980 180526 52736 52736 180526
6 10000 71420 52244 52244 180526 79659 79659 200900 64602 64602 180526
7 10000 85491 60371 60371 180526 98064 98064 240158 77014 77014 188608
8 - 89766 58912 58912 180526 107811 107811 256375 79970 79970 190168
9 - 94254 57590 57590 180526 118738 118738 274404 83207 83207 192290
10 - 98967 56337 56337 180526 130895 130895 293991 86670 86670 194661
15 - 126309 50505 50505 180526 214361 214361 420577 107223 107223 210371
20 - 161206 43276 43276 180526 349493 349493 605321 132213 132213 228992
25 - 205744 32774 32774 180526 565262 565262 876156 161734 161734 250687
30 - 262588 15578 15578 180526 904939 904939 1272344 195859 195859 275377
AGE 65 - 169267 41510 41510 180526 385038 385038 651484 137746 137746 233065
</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 investments 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.
- --------------------------------------------------------------------------------
Corporate Benefits 57
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $131,692 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 7875 7875 131692 8914 8914 131692 8394 8394 131692
2 10000 21525 15652 15652 131692 18803 18803 131692 17195 17195 131692
3 10000 33101 23146 23146 131692 29584 29584 131692 26235 26235 131692
4 10000 45256 30365 30365 131692 41383 41383 131692 35540 35540 131692
5 10000 58019 37316 37316 131692 54346 54346 131692 45140 45140 131692
6 10000 71420 44129 44129 131692 68784 68784 131692 55201 55201 131692
7 10000 85491 50809 50809 131692 84569 84569 157637 65771 65771 131692
8 - 89766 47734 47734 131692 91274 91274 165936 66693 66693 131692
9 - 94254 44674 44674 131692 98751 98751 175184 67767 67767 131692
10 - 98967 41576 41576 131692 107029 107029 185375 68968 68968 131692
15 - 126309 23590 23590 131692 161929 161929 250990 76207 76207 131692
20 - 161206 - - - 242661 242661 341181 82212 82212 131692
25 - 205744 - - - 356652 356652 463291 82847 82847 131692
30 - 262588 - - - 516089 516089 628596 68762 68762 131692
AGE 65 - 103915 38406 38406 131692 116169 116169 196558 70297 70297 131692
</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 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.
- --------------------------------------------------------------------------------
Corporate Benefits 58
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $131,692 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 8854 8854 131692 9953 9953 131692 9403 9403 131692
2 10000 21525 17619 17619 131692 20998 20998 131692 19275 19275 131692
3 10000 33101 26100 26100 131692 33047 33047 131692 29437 29437 131692
4 10000 45256 34299 34299 131692 46211 46211 131692 39902 39902 131692
5 10000 58019 42218 42218 131692 60625 60625 131692 50692 50692 131692
6 10000 71420 49986 49986 131692 76546 76546 146356 61960 61960 131692
7 10000 85491 57608 57608 131692 94038 94038 175288 73729 73729 137430
8 - 89766 55591 55591 131692 102716 102716 186738 75968 75968 138110
9 - 94254 53725 53725 131692 112476 112476 199532 78489 78489 139240
10 - 98967 51977 51977 131692 123393 123393 213717 81276 81276 140770
15 - 126309 43763 43763 131692 198571 198571 307785 98646 98646 152902
20 - 161206 32004 32004 131692 317597 317597 446542 119305 119305 167743
25 - 205744 12724 12724 131692 503646 503646 654237 143066 143066 185842
30 - 262588 - - - 791826 791826 964444 170105 170105 207188
AGE 65 - 103915 50334 50334 131692 135578 135578 229398 84337 84337 142697
</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 investments 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.
- --------------------------------------------------------------------------------
Corporate Benefits 59
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $65,846 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $65,846 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 8000 8000 131692 9065 9065 131692 8532 8532 131692
2 10000 21525 15637 15637 131692 18824 18824 131692 17197 17197 131692
3 10000 33101 23061 23061 131692 29541 29541 131692 26168 26168 131692
4 10000 45256 30278 30278 131692 41399 41399 131692 35494 35494 131692
5 10000 58019 37332 37332 131692 54601 54601 131692 45255 45255 131692
6 10000 71420 44302 44302 131692 69429 69429 132749 55571 55571 131692
7 10000 85491 51196 51196 131692 85669 85669 159687 66508 66508 131692
8 - 89766 48311 48311 131692 92897 92897 168888 67844 67844 131692
9 - 94254 45337 45337 131692 100890 100890 178979 69303 69303 131692
10 - 98967 42170 42170 131692 109634 109634 189886 70820 70820 131692
15 - 126309 21915 21915 131692 166349 166349 257842 78870 78870 131692
20 - 161206 - - - 249297 249297 350511 85621 85621 131692
25 - 205744 - - - 366418 366418 475976 87160 87160 131692
30 - 262588 - - - 530231 530231 645822 72050 72050 131692
AGE 65 - 103915 38764 38764 131692 119184 119184 201659 72392 72392 131692
</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 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.
- --------------------------------------------------------------------------------
Corporate Benefits 60
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $65,846 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $65,846 ANNUAL PREMIUM: $10,000
CASH VALUE ACCUMULATION 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 10000 10500 9153 9153 131692 10288 10288 131692 9720 9720 131692
2 10000 21525 17966 17966 131692 21428 21428 131692 19663 19663 131692
3 10000 33101 26583 26583 131692 33679 33679 131692 29991 29991 131692
4 10000 45256 35002 35002 131692 47166 47166 131692 40723 40723 131692
5 10000 58019 43227 43227 131692 62037 62037 131692 51886 51886 131692
6 10000 71420 51325 51325 131692 78477 78477 150048 63575 63575 131692
7 10000 85491 59301 59301 131692 96569 96569 180005 75793 75793 141277
8 - 89766 57660 57660 131692 105937 105937 192593 78527 78527 142762
9 - 94254 56122 56122 131692 116400 116400 206494 81512 81512 144601
10 - 98967 54614 54614 131692 127996 127996 221689 84689 84689 146682
15 - 126309 46710 46710 131692 206501 206501 320077 103208 103208 159973
20 - 161206 35076 35076 131692 330299 330299 464401 124841 124841 175526
25 - 205744 16123 16123 131692 523808 523808 680426 149722 149722 194489
30 - 262588 - - - 823542 823542 1003074 178038 178038 216851
AGE 65 - 103915 53127 53127 131692 140831 140831 238285 88065 88065 149006
</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 investments 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.
- --------------------------------------------------------------------------------
Corporate Benefits 61
<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
Thomas F. Conroy President, ING Reinsurance International
Michael W. Cunningham* Director, Executive Vice President
Mark A. Tullis* Director
P. Randall Lowery* Director
Jess A. Skriletz Director, Chief Executive Officer and General
Manager, ING Reinsurance and ING Institutional
Markets
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
- --------------------------------------------------------------------------------
Corporate Benefits 62
<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
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries at December 31, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, and the financial statements
of the Security Life Separate Account L1 at December 31, 1999, and for each of
the three years in the period ended December 31, 1999, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given on the authority of
such firm as experts in accounting and auditing.
Actuarial matters in this prospectus have been examined by James L. Livingston,
Jr., F.S.A., M.A.A.A., who is Executive Vice President and Chief Actuary of
Security Life. His opinion on actuarial matters is filed as an exhibit to the
Registration Statement we filed with the SEC.
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.
- --------------------------------------------------------------------------------
Corporate Benefits 63
<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.............................................................27
Accumulation unit value.......................................................27
Adjustable term insurance rider...............................................20
Age...........................................................................34
Base death benefit............................................................21
Beneficiary(ies)...............................................................8
Customer service center........................................................2
Death proceeds................................................................21
Free look period..............................................................33
General account...............................................................11
Guaranteed interest division..................................................15
Initial premium...............................................................18
Insured person................................................................16
Investment date...............................................................18
Investment options............................................................11
Loan division..................................................................7
Net account value.............................................................26
Net amount at risk............................................................41
Net premium...................................................................18
Owner.........................................................................34
Partial withdrawal............................................................31
Policy........................................................................16
Policy date...................................................................17
Policy loan...................................................................30
Portfolios....................................................................11
Rider.........................................................................24
Scheduled premium.............................................................18
Segment.......................................................................23
Separate account..............................................................11
Smoker........................................................................48
Stated death benefit..........................................................16
Target death benefit..........................................................24
Target premium................................................................18
Total death benefit...........................................................24
Transaction date..............................................................27
Valuation date.................................................................7
Valuation period..............................................................27
Variable division.............................................................11
- --------------------------------------------------------------------------------
Corporate Benefits 64
<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 66.
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.]
- --------------------------------------------------------------------------------
Corporate Benefits 65
<PAGE>
Consolidated Financial Statements
Security Life of Denver
Insurance Company
and Subsidiaries
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Corporate Benefits 66
<PAGE>
APPENDIX A
FACTORS FOR THE
CASH VALUE ACCUMULATION TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Male | Male | Male
Attained or Unisex Unisex |Attained or Unisex Unisex | Attained or Unisex Unisex
Age 100/0 Female 80/20 | Age 100/0 Female 80/20 | Age 100/0 Female 80/20
--- ----- ------ ----- | --- ----- ------ ----- | --- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 11.727 14.234 12.149 |
1 11.785 14.209 12.194 | 34 4.188 4.902 4.314 | 67 1.617 1.815 1.657
2 11.458 13.815 11.857 | 35 4.052 4.742 4.173 | 68 1.583 1.769 1.620
3 11.128 13.417 11.515 | 36 3.920 4.586 4.037 | 69 1.550 1.724 1.585
4 10.803 13.023 11.178 | 37 3.793 4.437 3.906 | 70 1.518 1.681 1.552
5 10.481 12.635 10.845 | 38 3.670 4.293 3.780 | 71 1.488 1.639 1.520
6 10.161 12.253 10.514 | 39 3.553 4.154 3.658 | 72 1.459 1.599 1.489
7 9.844 11.875 10.187 | 40 3.439 4.021 3.541 | 73 1.432 1.560 1.460
8 9.530 11.505 9.863 | 41 3.330 3.894 3.429 | 74 1.406 1.524 1.433
9 9.221 11.141 9.545 | 42 3.226 3.771 3.322 | 75 1.382 1.490 1.407
10 8.918 10.784 9.233 | 43 3.125 3.654 3.218 | 76 1.359 1.457 1.383
11 8.623 10.436 8.928 | 44 3.028 3.541 3.119 | 77 1.338 1.427 1.360
12 8.338 10.098 8.634 | 45 2.936 3.432 3.023 | 78 1.318 1.398 1.338
13 8.066 9.771 8.353 | 46 2.846 3.328 2.931 | 79 1.299 1.371 1.318
14 7.808 9.455 8.085 | 47 2.761 3.227 2.843 | 80 1.281 1.345 1.298
15 7.564 9.150 7.831 | 48 2.678 3.129 2.758 | 81 1.264 1.321 1.280
16 7.335 8.857 7.592 | 49 2.599 3.035 2.676 | 82 1.248 1.298 1.262
17 7.118 8.575 7.364 | 50 2.522 2.945 2.597 | 83 1.233 1.277 1.245
18 6.911 8.302 7.148 | 51 2.449 2.858 2.522 | 84 1.218 1.257 1.230
19 6.713 8.038 6.939 | 52 2.378 2.774 2.449 | 85 1.205 1.238 1.215
20 6.521 7.782 6.737 | 53 2.311 2.693 2.379 | 86 1.193 1.221 1.202
21 6.334 7.534 6.540 | 54 2.246 2.615 2.312 | 87 1.181 1.205 1.189
22 6.150 7.293 6.347 | 55 2.184 2.540 2.248 | 88 1.171 1.190 1.177
23 5.969 7.059 6.158 | 56 2.125 2.468 2.187 | 89 1.160 1.176 1.166
24 5.791 6.831 5.971 | 57 2.068 2.398 2.128 | 90 1.151 1.163 1.155
25 5.615 6.611 5.788 | 58 2.014 2.330 2.071 | 91 1.141 1.150 1.144
26 5.441 6.396 5.608 | 59 1.962 2.265 2.017 | 92 1.131 1.137 1.133
27 5.271 6.188 5.431 | 60 1.912 2.201 1.965 | 93 1.120 1.125 1.122
28 5.104 5.986 5.258 | 61 1.864 2.139 1.915 | 94 1.109 1.112 1.110
29 4.940 5.791 5.089 | 62 1.818 2.079 1.867 | 95 1.097 1.098 1.097
30 4.781 5.601 4.925 | 63 1.774 2.022 1.821 | 96 1.083 1.084 1.084
31 4.626 5.418 4.765 | 64 1.732 1.967 1.777 | 97 1.069 1.069 1.069
32 4.476 5.241 4.610 | 65 1.692 1.914 1.735 | 98 1.054 1.054 1.054
33 4.330 5.069 4.459 | 66 1.654 1.863 1.695 | 99 1.040 1.040 1.040
| | 100 1.000 1.000 1.000
</TABLE>
- --------------------------------------------------------------------------------
Corporate Benefits 67
<PAGE>
APPENDIX B
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 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.
The illustrations are based on the payment of a $5,750 annual premium, received
at the beginning of each year, for a hypothetical policy with a $300,000 face
amount death benefit Option 1, issued on a nonsmoker male, Age 45. 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, PAGE 40. This prospectus also contains illustrations based on assumed
rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER
VALUES AND ACCUMULATED PREMIUMS, PAGE 48.
Past performance is not an indication of future results. Actual investment
results may be more or less than those shown in the hypothetical illustrations.
[TO BE UPDATED BY AMENDMENT]
- --------------------------------------------------------------------------------
Corporate Benefits 68
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
- --------------------------------------------------------------------------------
AIM VI CAPITAL APPRECIATION FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1994
1995
1996
1997
1998
AIM VI GOVERNMENT SECURITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1994
1995
1996
1997
1998
ALGER AMERICAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990
1991
1992
1993
1994
1995
1996
1997
1998
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1994
1995
1996
1997
1998
The assumptions underlying these values are described in Performance
Information, page 68.
*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.
- --------------------------------------------------------------------------------
Corporate Benefits 69
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
FIDELITY VIP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
FIDELITY VIP OVERSEAS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
The assumptions underlying these values are described in Performance
Information, page 68.
*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.
- --------------------------------------------------------------------------------
Corporate Benefits 70
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
FIDELITY VIP II INDEX 500 PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1993
1994
1995
1996
1997
1998
GCG TRUST EQUITY INCOME PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1990
1991
1992
1993
1994
1995
1996
1997
1998
GCG TRUST GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1997
1998
GCG TRUST HARD ASSETS PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1990
1991
1992
1993
1994
1995
1996
1997
1998
The assumptions underlying these values are described in Performance
Information, page 68.
*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.
- --------------------------------------------------------------------------------
Corporate Benefits 71
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
GCG TRUST LIMITED MATURITY BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990
1991
1992
1993
1994
1995
1996
1997
1998
GCG TRUST LIQUID ASSET PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990
1991
1992
1993
1994
1995
1996
1997
1998
GCG TRUST MID-CAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995
1996
1997
1998
GCG TRUST RESEARCH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995
1996
1997
1998
The assumptions underlying these values are described in Performance
Information, page 68.
*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.
- --------------------------------------------------------------------------------
Corporate Benefits 72
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
GCG TRUST TOTAL RETURN PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995
1996
1997
1998
INVESCO VIF EQUITY INCOME FUND
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1995
1996
1997
1998
INVESCO VIF HIGH YIELD FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995
1996
1997
1998
INVESCO VIF SMALL COMPANY GROWTH FUND
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
1998
NEUBERGER BERMAN AMT PARTNERS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1995
1996
1997
1998
The assumptions underlying these values are described in Performance
Information, page 68.
*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.
- --------------------------------------------------------------------------------
Corporate Benefits 73
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45
Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $5,750
VAN ECK WORLDWIDE BOND FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1990
1991
1992
1993
1994
1995
1996
1997
1998
VAN ECK WORLDWIDE EMERGING MARKETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1996
1997
1998
VAN ECK WORLDWIDE REAL ESTATE FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
1998
The assumptions underlying these values are described in Performance
Information, page 68.
*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.
- --------------------------------------------------------------------------------
Corporate Benefits 74
This information is subject to completion or change. An amended registration
statement for these securities has been filed with the Securities and Exchange
Commission. These securities may not be sold and offers to buy may not be
accepted prior to the amended registration statement becoming effective. This
prospectus is not an offer to sell and is not a solicitation of an offer to buy.
There will be no sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the laws of the state.
Prospectus
STRATEGIC BENEFIT LIFE INSURANCE
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 and deductions beginning on page 37 in
this prospectus.
You should read this prospectus and keep it for future reference. A prospectus
for each underlying fund 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.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
YOUR POLICY
o is a flexible premium variable universal life insurance policy;
o is issued by Security Life of Denver Insurance Company;
o is designed primarily for use on a multi-life basis when the insured
people share a common employment or business relationship; and
o is returnable by you during the free look period or right to examine
policy period if you are not satisfied.
YOUR POLICY 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 up to 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 value under the variable division. The
value varies with the value of the underlying investment portfolio;
o has a minimum guaranteed rate of return if you have an amount in the
guaranteed interest division; and
o is subject to various expenses and charges.
DEATH PROCEEDS
o are paid if the policy is in force when the insured person dies;
o are equal to the death benefit minus an outstanding policy loan,
accrued loan interest and unpaid charges incurred before the 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 GOVERNMENTAL AGENCY.
DATE OF PRELIMINARY PROSPECTUS: MARCH 2, 2000
Form V-122-00 Number ______
<PAGE>
ISSUED BY: Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc.
Insurance Company 1290 Broadway
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
- --------------------------------------------------------------------------------
Strategic Benefit 2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY.................................................................4
Your Policy...............................................................4
Free Look Period..........................................................4
Your Premium Payments.....................................................4
Charges and Deductions....................................................5
Guaranteed Interest Division..............................................6
Policy Values.............................................................8
Transfers of Account Value................................................8
Special Policy Features...................................................8
Policy Modification, Termination and Continuation
Features..............................................................8
Death Benefits............................................................9
Tax Considerations........................................................9
INFORMATION ABOUT 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.....................................16
DETAILED INFORMATION ABOUT THE
POLICY...................................................................16
Applying for a Policy....................................................16
Temporary Insurance......................................................16
Policy Issuance..........................................................17
Premiums.................................................................17
Premium Payments Affect Your Coverage....................................18
Death Benefits...........................................................19
Adjustable Term Insurance Rider..........................................23
Special Features.........................................................24
Policy Values............................................................25
Transfers of Account Value...............................................26
Dollar Cost Averaging....................................................27
Automatic Rebalancing....................................................28
Policy Loans.............................................................28
Partial Withdrawals......................................................29
Lapse....................................................................31
Reinstatement............................................................31
Surrender................................................................31
General Policy Provisions................................................31
Free Look Period.....................................................32
Your Policy..........................................................32
Age ................................................................32
Ownership............................................................32
Beneficiary(ies).....................................................32
Collateral Assignment................................................33
Incontestability.....................................................33
Misstatements of Age or Gender.......................................33
Suicide..............................................................33
Transaction Processing...............................................33
Notification and Claims Procedures...................................34
Telephone Privileges.................................................34
Non-participation....................................................34
Distribution of the Policies.........................................34
Advertising Practices and Sales Literature
...............................................................35
Settlement Provisions................................................35
Administrative Information About the Policy..............................35
CHARGES AND DEDUCTIONS........................................................37
Deductions from Premiums.................................................37
Monthly Deductions from Account Value....................................38
Policy Transaction Fees..................................................39
Other Charges............................................................40
Group or Sponsored Arrangements or Corporate
Purchasers...........................................................40
TAX CONSIDERATIONS............................................................40
Tax Status of the Policy.................................................40
Diversification Requirements.............................................41
Tax Treatment of Policy Death Benefits...................................41
Modified Endowment Contracts.............................................42
Multiple Policies........................................................42
Distributions Other than Death Benefits from
Modified Endowment Contracts.........................................42
Distributions Other than Death Benefits from
Policies That Are Not Modified Endowment
Contracts............................................................42
Investment in the Policy.................................................42
Policy Loans.............................................................43
Section 1035 Exchanges...................................................43
Tax-exempt Policy Owners.................................................43
Possible Tax Law Changes.................................................43
Changes to Comply with the Law...........................................43
Other....................................................................43
ILLUSTRATIONS.................................................................45
ADDITIONAL INFORMATION........................................................59
Directors and Officers...................................................59
Regulation...............................................................60
Legal Matters............................................................60
Legal Proceedings........................................................60
Experts..................................................................60
Registration Statement...................................................60
APPENDIX A....................................................................62
APPENDIX B....................................................................63
- --------------------------------------------------------------------------------
Strategic Benefit 3
<PAGE>
POLICY SUMMARY
YOUR POLICY
This policy is available only to groups of ten or more insured people. This
policy is for use on a multi-life basis where the insured people share common
employment or a business relationship. The policy may be owned individually or
by a corporation, trust, association or similar entity. SEE POLICY ISSUANCE,
PAGE 17.
Your policy provides life insurance protection on the insured person. The policy
includes the basic policy, applications, and riders or endorsements. As long as
the policy remains in force, we pay a death benefit at the death of the insured
person. While your policy is in force, you may access your policy value by
taking loans or partial withdrawals. You may also surrender your policy for its
surrender value. When the insured person reaches age 100, the policy can be
surrendered or continued under the continuation of coverage option. SEE
CONTINUATION OF COVERAGE, PAGE 24.
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 specified by state law, you have the right to examine your policy
and return it for a refund of all premiums we have received or the account value
if you are not satisfied for any reason. The policy is then void. SEE FREE LOOK
PERIOD, PAGE 32.
YOUR 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; and
o sufficient to keep your policy in force.
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 the 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.
The following table summarizes the policy charges and fees. For details on these
charges, SEE CHARGES AND DEDUCTIONS, PAGE 37.
- --------
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.
- --------------------------------------------------------------------------------
Strategic Benefit 4
<PAGE>
CHARGES AND DEDUCTIONS
<TABLE>
<S> <C> <C>
CHARGE WHEN DEDUCTED AMOUNT DEDUCTED
Initial Sales Charge From each premium 0.5% of premium received in policy or
payment received after the segment years 2 and later
end of policy year one
Tax Charges From each premium o 2.5% of premium up to target premium in
o State and local taxes payment received the first policy or segment year. 2.5% of
all premium payments in years 2 and later
o Estimated federal tax
treatment of deferred o 1.5% of premium up to target premium in
acquisition costs the first policy or segment year.1.5% of
all premium payments in years 2 and later
These charges are not guaranteed maximum
rates.
Mortality & Expense Risk Monthly from account o 0.07083% of the variable division account
Charge value value during policy years 1 through 10
(equivalent annual rate of 0.85%)
o 0.05000% of the variable division account
value during policy years 11 through 20
(equivalent annual rate of 0.60%)
o 0.00417% of the variable division account
value during policy year 21 and later
(equivalent annual rate of 0.15%)
Monthly Administrative Monthly from account $12 per month for first policy year and $6 per
Charge value month thereafter
Cost of Insurance Charge Monthly from account Varies based on net amount at risk. Sse your
value policy schedule pages
Partial Withdrawal Fee On Transaction date from Up to $25
account value
Transfer Fee On Transaction date from Twelve free transfers per policy year, then $10
account value per transfer
Illustrations On Transaction date from One free illustration per policy year, then $25
account value per illustration
Premium Allocation Change On Transaction date from Twelve free premium allocation changes per
account value policy year, then $25 per change
Deferred Sales Charge From account value at the o 1.75% of premium received in the first
beginning of each policy or policy or segment year up to target
segment year in years 2 premium
through 8
o 1.60% of premium received in the first
policy or segment year, in excess of target
premium
</TABLE>
- --------------------------------------------------------------------------------
Strategic Benefit 5
<PAGE>
<TABLE>
<S> <C> <C>
Continuation of Coverage Policy anniversary nearest One-time $200 administrative fee.
younger insured person's
100th birthday from account
value
Investment Portfolio Expenses From portfolio assets, See detailed list on page 12.
included in daily unit value
</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.
VARIABLE DIVISION
If you invest in the variable investment options, 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.
The separate account purchases shares of the investment portfolios at net asset
value. This price reflects investment management fees and other direct expenses
that are deducted from the portfolio assets as described in the following table.
The fees and expenses are shown in both gross amounts and net amounts shown
after any expenses or fees have been voluntarily absorbed by the investment
portfolio advisers.
The information in this table was provided to us by the portfolios, and we have
not independently verified it. These expenses are not direct charges against
variable division assets or reductions from contract values; rather these
expenses are included in computing each underlying portfolio's net asset value,
which is the share price used to calculate the unit values of the variable
investment options. For a more complete description of the portfolios' costs and
expenses, see the prospectuses for the portfolios.
- --------------------------------------------------------------------------------
Strategic Benefit 6
<PAGE>
INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET
ASSETS)
Fees and
Investment Total Expenses Total Net
Management Other Portfolio Waived or Portfolio
Portfolio Fees Expenses Expenses Reimbursed Expenses
AIM VARIABLE INSURANCE
FUNDS, INC.
AIM V.I. Capital
Appreciation Fund
AIM V.I. Government
Securities Fund
THE ALGER AMERICAN FUND
Alger American Small
Capitalization Portfolio
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND
VIP Growth Portfolio
VIP Overseas Portfolio
GCG TRUST 2 [TO BE UPDATED BY AMENDMENT]
Equity/Income Portfolio
Growth Portfolio
Hard Assets Portfolio
Limited Maturity Bond
Portfolio
Liquid Assets Money
Market
Mid-Cap Growth Portfolio
Research Portfolio
Total Return Portfolio
ING FUNDS
Global Brand Names
Global Information
Technology
INVESCO VARIABLE INVESTMENT
FUNDS, INC.
INVESCO VIF-Equity Income
Fund
INVESCO VIF-High Yield
Fund
INVESCO VIF-Small Company
Growth Fund
MERRILL LYNCH
Basic Value Focus
Capital Focus
Global Growth Focus
Index 500
Special Value Focus
VAN ECK WORLDWIDE INSURANCE
TRUST
Worldwide Bond Fund
Worldwide Emerging
Markets Fund
Worldwide Real Estate
Fund
SECURITY LIFE OF DENVER
INSURANCE COMPANY
Guaranteed Interest
Division
[FOOTNOTES TO BE UPDATED BY AMENDMENT]
- --------------------------------------------------------------------------------
Strategic Benefit 7
<PAGE>
POLICY VALUES
Your 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 8.
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 a unit of a variable investment option
on the valuation date. Each variable investment option has a different
accumulation unit value. SEE DETERMINING THE VALUE IN THE VARIABLE DIVISION,
PAGE 25.
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 25 AND HOW WE CALCULATE ACCUMULATION
UNIT VALUES, PAGE 26.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable investment options or to
the guaranteed interest division each policy year. We charge $10 for each
transfer over twelve you make in a policy year. There are restrictions on
transfers from the guaranteed interest division. SEE TRANSFERS OF ACCOUNT VALUE,
PAGE 26.
SPECIAL POLICY FEATURES
DESIGNATED DEDUCTION OPTION
You may designate one investment option from which we will deduct all your
monthly and deferred sales charges. SEE DESIGNATED DEDUCTION OPTION, 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 27.
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 28.
LOANS
You may take loans against your policy's net account value. We charge an annual
loan interest rate of 3.25%. We credit an annual interest rate of 3% on amounts
held in the loan division as collateral for your loan. SEE POLICY LOANS, PAGE
28.
PARTIAL WITHDRAWALS
You may withdraw part of your net account value any time after your first policy
year. 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 29.
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. There is no charge for
this exchange. SEE RIGHT TO EXCHANGE POLICY, PAGE 24.
SURRENDER
You may surrender your policy for its surrender value at any time while the
insured person is living. All insurance coverage ends on the date we receive
your request. SEE SURRENDER, PAGE 31.
- --------------------------------------------------------------------------------
Strategic Benefit 8
<PAGE>
LAPSE
In general, insurance coverage continues as long as your policy's net account
value is enough to pay the monthly deductions. SEE LAPSE, PAGE 31.
REINSTATEMENT
You may reinstate your policy and rider within five years of its lapse if you
still own the policy and the insured person is still insurable. You will need to
pay required reinstatement premiums.
If you had a policy loan when coverage ended, we will reinstate it with accrued
loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 31.
POLICY MATURITY
If the insured person is living on the policy anniversary nearest the date when
the insured person reaches age 100 (the maturity date) and you do not choose
continuation of coverage, you must surrender your policy and we will pay the net
account value. Your policy then ends. SEE POLICY MATURITY, PAGE 24.
CONTINUATION OF COVERAGE
If the insured person is living at age 100 and the policy is in force, you may
choose the continuation of coverage feature. If this feature becomes effective,
we will deduct a one-time administrative fee of $200 and keep your policy in
force. SEE CONTINUATION OF COVERAGE, PAGE 24.
DEATH BENEFITS
At the insured person's death, we pay death proceeds to the beneficiary(ies) if
your policy is still in force. Depending on the death benefit option you have
chosen and whether or not you have coverage under an adjustable term insurance
rider, your policy's death benefit may vary.
Generally, we require a minimum target death benefit of $50,000 per policy.SEE
DEATH BENEFITS, PAGE 19.
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 40.
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 to the events listed above, 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 42.
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.
- --------------------------------------------------------------------------------
Strategic Benefit 9
<PAGE>
How the Policy Works
<TABLE>
<S> <C> <C>
YOUR PREMIUM Premium Deductions
You make a premium ---------------------------->
payment
o initial 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 heald in our general account held in our separate account --> investment portfolios --> management fees
| | and other
----------------------------------------- portfolio expenses
|
|
|
LOAN DIVISION |
Amount set aside to <------------| Monthly Deductions o cost of insurance
secure a policy loan | ---------------------> charge
| | o monthly administrative
| | charge
\/ | o mortality and expense
ACCUMULATED VALUE | risk charge
The total value of your --|
policy |
| o partial withdrawal fee
| Transaction Fees o transfer fee
|---------------------> o illustration fee
| o premium allocation
| change charge
| o continuation of
| coverage fee
|
| Annual Fee
---------------------> o deferred sales charge
Years 2 - 8
</TABLE>
- --------------------------------------------------------------------------------
Strategic Benefit 10
<PAGE>
INFORMATION ABOUT SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
SECURITY LIFE OF DENVER INSURANCE COMPANY
[TO BE UPDATED BY AMENDMENT]
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 1998, the company and its consolidated subsidiaries had
over $174.3 billion of life insurance in force. As of December 31, 1998, our
total assets were over $10.0 billion, and our shareholder's equity was over $926
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 $461.8 billion on a Dutch (modified U.S.) generally
accepted accounting principles basis, as of December 31, 1998.
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 a registered 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 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 and
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
the separate account's assets equal to its reserves and other liabilities. This
means that if we ever became 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
the investment performance of a policy depends on the performance of the
investment portfolios you choose.
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Strategic Benefit 11
<PAGE>
Each investment portfolio has its own investment objective. These investment
portfolios are not available directly to individual investors. They are
available only as the 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, other than the GCG Trust and the ING Funds,
is not associated with us.
Currently, some variable investment options invest in a portfolio of the GCG
Trust. Directed Services, Inc. ("DSI") serves as the manager to each portfolio
of the GCG Trust. The GCG Trust and DSI have retained several portfolio managers
to manage the assets of each portfolio of the GCG Trust.
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.These advisers include AIM
Advisors, Inc.; Fidelity Management & Research Company; Fred Alger Management,
Inc.; Directed Services, Inc.; INVESCO Funds Group, Inc. Merrill Lynch Asset
Management, L.P. and Van Eck Associates Corporation.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 than others.
Merrill Lynch Asset Management, L.P. ("MLAM") is the investment adviser to the
Merrill Variable Funds. MLAM, together with its affiliates, Fund Asset
Management, L.P., Mercury Asset Management International Ltd., and Hotchkis and
Wiley, is a worldwide mutual fund leader, and has a total of $501.68 billion in
investment company and other portfolio assets under management as of the end of
February 1999. It is registered as an investment adviser under the Investment
Advisers Act of 1940. MLAM is an indirect subsidiary of Merrill Lynch & Co.,
Inc. MLAM's principal business address is 800 Scudders Mill Road, Plainsboro,
New Jersey 08536. As the investment adviser, it is paid fees by these Funds for
its services. The fees charged to each of these Funds are set forth in the table
on page 7.
INVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
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.
</TABLE>
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Strategic Benefit 12
<PAGE>
IINVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
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.
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
Insurance Products Fund II/ growth potential, either domestic or foreign issuers.
Fidelity Management &
Research Company
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
Equity/Income Portfolio GCG Trust/ Directed Seeks substantial dividend income as well as long-term
Services, Inc./ T. Rowe Price growth of capital.Invests primarily in common stocks
Associates, Inc. of well-established companies paying above-average
dividends.
Growth Portfolio GCG Trust/ Directed Seeks capital appreciation. Invests primarily in common
Services, Inc./ Janus Capital stocks of growth companies that have favorable
Corporation relationships between price/earnings ratios and growth
rates in sectors offering the potential for above-average
returns.
Hard Assets Portfolio GCG Trust/ Directed Seeks long-term capital appreciation. Invests primarily
Services, Inc./ Baring in hard asset securities.Hard asset companies produce a
International Investment commodity which the portfolio manager is able to price
Limited (an affiliate) on a daily or weekly basis.
Limited Maturity Bond GCG Trust/ Directed Seeks highest current income consistent with low risk to
Portfolio Services, Inc./ ING principal and liquidity. Also seeks to enhance its total
Investment Management, return through capital appreciation when market factors,
L.L.C. (an affiliate) such as falling interest rates and rising bond prices,
indicate that capital appreciation may be available without
significant risk to principal. Invests primarily in
diversified limited maturity debt securities with average
maturity dates of five years or shorter and in no cases more
than seven years.
</TABLE>
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Strategic Benefit 13
<PAGE>
INVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
Liquid Asset Portfolio GCG Trust/Directed Seeks high level of current income consistent with the
Services, Inc./ING preservation of capital and liquidity. Invests primarily in
Investment Management, obligations of the U.S. Government and its agencies and
LLC (an affiliate) instrumentalities, bank obligations, commercial paper
and short-term corporate debt securities. All securities
will mature in less than one year. Sub-advised by ING
Investment Management, LLC (an affiliate).
Mid-Cap Growth Portfolio GCG Trust/ Directed Seeks long-term growth of capital.Invests primarily in
Services, Inc./ Massachusetts equity securities of companies with medium market
Financial Services Company capitalization which the portfolio manager believes have
above-average growth potential.
Research Portfolio GCG Trust/ Directed Seeks long-term growth of capital and future income.
Services, Inc./ Massachusetts Invests primarily in common stocks or securities
Financial Services Company convertible into common stocks of companies believed
to have better than average prospects for long-term
growth.
Total Return Portfolio GCG Trust/ Directed Seeks above-average income (compared to a portfolio
Services, Inc./ Massachusetts entirely invested in equity securities) consistent with the
Financial Services Company prudent employment of capital. Invests primarily in a
combination of equity and fixed income securities.
Global Brand Names ING Investment [TO BE UPDATED BY AMENDMENT]
Management, L.L.C./
[TO BE UPDATED BY
AMENDMENT]
Global Information ING Investment [TO BE UPDATED BY AMENDMENT]
TechnologyManagement, L.L.C./
[TO BE UPDATED BY
AMENDMENT]
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
INVESCO Funds Group, debt securities and preferred stock, including securities
Inc. issued by foreign companies.
</TABLE>
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Strategic Benefit 14
<PAGE>
INVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
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.
Basic Value Focus Merrill Lynch/ Seeks capital appreciation and, secondarily, income by
Management, L.P./Merrill management of the Fund believes are undervalued and
Lynch Variable Series therefore represent basic investment value. The Fund seeks
Funds, Inc. special opportunities in securities that are selling at a
discount either from book value or historical price-earnings
ratios, or seem capable of recovering from temporarily
out-of-favor considerations. Particular emphasis is placed
on securities which provide an above-average dividend return
and sell at a below-average price/earnings ratio.
Capital Focus Merrill Lynch Asset Seeks to achieve the highest total investment return
Management, L.P./ Merrill consistent with prudent risk. To do this, management of
Lynch Variable Series Funds, the Fund uses a flexible "fully managed" investment
Inc. policy that shifts the emphasis among equity, debt
(including money market), and convertible securities.
Global Growth Focus Merrill Lynch Asset Seeks long-term growth of capital. The Fund invests in a
Management, L.P./ Merrill diversified portfolio of equity securities of issuers
Lynch Variable Series Funds, located in various countries and the United States,
Inc. placing particular emphasis on companies that have
exhibited above-average growth rates in earnings. Because a
substantial portion of the Fund's assets may be invested on
an international basis, contract owners should be aware of
certain risks, such as fluctuations in foreign exchange
rates, future political and economic developments, different
legal systems, and the possible imposition of exchange
controls or other foreign government laws or restrictions.
An investment in the Fund may be appropriate only for
long-term investors who can assume the risk of loss of
principal, and do not seek current income.
Index 500 Merrill Lynch Asset Seeks investment results that, before expenses,
Management, L.P./ Merrill correspond to the aggregate price and yield performance
Lynch Variable Series Funds, of the Standard & Poor's 500 Composite Stock Price Index
Inc. (the "S&P 500 Index").
</TABLE>
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Strategic Benefit 15
<PAGE>
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
Special Value Focus Merrill Lynch Asset Seeks long term growth of capital by investing in a
Management, L.P./ Merrill diversified portfolio of securities, primarily common
Lynch Variable Series stocks, of relatively small companies that management of
Funds, Inc. the Merrill Variable Funds believes have special
investment value, and of emerging growth companies
regardless of size. Companies are selected by management on
the basis of their long-term potential for expanding their
size and profitability or for gaining increased market
recognition for their securities. Current income is not a
factor in the selection of securities.
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 Real Estate Fund Van Eck Worldwide Seeks high total return by investing in equity
Insurance Trust/ Van securities of companies that own significant
Eck Associates real estate or do business principally in real
Corporation estate.
</TABLE>
GUARANTEED INTEREST DIVISION
You may allocate all or a part of the net premium and transfers of 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.
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Strategic Benefit 16
<PAGE>
MAXIMUM NUMBER OF INVESTMENT OPTIONS
You may invest in a total of eighteen investment options over the life of your
policy. Investment options include the guaranteed interest divisions, all of the
variable investment options 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 other investment options 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 POLICY
This prospectus describes our standard Strategic Benefit variable 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 47 show how the policies work.
APPLYING FOR A POLICY
You purchase this variable universal life policy by submitting an application.
The insured person is the person on whose life we issue a policy and upon whose
death we pay death proceeds. On the policy date, the insured person must be at
least 15 years of age and no older than age 85. We may back-date the policy up
to six months to allow the insured person to give proof of a younger age for the
purposes of your policy. SEE AGE, PAGE 32.
TEMPORARY INSURANCE
If you apply and qualify, we may issue temporary insurance in an amount equal to
the face amount of insurance for which you applied. The maximum amount of
temporary insurance for binding limited life insurance coverage is $3 million,
which includes any in-force coverage you have with us.
Temporary coverage begins when:
o you have completed and signed our binding limited life insurance
coverage form;
o we receive and accept a premium payment of at least your scheduled
premium (selected on your application); and
o part I of the application is completed.
Temporary 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 you 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:
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 the
insured person and payment of your initial premium. This evidence may include
completion of underwriting and issue requirements.
The policy date as shown on your policy schedule determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
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Strategic Benefit 17
<PAGE>
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 when 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
The federal income tax definition of life insurance is the cash value
accumulation test. SEE TAX STATUS OF THE POLICY, PAGE 40.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits.
We consider payments we receive to be premium payments if you do not have an
outstanding policy loan and your policy is not in the continuation of coverage
period. After we deduct certain charges from your premium payment, we add the
remaining net premium to your policy.
SCHEDULED PREMIUMS
Your premiums are flexible. You may select your scheduled (planned) 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
method is not available for your initial premium. Your financial institution 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.
UNSCHEDULED PREMIUM PAYMENTS
Generally speaking, you may make unscheduled premium payments at any time,
however:
o 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 person is insurable at
the time of your unscheduled payment if the death benefit is increased
as a result of it;
o we may require proof that the insured person is insurable if your
unscheduled premium payment will cause the net amount at risk to
increase; and
o we will return premium payments which are greater than the "seven-pay"
limit for your policy if they 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 42 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 43.
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 deduct tax or sales charges.
TARGET PREMIUM
Target premium is not based on your scheduled premium. Target premium is
actuarially determined based on the age, gender and premium class of the insured
person. The target premium is used in determining your initial sales charge,
deferred sales charge and the sales compensation we pay. It may or may not be
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Strategic Benefit 18
<PAGE>
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 additional segments are listed in the policy schedule we provide
to you. SEE PREMIUMS, PAGE 17.
INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS
The net premium is the balance remaining after we deduct tax and sales charges
from your premium payment.
Insurance coverage does not begin until we receive your initial premium. Your
initial premium is the first premium we receive and apply to your policy. It
must be at least the amount of your scheduled premiums from your policy date
through your investment date.
The investment date is the first date we apply net premium to your policy.
We apply the initial net premium to your policy after:
a) we have received the required amount of premium;
b) all issue requirements have been received by our customer service
center; and
c) we have approved 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 return of your
premium during the free look period, we initially invest amounts you have
designated for the variable division in the GCG Trust Liquid Asset Portfolio. We
later transfer these amounts from the Liquid asset 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 plus your state free look period
has ended; or
o we have received your policy 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. Your
instructions must specify percentages that are whole numbers totaling 100% and
which use no more than eighteen investment options over the life of your policy.
SEE MAXIMUM NUMBER OF INVESTMENT DIVISIONS, PAGE 16.
You may make five free premium allocation changes per year. After the five free
premium allocation changes, we charge you $25 for each additional allocation
change per policy year. If you change your designated deduction option, we
consider this a premium allocation change for which there may be a charge. SEE
DESIGNATED DEDUCTION OPTION, PAGE 24 AND POLICY TRANSACTION FEES, PAGE 39.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
Your coverage lasts only as long as your net account value is enough to pay the
monthly and annual charges and your account value is more than your outstanding
policy loan plus accrued loan interest. If these conditions are not met, your
policy will enter the 61-day grace period and you must make a premium payment to
avoid lapse. SEE LAPSE, PAGE 31, AND GRACE PERIOD, PAGE 31.
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 42.
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Strategic Benefit 19
<PAGE>
DEATH BENEFITS
You 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 one policy.
Generally we require a minimum group first year premium of at least $250,000.
However, depending on underwriting circumstances, we may reduce the minimum
group first year premium in some cases. We do not require a minimum base death
benefit amount, however we generally require a minimum target death benefit of
$50,000 per policy. We may reduce this minimum if the average initial target
death benefit for the group is at least $50,000.
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 person. 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 23.
Death benefits are valued as of the date of death of the insured person.
DEATH BENEFIT SUMMARY
THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES, INCREASES OR DECREASES IN
STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL WITHDRAWALS ARE LESS THAN
PREMIUM RECEIVED.
<TABLE>
<S> <C> <C> <C>
OPTION 1 OPTION 2 OPTION 3
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 life stays level throughout the life stays level throughout the life
of the policy. of the policy. of the policy.
BASE DEATH The greater of the stated The greater of the stated The greater of the stated
BENEFIT death benefit or the account death benefit plus the death benefit plus the sum of
value multiplied by the account value, or the account all premiums we receive
appropriate factor from the value multiplied by the minus partial withdrawals
definition of life insurance appropriate factor from the you have taken, or the
factors. definition of life insurance account value multiplied by
factors. the appropriate 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. This amount rider benefit. This amount rider benefit. This amount
remains level throughout the remains level throughout the remains level throughout the
life of the policy. life of the policy. life of the policy.
TOTAL DEATH The greater of the target The greater of the target The greater of the target
BENEFIT death benefit or the base death benefit plus the death benefit plus the sum of
death benefit. account value, or the base all premiums we receive
death benefit. minus partial withdrawals
you have taken, or the base
death benefit.
</TABLE>
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Strategic Benefit 20
<PAGE>
<TABLE>
<S> <C> <C> <C>
OPTION 1 OPTION 2 OPTION 3
ADJUSTABLE The adjustable term The adjustable term The adjustable term
TERM insurance rider benefit is the insurance rider benefit is the insurance rider benefit is the
INSURANCE total death benefit minus base total death benefit minus the total death benefit minus the
RIDER BENEFIT death benefit, but not less base death benefit, but not base death benefit, but not
than zero. If the account less than zero. If the account less than zero. If the account
value multiplied by the death value multiplied by the death value multiplied by the death
benefit corridor factor is benefit corridor factor is benefit corridor factor is
greater than the stated death greater than the stated death greater than the stated death
benefit, the adjustable term benefit plus the account benefit plus the sum of all
insurance benefit will value, the adjustable term premiums we receive minus
decrease. It will decrease so insurance rider benefit will partial withdrawals you have
that the base death benefit decrease. It will decrease so taken, the adjustable term
plus the adjustable term that the base death benefit insurance rider benefit will
insurance rider benefit is not plus the adjustable term decrease.It will decrease so
greater than the target death insurance rider benefit is not that the sum of the base death
benefit. If the base death greater than the target death benefit plus the adjustable
benefit becomes greater than benefit plus the account term insurance rider benefit
the target death benefit, the value. If the base death is not greater than the target
adjustable term insurance benefit becomes greater than death benefit plus the sum of
rider benefit is zero. the target death benefit plus all premiums we receive
the account value, the minus partial withdrawals
adjustable term insurance you have taken.If the base
rider benefit is zero. death benefit becomes
greater than the target death
benefit plus the sum of all
premiums we receive minus
partial withdrawals you have
taken, 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 a change in your death benefit option;
o increases or decreases to the stated death benefit.
As long as your policy is in force, we will pay the death proceeds to your
beneficiary(ies) when the insured person dies. 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 insured person's death.
There could be outstanding policy charges if the insured dies while your policy
is in the grace period.
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 base death benefit being greater
than your stated death benefit. You may change your death benefit option after
the first policy anniversary and before the continuation of coverage feature
begins. SEE CHANGES IN DEATH BENEFIT OPTIONS, PAGE 21 AND CONTINUATION OF
COVERAGE, PAGE 24.
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 the insured person's age and gender. SEE APPENDIX A, PAGE 62.
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Strategic Benefit 21
<PAGE>
Under death benefit option 1, your base death benefit is the greater of:
o your stated death benefit on the date of the insured person's death;
or
o your account value on the date of the insured person's death
multiplied by the appropriate factor from the definition of life
insurance factors shown in Appendix A.
Under option 1 positive investment performance is generally reflected in a
reduced net amount at risk. This lowers your policy's total cost of insurance
charges. Option 1 offers insurance coverage that is a set amount with
potentially lower cost of insurance charges over time.
Under death benefit option 2, your base death benefit is the greater of:
o your stated death benefit plus your account value on the date of the
insured person's death; or
o your account value on the date of the insured person's death
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.
Under death benefit option 3, the base death benefit is the greater of:
o your stated death benefit plus the sum of all premiums we receive
minus partial withdrawals you have taken under your policy; or
o your account value on the date of the insured person's death
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.
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 24.
CHANGES IN DEATH BENEFIT OPTIONS
You may request a change in your death benefit option at any time before the
continuation of coverage period. A death benefit option change applies to your
entire stated or base death benefit. Changing your death benefit option may
reduce or increase your target death benefit, as well as your stated death
benefit.
Your death benefit option change is effective on your next monthly processing
date after we approve it, so long as at least one day remains before your
monthly processing date. If less than one day remains before your monthly
processing date, your death benefit option change is effective on your second
following monthly processing date.
After we approve your request, we send a new policy schedule page to you. You
should attach it to your policy. Or, we may ask you to return your policy to our
customer service center so that we can make this change for you.
We may not allow a change to your death benefit option if it reduces the target
death benefit below the minimum we require to issue your policy.
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 FROM OPTION 3 TO OPTION 2.
For you to change from death benefit option 1 to option 2, we may require proof
that the insured person is insurable under our normal rules of underwriting.
On the effective date of your option change, your stated death benefit is
changed 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
receive, minus partial
withdrawals you have taken
as of the effective date of the
change.
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Strategic Benefit 22
<PAGE>
We increase or decrease your stated death benefit to keep the net amount at risk
the same on the date of your death benefit option change. There is no change to
the amount of coverage under your adjustable term insurance rider. SEE COST OF
INSURANCE CHARGE, PAGE 38.
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.
CHANGES IN DEATH BENEFIT AMOUNTS
You may increase your target or stated death benefit while your policy is in
force and before the policy anniversary when the insured person turns age 85.
You may request a decrease in the stated death benefit only after your first
policy anniversary.
Contact your agent/registered representative or our customer service center to
request an increase or decrease in death benefit. The change is effective as of
the next monthly processing date after we approve your request. Your requested
change must be for at least $1,000.
After we make your requested change, we will send you a new schedule page. Keep
it with your policy. Or 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 40.
If you decrease your death benefit, you may not decrease your target death
benefit below the minimum we require to issue your policy.
There may be tax consequences as a result of a decrease in your death benefit.
SEE TAX STATUS OF THE POLICY, PAGE 40 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 42.
Requested reductions in the death benefit amount will first 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.
You must provide satisfactory evidence that the insured person is still
insurable in order to increase your death benefit. Unless you tell us
differently, we assume a request to increase your target death benefit is also a
request for an increase to the 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 the effective date of your policy. An increase in the stated death benefit
(other than one caused by an option change) will create a new segment. The
segment year begins on the segment effective date and ends one year later. Once
we create a new segment, it is permanent unless state law requires differently.
Each new segment may have:
o a new sales charge;
o a new deferred sales charge;
o new cost of insurance charges, guaranteed and current;
o a new incontestability period;
o a new suicide exclusion period; and
o a new target premium.
Premiums you pay after an increase are applied to your policy segments in the
same proportion as the target premium for each segment bears to the sum of the
target premium for all segments. For each coverage segment, your schedule shows
your target premium which is used to determine your initial sales charge and
deferred sales charge.
ADJUSTABLE TERM INSURANCE RIDER
You may increase your death proceeds by adding an adjustable term insurance
rider to your policy. This rider enables you to schedule the death benefit based
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Strategic Benefit 23
<PAGE>
on anticipated needs. 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 scheduled to change at
the beginning of a policy year(s). SEE DEATH BENEFITS, PAGE 19.
The adjustable term insurance rider death benefit is the difference between your
target death benefit and your base death benefit. The death benefit
automatically adjusts daily as your base death benefit changes. Total death
benefit depends 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
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 receive 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 changes as a result
of changes in your account value. The adjustable term insurance rider adjusts to
provide death proceeds equal to your target death benefit in each year:
Base Death Target Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
$201,500 $250,000 $48,500
202,500 250,000 47,500
202,250 250,000 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 $250,000 or more, the adjustable term
insurance coverage 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 coverage reappears to maintain your target 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 22.
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 the amount of your target death benefit. SEE PARTIAL
WITHDRAWALS, PAGE 29, AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 21.
There is no defined premium for a given amount of adjustable term insurance
coverage. Instead, we deduct a 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 that month. The cost of insurance rates will be
determined by us from time to time. They are based on the issue age, gender, and
rating of the person insured, as well as the length of time since your policy
date. The monthly guaranteed maximum cost of insurance rates for this rider will
be in your policy. SEE COST OF INSURANCE CHARGE, PAGE 38.
The only charge for this coverage is the cost of insurance charge. The total
charges that you pay may be less if you have greater coverage under an
adjustable term insurance rider rather than base death benefit. If the target
death benefit is increased by you after the rider is issued, we use the same
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Strategic Benefit 24
<PAGE>
cost of insurance rate schedule for the entire coverage for this rider. These
rates are based on the original rating even though new evidence of insurability
is given to us for the increased schedule.
Not all policy features apply to the adjustable term insurance rider. Under this
rider, there is no surrender value and a policy loan is not available. The
adjustable term insurance rider does not contribute to the policy account value
nor to investment performance under your policy. The adjustable term insurance
rider provides benefits only at the insured person's death.
SPECIAL FEATURES
DESIGNATED DEDUCTION OPTION
You may designate an investment option from which we will take your monthly
charges and deferred sales charge. You may make this designation at any time.
You may not use the loan division as your designated deduction option.
If you do not choose a designated deduction option, or if the amount in your
designated deduction option is not enough to cover deductions and charges, the
charges will be 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 as of the monthly processing date.
If you change your designated deduction option, we consider it a premium
allocation change for which there may be a charge. SEE POLICY TRANSACTION FEES,
PAGE 39.
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 future net premiums to the
guaranteed interest division. We do not allow future payments or transfers to
the variable division after you exercise this right. We will not charge you for
this exchange. SEE GUARANTEED INTEREST DIVISION, PAGE 15.
POLICY MATURITY
If the insured person reaches age 100 and you do not want the continuation of
coverage feature, you may surrender your policy for the net account value. Your
policy then ends. Some 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
beyond policy maturity. If you allow the continuation of coverage feature to
become effective, we:
o transfer your net account value (excluding the amount in the loan
division) into the guaranteed interest division;
o charge a one-time $200 administrative fee to your policy to cover
future expenses;
o terminate the adjustable term insurance rider and the target death
benefit becomes the stated death benefit;
o convert death benefit option 2 or option 3 to death benefit option 1,
if applicable; and
o terminate investment features.
Your insurance coverage continues until the insured person's death, unless your
policy lapses or is surrendered. However, we deduct no further charges and your
monthly deductions cease. SEE CONTINUATION OF COVERAGE ADMINISTRATIVE FEE, PAGE
39.
Your net account value may not be transferred into the variable division during
the continuation of coverage period, but you may take policy loans or partial
withdrawals.
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, you may repay loans and make loan
interest payments during the continuation of coverage period.
If you wish to stop coverage after the continuation of coverage feature begins,
you may surrender your policy and receive the net account value. All other
consequences of surrender apply. SEE SURRENDER, PAGE 31.
The continuation of coverage feature may not be available in all states. If a
state has approved this feature, it is automatic and you do not need to take any
action to activate it.
The tax consequences of coverage continuing beyond when the insured person
reaches age 100 are uncertain. You should consult a tax adviser as to those
consequences.
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Strategic Benefit 25
<PAGE>
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 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. Your surrender value
is the same as your net account value.
DETERMINING THE VALUE IN THE VARIABLE DIVISION
The amounts in the variable division are measured by accumulation units and
accumulation unit values. The value of a variable investment option is the
accumulation unit value for that option multiplied by the number of accumulation
units you own in that option.
The accumulation unit value is the value 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; and
o investment portfolio expenses.
Each variable investment option has a different accumulation unit value.
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.
Valuation dates are each day the New York Stock Exchange and the company's
customer service center are open for business, except for days on which a
corresponding investment portfolio does not value its shares, or any other day
as required by law. Each valuation date ends at 4 p.m. Eastern Time. Our
customer service center may not be open for business on: New Year's Day, Martin
Luther King, Jr.'s birthday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, the day after Thanksgiving, Christmas Day and the day before
or after Christmas.
You purchase accumulation units when you allocate premium or make transfers to a
variable investment option.This includes transfers from the loan division.
We redeem accumulation units:
o when you take a partial withdrawal;
o when amounts are transferred from a variable investment option
(including transfers to the loan division);
o for the monthly deductions from your account value;
o for policy transaction charges;
o when you surrender your policy; and
o to pay the death proceeds.
To calculate the number of accumulation units purchased or redeemed we:
o divide the dollar amount of your transaction by:
o the accumulation unit value calculated at the close of business on the
valuation date of the transaction.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES,
PAGE 26.
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 as of 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 option goes up or down
depending on investment performance.
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Strategic Benefit 26
<PAGE>
FOR AMOUNTS IN THE VARIABLE INVESTMENT OPTIONS, THERE IS NO GUARANTEED MINIMUM
CASH 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, the accumulation
unit value on any valuation date is:
o the accumulation unit value for the preceding valuation date
multiplied by
o the accumulation experience factor for that variable investment option
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:
o We take the share value of the underlying portfolio shares in the
variable investment option as reported to us by the investment
portfolio managers as of the close of business on that valuation date.
o 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 from
this amount.
o We divide the remaining amount by the value of the shares in the
underlying investment portfolio for the variable investment option at
the close of business on the previous valuation date.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable investment options, or the
guaranteed interest division, in each policy year. You may not make transfers
until after your free look period ends if your state requires a refund of
premium during the free look period.
We do not limit your number of transfers, but we charge a $10 fee for each
transfer after the first twelve in a policy year. We do not include transfers
for automatic rebalancing or dollar cost averaging toward your twelve free
transfers. You may not make transfers during the continuation of coverage
period. SEE POLICY TRANSACTION FEES, PAGE 39 AND CONTINUATION OF COVERAGE, PAGE
24.
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 a variable investment option is less
than $100 when you make a transfer request, we transfer the entire amount out of
that variable investment option.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses by causing:
o increased trading and transaction costs;
o disruption of planned investment strategies;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o large asset swings that decrease the 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 a market timing
service. 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 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 occur on your policy anniversary. A request received by
us within 30 days after your policy anniversary is effective as of the valuation
date we receive it. Transfer requests made at any other time will not be
processed.
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Strategic Benefit 27
<PAGE>
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
You can elect dollar cost averaging if your policy has at least $10,000 invested
in a qualifying source portfolio, either the Liquid Asset Portfolio or the
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 a portfolio's shares is high. It
also reduces 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 these
investment options each period, you purchase more units when the unit value is
low, and you purchase fewer units when the unit value is high.
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. Dollar cost averaging begins after the end of your free look
period if your state requires a refund of all premium during the free look
period.
With dollar cost averaging, you designate either a dollar amount, or a
percentage of your account value, for automatic transfer from qualifying source
portfolios. Each period, we automatically transfer the amount you select from
your chosen source portfolio to one or more other variable investment options.
You may not make transfers to or from the guaranteed interest division or the
loan division under dollar cost averaging.
The minimum percentage you may transfer to 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 your monthly processing
date.
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 have both dollar cost averaging and automatic rebalancing at the same
time. However, your dollar cost averaging source portfolios cannot be included
in your automatic rebalancing allocation program.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program once per policy year. If you
have telephone privileges, you may change the program by telephoning our
customer service center. SEE TELEPHONE PRIVILEGES, PAGE 34.
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 if:
o you specify a termination date; or
o your balance in the source portfolio reaches a dollar amount you set;
or
o the amount in the source portfolio is equal to or less than the amount
to be transferred. We will transfer the remaining amount and end
dollar cost averaging.
AUTOMATIC REBALANCING
Automatic rebalancing is a method of maintaining a consistent approach to
investing account value over time, and simplifying the process of asset
allocation among your chosen investment options.
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Strategic Benefit 28
<PAGE>
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 other investment options for that time period.
You may choose automatic rebalancing 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.
The first transfer occurs on the date you select (after your free look period
ends if your state requires return of premium during the free look period). If
you do not request a date, processing is on the last valuation date of the
calendar quarter in which we receive your request.
You may have both automatic rebalancing and dollar cost averaging at the same
time. However, the source portfolios for your dollar cost averaging cannot be
included in your automatic rebalancing program. You may not include the loan
division.
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 26.
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
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
law. The amount you borrow (policy loan) is:
o the total amount you borrow; plus
o loan interest that is capitalized when due; minus
o loan repayments you make.
Unless state law requires differently, a new policy loan must be at least $100.
The maximum amount you can 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 for less than
$25,000 by telephone. SEE TELEPHONE PRIVILEGES, PAGE 34.
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.
When you take a policy loan, we transfer an amount equal to your policy loan
from the specified investment option or proportionately from the variable and
the guaranteed interest divisions to the loan division. We follow this same
process for loan interest due at your policy anniversary. The loan division is
part of our general account, specifically designed to hold collateral for policy
loans and interest. We credit the loan division with interest at an annual rate
of 3%.
Loan interest charges on your policy loan accrue daily at an annual interest
rate of 3.25%. Interest is due in arrears on each policy anniversary. If you do
not pay it when it is due, we add it to your policy loan balance.
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.
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Strategic Benefit 29
<PAGE>
LOAN REPAYMENT
You may repay your policy loan at any time. We assume that payments you make,
other than scheduled premiums, are policy loan repayments. You must tell us if
you want additional payments to be premium payments.
When you make a loan repayment, we transfer an amount equal to your repayment
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
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.
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 or the surrender value payable.
A policy loan may cause your policy to lapse if your account value minus your
policy loan balance and accrued loan interest is not enough to cover your
monthly deductions. Policy loans may have tax consequences. If your policy
lapses with a loan outstanding, you may have further tax consequences. SEE
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE
42, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT
MODIFIED ENDOWMENT CONTRACTS, PAGE 42.
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, the partial withdrawal must be for an amount 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 34.
You may take only one partial withdrawal per policy year. The minimum partial
withdrawal amount 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,
PAGE 37.
Partial withdrawals do not reduce the stated death benefit if your base death
benefit has been increased to qualify your policy as life insurance under the
federal income tax laws and if 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 40.
We require a minimum target death benefit to issue your policy. You are not
allowed to take a partial withdrawal if it reduces your target death benefit
below this minimum. SEE GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS,
PAGE 40.
PARTIAL WITHDRAWAL MECHANICS
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 or, 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 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 42, AND
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Strategic Benefit 30
<PAGE>
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 42.
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 insured person 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 to
satisfy the federal income tax definition of life insurance. If your policy
death benefit has been increased to satisfy the federal income tax definition of
life insurance 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 death benefit or target death benefit. However, 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 received minus the total of your prior partial
withdrawals, then your stated death benefit will not be reduced. However, your
total death benefit will be reduced by at least the amount of your partial
withdrawal.
If your partial withdrawal is more than the amount of premiums we received minus
the total of your prior partial withdrawals, then 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; or
o more than 15 years have passed since your policy date; or
o the insured person is 81 years of age or older.
STATED DEATH BENEFIT AND TARGET DEATH BENEFIT REDUCTIONS
Generally, we reduce the stated death benefit by the amount of the partial
withdrawal. A partial withdrawal may reduce your target death benefit.
LAPSE
Your insurance coverage continues as long as your net account value is enough to
pay your deductions each month. If you have an outstanding policy loan, your
policy will lapse if the loan plus accrued interest is more than your account
value. Thus, during the continuation of coverage period, the policy could lapse
if there is an outstanding policy loan even though there are no further monthly
deductions.
GRACE PERIOD
Your policy enters a 61-day grace period if, on a monthly processing date your
net account value is zero (or less).
We notify you that the 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 generally is
the past due charges, plus the amount that covers your estimated monthly policy
and rider deductions for the next two months. If the insured person dies during
the grace period, we do pay death proceeds to your beneficiary(ies) with
reductions for your policy loan balance, accrued loan interest, and monthly
deductions owed.
If we receive 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. We then 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 rider) 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 has ended.
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Strategic Benefit 31
<PAGE>
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 rider within five years of the
end of the grace period.
Unless state law requires differently, we will reinstate your policy and rider
if:
o you are the owner and you have not surrendered your policy;
o you provide satisfactory evidence that the insured person is still
insurable according to our normal rules of underwriting; and
o we receive enough premium to keep your policy and rider in force from
the beginning to the end of the grace period and for two months after
the reinstatement date.
Reinstatement is effective as of 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
premium allocation instructions which may be those in effect at the start of the
grace period.
SURRENDER
You may surrender your policy for its surrender value any time while the insured
person is living. You will need to send a written request and your policy or a
lost policy form to our customer service center.
We compute your surrender value as of the valuation date we receive your
surrender request and policy. All insurance coverage ends on the date we receive
your surrender request and policy. SEE POLICY VALUES, PAGE 8 AND SETTLEMENT
PROVISIONS, PAGE 35.
We do not pro-rate or add back charges or expenses which we deducted before your
surrender to your account value. You may elect to have your surrender value paid
as other than one payment. SEE SETTLEMENT PROVISIONS, PAGE 35.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 42, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 42.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD
You have the right to examine your policy and return it (for any reason) to us
within the period shown in the policy. The right to examine your policy (also
called free look period) starts on the date you receive it. If you return your
policy to us within your state's specified time limit, we cancel it as of your
policy date.
If you cancel your policy during this free look period, you will receive a
refund as determined by state law. Generally, there are two types of free look
refunds:
o some states require a return of all premiums received; and
o others 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 will affect when 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
Some groups under this policy may choose to use a master policy with policy
certificates, rather than a series of individual policies.
The contract between you and us is the combination of:
othe policy (or certificate);
o a copy of your original application and any applications for benefit
increases or decreases;
o the adjustable term insurance rider;
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Strategic Benefit 32
<PAGE>
o endorsements;
o 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 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 another officer of our company and our secretary or assistant
secretary must sign all changes or amendments to your policy. No other person
may change its terms or conditions.
GUARANTEED ISSUE
We offer this policy only on a guaranteed issue basis, up to a preset face
amount with evidence of insurability.
AGE
We issue your policy at the insured person's age (stated in your policy
schedule) based on the nearest birth date to the policy date. We determine the
insured person's age at any given time by adding the number of completed policy
years to the age calculated at issue. At issue, the insured person must be no
less than age 15 and no more than age 85.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive benefits during the life of the
insured person. This includes the right to change the owner, beneficiaries, or
method designated to pay 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 the insured person receives the death
proceeds. Other surviving beneficiaries receive death proceeds only if there is
no surviving primary beneficiary(ies). If more than one beneficiary(ies)
survives the insured person, they share the death proceeds equally, unless you
specify otherwise. If none of your policy beneficiaries has survived the insured
person, we pay the death proceeds to you or to your estate, as owner.
You may name a new beneficiary(ies) during the insured person's lifetime. We pay
death proceeds to the beneficiary(ies) whom you have most recently named and
whom we have on record. 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
After your policy has been in force and the insured person is alive for two
years from your policy date, and from the effective date of any new segment or
an increase in any other benefit, we will not question the validity of
statements in your applicable application.
MISSTATEMENTS OF AGE OR GENDER
If the insured person's age or gender has been misstated, we adjust the death
benefit. We adjust it to the amount which would have been purchased for the
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 insured person's death, or as required by
state law.
If unisex cost of insurance rates apply, we do not make adjustments for a
misstatement of gender.
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Strategic Benefit 33
<PAGE>
SUICIDE
If the insured person commits suicide, while sane or insane within two years of
your policy date, unless otherwise required by state law, we limit the death
benefit to:
1. the total of all premium payments we receive to the time of death;
minus
2. the outstanding policy loan balance and accrued loan interest; minus
3. partial withdrawals taken.
If the person insured under the policy changed, and the new insured person dies
by suicide within two years of the change date, we limit the death benefit to:
1. your net account value as of the change date; plus
2. the premiums we received since the change; minus
3. increases in the policy loan balance, accrued loan interest, and
partial withdrawals since the change date.
We make a limited payment to the beneficiary(ies) for a new segment or other
increase if the insured person commits suicide, while 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 is equal to the cost of insurance and monthly expense charges which were
deducted for the increase.
TRANSACTION PROCESSING
Generally, within seven days of when we receive all information required to
process a payment, we pay:
o death proceeds;
o surrender value;
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 a variable 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.
We determine death proceeds as of the date of the insured person's death.The
death proceeds are not
affected by subsequent changes in the value of the variable investment options.
We pay interest at our stated rate (or at a higher rate if required by law) from
the insured person's date of death 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.
If we delay payment more than 30 days, we pay interest at our declared rate (or
at a higher rate if required by law) from the date we receive your request.
NOTIFICATION AND CLAIMS PROCEDURES
Except for certain authorized telephone requests, we must receive any election,
designation, change, assignment or request in writing from the owner.
You must use a form acceptable to us. We are not liable for actions taken before
we receive and record your notice. We may require you to return your policy for
certain policy changes or if you surrender it.
If the insured person dies while your policy is in force, please let us know as
soon as possible. We will send you instructions on how to make a claim. As proof
of the deceased insured person's death, we may require proof of the deceased
insured person's age, and a certified copy of the death certificate.
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Strategic Benefit 34
<PAGE>
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 such as
medical records from 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 to call our customer service center to:
o make transfers;
o change premium allocations;
o change 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:
o requiring personal identification;
o providing written confirmation of transactions; and
o tape recording telephone calls.
By accepting 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 from 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.ING America Equities, Inc. is 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. under a distribution agreement.
We sell this policy exclusively through insurance licensed registered
representatives of certain unaffiliated broker-dealers including Merrill Lynch,
Pierce Fenner & Smith Incorporated.
These broker-dealers have entered into selling agreements with us. Under the
selling agreement, we pay a distribution allowance to the broker-dealer, who
pays commissions to the agent/registered representative who sells the policy.
During the first policy or segment year, the distribution allowance is 5% of the
premium we receive up to the target premium. There is no distribution allowance
paid on premium received above target in the first policy or segment year or on
any premium received after the first policy or segment year.
In addition, we make annual renewal payments to the broker-dealer based on a
percentage of each policy's net account value. These payments are 1.00% in
policy years one through ten, 0.75% in policy years eleven through twenty, and
0.20% in all later years.
We also pay wholesaler fees and training allowances.
We pay all distribution and other allowances from our resources which includes
sales charges deducted from premiums.
ADVERTISING PRACTICES AND SALES LITERATURE
We may use advertisements and sales literature to promote this product,
including:
o articles on variable life insurance and other information published in
business or financial publications;
o indices or rankings of investment securities; and
o comparisons with other investment vehicles, including tax
considerations.
We may use information regarding the past performance of the variable investment
options. 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. We may refer to past, current, or
prospective economic trends and investment performance or other information we
believe may be of interest to our customers.
SETTLEMENT PROVISIONS
You may take your surrender value in other than one payment. Likewise, you may
elect to have the beneficiary(ies) receive the death proceeds other than in one
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Strategic Benefit 35
<PAGE>
payment, if you make this election during the insured person's lifetime. If you
have not made this election, the beneficiary(ies) may do so within 60 days after
we receive proof of the insured person's death.
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. Currently periodic payment must be at least
$20 and the total proceeds must be $2,000 or more.
Option I: Payouts for a Designated Period
Option II: Life Income with Payouts Guaranteed for a Designated Period
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 option's 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 policy. We count fractional
shares. If you have a voting interest, we send you proxy material and a form on
which to give us your instructions.
Each investment portfolio share has the right to one vote. The votes of all
investment portfolio shares 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 changes in
the fundamental investment policy of a particular investment portfolio or
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 in 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 those in which you have invested assets as of the record date
set by the investment portfolio's Board for the meeting. We determine the number
of investment portfolio shares in each variable investment option for your
policy by dividing your account value in that option by the net asset value of
one share of the matching investment portfolio.
MATERIAL CONFLICTS
We are required to track events to identify 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.
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Strategic Benefit 36
<PAGE>
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 it, 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 our 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 division. We cast votes credited to
amounts in the variable division, 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:
o change the investment objective;
o offer additional variable investment options which will invest in
portfolios we find appropriate;
o eliminate variable investment options;
o combine two or more variable investment options;
o substitute a new investment portfolio for an existing portfolio.A
substitution may become necessary if, in our judgment:
a) a portfolio no longer suits the purposes of this policy;
b) there is a change in laws or regulations;
c) there is a change in a portfolio's investment objectives or
restrictions;
d) the portfolio is no longer available for investment; or
e) there is another reason we deem a substitution is appropriate;
o transfer assets related to your policy to another separate account;
o withdraw the separate account from registration under the 1940 Act;
o operate the separate account as a management investment company under
the 1940 Act;
o cause one or more variable investment options to invest in a mutual
fund other than, or in addition to, the investment portfolios;
o stop selling these policies;
o end an employer or plan trustee agreement with us under the
agreement's terms;
o limit or eliminate voting rights for the separate account; or
o make 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 surrender value;
o information about the variable investment options; and
o your account transactions during the policy year showing net premiums,
transfers, deductions, loan amounts and 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 AND DEDUCTIONS
The amount of a charge may not correspond to the cost incurred by us to provide
the service or benefit. For example, the sales charges may not cover all of our
sales and distribution expenses. Some proceeds from other charges, including the
mortality and expense risk charge or cost of insurance charges, may be used to
cover such expenses.
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Strategic Benefit 37
<PAGE>
DEDUCTIONS FROM PREMIUMS
We treat payments we receive as premium payments if the insured person is not
yet age 100 and you do not have an outstanding policy loan. After we deduct
certain expenses from your payment, we add the remaining net premium to your
policy.
INITIAL SALES CHARGE AND DEFERRED SALES CHARGE
We deduct charges based on the amount of premium we receive each year your
policy or segment is in effect. The sales charge (and deferred sales charge)
helps cover our costs of distribution, preparing sales literature, promotion
expenses and other direct and indirect expenses to sell the policy.
During the first policy or segment year, we do not deduct an initial sales
charge from your premium payments. However, these payments will be used to
calculate the deferred sales charge which is deducted at the beginning of policy
or segment years two through eight. The amount of this annual deduction is 1.75%
of premium paid during policy or segment year one, up to your policy's target
premium (in your policy schedule pages), plus 1.60% of premium paid during
policy or segment year one in excess of target. This deferred sales charge
deduction ends after policy or segment year eight. Thus, first policy or segment
year premiums, up to target, are subject to the highest rate of sales charge,
equivalent to 12.25% over seven years (1.75% per year times 7 years).
During your second policy or segment year, and in each year thereafter, we
deduct 0.5% of all premium payments we receive before we apply the premium to
your policy. This deduction is the policy initial sales charge. Premium payments
from which we deduct a sales charge are not subject to the deferred sales
charge.
SALES CHARGES
AS A
PREMIUM PERCENTAGE OF
PAID PREMIUM WHEN DEDUCTED
policy/segment 1.75%* beginning of
year 1 up to policy/segment
target years 2 - 8
policy/segment 1.6%* beginning of
year 1 in policy/segment
excess of years 2 - 8
target
policy/segment 0.5% upon receipt of
years 2+ payment
* THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE
DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS.
SALES CHARGE EXAMPLE
(BASED ON TWO YEARS OF PREMIUM PAYMENTS)
Assume a policy has a target premium of $8,000. Premium payments of $10,000 are
made in each of the first two years and there has been no change in death
benefit.
The $10,000 premium payment for the first year incurs an annual deferred sales
charge of $172 deducted in years two through eight:
1.75% of premium up to target plus 1.6% of premium payments over target
[.0175 x $8,000 + (.016 x $2,000) = $172].
The deferred sales charge deduction is made on the monthly processing date at
the policy (or segment) anniversary.
The $10,000 premium payment for the second year incurs a sales charge of $50
when it is received:
0.5% of all premium [.005 x $10,000 = $50].
Deducted Deferred Sales Sales Charge
During Policy Charge on First on Second Year
or Segment Year Premium Premium
Year Of $10,000 Of $10,000
1 $0 $0
2 $172 $50
3 $172 $0
4 $172 $0
5 $172 $0
6 $172 $0
7 $172 $0
8 $172 $0
9 $0 $0
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% to 5%. In the first policy
- --------------------------------------------------------------------------------
Strategic Benefit 38
<PAGE>
or segment year, we deduct 2.5% of each premium payment up to target premium to
cover these taxes. In subsequent years, we deduct 2.5% of all premium payments.
This charge approximates the average tax rate we expect to pay.
To cover our estimated costs for the federal income tax treatment of deferred
acquisition costs, we deduct 1.5% of each premium payment up to target premium
in the first policy or segment year. In subsequent years, we deduct 1.5% of all
premiums. This cost is determined solely by a portion of the amount of life
insurance premiums we receive.
We reserve the right to increase or decrease this charge for state and local
taxes if there are changes in the tax law, within limits set by state law. We
also reserve the right to increase or decrease the charge for the federal income
tax treatment of deferred acquisition costs based on any change in that cost to
us.
MONTHLY DEDUCTIONS FROM ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a charge each month for the mortality and expense risks we assume. The
mortality risk we assume is that insured people, as a group, may live less time
than we estimated. We assume risk that expenses we incur in issuing and
administering the policies and in operating the variable investment options are
greater than the amount we estimated when we set these charges.
This charge is based on the length of time your policy has been in effect and
the amount you have in the variable investment options on the monthly processing
date.
PERCENT OF VARIABLE DIVISION ACCOUNT VALUE
MONTHLY EQUIVALENT
POLICY YEAR CHARGE ANNUAL RATE
1 - 10 0.07083% 0.85%
11 - 20 0.05000% 0.60%
21+ 0.00417% 0.05%
MONTHLY ADMINISTRATIVE CHARGE
We deduct an administrative charge of $12 per month for the first policy year
and $6 per month for each policy year beyond that. The monthly administrative
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, including the expected cost of paying death proceeds that
could be more than your account value.
The cost of insurance rates may depend on the characteristics of the group of
insured people, such as ages, risk class, size of the group and the total
premium the group pays.
The cost of insurance charge is our current monthly cost of insurance rate times
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 charges due on that date, other than cost of
insurance charges.
If your base death benefit at the beginning of a month increases (as a
requirement 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.
Because your target death benefit did not change, the net amount at risk for
your adjustable term insurance rider decreases. The amount of your cost of
insurance charge varies from month to month as a result of changes in your net
amount at risk, changes in the death benefit and the increasing age of the
insured person. We allocate the net amount at risk to all segments in the same
proportion that each segment has to the total stated death benefit for all
coverage as of the monthly processing 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.
- --------------------------------------------------------------------------------
Strategic Benefit 39
<PAGE>
Separate cost of insurance rates apply to each segment of the base death benefit
and your adjustable term insurance rider.
Your cost of insurance rates may change from time to time however, they are
never more than the guaranteed maximum rates shown in your policy. The
guaranteed maximum rates for base coverage are based on the 1980 Commissioner's
Standard Ordinary Sex Distinct Mortality Table.
The maximum rates for the initial and each new segment will be printed in your
schedule pages. This type of group policy may result in higher cost of insurance
charges than those that would apply if the policy were on an individual basis.
POLICY TRANSACTION FEES
We charge fees for certain transactions you may make under your policy. We
deduct these fees from the variable and the guaranteed interest divisions in the
same proportion that your account value in each division has to your net account
value immediately after the transaction.
PARTIAL WITHDRAWALS
To cover our costs, we deduct a service fee of up to $25 from your account value
for each partial withdrawal you take. SEE PARTIAL WITHDRAWALS, PAGE 29.
TRANSFERS
There is a $10 fee for each additional transfer over twelve per policy year to
cover our costs. If you include multiple transfers in one request, it counts as
one transfer. There is no transfer fee if you are exercising the right to
exchange in your policy. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 26, AND RIGHT TO
EXCHANGE POLICY, PAGE 24.
ILLUSTRATIONS
The first policy illustration you request in a policy year is free. After that,
we charge a fee of up to $25 for each additional policy illustration.
PREMIUM ALLOCATION CHANGE
You may make five free premium allocation changes per policy year. After five,
we charge you $25 for each additional premium allocation change. If you change
your designated withdrawal investment option, we consider it a premium
allocation charge for which there may be a charge. SEE MONTHLY DEDUCTIONS FROM
YOUR ACCOUNT VALUE, PAGE 38.
CONTINUATION OF COVERAGE ADMINISTRATIVE FEE
When the insured person reaches age 100, if your policy has not been
surrendered, the continuation of coverage period begins. We charge a one-time
administrative fee of $200. We then no longer charge you monthly charges. This
charge compensates us for maintaining and servicing your policy until the death
of the insured person.
DIVISIONS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS
<TABLE>
<S> <C> <C> <C>
MONTHLY CHARGES: COST OF
INSURANCE CHARGES,
ADMINISTRATIVE FEES AND
ANNUAL DEDUCTION OF POLICY LOANS AND
DEFERRED SALES CHARGE TRANSACTION FEES PARTIAL WITHDRAWALS
CHOICE May choose designated Proportionally among variable May choose any investment
deduction option, including and guaranteed interest divisions option or combination of
guaranteed interest division investment options, subject to
requirements
DEFAULT Proportionally among variable Proportionally among variable Proportionally among variable
and guaranteed interest and guaranteed interest divisions and guaranteed interest divisions
divisions
</TABLE>
- --------------------------------------------------------------------------------
Strategic Benefit 40
<PAGE>
OTHER CHARGES
Under current law, we pay no tax on investment income and capital gains included
in variable life insurance policy reserves. So, no charge is 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.
GROUP OR SPONSORED ARRANGEMENTS
OR CORPORATE PURCHASERS
Only groups of individuals, corporations or other institutions may purchase this
policy. These group arrangements include those in which there is a trustee, an
employer or an association. The group may either purchase policies covering a
group of individuals or endorse a policy to 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.
Based on the group underwriting, we may reduce or waive the:
o administrative charge;
o minimum target death benefit;
o target premium;
o sales charges;
o cost of insurance charges; or
o other charges normally assessed.
We can reduce or waive these items due to expected economies based on the
characteristics of the group. Our sales, administration and mortality costs
generally vary with the size and stability of the group, among other factors
which we take into account when we reduce 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.
We will not be unfairly discriminatory in the 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 Internal Revenue
Code Section 7702. However, there is very little guidance, 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.
Specifically this policy must meet the requirements of the "cash value
accumulation test" as specified in Code Section 7702.
Under the cash value accumulation test, there is no limit to the amount that may
be paid in premiums as long as there is enough death benefit in relation to
account value at all times. The death benefit at all times must be at least
equal to an actuarially determined factor, depending on the insured person's age
and sex at any point in time, multiplied by the account value. SEE APPENDIX A,
PAGE 62, FOR A TABLE OF THE CASH VALUE ACCUMULATION TEST FACTORS.
We will at all times assure that the policy meets the statutory definition which
qualifies the policy as life insurance for federal income tax purposes. In
addition, as long as the policy remains in force, increases in account value as
- --------------------------------------------------------------------------------
Strategic Benefit 41
<PAGE>
a result of interest or investment experience will not be subject to federal
income tax unless and until there is a distribution from the policy, such as a
partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE 41.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 tests, 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
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 cash value
until there is a distribution. When distributions from a policy occur, or when a
loan is 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.
- --------------------------------------------------------------------------------
Strategic Benefit 42
<PAGE>
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:
o All distributions other than death benefits, including distributions
upon surrender and 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.
o 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.
o 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.
- --------------------------------------------------------------------------------
Strategic Benefit 43
<PAGE>
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 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 mortality charge used to calculate whether your policy
qualifies as life insurance for federal income tax purposes. We must base these
calculations on reasonable mortality charges 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 used in the calculation 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.
- --------------------------------------------------------------------------------
Strategic Benefit 44
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
[TO BE UPDATED BY AMENDMENT]
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 policies illustrated use the
following assumptions:
Death Stated Scheduled Target
Smoker* Benefit Death Annual Death
Gender Age Status Option Benefit Premium Benefit
Male 35 Non-smoker 1 $________ $________ $________
Male 35 Non-smoker 1 $________ $________ $________
Male 45 Non-smoker 1 $________ $________ $________
Male 45 Non-smoker 1 $________ $________ $________
Male 55 Non-smoker 1 $________ $________ $________
Male 55 Non-smoker 1 $________ $________ $________
* "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 tables show how death benefits, account values, and surrender values of a
hypothetical policy could vary over an extended period of time, assuming the
variable divisions had constant hypothetical gross annual investment returns of
0%, 6%, or 12% 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 female, unisex or smoker
rates.
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.
These illustrations assume there are no policy loans.
The net investment return on your policy is lower than the gross investment
return on the variable division as a result of the portfolio charge for
management fees and portfolio expenses. We show the effect of the net investment
return in the amounts for death benefits, account values and surrender values.
The tables reflect annual investment management fees of X.XX% 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
X.XX% 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 expense
reimbursements or waivers by investment portfolio managers have been made. The
average of all portfolios' total expenses is X.XX%.
Actual fees vary by portfolio. The portfolio fees and expenses used in the
illustrations are the net amounts shown after expense reimbursements or waivers
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 portfolios' total expenses used in the
illustrations would have been higher (X.XX%, X.XX% and X.XX%, respectively). The
tables assume that the current expense reimbursement arrangements will continue.
- --------------------------------------------------------------------------------
Strategic Benefit 45
<PAGE>
However, they may not continue through 2000.
The effect of these portfolio charges and expenses results in a net rate of
return of:
o X.XX% on a 0% gross rate of return;
o X.XX% on a 6% gross rate of return; and
o X.XX% on a 12% gross rate of return.
The tables assume that charges have been deducted including deductions from
premiums, cost of insurance rider charges, monthly deductions and annual
deferred sales charge, mortality and expense risk charge, administrative and
sales charges. The tables show charges at our current rates. The tables also
show charges at the maximum rates we guarantee in our policies. SEE MONTHLY
DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 38. 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
surrender values.
This Strategic Benefit policy is issued only to groups. For this policy, we
generally deliver an illustration which shows a single life scheduled premium
and risk class representative of the particular group covered by this policy. We
base these hypothetical future benefits on both guaranteed and current cost
factor assumptions and actual account value. However, if we are asked to do so,
we will provide personal illustrations based on:
o each insured person's age and gender;
o standard premium class assumptions;
o initial stated death benefit;
o the chosen death benefit option;
o scheduled premiums consistent with the policy form; and
o special features elected on each policy.
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Strategic Benefit 46
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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 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.
- --------------------------------------------------------------------------------
Strategic Benefit 47
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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.
- --------------------------------------------------------------------------------
Strategic Benefit 48
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XXX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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 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.
- --------------------------------------------------------------------------------
Strategic Benefit 49
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $XXX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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.
- --------------------------------------------------------------------------------
Strategic Benefit 50
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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 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.
- --------------------------------------------------------------------------------
Strategic Benefit 51
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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.
- --------------------------------------------------------------------------------
Strategic Benefit 52
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 53
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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.
- --------------------------------------------------------------------------------
Strategic Benefit 54
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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 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.
- --------------------------------------------------------------------------------
Strategic Benefit 55
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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.
- --------------------------------------------------------------------------------
Strategic Benefit 56
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 57
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</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.
- --------------------------------------------------------------------------------
Strategic Benefit 58
<PAGE>
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS
Security Life's address and the business address of each director and principal
officer 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 with one asterisk (*) is ING North America Insurance Corporation,
5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of
each person with two asterisks (**) is Security Life of Denver Insurance
Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273.
Name and Principal Position and Offices with Security Life of
Business and Address Denver
Stephen M. Christopher Chairman, President and Chief Executive Officer
Jess A. Skriletz 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
- --------------------------------------------------------------------------------
Strategic Benefit 59
<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]
Actuarial matters in this prospectus have been examined by James L. Livingston,
Jr., F.S.A., M.A.A.A., who is Executive Vice President and Chief Actuary of
Security Life.His opinion on actuarial matters is filed as an exhibit to the
Registration Statement we filed with the SEC.
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.
- --------------------------------------------------------------------------------
Strategic Benefit 60
<PAGE>
[FINANCIAL STATEMENTS TO BE FILED BY SUBSEQUENT AMENDMENT]
- --------------------------------------------------------------------------------
Strategic Benefit 61
<PAGE>
APPENDIX A
FACTORS FOR THE
CASH VALUE ACCUMULATION TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Male Male Male
Attained or Unisex Unisex Attained or Unisex Unisex Attained or Unisex Unisex
Age 100/0 Female 80/20 Age 100/0 Female 80/20 Age 100/0 Female 80/20
0 11.727 14.234 12.149
1 11.785 14.209 12.194 34 4.188 4.902 4.314 67 1.617 1.815 1.657
2 11.458 13.815 11.857 35 4.052 4.742 4.173 68 1.583 1.769 1.620
3 11.128 13.417 11.515 36 3.920 4.586 4.037 69 1.550 1.724 1.585
4 10.803 13.023 11.178 37 3.793 4.437 3.906 70 1.518 1.681 1.552
5 10.481 12.635 10.845 38 3.670 4.293 3.780 71 1.488 1.639 1.520
6 10.161 12.253 10.514 39 3.553 4.154 3.658 72 1.459 1.599 1.489
7 9.8441 1.875 10.187 40 3.439 4.021 3.541 73 1.432 1.560 1.460
8 9.5301 1.505 9.863 41 3.330 3.894 3.429 74 1.406 1.524 1.433
9 9.2211 1.141 9.545 42 3.226 3.771 3.322 75 1.382 1.490 1.407
10 8.9181 0.784 9.233 43 3.125 3.654 3.218 76 1.359 1.457 1.383
11 8.6231 0.436 8.928 44 3.028 3.541 3.119 77 1.338 1.427 1.360
12 8.3381 0.098 8.634 45 2.936 3.432 3.023 78 1.318 1.398 1.338
13 8.066 9.771 8.353 46 2.846 3.328 2.931 79 1.299 1.371 1.318
14 7.808 9.455 8.085 47 2.761 3.227 2.843 80 1.281 1.345 1.298
15 7.564 9.150 7.831 48 2.678 3.129 2.758 81 1.264 1.321 1.280
16 7.335 8.857 7.592 49 2.599 3.035 2.676 82 1.248 1.298 1.262
17 7.118 8.575 7.364 50 2.522 2.945 2.597 83 1.233 1.277 1.245
18 6.911 8.302 7.148 51 2.449 2.858 2.522 84 1.218 1.257 1.230
19 6.713 8.038 6.939 52 2.378 2.774 2.449 85 1.205 1.238 1.215
20 6.521 7.782 6.737 53 2.311 2.693 2.379 86 1.193 1.221 1.202
21 6.334 7.534 6.540 54 2.246 2.615 2.312 87 1.181 1.205 1.189
22 6.150 7.293 6.347 55 2.184 2.540 2.248 88 1.171 1.190 1.177
23 5.969 7.059 6.158 56 2.125 2.468 2.187 89 1.160 1.176 1.166
24 5.791 6.831 5.971 57 2.068 2.398 2.128 90 1.151 1.163 1.155
25 5.615 6.611 5.788 58 2.014 2.330 2.071 91 1.141 1.150 1.144
26 5.441 6.396 5.608 59 1.962 2.265 2.017 92 1.131 1.137 1.133
27 5.271 6.188 5.431 60 1.912 2.201 1.965 93 1.120 1.125 1.122
28 5.104 5.986 5.258 61 1.864 2.139 1.915 94 1.109 1.112 1.110
29 4.940 5.791 5.089 62 1.818 2.079 1.867 95 1.097 1.098 1.097
30 4.781 5.601 4.925 63 1.774 2.022 1.821 96 1.083 1.084 1.084
31 4.626 5.418 4.765 64 1.732 1.967 1.777 97 1.069 1.069 1.069
32 4.476 5.241 4.610 65 1.692 1.914 1.735 98 1.054 1.054 1.054
33 4.330 5.069 4.459 66 1.654 1.863 1.695 99 1.040 1.040 1.040
100 1.000 1.000 1.000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Benefit 62
<PAGE>
APPENDIX B
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 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.
The illustrations are based on the payment of a $X,XXX annual premium, received
at the beginning of each year, for a hypothetical policy with a $XXX,XXX face
amount death benefit Option 1, issued on a nonsmoker male, age 45. 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, PAGE 37. This prospectus also contains illustrations based on assumed
rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER
VALUES AND ACCUMULATED PREMIUMS, PAGE 45.
Past performance is not an indication of future results. Actual investment
results may be more or less than those shown in the hypothetical illustrations.
[TO BE UPDATED BY SUBSEQUENT AMENDMENT]
- --------------------------------------------------------------------------------
Strategic Benefit 63
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
1.A(6)(b-g) and the By-Laws listed as Exhibits 1.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.
Cross-Reference table.
- --------------------------------------------------------------------------------
Corporate Benefits II - 1
<PAGE>
The prospectuses.
Corporate Benefits
Strategic Benefit
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./6/
(ii) Amendment to Security Life of Denver Insurance Company
Distribution Agreement./9/
(b) Amendment to Broker/Dealer Supervisory and Selling Agreement for
Variable Contracts with Compensation Schedule.
(i) Compensation Schedule to Selling Agreement with Merrill
Lynch (Strategic Benefit).
(c) Commission Schedule for Policies (Corporate Benefits)
(i) Commission Schedule for Policies (Strategic Benefit).
(4) Not Applicable.
(5) (a) Specimen Corporate Benefits Variable Universal Life Insurance
Policy (Form No. 2505(VUL)-3/00)./7/
(i) Strategic Benefit Variable Universal Life Insurance Policy
(Form No. 2507(VUL)-5/00).
(b) Adjustable Term Insurance Rider (Form No. R2006-3/00)./5/
(c) Certificate of Insurance./5/
(6) (a) Security Life of Denver's Restated Articles of Incorporation./1/
(b-g) Amendments to Articles of Incorporation through June 12, 1987./1/
(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/
- --------------------------------------------------------------------------------
Corporate Benefits II - 2
<PAGE>
(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./7/
(ix) Specimen Fund Participation Agreement between Merrill Lynch
Variable Series Funds, Inc. and Security Life of Denver
Insurance Company.
(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/
(x) Third Amendment to Participation Agreement among Security
Life of Denver Insurance Company, INVESCO Variable
Investment Funds, Inc. and INVESCO Funds Group, Inc./4/
(xi) Fourth Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company./4/
(xii) Fourth Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance
Company./4/
(xiii) Amendment No. 2 to Participation Agreement among AIM
Variable Insurance Funds, Inc., Security Life of Denver
Insurance Company and ING America Equities, Inc./4/
- --------------------------------------------------------------------------------
Corporate Benefits II - 3
<PAGE>
(xiv) Fourth Amendment to Participation Agreement among Security
Life of Denver Insurance Company, INVESCO Variable
Investment Funds, Inc. and INVESCO Funds Group, Inc./6/
(xv) Amendment No. 3 to Participation Agreement among AIM
Variable Insurance Funds, Inc., Security Life of Denver
Insurance Company and ING America Equities, Inc./6/
(xvi) Fifth Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company./6/
(xvii) Fifth Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance
Company./6/
(c) (i) Service Agreement between Fred Alger Management, Inc. and
Security Life of Denver Insurance Company./1/
(ii) Expense Allocation Agreement between A I M Advisors, Inc.,
AIM Distributors, Inc. and Security Life of Denver./9/
(iii) Service Agreement between INVESCO Funds Group, Inc. and
Security Life of Denver Insurance Company./9/
(iv) Service Agreement between Neuberger & Berman Management
Incorporated and Security Life of Denver Insurance
Company./9/
(v) Service Agreement between Fidelity Investments
Institutional Operations Company, Inc. and Security Life of
Denver Insurance Company./9/
(vi) Side Letter between Van Eck Worldwide Insurance Trust and
Security Life of Denver./9/
(vii) Specimen Administrative Services Agreement among Security
Life of Denver Insurance Company and Merrill Lynch Asset
Management, L.P.
(9) Not Applicable.
(10) Specimen Guaranteed Issue Variable Life Insurance Application with
Guaranteed Issue Binding Limited Life Insurance Coverage Form
(Form Nos. Q2009-11/97 and Q-1112 B-6/98).
2. Included as Exhibit 1.A(5) above.
3.A Opinion and consent of Gary W. Waggoner as to securities being
registered./5/
4. Not Applicable.
5. Not Applicable.
6.A Opinion and consent of James L. Livingston, Jr. [To be Filed by
Amendment.]
7.A Consent of Ernst & Young L.L.P. [To be Filed by Amendment.]
B Consent of Sutherland Asbill & Brennan LLP. [To be Filed by Amendment.]
8. Not Applicable.
11. Issuance, Transfer and Redemption Procedures Memorandum.
- --------------------------------------------------------------------------------
Corporate Benefits II - 4
<PAGE>
_______________
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 L1, 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 L1, 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 L1, filed with the
Securities and Exchange Commission on March 2, 1998 (File No. 33-74190).
4 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 May 10, 1999 (File No. 333-72753).
5 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 L1, filed with the Securities and
Exchange Commission on November 8, 1999 (File No. 333-90577).
6 Incorporated herein by reference to the 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 L1, filed with the
Securities and Exchange Commission on December 3, 1999 (File No.
333-90577).
7 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).
8 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).
9 Incorporated herein by reference to the 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 L1, filed with the
Securities and Exchange Commission on April 23, 1999 (File No. 33-74190).
- --------------------------------------------------------------------------------
Corporate Benefits 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 L1,
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
2nd day of March, 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 L1
(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
- --------------------------------------------------------------------------------
Corporate Benefits 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 and Controller
DIRECTORS:
/s/ P. Randall. Lowery
- -----------------------------------------------
P. Randall Lowery
/s/ Michael W. Cunningham
- -----------------------------------------------
Michael W. Cunningham
- --------------------------------------------------------------------------------
Corporate Benefits II - 7
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
1.A(3)(b) Amendment to Broker/Dealer Supervisory and Selling Agreement
for Variable Contracts with Compensation Schedule (Corporate
Benefits).
1.A(3)(b)(i) Compensation Schedule to Selling Agreement with Merrill Lynch
(Strategic Benefit).
1.A(3)(c) Commission Schedule for Policies (Corporate Benefits).
1.A(3)(c)(i) Commission Schedule for Policies (Strategic Benefit).
1.A(5)(a)(i) Strategic Benefit Variable Universal Life Insurance Policy
(Form No. 2507(VUL)-5/00).
1.A(8)(a)(ix) Specimen Fund Participation Agreement between Merrill Lynch
Variable Series Funds, Inc. and Security Life of Denver
Insurance Company.
1.A(8)(c)(vi) Specimen Administrative Services Agreement among Security Life
of Denver Insurance Company and Merrill Lynch Asset Management,
L.P.
1.A(10) Specimen Guaranteed Issue Variable Life Insurance Application
with Guaranteed Issue Binding Limited Life Insurance Coverage
Form and Inserts (Form Nos. Q2009-11/97 and Q- 1112 B-6/98).
11. Issuance, Transfer and Redemption Procedures Memorandum.
- --------------------------------------------------------------------------------
Corporate Benefits II - 8
EXHIBIT 1.a(3)(b)
AMENDMENT TO THE
BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT
FOR VARIABLE CONTRACTS
This Amendment is made by and among ING Security Life of Denver Insurance
Company ("ING Security Life"), ING America Equities, Inc. ("INGAE") and Selling
Broker-Dealer and Agency, collectively known as the Parties.
WHEREAS, the Parties have executed a Broker-Dealer Supervisory and Selling
Agreement for Variable Contracts ("the Agreement") which provides that Selling
Broker-Dealer and Agency will enable and supervise its registered
representatives to solicit and sell the Contracts issued by ING Security Life
and distributed by INGAE.
WHEREAS, the Agreement also provides for certain compensation to be paid to
Selling Broker-Dealer or Agency for the sales of such Contracts, the Agreement
is modified as follows:
1. The Schedule I, "Compensation Schedule to Selling Agreement for ING Security
Life Corporate Benefits Variable Universal Life" is hereby added.
This Amendment is effective ________________, and shall be deemed to be accepted
by Broker-Dealer and Agency by ING Security Life and INGAE by submission of an
application for the Corporate Benefits Variable Universal Life product by
Selling Broker-Dealer or Agency on or after that date.
<PAGE>
SCHEDULE I
COMPENSATION SCHEDULE
TO SELLING AGREEMENT FOR SECURITY LIFE
CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE
This Schedule is an attachment to the ING America Equities, Inc. ("ING America
Equities") Selling Agreement by and among the parties pursuant to paragraph 17
of that Selling Agreement, effective as of ________, 2000, or the date that
Selling Broker-Dealer submits an application for this product, whichever is
later. The provisions of this Schedule shall apply only to ING Security Life
Corporate Benefits Variable Universal Life policies solicited and issued while
this Schedule is in effect. All compensation payable under this Schedule shall
be subject to the terms and conditions contained herein at the time of issue of
the policy by ING Security Life of Denver Insurance Company ("ING Security
Life").
1. Commission Structure:
Commissions are payable on premiums paid in each year up to the target
premium only. No commissions are paid on premium in excess of the target
premium. Any time a new coverage segment is created, premiums allocated to
that segment will be commissionable up to that segment's target premium. The
commission rates as a percent of target premium are given in a table below.
Policy Year of Coverage Commission Rate
Segment
1 10%
2 - 4 8%
5 - 10 2%
11+ 0
Premiums received within 15 days prior to policy anniversary will result in
the agent receiving commissions at the same rate as if the premium was paid
on the anniversary date.
If this product is sold with a maximum ATR coverage, the target premium
could be zero which would result in no commissions payable other than the
annual trail commission described in section 2, below.
2. Trail Commissions: as a percent of the net account value are paid. The trail
commission is calculated monthly based on the net account value at the end
of the prior month. It is paid at the end of the policy year, provided the
policy remains in force at that time and is
<PAGE>
not subject to the grace period provisions. The trail commissions will
continue when the insured lives past age 100 and the continuation of
coverage feature is in force. The annual trail commission rates are given
below.
Annual trail commission rates as a percent of the net account value:
Policy Year Trail Commission Rate
1 - 20 0.20%
21+ 0.10%
3. Riders: The Adjustable Term Insurance Rider has no target premium associated
with it.
4. Commission Calculation: Commissions shall be calculated only on premium
actually received and accepted by ING Security Life. Commissions shall be
paid only on an earned basis. Outstanding loan amounts carried over are not
considered commissionable premium.
5. Premium Allocation: If the Stated Death Benefit has been increased since the
policy date, premiums received are allocated to the coverage segments in the
same proportion that the commission target premium for each segment bears to
the total commission target premium of the policy.
6. Death Benefit Increases: If a premium payment accompanies a request for a
Stated Death Benefit increase or is received while a request is pending, the
payment will be applied to the policy but commissions shall not be payable
until the increase is effective. The commission shall then be payable based
on the premium being allocated among all segments as it would normally and
the new target premium after the increase.
7. Compensation Payments: Compensation on initial premium shall be due to the
Selling Broker-Dealer at the time of the issuance of
the policy and for all other premium payments at the time of the receipt and
acceptance of premium by ING Security Life, except that the amount, if any,
and the time of payment of compensation on stated death benefit increases,
replacements, reissues, changes, conversions, exchanges, term renewals, term
conversions, premiums paid in advance, policies issued on a "guaranteed
issue" basis, policies requiring facultative reinsurance arrangements, and
other special cases and programs shall be governed by ING Security Life's
underwriting and administrative rules then in effect. The Compensation shall
be payable to the Selling Broker-Dealer in accordance with the Schedule I in
effect at the time of issue of the policy.
8. Commission Chargeback: In the event that a policy for which a commission has
been paid is lapsed or surrendered by the Policy Owner or has a reduction of
stated death benefit during the first three policy years, or is returned to
ING Security Life for refund of premium during the Free Look Period as
described in the policy, ING Security Life and
<PAGE>
ING America Equities shall require reimbursement from Selling Broker-Dealer
as shown below.
Policy Year Commission Chargeback
1 10% of first year premium up to target
2 6% of second year premium up to target
3 3% of third year premium up to target
4+ 0%
If a premium payment for which a commission has been paid is refunded by ING
Security Life, a reimbursement of the commission paid on the amount refunded
will be due from the Selling Broker-Dealer. The reimbursement may be
deducted by ING America Equities from the next, or any subsequent,
commission payment to Selling Broker-Dealer.
If the amount to be reimbursed exceeds compensation otherwise due, Selling
Broker-Dealer shall promptly reimburse ING America Equities before the next
commission cycle.
9. Internal Exchanges: Commissions on the exchange of any ING Security Life
policy for Corporate Benefits Variable Universal Life, if any, will be paid
in accordance with the exchange procedures in effect at ING Security Life on
the date the exchange is completed. The commission rates and/or target
premiums may be adjusted in accordance with the rules in effect at the time
of the exchange. If the Representative responsible for the exchange is not
the producer of the original policy, and the original producer is still
active with ING Security Life, no commission will be payable to the
Representative or the Selling Broker-Dealer.
Exhibit 1.A(3)(b)(i)
SCHEDULE SB-1
COMPENSATION SCHEDULE
TO SELLING AGREEMENT FOR MERRILL LYNCH
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
This Schedule is an attachment to the ING America Equities, Inc. ("ING America
Equities") Selling Agreement by and among the parties pursuant to paragraph 17
of that Selling Agreement, effective as of May 1, 2000. The provisions of this
Schedule shall apply only to ING Security Life's Strategic Benefit Variable
Universal Life policies solicited and issued while this Schedule is in effect.
All compensation payable under this Schedule shall be subject to the terms and
conditions contained herein at the time of issue of the policy by ING Security
Life of Denver Insurance Company ("ING Security Life").
1. Commission Structure: Commissions are payable on premiums paid in the first
year up to the target premium only. No commissions are paid on premium in
excess of the target premium. Any time a new coverage segment is created,
premiums allocated to that segment in its first year will be commissionable
up to that segment's target premium. The commission rates as a percent of
target premium are:
POLICY YEAR OF COVERAGE SEGMENT COMMISSION RATE
1 5%
2+ 0%
Premiums received within 15 days prior to policy anniversary will result in
the agent receiving commissions at the same rate as if the premium was paid
on the anniversary date.
If this product is sold with a maximum ATR coverage, the target premium
could be zero which would result in no commissions payable other than the
annual trail commission described in section 2 below.
2. Trail Commissions: are paid as a percent of the net account value. The
trail commission is calculated monthly based on the net account value at
the end of the prior month. It is paid at the end of the policy year,
provided the policy remains in force at that time and is not subject to the
grace period provisions. The trail commissions will continue when the
insured lives past age 100 and the continuation of coverage feature is in
force. The annual trail commission rates are given below.
Schedule SB-1 (ver 2-25-00) Page 1 of 3
<PAGE>
Annual trail commission rates as a percent of the net account value:
POLICY YEAR TRAIL COMMISSION RATE
1 - 10 1.00%
11 - 20 0.75%
21+ 0.20%
3. Riders: The Adjustable Term Insurance Rider coverage is not commissionable.
4. Commission Calculation: Commissions shall be calculated only on premium
actually received and accepted by ING Security Life. Commissions shall be
paid only on an earned basis. Outstanding loan amounts carried over are not
considered commissionable premium.
5. Premium Allocation: If the Stated Death Benefit has been increased since
the policy date, premiums received are allocated to the coverage segments
in the same proportion that the commission target premium for each segment
bears to the total commission target premium of the policy.
6. Death Benefit Increases: If a premium payment accompanies a request for a
Stated Death Benefit increase or is received while a request is pending,
the payment will be applied to the policy but commissions shall not be
payable until the increase is effective. The commission shall then be
payable based on the premium being allocated among all segments as it would
normally and the new target premium after the increase.
7. Compensation Payments: Compensation on initial premium shall be due to the
Selling Broker-Dealer at the time of the issuance of the policy and for all
other premium payments at the time of the receipt and acceptance of premium
by ING Security Life, except that the amount, if any, and the time of
payment of compensation on stated death benefit increases, replacements,
reissues, changes, conversions, exchanges, term renewals, term conversions,
premiums paid in advance, policies issued on a "guaranteed issue" basis,
policies requiring facultative reinsurance arrangements, and other special
cases and programs shall be governed by ING Security Life's underwriting
and administrative rules then in effect. The Compensation shall be payable
to the Selling Broker-Dealer in accordance with the Schedule I in effect at
the time of issue of the policy.
8. Commission Chargeback: In the event that a policy for which a commission
has been paid is lapsed or surrendered by the Policy Owner or has a
reduction in the Stated Death Benefit during the first three years or is
returned to ING Security Life for refund of premium during the Free Look
Period as described in the policy, ING Security Life and ING America
Equities shall require reimbursement of from Selling Broker-Dealer as shown
below.
Schedule SB-1 (ver 2-25-00) Page 2 of 3
<PAGE>
POLICY YEAR COMMISSION CHARGEBACK
1 5% of first year premiums up to target
2 2.5% of first year premiums up to target
3 1.25% of first year premiums up to target
4+ 0%
If a premium payment for which a commission has been paid is refunded by
ING Security Life, a reimbursement of the commission paid on the amount
refunded will be due from the Selling Broker-Dealer. The reimbursement may
be deducted by ING America Equities from the next, or any subsequent,
commission payment to Selling Broker-Dealer.
If the amount to be reimbursed exceeds compensation otherwise due, Selling
Broker-Dealer shall promptly reimburse ING America Equities before the next
commission cycle.
9. Internal Exchanges: No Commissions shall be payable on the exchange of any
policy issued by Security Life or any other ING affiliate for a Merrill
Lynch Corporate Benefits Variable Universal Life policy.
Schedule SB-1 (ver 2-25-00) Page 3 of 3
EXHIBIT 1.a(3)(c)
Commission Structure:
Commissions are payable on premiums paid up to the target premium only. No
commissions are paid on premium in excess of the target premium. Any time a new
coverage segment is created, premiums allocated to that segment will be
commissionable up to that segment's target premium. The commission rates as a
percent of target premium are given in a table below.
Policy Year of Coverage Commission Rate Over-Ride Allowance
Segment
1 10% 2%
2 - 4 8% 2%
5 - 10 2% 0
11+ 0 0
Annual trail commission rates as a percent of the net account value:
Policy Year Trail Commission Rate
1 - 20 0.20%
21+ 0.10%
Commission Chargeback:
In the event that a policy for which a commission has been paid is lapsed or
surrendered by the Policy Owner or has a reduction of stated death benefit
during the first three policy years, or is returned for refund of premium during
the Free Look Period as described in the policy, reimbursement is required from
Selling Broker-Dealer as shown below.
Policy Year Commission Chargeback Override Chargeback
1 10% of first year premium up to target 2%
2 6% of second year premium up to target 0%
3 3% of third year premium up to target 0%
4+ 0% 0%
Exhibit 1.A(3)(c)(i)
Commission Structure:
Commissions are payable on premiums paid up to the target premium only. No
commissions are paid on premium in excess of the target premium. Any time a new
coverage segment is created, premiums allocated to that segment will be
commissionable up to that segment's target premium. The commission rates as a
percent of target premium are given below.
POLICY YEAR OF COVERAGE SEGMENT COMMISSION RATE
1 5%
2+ 0%
Annual trail commission rates as a percent of the net account value:
POLICY YEAR TRAIL COMMISSION RATE
1 - 10 1.00%
11 - 20 0.75%
21+ 0.20%
Commission Chargeback:
In the event that a policy for which a commission has been paid is lapsed or
surrendered by the Policy Owner or has a reduction in the Stated Death Benefit
during the first three policy years or is returned for refund of premium during
the Free Look Period as described in the policy, reimbursement is required from
Selling Broker-Dealer as shown below.
POLICY YEAR COMMISSION CHARGEBACK
1 5% of first year premiums up to target
2 2.5% of first year premiums up to target
3 1.25% of first year premiums up to target
4+ 0%
Page 1 of 1
Security Life of Denver EXHIBIT 1.A(5)(a)
Insurance Company
INSURED: JOHN DOE
POLICY DATE: February 1, 2000
POLICY NUMBER: 67000001
WE AGREE TO PAY the death benefit to the beneficiary upon the death of the
insured while this policy is in force.
WE ALSO AGREE to provide the other rights and benefits of the policy. These
agreements are subject to the provisions of the policy.
RIGHT TO EXAMINE PERIOD. You have the right to examine and return this policy
within 10 days after receipt. The policy may be returned by delivering or
mailing it to us at our Customer Service Center or to your registered
representative. Immediately upon return it will be deemed void as of the policy
date. Upon return of the policy to us, we will refund all premiums paid. If this
policy is a replacement policy as defined by state law where this policy is
delivered, you have the right to examine and return this policy within 10 days
after receipt.
/s/ Gary W. Waggoner /s/ Stephen M. Christopher
Secretary President
In this policy "you" and "your" refer to the owner of the policy. "We", "us" and
"our" refer to Security Life of Denver Insurance Company.
This policy is a FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY.
This is a NON-PARTICIPATING policy.
Death benefits and other values provided by this contract, when based on the
investment experience of a separate account, are variable. These values may
increase or decrease based on investment experience and are not guaranteed as to
fixed dollar amount. Death benefits are payable by us upon the death of the
insured. There is no maturity date. Flexible premiums are payable by you during
the lifetime of the insured until the policy anniversary nearest the insured's
100th birth date.
SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
Customer Service Center, P.O. Box 173888, Denver, Colorado 80217
Toll Free Number: 1(800) 848-6362
Form 2505 (VUL)-2/00
<PAGE>
TABLE OF CONTENTS
SCHEDULE.......................................................................5
DEFINITION OF TERMS............................................................6
INSURANCE COVERAGE PROVISIONS..................................................7
EFFECTIVE DATE OF COVERAGE..............................................7
BASE DEATH BENEFIT......................................................7
CHANGE IN REQUESTED INSURANCE COVERAGE..................................8
Requested Increases in Coverage..................................8
Requested Decreases in Coverage..................................8
Death Benefit Option Changes.....................................8
CONTINUATION OF COVERAGE AFTER AGE 100..................................9
PAYOUT OF PROCEEDS.....................................................10
PREMIUM PROVISIONS............................................................10
INITIAL PREMIUM ALLOCATION.............................................10
SUBSEQUENT PREMIUM ALLOCATION..........................................11
CHANGES TO PREMIUM ALLOCATION..........................................11
SCHEDULED PREMIUMS.....................................................11
UNSCHEDULED PREMIUMS...................................................11
NET PREMIUM............................................................11
PREMIUM LIMITATION.....................................................12
FAILURE TO PAY PREMIUM.................................................12
SEPARATE ACCOUNT PROVISIONS...................................................12
THE SEPARATE ACCOUNT...................................................12
SEPARATE ACCOUNT INVESTMENT OPTIONS....................................12
CHANGES WITHIN THE SEPARATE ACCOUNT....................................13
GENERAL ACCOUNT PROVISIONS....................................................14
THE GENERAL ACCOUNT....................................................14
GUARANTEED INTEREST DIVISION...........................................14
LOAN DIVISION..........................................................14
Form 2505 (VUL)-2/00
Page 2
<PAGE>
TRANSFER PROVISIONS...........................................................14
ACCOUNT VALUE PROVISIONS......................................................14
ACCOUNT VALUES ON THE INVESTMENT DATE..................................15
ACCUMULATION UNIT VALUE................................................15
ACCUMULATION EXPERIENCE FACTOR.........................................15
ACCOUNT VALUE OF THE INVESTMENT OPTIONS OF THE SEPARATE ACCOUNT........16
ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION......................16
ACCOUNT VALUE OF THE LOAN DIVISION.....................................17
DEDUCTIONS....................................................................17
MONTHLY DEDUCTION......................................................17
ANNUAL DEDUCTION (Deferred Sales Charge)...............................17
COST OF INSURANCE......................................................18
LOAN PROVISIONS...............................................................18
POLICY LOANS...........................................................18
LOAN INTEREST..........................................................19
LOAN DIVISION..........................................................19
PARTIAL WITHDRAWAL PROVISIONS.................................................19
SURRENDER PROVISIONS..........................................................21
SURRENDER VALUE........................................................21
BASIS OF COMPUTATIONS..................................................21
FULL SURRENDERS........................................................21
GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS........................21
GRACE PERIOD...........................................................21
TERMINATION............................................................22
REINSTATEMENT..........................................................22
DEFERRAL OF PAYMENT....................................................22
Form 2505 (VUL)-2/00
Page 3
<PAGE>
GENERAL POLICY PROVISIONS.....................................................23
THE POLICY.............................................................23
CONTRACT CHANGES.......................................................23
PROCEDURES.............................................................23
OWNERSHIP..............................................................23
BENEFICIARIES..........................................................24
EXCHANGE RIGHT.........................................................24
COLLATERAL ASSIGNMENT..................................................24
INCONTESTABILITY.......................................................24
MISSTATEMENT OF AGE OR GENDER..........................................24
SUICIDE EXCLUSION......................................................25
PERIODIC REPORTS.......................................................25
ILLUSTRATION OF BENEFITS AND VALUES....................................25
NONPARTICIPATING.......................................................25
CUSTOMER SERVICE CENTER................................................25
PAYOUTS OTHER THAN AS ONE SUM.................................................25
ELECTION...............................................................25
PAYOUT OPTIONS.........................................................26
CHANGE AND WITHDRAWAL..................................................26
EXCESS INTEREST........................................................27
MINIMUM AMOUNTS........................................................27
SUPPLEMENTARY POLICY...................................................27
INCOME PROTECTION......................................................27
DEATH OF PRIMARY PAYEE.................................................27
PAYMENTS OTHER THAN MONTHLY............................................27
SETTLEMENT OPTION TABLES......................................................28
Additional benefits or riders, if any, will be listed in the Schedule. The
additional provisions will be inserted in the policy.
Form 2505 (VUL)-2/00
Page 4
<PAGE>
SCHEDULE
(Schedule Effective Date: February 1, 2000)
POLICY INFORMATION
<TABLE>
<S> <C> <C> <C>
Policy Number 67000001 Initial Stated Death Benefit $100,000.00
Adjustable Term Insurance Death Benefit $ 50,000.00*
Policy Date February 1, 2000 Target Death Benefit $150,000.00**
Insured JOHN DOE Additional Benefits:
Issue Age and Gender 35, Male Adjustable Term Insurance Rider
Death Benefit Option OPTION 1 Scheduled Premium $2,000.00 Annually
</TABLE>
Definition of Life Insurance Test: Cash Value Accumulation Test
Coverage will expire if premiums are insufficient to continue coverage. Coverage
will also be affected by partial withdrawals, policy loans, changes in the
current cost of insurance rates, the actual credited interest rates for the
Guaranteed Interest Division and the investment experience of the Separate
Account.
*This amount is the amount of adjustable term death benefit on the policy date.
This death benefit will vary from time to time, and may depend on your account
value. See the rider and policy for details.
**This amount is the target death benefit on the policy date. It may change at
the beginning of each policy year. See the schedule and rider for details.
CUSTOMER SERVICE CENTER: P.O. Box 173888, Denver, Colorado 80217
Toll Free Number 1(800) 848-6362
Form 2505 (VUL)-2/00
Page 5
<PAGE>
SCHEDULE (Continued)
SEGMENT Benefit Profile
(Schedule Effective Date: February 1, 2000)
<TABLE>
<S> <C> <C> <C> <C>
Description Segment Stated Death Segment Effective Segment Target Segment Premium Class
Benefit Amount Date Premium
Segment #1 $100,000 February 1, 2000 $3,981.00 Select Guaranteed Issue
Non Smoker
</TABLE>
ADDITIONAL BENEFITS:
Adjustable Term Insurance Rider premium class or rating is the same as Segment
#1
A segment is a block of death benefit coverage. The stated death benefit shown
on the schedule page at issue is Segment #1. Additional segments may be added to
the policy after issue to increase the death benefit. Each individual segment
added to the policy has its own cost of insurance charges and expense charges as
shown in the schedule. This is further defined in the Definition of Terms
section of your policy.
Form 2505 (VUL)-2/00
Page 5A
<PAGE>
EXPENSE CHARGES
A. Premium Expense Charge. This charge will equal the sum of a sales charge
plus a tax charge. See Net Premium provision for details.
1. Sales Charge:
<TABLE>
<CAPTION>
Segment Year in Which Premium Segment Premium Received up to Segment Premium Received in Excess
Received Segment Target Premium Of Segment Target Premium
<S> <C> <C>
Segment Year 1 2.0% 0%
Segment Years thereafter 0.5% 0.5%
</TABLE>
2. Federal Deferred Acquisition Cost Tax Charge and Other Charges (Tax
Charge):
<TABLE>
<CAPTION>
Segment Year in Which Premium Segment Premium Received up to Segment Premium Received in Excess
Received Segment Target Premium Of Segment Target Premium
<S> <C> <C>
Segment Year 1 4.0% 0%
Segment Years thereafter 4.0% 4.0%
</TABLE>
We reserve the right to increase or decrease the tax charges due to any
change in tax laws. We further reserve the right to increase or decrease
the tax charge for federal deferred acquisition cost tax due to any change
in cost to us.
B. Monthly Expense Charge: The monthly expense charge will equal the
following:
Charge: $12 per month for the first 12 policy months; and $6
per month thereafter.
Form 2505 (VUL)-2/00
Page 5B
<PAGE>
C. Annual Deduction:
<TABLE>
<CAPTION>
Segment Year in Which Segment Percentage of Segment Premium Percentage of Segment Premium Segment Years of
Premium Received Received up to Received in Excess Deduction
Segment Target Premium* Of Segment Target Premium
<S> <C> <C> <C>
Segment Year 1 2.0% 1% 2 through 8
Segment Year 2 1.75% 0% 3 through 9
Segment Year 3 1.75% 0% 4 through 10
Segment Year 4 1.75% 0% 5 through 11
Segment Year 5 0.50% 0% 6 through 12
Segment Year 6 0.50% 0% 7 through 13
Segment Year 7 0.50% 0% 8 through 14
Segment Year 8 0.50% 0% 9 through 15
Segment Year 9 0.50% 0% 10 through 16
Segment Year 10 0.50% 0% 11 through 17
Segment Years 11+ 0% 0% N/A
</TABLE>
*These are the percentages used to determine the segment annual deduction. This
deduction will be made once each year for 7 years.
ANNUAL MORTALITY AND EXPENSE RISK CHARGE
Annual Mortality and Expense Risk Charge 0.20% per year (0.01667% per month)
Form 2505 (VUL)-2/00
Page 5C
<PAGE>
POLICYHOLDER TRANSACTION CHARGES
Requests for Sales Illustrations: We reserve the right to charge
a $25 fee for each policy illustration over one illustration per
policy year. Partial Withdrawal Service Fee: See below. Other
Policy Transaction Charges: The charges for transfers between
investment options of the Separate Account or between the
Guaranteed Interest Division and the Separate Account investment
options; charges for allocation changes; and charges for other
Separate Account management functions are governed by the
prospectus in effect at the time of the transaction.
POLICY LOANS
Policy Loan Interest Rate: 3.25% per year
Guaranteed Interest Rate Credited To Loan Division: 3.00% per year
Minimum Loan Amount: $100
Maximum Loan Amount: See the Loan
Provisions section.
PARTIAL WITHDRAWALS
Minimum Partial Withdrawal Amount: $100
Maximum Partial Withdrawal Amount: Amount which will leave $500 as the net
account value
Partial Withdrawal Service Fee: $25
Limit On Partial Withdrawals: One per policy year
GUARANTEED INTEREST DIVISION
Guaranteed Interest Rate For Guaranteed Interest Division: 3.00% per year
Form 2505 (VUL)-2/00
Page 5D
<PAGE>
SCHEDULE (Continued)
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.
DEFINITION OF LIFE INSURANCE
CASH VALUE ACCUMULATION TEST
DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
Insured's Attained Factor Insured's Factor Insured's Factor Insured's Factor
Age Attained Age Attained Age Attained Age
<S> <C> <C> <C> <C> <C> <C> <C>
15 7.564 40 3.439 65 1.692 90 1.151
16 7.335 41 3.330 66 1.654 91 1.141
17 7.118 42 3.226 67 1.617 92 1.131
18 6.911 43 3.125 68 1.583 93 1.120
19 6.713 44 3.028 69 1.550 94 1.109
20 6.521 45 2.936 70 1.518 95 1.097
21 6.334 46 2.846 71 1.488 96 1.083
22 6.150 47 2.761 72 1.459 97 1.069
23 5.969 48 2.678 73 1.432 98 1.054
24 5.791 49 2.599 74 1.406 99 1.040
25 5.615 50 2.522 75 1.382 100 and older 1.000
26 5.441 51 2.449 76 1.359
27 5.271 52 2.378 77 1.338
28 5.104 53 2.311 78 1.318
29 4.940 54 2.246 79 1.299
30 4.781 55 2.184 80 1.281
31 4.626 56 2.125 81 1.264
32 4.476 57 2.068 82 1.248
33 4.330 58 2.014 83 1.233
34 4.188 59 1.962 84 1.218
35 4.052 60 1.912 85 1.205
36 3.920 61 1.864 86 1.193
37 3.793 62 1.818 87 1.181
38 3.670 63 1.774 88 1.171
39 3.553 64 1.732 89 1.160
</TABLE>
Form 2505 (VUL)-2/00
Page 5E
<PAGE>
SCHEDULE (Continued)
TABLE OF GUARANTEED
RATES-Segment #1
Guaranteed Maximum Cost of
Insurance Rates Per $1000 of Net Amount at Risk
(These rates apply to the Base Policy.)
<TABLE>
<CAPTION>
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.34845 26 0.14419 51 0.60870 76 5.91225
1 0.08917 27 0.14252 52 0.66377 77 6.46824
2 0.08251 28 0.14169 53 0.72636 78 7.04089
3 0.08167 29 0.14252 54 0.79730 79 7.64551
4 0.07917 30 0.14419 55 0.87326 80 8.30507
5 0.07501 31 0.14836 56 0.95591 81 9.03761
6 0.07167 32 0.15252 57 1.04192 82 9.86724
7 0.06667 33 0.15919 58 1.13378 83 10.80381
8 0.06334 34 0.16669 59 1.23235 84 11.82571
9 0.06167 35 0.17586 60 1.34180 85 12.91039
10 0.06084 36 0.18670 61 1.46381 86 14.03509
11 0.06417 37 0.20004 62 1.60173 87 15.18978
12 0.07084 38 0.21505 63 1.75809 88 16.36948
13 0.08251 39 0.23255 64 1.93206 89 17.57781
14 0.09584 40 0.25173 65 2.12283 90 18.82881
15 0.11085 41 0.27424 66 2.32623 91 20.14619
16 0.12585 42 0.29675 67 2.54312 92 21.57655
17 0.13919 43 0.32260 68 2.77350 93 23.20196
18 0.14836 44 0.34929 69 3.02328 94 25.28174
19 0.15502 45 0.37931 70 3.30338 95 28.27411
20 0.15836 46 0.41017 71 3.62140 96 33.10677
21 0.15919 47 0.44353 72 3.98666 97 41.68475
22 0.15752 48 0.47856 73 4.40599 98 58.01259
23 0.15502 49 0.51777 74 4.87280 99 83.33333
24 0.15169 50 0.55948 75 5.37793
25 0.14752
</TABLE>
The rates shown are for a guaranteed issue premium class with no substandard
rating. If the policy has a substandard rating, the maximum cost of insurance
rates will be adjusted using the rating factor shown in the Segment Benefit
Profile of the Schedule. For a rating that is a stated percentage increase, the
maximum cost of insurance rates will be determined by multiplying the rates for
a guaranteed issue premium class shown above by the rating factor shown in the
Segment Benefit Profile of the Schedule. For a rating that is a flat amount per
$1,000, the maximum cost of insurance rates will be determined by adding the
flat amount per $1,000 shown in the Segment Benefit Profile of the Schedule to
the rate per $1,000 for the guaranteed issue premium class shown above. The
rates shown above are based on the 1980 Commissioners' Standard Ordinary
Ultimate Smoker Composite Mortality Table (Male), age nearest birth date.
Form 2505 (VUL)-2/00
Page 5F
<PAGE>
TABLE OF GUARANTEED
RATES-Segment #1
Guaranteed Maximum Cost of
Insurance Rates Per $1000 of Net Amount at Risk
(Adjustable Term Insurance Rider)
<TABLE>
<CAPTION>
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.43602 26 0.18003 51 0.76141 76 7.40104
1 0.11168 27 0.17837 52 0.82985 77 8.09839
2 0.10334 28 0.17753 53 0.90832 78 8.81706
3 0.10251 29 0.17837 54 0.99683 79 9.57498
4 0.09918 30 0.18003 55 1.09202 80 10.40294
5 0.09418 31 0.18587 56 1.19559 81 11.32260
6 0.09001 32 0.19087 57 1.30253 82 12.36434
7 0.08334 33 0.19921 58 1.41784 83 13.54176
8 0.07917 34 0.20838 59 1.54070 84 14.82576
9 0.07751 35 0.22005 60 1.67781 85 16.19045
10 0.07584 36 0.23339 61 1.83085 86 17.60542
11 0.08001 37 0.25006 62 2.00317 87 19.05982
12 0.08834 38 0.26924 63 2.19899 88 20.54615
13 0.10334 39 0.29092 64 2.41666 89 22.06903
14 0.12001 40 0.31510 65 2.65537 90 23.64710
15 0.13835 41 0.34262 66 2.90927 91 25.31065
16 0.15752 42 0.37097 67 3.18092 92 27.11674
17 0.17420 43 0.40350 68 3.46950 93 29.17188
18 0.18587 44 0.43686 69 3.78175 94 31.80363
19 0.19420 45 0.47439 70 4.13284 95 35.59424
20 0.19837 46 0.51276 71 4.53127 96 41.72906
21 0.19921 47 0.55447 72 4.98809 97 52.65466
22 0.19671 48 0.59869 73 5.51357 98 73.58341
23 0.19420 49 0.64709 74 6.09863 99 83.33333
24 0.19004 50 0.69966 75 6.73168
25 0.18420
</TABLE>
The rates shown are for a guaranteed issue premium class with no substandard
rating. If the policy has a substandard rating, the maximum cost of insurance
rates will be adjusted using the rating factor shown in the Segment Benefit
Profile of the Schedule. For a rating that is a stated percentage increase, the
maximum cost of insurance rates will be determined by multiplying the rates for
a guaranteed issue premium class shown above by the rating factor shown in the
Segment Benefit Profile of the Schedule. For a rating that is a flat amount per
$1,000, the maximum cost of insurance rates will be determined by adding the
flat amount per $1,000 shown in the Segment Benefit Profile of the Schedule to
the rate per $1,000 for the guaranteed issue premium class shown above. The
rates shown above are based on the 1980 Commissioners' Standard Ordinary
Ultimate Smoker Composite Mortality Table (Male), age nearest birth date.
Form 2505 (VUL)-2/00
Page 5G
<PAGE>
DEFINITION OF TERMS
Account value - The sum of the amounts allocated to the investment options of
the Separate Account and to the Guaranteed Interest Division, as well as any
amount set aside in the Loan Division to secure a policy loan.
Accumulation unit - A unit of measurement used to calculate the account value in
each investment option of the Separate Account.
Accumulation unit value - The value of an accumulation unit of each investment
option of the Separate Account. The accumulation unit value is determined as of
each valuation date.
Age - The policy is issued at the age shown in the Schedule. Each issue age is
the age nearest birthday on the policy date.
Attained age - The insured's attained age is the issue age of the insured as
shown in the Schedule, increased by the number of completed policy years.
Base death benefit - The base death benefit is defined in the Base Death Benefit
provision of the policy.
Customer Service Center - Our administrative office whose address is P. O. Box
173888, Denver, CO 80217.
General Account - The account that contains all of our assets other than those
held in the Separate Account or our other separate accounts.
Guaranteed Interest Division - Part of our General Account to which a portion of
the account value may be allocated and which provides guarantees of principal
and interest.
Initial period - The initial period ends on the earlier of: a) the date this
policy was delivered to you plus the Right to Examine Period, so long as we
receive notice of the delivery date at our Customer Service Center before the
date defined in (b), or (b) the date this policy is mailed from our Customer
Service Center plus five days plus the Right to Examine Period.
Form 2505 (VUL)-2/00
Page 6
<PAGE>
Investment date -The first date we apply your net premium payment to your
policy. We will allocate the initial net premium to your policy at the end of
the valuation period during which the latest of the date on which the following
requirements is satisfied for policy issuance:
1) we receive the amount of premium required for coverage to begin under the
policy; 2) we have approved the policy for issue, and 3) all issue requirements
have been met and received in our Customer Service Center.
Investment options of the Separate Account - The investment options available,
each of which invests in shares of one of the portfolios.
Loan Division - Part of our General Account in which funds are set aside to
secure any outstanding policy loan and accrued loan interest when due.
Monthly processing date - The date each month on which the monthly deductions
from the account value are due. The first monthly processing date will be the
policy date or the investment date, if later. Subsequent monthly processing
dates will be the same date as the policy date each month thereafter. If that
date is not a valuation date, monthly processing date will be the next
calculated accumulation unit value.
Net account value - The amount of the account value minus any policy loan and
accrued loan interest. This is the same as your surrender value.
Net premium - The net premium equals the premium received minus the premium
expense charges shown in the Schedule. These charges are deducted from the
premium before the premium is applied to your account value.
Partial withdrawal - The withdrawal of a portion of your net account value from
the policy. The partial withdrawal may reduce the amount of base death benefit
in force.
Policy loan - The sum of amounts you have borrowed from your policy, increased
by any policy loan interest capitalized when due, and reduced by any policy loan
repayments.
Right to Examine Period - The number of days after delivery during which you
have a right to examine your policy.
Scheduled premium - The premium amount that you specify on the application as
the amount you intend to pay at fixed intervals over a specified period of time.
Premiums may be paid on a monthly, quarterly, semiannual, or annual basis, as
you determine. You need not pay the scheduled premium and you may change it at
any time. Also, within limits, you may pay less or more than the scheduled
premium.
Segment - The stated death benefit shown on the Segment Benefit Profile of the
Schedule is the initial segment, or Segment #1. Each increase in the stated
death benefit (other than due to an option change) is a new segment. Each new
segment will be shown separately on the Segment Benefit Profile of the Schedule.
The first year for a segment begins on the effective date of the segment and
ends one year later. Each subsequent year begins at the end of the prior segment
year. Each new segment may be subject to a new sales charge, new annual
deduction, if any, new cost of insurance charges and new incontestability and
suicide exclusion periods.
Segment premium - The actual premium received allocated to existing segments.
Premium is allocated in the same proportion that the segment target premium
bears to the sum of all segment target premium. If there is only one segment
target premium, the entire premium is allocated to the segment. Segment target
premium is shown in the Schedule. As each segment has unique segment years, each
segment premium is associated with a segment year.
Form 2505 (VUL)-2/00
Page 6a
<PAGE>
Stated death benefit -The sum of the segments under the policy. The stated death
benefit changes when there is an increase or a decrease or when a transaction on
the policy causes it to change (for example, a partial withdrawal under an
Option 1 base death benefit may cause the stated death benefit to change).
Surrender value - The amount of the account value minus any policy loan and
accrued loan interest. This is the same amount as the net account value.
Target death benefit - The target death benefit for your policy is defined in
the Adjustable Term Insurance Rider, if any, attached to the policy.
Valuation date - Each date as of which the net asset value of the shares of the
portfolios and unit values of the variable investment options are determined.
Except for days that a variable investment option's corresponding portfolio does
not value its shares, a valuation date is any day: (a) The New York Stock
Exchange ("NYSE") is open for trading and on which Security Life's Customer
Service Center is open for business; or (b) as may be required by law.
Valuation period - The period which begins at 4:00 p.m. Eastern Time on a
valuation date and ends at 4:00 p.m. Eastern Time on the next succeeding
valuation date.
INSURANCE COVERAGE PROVISIONS
EFFECTIVE DATE
The policy date shown in the Schedule is the effective date for all coverage
provided in the original application. The policy date is the date from which we
measure policy years and determine the monthly processing date. The first
monthly processing date is the investment date. Future monthly processing dates
are the same calendar day of each month as the policy date unless this is not a
valuation date in which case the monthly processing date occurs on the next
valuation date. A policy anniversary occurs each year on the same month and day
as the policy date unless this is not a valuation date in which case the policy
anniversary occurs on the next valuation date. The effective date for new
segments and additional benefits is shown in the Schedule.
BASE DEATH BENEFIT
The base death benefit will be, at any time, determined as follows:
Option 1: Under Option 1, the base death benefit is the greater of:
(a) The stated death benefit; or
(b) The account value multiplied by the appropriate factor from the
Death Benefit Factors shown in the Schedule.
Option 2: Under Option 2, the base death benefit is the greater of:
(a) The stated death benefit plus the account value, or
(b) The account value multiplied by the appropriate factor from the
Death Benefit Factors shown in the Schedule.
Option 3: Under Option 3, the base death benefit is the greater of:
(a) The stated death benefit plus premiums received less partial
withdrawals, or
(b) The account value multiplied by the appropriate factor from the
Death Benefit Factors shown in the Schedule.
The stated death benefit and the death benefit option are shown in the Schedule.
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 consistent with that design. The base death benefit in force at any
time shall not be less than the amount of insurance necessary to achieve such
qualification under the applicable provisions of the Internal Revenue Code in
existence at the time the policy is issued. We reserve the right to amend the
policy or adjust the amount of insurance when required. We will send you a copy
of any policy amendment.
Form 2505 (VUL)-2/00
Page 7
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CHANGE IN REQUESTED INSURANCE COVERAGE
You may request that the insurance coverage be increased or decreased. Decreases
are not allowed before the first policy anniversary. The change in coverage may
not be for an amount less than $1,000. The effective date of the change will be
the monthly processing date immediately following the date your written
application is approved by us. After any change to the stated death benefit, you
will receive an amended Schedule reflecting the change, the benefit under any
riders, if applicable, the guaranteed cost of insurance rates, and the new
target premium.
Requested Increases in Coverage
Subject to our limits, you may request an increase in the stated death benefit
through attained age 75. An increase will become effective as of the monthly
processing date immediately following the date your written application is
approved by us. You must provide evidence satisfactory to us that the insured is
insurable according to our normal rules of underwriting for the applicable
premium class for this type of policy. This evidence will include an application
and may include required medical information. An increase will consist of a new
segment of stated death benefit . Each new segment will result in a new sales
charge which will be deducted from the premium allocated to the new segment. The
new segment may also be subject to new monthly expense charges, new annual
deductions, new cost of insurance charges and new incontestability and suicide
exclusion periods.
Requested Decreases in Coverage
After the first policy anniversary, you may request a decrease in the stated
death benefit. We will limit the decrease such that, immediately after the
requested decrease:
(a) If there is no adjustable term insurance on the policy, the
stated death benefit is at least $50,000.
(b) If there is adjustable term insurance on the policy, the target
death benefit is at least $50,000.
A decrease will be effective as of the monthly processing date immediately
following the date your written application is approved by us. A decrease will
first reduce Adjustable Term Insurance Rider coverage, if attached to your
policy, and will then reduce each of the stated death benefit segments in the
same proportion as the stated death benefit is reduced.
Death Benefit Option Changes
Beginning with the first monthly processing date and ending with the policy
anniversary nearest the insured's 100th birth date, you may request to change
the death benefit option. This change will be effective as of the monthly
processing date next following approval. A death benefit option change applies
to the entire stated death benefit. We may not allow any change if it would
reduce the target death benefit below the minimum we require to issue this
policy at the time of reduction. Death benefit option changes from Option 1 to
Option 3, from Option 2 to Option 3 and from Option 3 to Option 2 are not
allowed. After the effective date of the change, the stated death benefit will
be changed according to the following table:
Form 2505 (VUL)-2/00
Page 8
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OPTION CHANGE STATED DEATH BENEFIT FOLLOWING
FROM TO THE OPTION CHANGE EQUALS:
Option 1 Option 2 Stated death benefit prior to such change minus your
account value as of the effective date of the
change.
Option 2 Option 1 Stated death benefit prior to such change plus your
account value as of the effective date of the
change.
Option 3 Option 1 Stated death benefit prior to such change plus the
sum of all the premiums paid minus all partial
withdrawals taken prior to the effective date of the
change.
To determine the segment stated death benefit after an option change, your
account value will be allocated to each segment in the same proportion that
segment bears to the stated death benefit as of the effective date of the
change.
CONTINUATION OF COVERAGE AFTER AGE 100
If the policy is in force on the policy anniversary nearest the insured's 100th
birth date, the policy will continue pursuant to the terms of the policy. On
this date, the following will occur:
(a) The target death benefit on the policy anniversary nearest the
insured's 100th birth date will then become the stated death benefit
for the policy and any remaining death benefit in force under the
Adjustable Term Insurance Rider will terminate.
(b) All other riders, if any, attached to the policy also will terminate.
(c) The portion of your account value invested in the investment options
of the Separate Account will be transferred into the Guaranteed
Interest Division and no further investment in the Separate Account
will be allowed.
(d) If the death benefit option in force on the policy is Option 2 or
Option 3, the policy will be converted to death benefit Option 1 in
accordance with the procedures outlined in the Death Benefit Option
Changes provision of the policy. No further changes will be allowed to
the death benefit option.
After the policy anniversary nearest the insured's 100th birth date, no further
premiums will be accepted and no monthly or annual deductions will be made.
However, a one-time administrative fee of $200 will be charged against the
policy's account value. We will continue to credit interest to the account value
in the Guaranteed Interest Division. Policy loans and withdrawals continue to be
available. Any existing policy loan will continue. Policy loan interest will
continue to accrue. Payments on policy loans and policy loan interest will be
accepted. The policy will enter the 61-day grace period if the surrender value
is zero or less.
If you do not want coverage to continue past the policy anniversary nearest the
insured's 100th birth date, the policy may be surrendered at that time, or
earlier.
Form 2505 (VUL)-2/00
Page 9
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PAYOUT OF PROCEEDS
Proceeds refer to the amount we will pay:
a) upon surrender of the policy; or
b) upon the death of the insured.
The proceeds upon surrender of this policy will be the net account value. The
amount of proceeds payable upon the death of the insured will be the base death
benefit in effect on the date of death, plus any amounts payable from any
additional benefits provided by rider, minus any outstanding policy loan
including accrued but unpaid interest, minus any unpaid monthly deductions
incurred prior to the date of death. The calculation of the death proceeds will
be computed as of the date of the insured's death.
We will determine the amount of proceeds payable upon the death of the insured
when we have received due proof of death and any other information which is
necessary to process the claim. Any proceeds we pay are subject to adjustments
as provided in the Misstatement of Age, Suicide Exclusion and Incontestability
provisions.
We will pay proceeds in one sum unless you request an alternate form of payment.
There are many possible methods of payment. The available payout options are
described in the Payouts Other Than As One Sum provision. Contact us or your
registered representative for additional information. Interest will be paid on
the one sum death proceeds from the date of death to the date of payment, or
until a payout option is selected. Interest will be at the rate we declare, or
at any higher rate required by law.
PREMIUM PROVISIONS
INITIAL PREMIUM ALLOCATION
If the initial period has not ended on the investment date, net premium amounts
designated for allocation to investment option of the Separate Account will be
allocated on the investment date to the Money Market Division and any net
premium amount designated for allocation to the Guaranteed Interest Division
will be allocated to that division. Any additional net premium amounts received
after the investment date and before the end of the initial period will be
allocated in the same manner as the initial net premium, at the end of the
valuation period during which we receive the premium at our Customer Service
Center. On the valuation date immediately following the end of the initial
period, the balance of the amount in the Money Market Division will be
transferred to other investment options of the Separate Account according to
your allocations instructions. The amounts allocated to the Guaranteed Interest
Division will remain in that division.
If the initial period has ended on the investment date, initial net premium
amounts will be allocated on the investment date to investment options of the
Separate Account and/or to the Guaranteed Interest Division in accordance with
your allocation instructions.
Form 2505 (VUL)-2/00
Page 10
<PAGE>
SUBSEQUENT PREMIUM ALLOCATIONS
After the initial premium allocation, all future scheduled and unscheduled
premiums will be allocated to the investment options of the Separate Account and
to the Guaranteed Interest Division in accordance with your allocation
instructions. This allocation will occur at the end of the valuation period
during which we receive the premium at our Customer Service Center.
CHANGES TO PREMIUM ALLOCATIONS
You may change your premium allocation in accordance with instructions included
in your annual policy prospectus. If the change causes a premium allocation
charge to be incurred according to the schedule, we will deduct a charge from
the investment options of the Separate Account and from the Guaranteed Interest
Division as described in the prospectus in effect at the time of the
transaction.
SCHEDULED PREMIUMS
The scheduled premium as shown in the Schedule may be paid while this policy is
in force prior to the policy anniversary nearest the insured's 100th birth date.
You may increase or decrease the amount of the scheduled premium, subject to
limits we may set and provisions in the Premium Limitation section. Under
conditions provided in the Grace Period provision, you may be required to make
premium payments to keep the policy in force. You may pay premiums on a monthly
basis through an automated payment facility. All payment modes are subject to
our minimum requirements for the payment mode selected.
UNSCHEDULED PREMIUMS
You may make unscheduled premium payments at any time the policy is in force
prior to the policy anniversary nearest the insured's 100th birth date, subject
to the Premium Limitation section. Unless you tell us otherwise, these premium
payments will first be applied to reduce or pay off any existing policy loan
and, as such, premium expense charges will not be deducted.
NET PREMIUM
The net premium equals the premium paid minus the premium expense charge shown
in the Schedule. The premium expense charge is the sales charge plus the tax
charge.
Each time we receive a premium we determine the sales charge by multiplying the
applicable sales charge percentage times the segment premium. There is a
different sales charge percentage for the segment year in which the premium is
received, for segment premium above the segment target premium and for segment
premium below the segment target premium.
Each time we receive a premium we determine the tax charge by multiplying the
applicable tax charge percentage times the segment premium. There is a different
tax charge percentage for the segment year in which the premium is received, for
segment premium above the segment target premium and for segment premium below
the segment target premium.
Form 2505 (VUL)-2/00
Page 11
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The Schedule shows: (1) the target premium for each segment; (2) the percentage
sales charges; and (3) the tax percentage. Segment premium is defined in the
Definition of Terms section of your policy.
PREMIUM LIMITATION
We will refund any premium that causes your policy not to qualify as a life
insurance policy under the Internal Revenue Code. No premium may be paid after
the death of the insured. No premium may be paid after the policy anniversary
nearest the insured's 100th birth date.
FAILURE TO PAY PREMIUM
If you stop paying premiums prior to the policy anniversary nearest the
insured's 100th birth date, your coverage may lapse. See your Grace Period
provision for details.
SEPARATE ACCOUNT PROVISIONS
THE SEPARATE ACCOUNT
The Separate Account is an account established by us, pursuant to the laws of
the State of Colorado, to separate the assets funding the benefits for the class
of policies to which this policy belongs from other assets of Security Life of
Denver Insurance Company.
The Separate Account is registered as a unit investment trust under the
Investment Company Act of 1940. All income, gains and losses, whether or not
realized, from assets allocated to the Separate Account are credited to or
charged against the Separate Account without regard to income, gains or losses
of our General Account. The assets of the Separate Account are our property but
are separate from our General Account and our other Separate Accounts. That
portion of the assets of the Separate Account which is equal to the reserves and
other policy liabilities with respect to the Separate Account is not chargeable
with liabilities arising out of any other business we may conduct or subject to
creditor claims against us.
SEPARATE ACCOUNT INVESTMENT OPTIONS
The Separate Account is divided into investment options, each of which invests
in a fund portfolio designed to meet the objectives of the investment option.
The current eligible investment options are shown in your annual policy
prospectus. We may, from time to time, add additional investment options. If we
do, you may be permitted to select from these other investment options subject
to the terms and conditions we may impose on those allocations.
Form 2505 (VUL)-2/00
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We reserve the right to limit the number of options in which you may invest over
the life of the policy. This limit, if any, will be listed in the updated policy
prospectus provided to you each year.
CHANGES WITHIN THE SEPARATE ACCOUNT
When permitted by law, and subject to any required notice to you and approval of
the Securities and Exchange Commission ("SEC"), state regulatory authorities or
policy owners, we may from time to time make the following changes to the
Separate Account:
o Make additional investment options available. These investment options
will invest in portfolios we find suitable for the policy.
o Eliminate investment options from the Separate Account or combine 2 or
more investment options.
o Substitute a new portfolio for the portfolio in which an investment
option invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of the policy. This
may happen due to a change in laws or regulations, or a change in a
portfolio's investment objectives or restrictions. This may also
happen if the portfolio is no longer available for investment, or for
some other reason, such as a declining asset base.
o Transfer assets of the Separate Account, which we determine to be
associated with the class of policies to which your policy belongs, to
another Separate Account.
o Withdraw the Separate Account from registration under the Investment
Company Act of 1940.
o Operate the Separate Account as a management investment company under
the Investment Company Act of 1940.
o Invest one or more investment options in a mutual fund other than, or
in addition to, the portfolios.
o Discontinue the sale of policies.
o Terminate any employer or plan trustee agreement with us pursuant to
its terms.
o Restrict or eliminate any voting rights as to the Separate Account.
o Make any changes required by the Investment Company Act of 1940 or the
rules or regulations thereunder.
Form 2505 (VUL)-2/00
Page 13
<PAGE>
GENERAL ACCOUNT PROVISIONS
THE GENERAL ACCOUNT
The General Account holds all of our assets other than those held in the
Separate Account or our other separate accounts. The Guaranteed Interest
Division is a part of our General Account.
GUARANTEED INTEREST DIVISION
The Guaranteed Interest Division is another investment option to which you may
allocate premiums or make transfers. The account value of the Guaranteed
Interest Division is equal to amounts allocated to this division plus any earned
interest minus deductions taken from this division. Interest is credited at the
guaranteed rate shown in the schedule or may be credited at a higher rate. Any
higher rate is guaranteed to be in effect for at least a 12-month period.
LOAN DIVISION
The Loan Division is the account that is set aside to secure the policy loan, if
any. See the Loan Provisions section for information.
TRANSFER PROVISIONS
After the initial premium allocation and until the policy anniversary nearest
the insured's 100th birth date, your account value in each division may be
transferred to any other investment option of the Separate Account or to the
Guaranteed Interest Division upon your request. One transfer from the Guaranteed
Interest Division into the investment options of the Separate Account may be
made during the first 30 days of each policy year. Additional limitations,
requirements and charges for transfers will be listed in and governed by your
annual policy prospectus in effect at the time of the transfer. We reserve the
right to modify these limitations, requirements and charges from time to time.
On the policy anniversary nearest the insured's 100th birth date, your account
value in each investment option of the Separate Account will be transferred into
the Guaranteed Interest Division and no further transfers will be allowed.
ACCOUNT VALUE PROVISIONS
The account value is the sum of the current amounts allocated to the investment
options of the Separate Account and to the Guaranteed Interest Division plus
your balance in the Loan Division.
Form 2505 (VUL)-2/00
Page 14
<PAGE>
The account value is based on the premiums paid, policy and rider charges
assessed, loans and withdrawals taken, monthly deductions, premium expense
charges, transaction charges, annual deductions, if any, and the investment
experience or credited interest of the investment options or divisions to which
your account value is allocated.
Your net account value is equal to your account value minus any policy loan and
accrued but unpaid loan interest.
ACCOUNT VALUES ON THE INVESTMENT DATE
The account value of each investment option of the Separate Account and the
account value of the Guaranteed Interest Division as of the investment date is
equal to:
a) The allocation to each investment option of the Separate Account and
to the Guaranteed Interest Division of the first net premium received;
minus
b) The portion of any monthly deductions allocated to each investment
option of the Separate Account and to the Guaranteed Interest Division
due on the investment date.
ACCUMULATION UNIT VALUE
The investment experience of an investment option of the Separate Account is
determined as of each valuation date. We use an accumulation unit value to
measure the experience of each of the Separate Account investment options during
a valuation period. We generally set the accumulation unit value at $10 when
each investment option is opened. The accumulation unit value for a valuation
date equals the accumulation unit value for the preceding valuation date
multiplied by the accumulation experience factor defined below for the valuation
period ending on the valuation date.
The number of units for a given transaction related to an investment option of
the Separate Account as of a valuation date is determined by dividing the dollar
value of that transaction by that division's accumulation unit value for that
date.
ACCUMULATION EXPERIENCE FACTOR
For each investment option of the Separate Account, the accumulation experience
factor reflects the investment experience of the portfolio in which that option
invests and the charges assessed against that investment option for a valuation
period. The accumulation experience factor is calculated as follows:
a) The net asset value of the portfolio in which that investment option
invests as of the end of the
current valuation period; plus
b) The amount of any dividend or capital gains distribution declared and
reinvested in the portfolio in which that investment option invests
during the current valuation period; minus
c) A charge for taxes, if any.
d) The result of (a), (b) and (c) is then divided by the net asset value
of the portfolio in which that investment option invests as of the end
of the preceding valuation period.
Form 2505 (VUL)-2/00
Page 15
<PAGE>
ACCOUNT VALUE OF THE INVESTMENT OPTIONS OF THE SEPARATE ACCOUNT
On subsequent valuation dates after the investment date, your account value of
each investment option of the Separate Account is calculated as follows:
a) The number of accumulation units in an investment option as of the
beginning of the current valuation period multiplied by that option's
accumulation unit value for the current valuation period; plus
b) Any additional net premiums allocated to that investment option during
the current valuation period; plus
c) Any account value transferred to or minus any account value
transferred from the Separate Account during the current valuation
period (including the applicable portion of any transfer fee); minus
d) Any partial withdrawals allocated to the investment option and any
applicable withdrawal service fees which are allocated to the Separate
Account during the current valuation period; plus
e) Any amounts released from the Loan Division as a result of a loan or
loan interest payment, or minus amounts transferred to the Loan
Division as a result of any loans which are allocated to the
investment options of the Separate Account during the current
valuation period; minus
f) The portion of the monthly deduction allocated to the investment
options of the Separate Account, if a monthly processing date occurs
during the current valuation period; minus
g) The portion of the annual deduction, if any, as of the first monthly
processing date for a segment year allocated to that investment option
during the current valuation period.
ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION
On valuation dates after the investment date, your account value of the
Guaranteed Interest Division is calculated as follows:
a) The account value of the Guaranteed Interest Division at the end of
the preceding valuation period plus interest at the declared rate
credited during the current valuation period; plus
b) Any additional net premiums allocated to the Guaranteed Interest
Division plus interest credited to these premiums during the current
valuation period; plus
c) Any account value transferred to or minus any account value
transferred from the Guaranteed Interest Division during the current
valuation period (including the applicable portion of any transfer
fee); minus
d) Any partial withdrawals taken and any applicable withdrawal service
fees which are allocated to the Guaranteed Interest Division during
the current valuation period; plus
e) Any amounts released from the Loan Division as a result of a loan or
loan interest payment, or minus amounts transferred to the Loan
Division as a result of any loans which are allocated to the
Guaranteed Interest Division during the current valuation period;
minus
f) The portion of the monthly deduction allocated to the Guaranteed
Interest Division, if a monthly processing date occurs during the
current valuation period; minus
g) The portion of the annual deduction, if any, as of the first monthly
processing date for a segment year allocated to the Guaranteed
Interest Division during the valuation period.
Form 2505 (VUL)-2/00
Page 16
<PAGE>
ACCOUNT VALUE OF THE LOAN DIVISION
On valuation dates after the investment date, your account value of the Loan
Division is equal to:
a) The account value of the Loan Division on the prior valuation date;
plus
b) Any interest credited to the Loan Division during the valuation
period; plus
c) An amount equal to any additional loans since the prior valuation
date; minus
d) Any loan repayments, including payment of loan interest; plus
e) The amount of accrued loan interest if the valuation date is a policy
anniversary; minus
f) The amount of interest credited to the Loan Division during the year
if the valuation date is a policy anniversary.
On policy anniversaries, any amount of interest credited to the Loan Division
during the year is transferred from the Loan Division to the Separate Account
and Guaranteed Interest Division according to your premium allocation then in
effect.
DEDUCTIONS
MONTHLY DEDUCTIONS
The monthly deduction is equal to:
a) The cost of insurance charges for this policy; plus
b) The monthly charges for any other additional benefits provided by
riders in force under the policy; plus
c) The monthly expense charges shown in the Schedule; plus
d) The monthly equivalent of the annual mortality and expense risk charge
shown in the Schedule; plus
e) The policyholder transaction charges as described in the Schedule as
applicable; plus
The monthly deductions are allocated to the divisions of the Separate Account
and Guaranteed Interest Division as described in the prospectus in effect at the
time of the transaction. The monthly deductions are taken from your account
value as of the monthly processing date. These deductions will display in
periodic reports that we send you at least once per policy year. After the
policy anniversary nearest the insured's 100th birth date no further monthly
deductions will be made, except policy transaction charges incurred after this
date.
ANNUAL DEDUCTION (Deferred Sales Charge)
At the end of each of the first ten segment years, we calculate a segment annual
deduction for each segment by multiplying the applicable percentage from the
Schedule times the segment premium received in the segment year. There is a
different annual percentage for the segment year in which the premium is
received, for the segment premium below the segment target premium and for the
segment premium above the segment target premium. The segment annual deduction
is deducted from the account value at the beginning of each of the next seven
segment years. The first deduction is in the policy month immediately following
the calculation. As the calculation is performed for each segment year in which
a premium is received, the total annual deduction for a segment is the sum of up
to seven segment annual deductions. Segment premium is defined in the Definition
of Terms section of your policy.
Form 2505 (VUL)-2/00
Page 17
<PAGE>
The annual deduction is allocated to the investment options of the Separate
Account and to the Guaranteed Interest Division as described in the prospectus
in effect at the time of the transaction. The annual deduction will display in
periodic reports that we send you at least once per policy year. After the
policy anniversary nearest the insured's 100th birth date no further annual
deductions will be made.
COST OF INSURANCE
The cost of insurance for the policy is the sum of the cost of insurance for all
segments. A segment's cost of insurance is the cost of insurance rate for the
premium class for the segment multiplied by the net amount at risk allocated to
the segment. It is determined on a monthly basis.
The net amount at risk is (a) minus (b) where:
a) Is the base death benefit for all segments as of the monthly
processing date after the monthly deductions (other than cost of
insurance charges for the base death benefit, and any Adjustable Term
Insurance Rider), divided by the result of 1 plus the monthly
equivalent of the guaranteed interest rate for the Guaranteed Interest
Division as shown in the Schedule; and
b) Is your account value as of the monthly processing date after the
monthly deductions (other than the cost of insurance charges for the
base death benefit and any Adjustable Term Insurance Rider).
The net amount at risk will be allocated to a segment in the same proportion as
that segment's stated death benefit bears to the sum of the stated death
benefits for all segments.
The cost of insurance rate for each segment will be determined by us from time
to time. Different rates will apply to each segment. They will be based on the
age and gender of the insured as of the effective date of segment coverage, the
duration since the coverage began and the segment premium class. Any change in
rates will apply to all individuals of the same premium class and whose policies
have been in effect for the same length of time. The rates will never exceed
those rates shown in the Table of Guaranteed Rates for the segment as adjusted
for any rating. These tables are in the Schedule.
LOAN PROVISIONS
POLICY LOANS
You may obtain a policy loan on or after the first monthly processing date. The
maximum amount you may borrow at any time equals the net account value on the
date of the loan request less all monthly deductions to the next policy
anniversary, or 13 monthly deductions if you take a loan within the 30 day
period before your next policy anniversary. The policy loan is a first lien on
your policy. The minimum amount you may borrow is shown in the Schedule. The
outstanding policy loan amount is equal to the loan amount as of the beginning
of the policy year plus new loans and minus loan repayments, plus accrued
interest.
Form 2505 (VUL)-2/00
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<PAGE>
LOAN INTEREST
The annual policy loan interest rate is shown in the Schedule. If a loan is
made, interest is due and payable at the end of the policy year. Thereafter,
interest on the loan amount is due annually at the end of each policy year until
the loan is repaid. If interest is not paid when due, it is added to the policy
loan.
If the policy loan amount and any accrued interest equals or exceeds the account
value, a premium sufficient to keep this policy in force must be paid as
provided in the Grace Period provision.
LOAN DIVISION
When a policy loan is taken or when interest is not paid in cash when due, an
amount equal to the loan or unpaid loan interest respectively, is transferred
from the investment options of the Separate Account and the Guaranteed Interest
Division to the Loan Division to secure the loan. This amount will be deducted
from the investment options of the Separate Account and the Guaranteed Interest
Division in the same proportion that your account value in each investment
option and in the Guaranteed Interest Division bears to your net account value
as of the date the transfer is effective unless otherwise specified in your
instructions to us. Your account value in the Loan Division will be credited
with interest at the interest rate for the Loan Division shown in the Schedule.
When a loan repayment is made, an amount equal to the repayment is transferred
from the Loan Division to the Guaranteed Interest Division and the investment
options of the Separate Account in the same proportion as your current premium
allocation unless you request a different allocation in writing.
PARTIAL WITHDRAWAL PROVISIONS
You may apply for a partial withdrawal from your account value on any monthly
processing date after the first policy anniversary by contacting us at our
Customer Service Center. The minimum and maximum partial withdrawal amounts are
shown in the Schedule. When a partial withdrawal is made, the amount of the
withdrawal plus a service fee is deducted from your account value. The amount of
the service fee is shown in the Schedule. We limit the number of partial
withdrawals in a policy year. This number is shown in the Schedule.
The stated death benefit is reduced by the amount of the partial withdrawal
unless one of the following exceptions applies.
The stated death benefit is not reduced by a partial withdrawal taken when
the base death benefit has been increased to qualify your policy as life
insurance under the Internal Revenue Code and the amount withdrawn is not
greater than that which reduces your account value to the level which no
longer requires the base death benefit to be increased for Internal
Revenue Code purposes.
Form 2505 (VUL)-2/00
Page 19
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For a policy under an Option 1 death benefit, the stated death benefit is not
reduced by a partial withdrawal:
a) If no more than 15 years have elapsed since the policy date;
b) If the insured is not yet age 81; and
c) If the partial withdrawal taken is less than the greater of 10% of
your account value or 5% of the stated death benefit, calculated
immediately before the partial withdrawal. Any additional amount
withdrawn reduces your stated death benefit by that additional amount.
For a policy under an Option 2 death benefit, a partial withdrawal does not
reduce your stated death benefit.
For a policy under an Option 3 death benefit, a partial withdrawal reduces your
stated death benefit by any amount of the partial withdrawal in excess of
premiums paid, less prior withdrawals, to the date of the partial withdrawal.
Any reduction in death benefit or account value will occur as of the date the
partial withdrawal occurs.
We will limit the amount of the partial withdrawal such that, immediately after
the requested withdrawal:
a) If there is no adjustable term insurance on the policy, the stated
death benefit is at least $50,000.
b) If there is adjustable term insurance on the policy, the target death
benefit is at least $50,000.
You may specify how much of the withdrawal you wish taken from each investment
option of the Separate Account or from the Guaranteed Interest Division. You may
not withdraw from the Guaranteed Interest Division more than the total
withdrawal times the ratio of your account value in the Guaranteed Interest
Division to your net account value immediately prior to the withdrawal. Unless
you indicate otherwise, we will make the withdrawal from the amounts in the
Guaranteed Interest Division and the investment options of the Separate Account
in the same proportion that your account value in each investment option bears
to your net account value immediately prior to the withdrawal. The withdrawal
service fee deducted from your account value is deducted from each investment
option and from the Guaranteed Interest Division as described in the prospectus
in effect at the time of the transaction.
We may send you a new Schedule to reflect the effect of the withdrawal if there
is any change to the stated death benefit. We may ask you to return your policy
to our Customer Service Center to make this change. The withdrawal and the
reductions in death benefits will be effective as of the valuation date after we
receive your request.
Form 2505 (VUL)-2/00
Page 20
<PAGE>
SURRENDER PROVISIONS
SURRENDER VALUE
The surrender value on any date will be your account value minus any policy loan
including accrued but unpaid loan interest.
BASIS OF COMPUTATIONS
The surrender value under the policy is not less than the minimum required as of
the policy date by the state in which your policy was delivered. A detailed
statement of the method of computation of policy values under the policy has
been filed with the insurance department of the state in which the policy was
delivered, if required.
FULL SURRENDERS
You may surrender your policy after the Right to Examine Period or at any time
during the lifetime of the insured and receive the surrender value. We will
compute the surrender value as of the next valuation date after we receive both
your request and the policy at our Customer Service Center. This policy will be
canceled as of the date we receive your request, and there will be no further
benefits under this policy. Once you surrender this policy, it cannot be
reinstated.
GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS
GRACE PERIOD
If the net account value is zero or less on a monthly processing date, the
policy will enter a 61-day grace period:
We will give you a 61-day grace period from this monthly processing date to make
the required premium payment. The required premium payment then due must be paid
to keep the policy in force. If this amount is not received in full by the end
of the grace period, the policy will lapse without value. The required premium
payment will be equal to past due charges plus an amount we expect to be
sufficient to keep the policy and any riders in force for 2 months following
receipt of the required premium payment. If we receive at least the required
premium payment during the grace period, we will apply the net premium payment
to the policy and make deductions for the past due amounts.
Notice of the amount of the required premium payment will be mailed to you or
any assignee at the last known address at least 30 days before the end of the
grace period. If the insured dies during the grace period, we will deduct any
overdue monthly charges from the death proceeds of the policy.
Form 2505 (VUL)-2/00
Page 21
<PAGE>
TERMINATION
All coverage provided by this policy will end as of the earliest of:
a) The date the policy is surrendered;
b) The date of the death of the insured; or
c) The date the grace period ends without payment of the required
premium.
REINSTATEMENT
The policy and its riders may be reinstated within five years after the
beginning of the grace period. The reinstatement will be effective as of the
monthly processing date on or next following the date we approve your written
application.
We will reinstate the policy and any riders if the following conditions are met:
a) You have not surrendered the policy for its surrender value;
b) You submit evidence satisfactory to us that the insured and those
insured under any riders are still insurable according to our normal
rules of underwriting for the applicable underwriting class for this
type of policy; and
c) We receive payment of the amount of premium sufficient to keep the
policy and any riders in force from the beginning of the grace period
to the end of the expired grace period and for 2 months after the date
of reinstatement. We will let you know, at the time you request
reinstatement, the amount of premium needed for this purpose.
We will reinstate any policy loan that existed when coverage ended, with accrued
loan interest to the end of the grace period.
Upon reinstatement, the net premium received minus past due amounts will be
allocated to the investment options of the Separate Account and the Guaranteed
Interest Division according to the premium allocation percentages in effect at
the start of the grace period or as directed by you in writing at the time of
reinstatement.
DEFERRAL OF PAYMENT
Requests for transfers, withdrawals, policy loans or payment of proceeds for a
full surrender will be mailed within 7 days of receipt of the request in a form
acceptable to us. However, we may postpone the processing of any such Separate
Account transactions for any of the following reasons:
a) The New York Stock Exchange (NYSE) is closed, other than customary
weekend and holiday closings.
b) Trading on the NYSE is restricted by the Securities and Exchange
Commission (SEC).
c) The SEC declares that an emergency exists as a result of which
disposal of securities in the Separate Account is not reasonably
practicable to determine your account value in the investment options.
d) A governmental body having jurisdiction over the Separate Account by
order permits such suspension.
Form 2505 (VUL)-2/00
Page 22
<PAGE>
Rules and regulations of the SEC, if any, are applicable and will govern as to
whether conditions described in (b), (c), or (d) exist.
Death proceeds will be paid within 7 days of determination of the proceeds and
are not subject to deferment. We may defer for up to 6 months payment of any
surrender proceeds, withdrawal or loan amounts from the Guaranteed Interest
Division.
GENERAL POLICY PROVISIONS
THE POLICY
The policy, including the original application and applications for any
increases, decreases, riders, endorsements, any Schedule pages, and any
reinstatement applications make up the entire contract between you and us. A
copy of the original application will be attached to the policy at issue or at
delivery. A copy of any application as well as a new Schedule will be attached
or furnished to you for attachment to the policy at the time of any change in
coverage. In the absence of fraud, all statements made in any application will
be considered representations and not warranties. No statement will be used to
deny a claim unless it is in an application.
CONTRACT CHANGES
All changes made by us must be signed by our president or an officer and by our
secretary or assistant secretary. No other persons can change any of this
policy's terms and conditions.
PROCEDURES
We must receive any election, designation, assignment or any other change
request you make in writing, except those specified on the application. It must
be in a form acceptable to us. We may require a return of the policy for any
change or for a full surrender. We are not liable for any action we take before
we receive and record the written request at our Customer Service Center.
In the event of the death of the insured, please notify us, or our agent, as
soon as possible. Upon notification to us, or our agent, instructions will be
sent to you or the beneficiary immediately. We may require proof of age and a
certified copy of the death certificate. We may require the beneficiary and next
of kin to sign authorization forms as part of due proof. These authorization
forms allow us to obtain information about the decedent, including, but not
limited to, medical records of physicians and hospitals used by the decedent.
Settlement will be made upon receipt of due proof of death.
OWNERSHIP
The original owner is the person or entity named as the owner in the
application. You, as the owner, can exercise all rights and receive the benefits
until the death of the insured. This includes the right to change the owner,
beneficiaries, and methods for the payment of proceeds. All rights of the owner
are subject to the rights of any assignee and any irrevocable beneficiary.
You may name a new owner by sending written notice to us. The effective date of
the change to the new owner will be the date you sign the notice. The change
will not affect any payment made or action taken by us before recording the
change at our Customer Service Center.
Form 2505 (VUL)-2/00
Page 23
<PAGE>
BENEFICIARIES
The primary beneficiary surviving the insured will receive any death proceeds
which become payable. Surviving contingent beneficiaries are paid death proceeds
only if no primary beneficiary has survived the insured. If more than one
beneficiary in a class survives the insured, they will share the death proceeds
equally, unless your designation provides otherwise. If there is no designated
beneficiary surviving, you or your estate will be paid the death proceeds. The
beneficiary designation will be on file with us or at a location designated by
us. Until the death of the insured, you may name a new beneficiary. The
effective date of the change will be the date the request was signed. We will
pay proceeds to the most recent beneficiary designation on file. We will not be
subject to multiple payments.
EXCHANGE RIGHT
If, for any reason, within the first 2 policy years you want to exchange this
policy for a policy in which values do not vary with the investment experience
of the Separate Account, we will exchange this policy. The exchange will be
implemented by transferring your account value in each Separate Account
investment option into the Guaranteed Interest Division and removing your future
right to choose to allocate funds to any investment option of the Separate
Account. This transfer will not be subject to the excess transfer charge. We
will require a return of this policy before this change will be processed.
COLLATERAL ASSIGNMENT
You may assign this policy as collateral security by written notice to us. Once
it is recorded with us, the rights of the owner and beneficiary are subject to
the assignment. It is your responsibility to make sure the assignment is valid.
INCONTESTABILITY
After this policy has been in force during the insured's life for 2 years from
the policy date, we will not contest the statements in the application attached
at issue.
After this policy has been in force during the insured's life for 2 years from
the effective date of any new segment or from the effective date of an increase
in any other benefit, we will not contest the statements in the application for
the new segment or other increase.
After this policy has been in force during the insured's life for 2 years from
the effective date of any reinstatement, we will not contest the statements in
the application for such reinstatement.
MISSTATEMENT OF AGE OR GENDER
If the insured's age or gender has been misstated, the death benefit will be
adjusted. The death benefit will be that which the cost of insurance, which was
deducted from your Account Value on the last monthly processing date prior to
the insured's death, would have purchased for the insured's correct age or
gender. If the death benefit adjustment is made prior to death, the adjusted
benefit will be to an equitable amount determined by us. This adjustment will
reflect the death benefit for the correct age or gender.
Form 2505 (VUL)-2/00
Page 24
<PAGE>
SUICIDE EXCLUSION
If the insured commits suicide, while sane or insane, within 2 years of the
policy date, we will make a limited payment to the beneficiary. We will pay in
one sum the amount of all premiums paid to us during that time, minus any
outstanding policy loan (including accrued but unpaid interest) and partial
withdrawals. Coverage under the policy and all riders will then terminate.
If the insured commits suicide, while sane or insane, within 2 years of the
effective date of a new segment or of an increase in any other benefit, we will
make a limited payment to the beneficiary for the new segment or other increase.
This payment will equal the cost of insurance and any applicable monthly expense
charges deducted for such increase. Coverage under that segment will then
terminate.
PERIODIC REPORTS
We will send you, without charge, at least once each year a report that shows
the current account value, cash surrender value and premiums paid since the last
report. The report will also show the allocation of your account value as of the
date of the report and the amounts added to or deducted from your account value
of each division since the last report. The report will include any other
information that may be currently required by the insurance supervisory official
of the jurisdiction in which this policy is delivered.
ILLUSTRATION OF BENEFITS AND VALUES
We will send you, upon written request, a hypothetical illustration of future
death benefits and account values. This illustration will include the
information as required by the laws or regulations where this policy is
delivered. If you request more than one illustration during a policy year, we
reserve the right to charge a reasonable fee for each additional illustration.
The maximum amount of this fee is shown in the Schedule.
NONPARTICIPATING
The policy does not participate in our surplus earnings.
CUSTOMER SERVICE CENTER
Our Customer Service Center is at the address shown in the Schedule. Unless you
are otherwise notified:
a) All requests and payments should be sent to us at our Customer Service
Center; and
b) All transactions are effective as of the valuation date the required
information is received at our Customer Service Center.
PAYOUTS OTHER THAN AS ONE SUM
ELECTION
During the insured's lifetime, you may elect to have the beneficiary receive the
proceeds other than in one sum. If you have not made an election, the
beneficiary may do so within 60 days after we receive due proof satisfactory to
us of the insured's death. You may also elect to take the net cash surrender
value of the policy upon its surrender other than in one sum. Satisfactory
written request must be received at our Customer Service Center
Form 2505 (VUL)-2/00
Page 25
<PAGE>
before payment can be made. A payee that is not a natural person may not be
named without our consent. The various methods of settlement are described in
the following Payout Options section.
PAYOUT OPTIONS
OPTION I. Payouts for a Designated Period. Payouts will be made in annual,
semi-annual, quarterly or monthly 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 as described below.
The amount of the first monthly payout for each $1,000 of account value
applied is shown in Settlement Option Table I.
OPTION II. Life Income With Payouts for a Designated Period. Payouts will
be made in annual, semi-annual, quarterly or monthly 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 as described below. The amount of the first monthly
payout for each $1,000 of account value applied is shown in Settlement
Option Table II. This option is available only for ages shown in the table.
Payouts for Payout Option II will be determined by using the 1983
Individual Annuity Mortality Table for the appropriate gender at 3 1/2%
interest.
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.
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 annual, semi-annual, quarterly or monthly equal installments per year,
as elected.
OPTION V. Other. Settlement may be made in any other manner as agreed upon
in writing between you (or the beneficiary) and
us.
CHANGE AND WITHDRAWAL
You may change an election at any time before the death of the insured. If you
have given the beneficiary the right to make changes or withdrawals, or if the
beneficiary has elected the option, the beneficiary (as primary payee) may take
the actions below.
a) Changes may be made from Payout Options I, III, and IV to another
option.
b) Full withdrawals may be made under Payout Option III or IV. Partial
withdrawals of not less than $300 may be made under Payout Option III.
c) Remaining installments under Payout Option I may be commuted at 3 1/2%
interest and received in one sum.
d) Changes in any contingent payee designation may be made.
A written request must be sent to our Customer Service Center in writing to make
a change or withdrawal. We also may require that you send in the supplementary
policy. We may defer payment of commuted and withdrawable amounts for a period
up to 6 months.
Form 2505 (VUL)-2/00
Page 26
<PAGE>
EXCESS INTEREST
If we declare that Payout Options are to be credited with an interest rate above
that guaranteed, that rate will apply to Payout Options I, II, III, and IV. The
crediting of excess interest for one period does not guarantee the higher rate
for other periods. Any declared interest rate will be in effect for at least 12
months.
MINIMUM AMOUNTS
The minimum amount which may be applied under any option is $2,000. If the
payments to the payee are ever less than $20, we may change the frequency of
payments so as to result in payments of at least that amount.
SUPPLEMENTARY POLICY
When a payout option becomes effective, the policy will be surrendered in
exchange for a supplementary policy. It will provide for the manner of
settlement and rights of the payees. The supplementary policy's effective date
will be the date of death or the date of other settlement. The first payment
under Options I, II, and IV will be payable as of the effective date. The first
interest payment under Option III will be made as of the end of the interest
payment period elected. Subsequent payments will be made in accordance with the
frequency of payment elected. The supplementary policy may not be assigned or
payments made to another without our consent.
INCOME PROTECTION
Unless otherwise provided in the election, a payee does not have the right to
commute, transfer or encumber amounts held or installments to become payable. To
the extent provided by law, the proceeds, amount retained, and installments are
not subject to any payee's debts, policies, or engagements.
DEATH OF PRIMARY PAYEE
Upon the primary payee's death, any payments certain under Option I or II,
interest payments under Option III, or payments under Option IV will be
continued to the contingent payee; or, amounts may be released in one sum if
permitted by the policy. The final payee will be the estate of the last to die
of the primary payee and any contingent payee.
PAYMENTS OTHER THAN MONTHLY
The tables that follow show monthly installments for Options I and II. To arrive
at annual, semiannual, or quarterly payments, multiply the appropriate figures
by 11.813, 5.957 or 2.991 respectively. Factors for other periods certain or for
other options that may be provided by mutual agreement will be provided upon
reasonable request.
Form 2505 (VUL)-2/00
Page 27
<PAGE>
SETTLEMENT OPTION TABLES
SETTLEMENT OPTION TABLE I
(Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
No. of Monthly No. of Monthly
Years Payable Installments Years Payable Installments
<S> <C> <C> <C>
1 $84.65 16 6.76
2 43.05 17 6.47
3 29.19 18 6.20
4 22.27 19 5.97
5 18.12 20 5.75
6 15.35 21 5.56
7 13.38 22 5.39
8 11.90 23 5.24
9 10.75 24 5.09
10 9.83 25 4.96
11 9.09 26 4.84
12 8.46 27 4.73
13 7.94 28 4.63
14 7.49 29 4.53
15 7.10 30 4.45
</TABLE>
Form 2505 (VUL)-2/00
Page 28
<PAGE>
SETTLEMENT OPTION TABLE II
Female
( Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Monthly Age of Payee Monthly
Nearest Birth Installment Nearest Birth Installments
date When First date When First
Installment is Installment is
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 3.19 3.19 3.19 3.19 41 3.76 3.76 3.75 3.73
16 3.20 3.20 3.20 3.20 42 3.80 3.80 3.78 3.77
17 3.22 3.22 3.21 3.21 43 3.84 3.84 3.82 3.81
18 3.23 3.23 3.23 3.23 44 3.88 3.88 3.86 3.84
19 3.24 3.24 3.24 3.24 45 3.93 3.92 3.91 3.88
20 3.26 3.26 3.26 3.25 46 3.98 3.97 3.95 3.92
21 3.27 3.27 3.27 3.27 47 4.03 4.02 4.00 3.97
22 3.29 3.29 3.29 3.28 48 4.08 4.07 4.05 4.01
23 3.31 3.30 3.30 3.30 49 4.13 4.12 4.10 4.06
24 3.32 3.32 3.32 3.32 50 4.19 4.18 4.15 4.11
25 3.34 3.34 3.34 3.33 51 4.25 4.24 4.21 4.16
26 3.36 3.36 3.35 3.35 52 4.32 4.30 4.26 4.21
27 3.38 3.38 3.37 3.37 53 4.38 4.36 4.33 4.27
28 3.40 3.40 3.39 3.39 54 4.46 4.43 4.39 4.32
29 3.42 3.42 3.41 3.41 55 4.53 4.51 4.46 4.38
30 3.44 3.44 3.43 3.43 56 4.61 4.58 4.53 4.44
31 3.46 3.46 3.46 3.45 57 4.70 4.66 4.60 4.51
32 3.49 3.48 3.48 3.48 58 4.79 4.75 4.68 4.57
33 3.51 3.51 3.51 3.50 59 4.88 4.84 4.76 4.64
34 3.54 3.54 3.53 3.52 60 4.99 4.93 4.84 4.70
35 3.57 3.56 3.56 3.55 61 5.09 5.03 4.93 4.77
36 3.60 3.59 3.59 3.58 62 5.21 5.14 5.02 4.84
37 3.63 3.62 3.62 3.61 63 5.33 5.25 5.12 4.91
38 3.66 3.65 3.65 3.64 64 5.46 5.37 5.21 4.98
39 3.69 3.69 3.68 3.67 65 5.60 5.50 5.31 5.05
40 3.73 3.72 3.71 3.70 66 5.75 5.63 5.42 5.12
</TABLE>
Form 2505 (VUL)-2/00
Page 29
<PAGE>
SETTLEMENT OPTION TABLE II/Female
(Continued)
(Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Monthly Age of Payee Monthly
Nearest Birth Installment Nearest Birth Installments
date When First date When First
Installment is Installment is
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
67 5.91 5.77 5.53 5.19 92 14.45 9.61 7.09 5.75
68 6.08 5.91 5.63 5.25 93 14.81 9.66 7.10 5.75
69 6.26 6.07 5.74 5.32 94 15.16 9.70 7.10 5.75
70 6.46 6.23 5.86 5.37 95 15.49 9.73 7.10 5.75
71 6.67 6.40 5.97 5.43 96 15.80 9.76 7.10
72 6.89 6.58 6.08 5.48 97 16.11 9.79 7.10
73 7.13 6.76 6.18 5.52 98 16.40 9.80 7.10
74 7.39 6.95 6.29 5.57 99 16.68 9.82 7.10
75 7.67 7.14 6.39 5.60 100 16.95 9.82 7.10
76 7.96 7.34 6.48 5.63 101 17.20 9.83
77 8.28 7.54 6.57 5.66 102 17.43 9.83
78 8.61 7.74 6.65 5.68 103 17.62 9.83
79 8.97 7.94 6.72 5.70 104 17.78 9.83
80 9.34 8.13 6.79 5.71 105 17.91 9.83
81 9.73 8.32 6.84 5.72 106 18.00
82 10.14 8.50 6.89 5.73 107 18.06
83 10.57 8.67 6.94 5.74 108 18.09
84 11.01 8.83 6.97 5.74 109 18.11
85 11.46 8.97 7.00 5.75 110 18.11
86 11.91 9.10 7.02 5.75
87 12.36 9.22 7.04 5.75
88 12.81 9.32 7.06 5.75
89 13.25 9.41 7.07 5.75
90 13.67 9.48 7.08 5.75
91 14.07 9.55 7.09 5.75
</TABLE>
Form 2505 (VUL)-2/00
Page 30
<PAGE>
SETTLEMENT OPTION TABLE II
Male
( Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Age of Payee
Nearest Birth Nearest Birth
date When First date When First
Installment is Monthly Installment Installment is Monthly Installment
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 3.28 3.28 3.27 3.27 41 4.01 4.00 3.97 3.94
16 3.29 3.29 3.29 3.28 42 4.06 4.04 4.01 3.98
17 3.31 3.31 3.30 3.30 43 4.11 4.09 4.06 4.02
18 3.32 3.32 3.32 3.32 44 4.16 4.14 4.11 4.06
19 3.34 3.34 3.34 3.33 45 4.22 4.20 4.16 4.11
20 3.36 3.36 3.35 3.35 46 4.28 4.25 4.21 4.16
21 3.38 3.38 3.37 3.37 47 4.34 4.31 4.27 4.21
22 3.40 3.40 3.39 3.39 48 4.41 4.38 4.33 4.26
23 3.42 3.42 3.41 3.41 49 4.48 4.44 4.39 4.31
24 3.44 3.44 3.43 3.43 50 4.55 4.51 4.45 4.36
25 3.46 3.46 3.45 3.45 51 4.62 4.58 4.52 4.42
26 3.49 3.48 3.48 3.47 52 4.70 4.66 4.58 4.48
27 3.51 3.51 3.50 3.49 53 4.79 4.74 4.65 4.54
28 3.54 3.53 3.53 3.52 54 4.88 4.82 4.73 4.60
29 3.56 3.56 3.55 3.54 55 4.97 4.91 4.80 4.66
30 3.59 3.59 3.58 3.57 56 5.07 5.00 4.88 4.72
31 3.62 3.62 3.61 3.60 57 5.17 5.10 4.97 4.78
32 3.65 3.65 3.64 3.62 58 5.29 5.20 5.05 4.85
33 3.68 3.68 3.67 3.65 59 5.41 5.31 5.14 4.91
34 3.72 3.71 3.70 3.68 60 5.53 5.42 5.23 4.97
35 3.75 3.75 3.73 3.72 61 5.67 5.54 5.33 5.04
36 3.79 3.78 3.77 3.75 62 5.81 5.67 5.42 5.10
37 3.83 3.82 3.81 3.78 63 5.97 5.80 5.52 5.16
38 3.87 3.86 3.85 3.82 64 6.13 5.94 5.62 5.22
39 3.92 3.90 3.89 3.86 65 6.31 6.08 5.72 5.28
40 3.96 3.95 3.93 3.90
</TABLE>
Form 2505 (VUL)-2/00
Page 31
<PAGE>
SETTLEMENT OPTION TABLE II/Male
(Continued)
(Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
Age of Payee Age of Payee
Nearest Birth Nearest Birth
date When First date When First
Installment is Monthly Installment Installment is Monthly Installment
Payable Payable
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
66 6.49 6.23 5.82 5.33 91 14.64 9.64 7.09 5.75
67 6.69 6.38 5.92 5.38 92 15.00 9.68 7.10 5.75
68 6.90 6.54 6.02 5.43 93 15.34 9.72 7.10 5.75
69 7.12 6.71 6.12 5.48 94 15.68 9.75 7.10 5.75
70 7.35 6.87 6.21 5.52 95 16.00 9.78 7.10 5.75
71 7.60 7.05 6.30 5.55 96 16.30 9.80 7.10
72 7.86 7.22 6.39 5.59 97 16.59 9.81 7.10
73 8.13 7.40 6.47 5.62 98 16.86 9.82 7.10
74 8.42 7.57 6.55 5.64 99 17.11 9.83 7.10
75 8.72 7.75 6.62 5.66 100 17.33 9.83 7.10
76 9.04 7.92 6.69 5.68 101 17.53 9.83
77 9.37 8.09 6.75 5.70 102 17.69 9.83
78 9.72 8.26 6.81 5.71 103 17.82 9.83
79 10.08 8.42 6.86 5.72 104 17.92 9.83
80 10.44 8.57 6.90 5.73 105 18.00 9.83
81 10.82 8.71 6.94 5.74 106 18.05
82 11.21 8.85 6.97 5.74 107 18.08
83 11.59 8.97 7.00 5.75 108 18.10
84 11.99 9.09 7.02 5.75 109 18.11
85 12.38 9.20 7.04 5.75 110 18.11
86 12.76 9.29 7.05 5.75
87 13.15 9.38 7.07 5.75
88 13.53 9.46 7.08 5.75
89 13.91 9.53 7.08 5.75
90 14.28 9.59 7.09 5.75
</TABLE>
Form 2505 (VUL)-2/00
Page 32
<PAGE>
This Policy is a FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
This is a Non-Participating Policy
Death benefits and other values provided by this contract, when based on the
investment experience of a separate account, are variable. These values may
increase or decrease based on investment experience and are not guaranteed as to
fixed dollar amount. Death benefits are payable by us upon the death of the
insured. There is no maturity date. Flexible premiums are payable by you during
the lifetime of the insured until the policy anniversary nearest the insured's
100th birth date.
To obtain information or make a complaint, contact
Security Life of Denver Insurance Company at:
Customer Service Center
P. O. Box 173888
Denver, Colorado 80217
Toll Free Number: 1(800)848-6362
SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
Form 2505 (VUL)-2/00
Exhibit 1.A(8)(a)(ix)
FUND PARTICIPATION AGREEMENT
BETWEEN
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND SECURITY LIFE
OF DENVER INSURANCE COMPANY
THIS Fund Participation Agreement, by and between MERRILL LYNCH
VARIABLE SERIES FUNDS, INC., an open-end management investment company organized
as a Maryland corporation (the "Fund") and SECURITY LIFE OF DENVER INSURANCE
COMPANY (the "Company"), a life insurance company organized under the laws of
the state of [Colorado] on the Company's own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A as attached
hereto, as such schedule may be amended from time to time (the "Accounts"), is
made as of the __ day of ______, 2000.
W I T N E S S E T H
WHEREAS, the Fund has filed a registration statement with the
Securities and Exchange Commission to register itself as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and to register the offer and sale of its shares under the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Fund desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Fund (the "Participating Insurance
Companies"); and
WHEREAS, the capital stock of the Fund is divided into several series
of shares, each series representing an interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the several series of shares of the Fund offered by the Fund
to the Company and the Accounts are set forth on Schedule B attached hereto
(each, a "Portfolio," and, collectively, the "Portfolios"); and
WHEREAS, the Fund has received an order from the SEC granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and
rules 6e-2(b) (15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies and certain qualified pension and retirement plans (the
"Shared Fund Exemptive Order");
WHEREAS, Merrill Lynch Asset Management, L.P. ("MLAM") is duly
registered as an investment adviser under the Investment Advisers Act of 1940,
as
<PAGE>
amended, and any applicable state securities law, and acts as the Fund's
investment adviser; and
WHEREAS, Princeton Funds Distributor, Inc. (the "Underwriter") is
registered as a broker-dealer with the Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
is a member in good standing of The National Association of Securities Dealers,
Inc. (the "NASD") and acts as principal underwriter of the shares of the Fund;
and
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable life insurance policies funded or to be funded through one or
more of the Accounts (the "Contracts"); and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios (the "Shares") on behalf of the Accounts to fund the Contracts, and
the Fund intends to sell such Shares to the relevant Accounts at such Shares'
net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE 1
SALE OF THE FUND SHARES
1.1 Subject to Section 1.3 of this Agreement, the Fund shall cause the
Underwriter to make Shares of the Portfolios available to the Accounts at such
Shares' most recent net asset value provided to the Company prior to receipt of
such purchase order by the Fund (or the Underwriter or its agent), in accordance
with the operational procedures mutually agreed to by the Underwriter and the
Company from time to time and the provisions of the then-current prospectus of
the Fund. Shares of a particular Portfolio of the Fund shall be ordered in such
quantities and at such times as determined by the Company to be necessary to
meet the requirements of the Contracts. The Directors of the Fund (the
"Directors") may refuse to sell Shares of any Portfolio to any person (including
the Company and the Accounts), or suspend or terminate the offering of Shares of
any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Directors acting in
good faith and in light of their fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.2 Subject to Section 1.3 of this Agreement, the Fund will redeem any
full or fractional Shares of any Portfolio when requested by the Company on
behalf of an Account at such Shares' most recent net asset value provided to the
Company PRIOR to receipt by the Fund (or the Underwriter or its agent) of the
request for redemption, as
2
<PAGE>
established in accordance with the operational procedures mutually agreed to by
the Underwriter and the Company from time to time and the provisions of the then
current-prospectus of the Fund. The Fund shall make payment for such Shares in
the manner established from time to time by the Fund, but in no event shall
payment be delayed for a greater period than is permitted by the 1940 Act
(including any Rule or order of the SEC thereunder).
1.3 The Fund shall accept purchase and redemption orders resulting from
investment in and payments under the Contracts on each Business Day, provided
that such orders are received prior to 9:00 a.m. on such Business Day and
reflect instructions received by the Company from Contract holders in good order
prior to the time the net asset value of each Portfolio is priced in accordance
with its prospectus (such Portfolio's "valuation time") on the prior Business
Day. Any purchase or redemption order for Shares of any Portfolio received, on
any Business Day, after such Portfolio's valuation time on such Business Day
shall be deemed received prior to 9:00 a.m. on the next succeeding Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC. Purchase and redemption orders shall be provided by the
Company to the Underwriter as agent for the Fund in such written or electronic
form (including facsimile) as may be mutually acceptable to the Company and the
Underwriter. The Underwriter may reject purchase and redemption orders that are
not in proper form. In the event that the Company and the Underwriter agree to
use a form of written or electronic communication which is not capable of
recording the time, date and recipient of any communication and confirming good
transmission, the Company agrees that it shall be responsible (i) for confirming
with the Underwriter that any communication sent by the Company was in fact
received by the Underwriter in proper form, and (ii) for the effect of any delay
in the Underwriter's receipt of such communication in proper form. The Fund and
its agents shall be entitled to rely, and shall be fully protected from all
liability in acting, upon the instructions of the persons named in the list of
authorized individuals attached hereto as SCHEDULE C, or any subsequent list of
authorized individuals provided to the Fund or its agents by the Company in such
form, without being required to determine the authenticity of the authorization
or the authority of the persons named therein.
1.4 Purchase orders that are transmitted to the Fund in accordance with
Section 1.3 of this Agreement shall be paid for no later than 12:00 noon on the
same Business Day that the Fund receives notice of the order. Payments shall be
made in federal funds transmitted by wire. In the event that the Company shall
fail to pay in a timely manner for any purchase order validly received by the
Underwriter on behalf of the Fund pursuant to Section 1.3 of this Agreement
(whether or not such failure is the fault of the Company), the Company shall
hold the Fund harmless from any losses reasonably sustained by the Fund as the
result of acting in reliance on such purchase order.
1.5 Issuance and transfer of the Fund's Shares will be by book entry
only. Stock certificates will not be issued to the Company or to any Account.
Shares ordered from the Fund will be recorded in the appropriate title for each
Account.
3
<PAGE>
1.6 The Fund shall furnish prompt notice to the Company of any income,
dividends or capital gain distribution payable on Shares of any Portfolio. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's Shares in additional Shares of
that Portfolio. The Fund shall notify the Company of the number of Shares so
issued as payments of such dividends and distributions.
1.7 The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after such net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 6:30 p.m., New
York time.
1.8 The Company agrees that it will not take any action to operate any
Account as a management investment company under the 1940 Act without the Fund's
and the Underwriter's prior written consent.
1.9 The Fund agrees that its Shares will be sold only to Participating
Insurance Companies and their separate accounts. No Shares of any Portfolio will
be sold directly to the general public. The Company agrees that the Fund Shares
will be used only for the purposes of funding the Contracts and Accounts listed
in Schedule A, as such schedule may be amended from time to time.
1.10 The Fund agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.11 and
Article 4 of this Agreement.
1.11 So long as it shall be the intention of the Fund to maintain the
net asset value per share of any Portfolio at $1.00, on any day on which (a) the
net asset value per share of the Shares is determined, (b) MLAM determines, in
the manner described in the then-current prospectus of the Fund, that the net
income of such Portfolio on such day is negative, and (c) MLAM delivers a
certificate to the Companies setting forth the reduction in the number of
outstanding Shares to be effected as described in the then-current prospectus of
the Fund in connection with such determination, the Company, on behalf of itself
and the Accounts, agrees to return to the Fund its pro rata share of the number
of Shares to be reduced and agrees that, upon delivery by MLAM to the Company of
such certificate, (a) the Company's ownership interest in the Shares so to be
returned shall immediately cease, (b) such Shares shall be deemed to have been
canceled and to be no longer outstanding, and (c) all rights in respect of such
Shares shall cease.
ARTICLE 2
OBLIGATION OF THE PARTIES
2.1 The Fund shall prepare and be responsible for filing with the SEC
and any state securities regulators requiring such filing, all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials),
4
<PAGE>
prospectuses and statements of additional information of the Fund. The Fund
shall bear the costs or registration and qualification of its Shares,
preparation and filing of the documents listed in this Section 2.1 and all taxes
to which an issuer is subject on the issuance and transfer of its shares.
2.2 At least annually, the Fund or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios) for the Shares as the Company may reasonably
request for distribution to EXISTING Contract owners whose Contracts are funded
by such Shares. The Fund or its designee shall provide the Company, at the
Companies' expense, with as many copies of the current prospectus for the Shares
as the Company may reasonably request for distribution to PROSPECTIVE purchasers
of Contracts. If requested by the Company in lieu thereof, the Fund or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type) and other assistance as is reasonably
necessary in order for the parties hereto once each year (or more frequently if
the prospectus for the Shares is supplemented or amended) to have the prospectus
for the Contracts and the prospectus for the Shares printed together in one
document; the expenses of such printing to be borne by the Company. In the event
that the Company requests that the Fund or its designee provide the Fund's
prospectus in a "camera ready" format, the Fund shall be responsible solely for
providing the prospectus in the format in which it is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g., typesetting expenses), and the Company shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
2.3 The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Fund or its
designee. The Fund or its designee, at its expense, shall print and provide such
statement of additional information to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to any owner
of a Contract funded by the Shares. The Fund or its designee, at the Company's
expense, shall print and provide such statement to the Company (or a master of
such statement suitable for duplication by the Company) for distribution to a
prospective purchaser who requests such statement.
2.4 The Fund or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Fund's proxy
materials, reports to Shareholders and other communications to Shareholders in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.5 With respect to any prospectus, shareholder report or proxy
solicitation materials that concern solely the Fund and no other investment
vehicle funding the Accounts, the Fund shall pay for the Company's postage costs
in connection with mailing such materials to existing Contract owners. With
respect to any prospectus, shareholder report or proxy solicitation materials
that concern the Fund together with other investment vehicles funding the
Accounts, the Fund shall pay a proportionate amount of the Company's postage
costs, based on the percentage of such Account's overall assets
5
<PAGE>
that are invested in the Fund, in connection with mailing such materials to
existing Contract owners.
2.6 The Company shall furnish, or cause to be furnished, to the Fund or
its designee, a copy of each prospectus for the Contracts or statement of
additional information for the Contracts in which the Fund or its investment
adviser is named prior to the filing of such document with the SEC. The Company
shall furnish, or shall cause to be furnished, to the Fund or its designee, each
piece of sales literature or other promotional material in which the Fund or its
investment adviser is named, at least five Business Days prior to is use. No
such prospectus, statement of additional information or material shall be used
if the Fund or its designee reasonably objects to such use within five Business
Days after receipt of such material.
2.7 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund or
its investment adviser in connection with the sale of the Contracts other than
information or representations contained in and accurately derived from the
registration statement or prospectus for the Fund Shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
reports of the Fund, Fund-sponsored proxy statement, or in sales literature or
other promotional material approved by the Fund or its designee, except with the
written permission of the Fund or its designee.
2.8 The Fund shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
with the written permission of the Company.
2.9 The Company shall amend the registration statement of the Contracts
under the 1933 Act and registration statement for each Account under the 1940
Act from time to time as required in order to effect the continuous offering of
the Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale to the extent required by
applicable securities laws and insurance laws of the various states.
2.10 The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
probable that such Contract would be a "modified endowment contract," as that
term is defined in Section 7702A of the Internal Revenue Code of 1986, as
amended (the "Code"), will identify such Contract as a modified endowment
contract (or policy).
2.11 Solely with respect to Contracts and Accounts that are subject to
the 1940 Act, so long as, and the extent that, the SEC interprets the 1940 Act
to require pass-through voting privileges for variable policyowners: (a) the
Company will provide pass-
6
<PAGE>
through voting privileges to owners of Contracts whose cash values are invested,
through the Accounts, in Shares of the Fund; (b) the Fund shall require all
Participating Insurance Companies to calculate voting privileges in the same
manner and the Company shall be responsible for assuring that the Accounts
calculate voting privileges in the manner established by the Fund; (c) with
respect to each Account, the Company will vote Shares of the Fund held by the
Account and for which no timely voting instructions from Contract or
policyowners are received, as well as Shares held by the Account that are owned
by the Company for their general accounts, in the same proportion as the Company
votes Shares held by the Account for which timely voting instructions are
received from Contract owners; and (d) the Company and its agents will in no way
recommend or oppose or interfere with the solicitation of proxies for Fund
Shares held by Contract owners without the prior written consent of the Fund,
which consent may be withheld in the Fund's sole discretion.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of [Colorado]
and has established each Account as a segregated asset account under such law on
the date set forth in Schedule A.
3.2 The Company represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
3.3 The Company represents and warrants that the Contracts will be
registered under the 1933 Act prior to any issuance or sale of the Contracts;
the Contracts will be issued and sold in compliance in all material respects
with all applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance requirements.
3.4 The Company represents and warrants that the Contracts are
currently and at the time of issuance will be treated as annuity contracts or
life insurance policies, whichever is appropriate, under applicable provisions
of the Code. The Company shall make every effort to maintain such treatment and
shall notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
3.5 The Fund represents and warrants that it is duly organized and
validly existing under the laws of the State of Maryland.
3.6 The Fund represents and warrants that the sale of the Fund Shares
offered and sold pursuant to this Agreement will be registered under the 1933
Act and that the Fund is registered under the 1940 Act. The Fund shall use its
best efforts to amend its
7
<PAGE>
registration statement under the 1933 Act and the 1940 Act from time to time as
required in order to affect the continuous offering of its shares. If the Fund
determines registration is appropriate, the Fund shall use its best efforts to
register and qualify its Shares for sale in accordance with the laws of all
fifty states, the District of Columbia, Virgin Islands and Puerto Rico and such
other jurisdictions reasonably requested by the Company.
3.7 The Fund represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in section
817(h) of the Code and the rules and regulations thereunder.
ARTICLE 4
POTENTIAL CONFLICTS
4.1 The parties acknowledge that the Fund's Shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Directors will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities decision in any relevant proceeding; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Directors shall promptly inform the Company
if they determine that an irreconcilable material conflict exists and the
implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which they are aware to the Directors. The Company will assist the
Directors in carrying out their responsibilities under the Shared Fund Exemptive
Order by providing the Directors with all information reasonably necessary for
the Directors to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Directors, or a majority
of the Fund's Directors who are not affiliated with the Adviser or the
Underwriter (the "Disinterested Directors"), that a material irreconcilable
conflict exists that affects the interests of Contract owners, the Company
shall, in cooperation with other Participating Insurance Companies whose
contract owners are also affected, at their expense and to the extent reasonably
practicable (as determined by the Directors) take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, which steps could
include: (a) withdrawing the assets allocable to some or all of the Accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question of whether or not
8
<PAGE>
such segregation should be
implemented to a vote of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Contract owners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's or
Accounts' investment in the Fund and terminate this Agreement with respect to
such Account(s); provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Disinterested Directors. Any such
withdrawal and termination must take place within 30 days after the Fund gives
written notice that this provision is being implemented. Until the end of such
30-day period, the Fund shall continue to accept and implement orders by the
Company for the purchase and redemption of Shares of the Fund.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's (or Accounts') investment in the Fund and terminate this
Agreement with respect to such Account(s) within 30 days after the Fund informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Disinterested
Directors. Until the end of such 30-day period, the Fund shall continue to
accept and implement orders by the Company for the purchase and redemption of
Shares of the Fund.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the Disinterested Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Directors determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
affected Account's (or Accounts') investment in the Fund and terminate this
Agreement with respect to such Account(s) within 30 days after the Directors
inform the Company in writing of the foregoing determination; provided, however,
that such withdrawal and termination shall be limited to the extent required by
any such material irreconcilable conflict as determined by a majority of the
Disinterested Directors.
9
<PAGE>
4.7 The Company shall at least annually submit to the Directors such
reports, materials or data as the Directors may reasonably request so that the
Directors may fully carry out the duties imposed upon them by the Shared Fund
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Directors.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the application for the Shared Fund Exemptive Order) on
terms and conditions materially different from those contained in the
application for the Shared Fund Exemptive Order, then the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary (a) to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable.
ARTICLE 5
INDEMNIFICATION
5.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless the Fund and each of its Directors, officers, employees and agents
and each person, if any, who controls the Fund within the meaning of Section 15
of the 1933 Act (collectively the "Indemnified Parties" for purposes of this
Article 5) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which such Indemnified
Parties may become subject under any statute or regulation, or common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved by
the Company on behalf of the Contracts or Accounts (or any amendment or
supplement to any of the foregoing) (collectively, "Company Documents"
for the purposes of this Article 5), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading, provided that this indemnity shall not apply as
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on
behalf of the Fund for use in Company Documents or otherwise for use in
connection with the sale of the Contracts or Shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Fund Documents (as defined in Section 5.2(a) below) or
wrongful conduct of the
10
<PAGE>
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Fund Documents
(defined below) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Fund by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Company.
5.2 Indemnification by the Fund. The Fund agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article 5) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses"), to which such Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statement of any material fact contained in the
registration statement or prospectus for the Fund (or any amendment or
supplement thereto) or in sales literature approved by the Fund (but
solely with respect to statements regarding the Fund), (collectively,
"Fund Documents" for the purposes of this Article 5), or arise out of
or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this indemnity shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Fund by or
on behalf of the Company for use in Fund Documents or otherwise for use
in connection with the sale of the Contracts or Shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Company Documents) or wrongful conduct of the Fund or
persons under its control, with respect to the sale or acquisition of
the Contracts or Shares; or
11
<PAGE>
(c) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Company
Documents or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was
made in reliance upon and accurately derived from written information
furnished to the Company by or on behalf of the Fund; or
(d) arise out of or result from any failure by the Fund to
provide the services or furnish the materials required under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Fund.
5.3 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to
any Losses incurred or assessed against any Indemnified Party to the extent such
Losses arise out of or result from such Indemnified Party's willful misfeasance,
bad faith or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
5.4 Neither the Company nor the Fund shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to
any claim made against an Indemnified Party unless such Indemnified Party shall
have notified the party against whom indemnification is sought in writing within
a reasonable time after the summons, or other first written notification, giving
information of the nature of the claim shall have been served upon or otherwise
received by such Indemnified Party (or after such Indemnified Party shall have
received notice of service upon or other notification to any designated agent),
but failure to notify the party against whom indemnification is sought of any
such claim shall not relieve that party from any liability that it may have to
the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.
12
<PAGE>
ARTICLE 6
TERMINATION
6.1 This Agreement may be terminated by either party for any reason by
six (6) months' advance written notice to the other party, and may be terminated
by the Fund pursuant to Sections 6.2 through 6.4 below upon sixty (60) days'
advance written notice to the Company or by the Company pursuant to Section 6.5
below upon sixty (60) days' advance written notice to the Fund.
6.2 This Agreement may be terminated at the option of the Fund upon
institution of formal proceedings against the Company by the NASD, the SEC, the
insurance department of any state, or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of the Contracts,
the operation of the Account, the administration of the Contracts or the
purchase of the Shares, or an expected or anticipated ruling, judgment or
outcome that would, in the Fund's reasonable judgment, materially impair the
Company's ability to meet and perform the Company's obligations and duties
hereunder.
6.3 This Agreement may be terminated at the option of the Fund if the
Internal Revenue Service determines that the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under the Code.
6.4 This Agreement may be terminated by the Fund, at its option, if the
Fund shall determine, in its sole judgment exercised in good faith, that either
(1) the Company shall have suffered a material adverse change in its business or
financial condition, (2) the Company shall have been the subject of material
adverse publicity that is likely to have a material adverse impact upon the
business and operations of either the Fund, the Adviser or the Underwriter, or
(3) the Company breaches any obligation under this Agreement in a material
respect and such breach shall continue unremedied for thirty (30) days after
receipt of notice from the Fund of such breach. Notwithstanding any other
provision of this Agreement, in the event that the Fund exercises its right to
terminate this Agreement pursuant to this Section 6.4, such termination shall
not become effective until the earlier of (i) the time which the Company
notifies the Fund it has made arrangements (including obtaining any necessary
regulatory approvals) to substitute other funding vehicles for shares of the
Portfolios under the Contracts, and (ii) one year following the date the Fund
exercises its right to terminate.
6.5 This Agreement may be terminated at the option of the Company if
(A) the Internal Revenue Serve determines that any Portfolio fails to qualify as
a `Regulated Investment Company' under the Code or fails to comply with the
diversification requirements of Section 817(h) of the Code, or (B) the Company
shall determine, in its sole judgment exercised in good faith, that either (1)
the Fund or the Underwriter shall have been the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company, or (2) the Fund breaches any obligation under
this Agreement in a material respect and such breach shall
13
<PAGE>
continue unremedied for thirty (30) days after receipt of notice from the
Company of such breach.
6.6 The provisions of Article 5 shall survive the termination of this
Agreement, and the provisions of Article 4 and Sections 2.4 and 2.11 shall
survive the termination of this Agreement as long as shares of the Fund are held
on behalf of Contract owners in accordance with Section 6.5.
ARTICLE 7
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Merrill Lynch Variable Series Fund, Inc.
c/o Merrill Lynch Asset Management, L.P.
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Attention: General Counsel
If to the Company:
Security Life Insurance Company of Denver
ARTICLE 8
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York,
shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the
rules, regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the
14
<PAGE>
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Fund and that no Director, officer, agent, or holder of shares of
beneficial interest of the Fund shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
8.8 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
SECURITY LIFE INSURANCE COMPANY OF DENVER
By: _______________________________
Name: _____________________________
Title: ____________________________
MERRILL LYNCH VARIABLE SERIES
FUNDS, INC.
By: _______________________________
Name: Terry K. Glenn
Title: President
16
<PAGE>
SCHEDULE A
Segregated Accounts of Security Life Insurance Company of Denver
Name of Separate Account Date Established
- ------------------------ ----------------
<PAGE>
SCHEDULE B
Portfolios of Merrill Lynch Variable Series Funds, Inc.
Offered to Segregated Accounts
Class A Shares
Merrill Lynch Global Growth Focus Fund
Merrill Lynch Index 500 Fund
Merrill Lynch Capital Focus Fund
Class B Shares
Merrill Lynch Basic Value Focus Fund
Merrill Lynch Special Value Focus Fund
<PAGE>
SCHEDULE C
Persons Authorized to Act on Behalf of Security Life Insurance Company of Denver
- --------------------------------------------------------------------------------
The Fund, the Underwriter and their respective agents are authorized to
rely on instructions from the following individuals on behalf of each Account:
Name Signature
- ---- ---------
Exhibit 1.A(8)(c)(vi)
ADMINISTRATIVE SERVICES AGREEMENT
SECURITY LIFE OF DENVER INSURANCE COMPANY (the "Insurer") and MERRILL
LYNCH ASSET MANAGEMENT, L.P. ("MLAM") mutually agree to the arrangements set
forth in this Agreement (the "Agreement") dated as of _____, 2000.
WHEREAS, MLAM is the investment adviser to the Merrill Lynch Variable
Series Funds, Inc. (the "Fund"); and
WHEREAS, the Insurer issues variable annuity contracts and variable
life insurance policies (the "Policies"); and
WHEREAS, the Insurer and the Fund have entered into a Fund
Participation Agreement ("Participation Agreement") dated _______, 2000,
providing for the sale of shares of the Fund to certain segregated separate
accounts of the Insurer; and
WHEREAS, amounts invested in the Policies by policy holders are
deposited in separate accounts of the Insurer which will in turn purchase shares
of certain portfolios of the Fund, each of which is an investment option offered
by the Policies (the "Portfolios"); and
WHEREAS, the Fund expects to derive substantial savings in
administrative expenses by virtue of having separate accounts of the Insurer as
shareholders of record of Fund shares and having the Insurer perform certain
administrative services for the Fund (which are identified on Schedule A
hereto); and
WHEREAS, neither MLAM nor the Insurer has any contractual or other
legal obligation to perform such administrative services for the Fund; and
WHEREAS, the Insurer desires to be compensated for providing such
administrative services to the Fund; and
WHEREAS, MLAM desires that the Fund benefit from the lower
administrative expenses expected to result from the administrative services
performed by the Insurer; and
WHEREAS, MLAM accordingly would prefer to compensate the Insurer for
providing administrative services to the Fund from its own funds, derived from
its own resources, including its bona fide profits, rather than request that the
Fund bear the costs of such compensation:
NOW, THEREFORE, the parties agree as follows:
1. ADMINISTRATION EXPENSE PAYMENTS.
-------------------------------
(a) MLAM agrees to pay the Insurer an amount as
identified and described on Schedule B hereto of that
portion of the gross annual investment advisory fees
paid by the Fund to MLAM attributable to certain
investments in portfolios of the Fund by separate
accounts of the Insurer.
1
<PAGE>
(b) the Insurer shall calculate the payment contemplated
by this Section 1 at the end of each fiscal quarter
and will invoice such payment to MLAM, which shall
remit payment reasonably promptly thereafter.
2. NATURE OF PAYMENTS.
------------------
The parties to this Agreement recognize and agree that MLAM's
payments to the Insurer are for administrative services only and do not
constitute payment in any manner for investment advisory services or
for costs of distribution of Policies or of Fund shares and are not
otherwise related to investment advisory or distribution services or
expenses. The amount of administration expense payments made by MLAM to
the Insurer pursuant to Section 1(a) of this Agreement are not intended
to be, and shall not be deemed to be, indicative of MLAM's bona fide
profits from serving as investment adviser to any Fund.
3. TERM AND TERMINATION.
--------------------
(a) Any Party may terminate this Agreement, without
penalty, on ninety day's advance written notice to
the other Party. Unless so terminated, this Agreement
shall continue in effect for so long as MLAM or its
successor(s) in interest, or any affiliate thereof,
continues to perform in a similar capacity for the
Fund, and for so long as Insurer or its successors(s)
in interest, or any affiliate thereof, provides the
services contemplated hereunder with respect to
Contracts under which values or monies are allocated
to a Portfolio.
(b) This Agreement shall automatically terminate upon (i)
the termination of the Participation Agreement
between the Insurer and the Fund, or (ii) the
dissolution or bankruptcy of any party hereto, or in
the event that any party hereto is placed in
receivership or rehabilitation, or in the event that
the management of its affairs is assumed by any
governmental, regulatory or judicial authority.
4. AMENDMENT.
---------
This Agreement may be amended only upon mutual agreement of
the parties hereto in writing.
5. NOTICES.
-------
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly
given if delivered
(a) to MLAM, at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536, attention: Michael Hennewinkel, General
Counsel; and
(b) to the Insurer, at .
2
<PAGE>
6. MISCELLANEOUS.
-------------
(a) Successors and Assigns. This Agreement shall be
binding upon the parties hereto and their
transferees, successors and assigns. The benefits of
and the right to enforce this Agreement shall accrue
to the parties and their transferees, successors and
assigns.
(b) Assignment. Neither this Agreement nor any of the
rights, obligations or liabilities of either party
hereto shall be assigned without the written consent
of the other party.
(c) Intended Beneficiaries. Nothing in this Agreement
shall be construed to give any person or entity other
than the parties hereto any legal or equitable claim,
right or remedy. Rather, this Agreement is intended
to be for the sole and exclusive benefit of the
parties hereto.
(d) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an
original but all of which shall together constitute
one and the same instrument.
(e) Applicable Law. This Agreement shall be interpreted,
construed, and enforced in accordance with the laws
of the State of New York, without reference to the
conflict of law thereof.
(f) Severability. If any portion of this Agreement shall
be found to be invalid or unenforceable by a court or
tribunal or regulatory agency of competent
jurisdiction, the remainder shall not be affected
thereby, but shall have the same force and effect as
of the invalid or unenforceable portion had not been
inserted.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SECURITY LIFE INSURANCE COMPANY OF DENVER
By:
Name:
Title:
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: Princeton Services, Inc.
its General Partner
______________________________
Terry K. Glenn
Executive Vice President
3
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES FOR THE FUND
MAINTENANCE OF BOOKS AND RECORDS
o Maintaining an inventory of share purchases to assist transfer
agent in recording issuance of shares.
o Performing miscellaneous accounting services to assist
transfer agent in recording transfers of shares (via net
purchase orders).
o Reconciliation and balancing of the separate account at the
Fund level in the general ledger and reconciliation of cash
accounts at general account.
PURCHASE ORDERS
o Determination of net amount of cash flow into Fund.
o Reconciliation and deposit of receipts at Fund and
confirmation thereof.
REDEMPTION ORDERS
o Determination of net amount required for redemptions by Fund.
o Notification to Fund of cash required to meet payments.
o Cost of share redemptions.
REPORTS
o Periodic information reporting to the Fund.
FUND-RELATED CONTRACT OWNER SERVICES
o Telephonic support for contract owners with respect to
inquiries about the Fund (not including information about
performance or related to sales.)
OTHER ADMINISTRATIVE SUPPORT
o Sub-Accounting services.
o Providing other administrative support to the Fund as mutually
agreed between the Insurer and the Fund.
o Relieving the Fund of other usual or incidental administrative
services provided to individual policyholders.
o Preparation of reports to certain third-party reporting
services.
<PAGE>
SCHEDULE B
PORTFOLIOS OF MERRILL APPLICABLE FEE RATE
LYNCH VARIABLE SERIES FUNDS, INC.
(CLASS A SHARES)
Merrill Lynch Global Growth Focus Fund
Merrill Lynch Capital Focus Fund 0.15%
Merrill Lynch Index 500 Portfolio 0.05%
Exhibit 1.A(10)
[logo of ING Security Life] Security Life of Denver Insurance Company
Variable Life Customer Service Center
P.O. Box 173888
Denver, CO 80217-3885
1-800-848-6362
Fax: 303-860-2695
GUARANTEED ISSUE VARIABLE LIFE INSURANCE APPLICATION
_
1 |_| Check here if for PENSION or similar tax qualified plan. State plan type
in Special Instructions.
SECTION A - PROPOSED INSURED
<TABLE>
<S> <C> <C> <C> <C>
2 Name (First Middle Last) Birthdate (Mo/Day/Yr) Birthstate Sex
_ _
|_| M |_| F
Home Address (Street, Apt. No.) City State Zip Code
Social Security Number Home Phone ( ) Work Phone ( )
</TABLE>
3a Occupation:________________________________ 3b Date of Hire:_____________
4a Is Proposed Insured currently actively at work on a full time basis
performing all duties of Proposed Insured's regular occupation, at Proposed
Insured's customary place of employment for at least 30 hours per week?
_ _
|_| Yes |_| No If "No" explain:
____________________________________________________________________________
4b Has Proposed Insured: (1) been absent from work due to illness or medical
treatment for a period of 5 business days or more within the last 90 days;
or (2) been hospitalized for any reason during this same period?
_ _
|_| Yes |_| No If "Yes" explain:
____________________________________________________________________________
5 Has Proposed Insured used tobacco (cigarettes, cigars, chewing tobacco,
pipe, nicotine substitutes, etc.) or any other substance containing nicotine
within the last 12 months?
_ _
|_| Yes |_| No If "Yes," what type and frequency?
____________________________________________________________________________
6 Is this insurance to replace, or will it cause any change in, any existing
life insurance or annuity on any person proposed for coverage?
_ _
|_| Yes |_| No If "Yes" submit a completed replacement form with this
application.
SECTION B - OWNER (IF OTHER THAN PROPOSED INSURED)
7a Owner's Name and Address 7b Owner's Social Security Number
(or Tax I.D. Number)
7c Owner's Relationship to Proposed
Insured
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<PAGE>
SECTION C - BENEFICIARIES
8a Primary Beneficiary_______________________ Relationship to Insured_________
(or Trust information) Social Security Number (or Tax I.D. Number)________
8b Contingent Beneficiary____________________ Relationship to Insured_________
(or Trust information) Social Security Number (or Tax I.D. Number)________
SECTION D - BILLING
9 Employer's Name and Address 10 Mailing address (for Premium
Notices and Correspondence)
11 Payment Method: List bill 12 Premium Mode:
SECTION E - PLAN INFORMATION - FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
13 Product 14 Policy Issue Date
(Mo/Day/Yr):________________________
15 Guaranteed Issue Version 16 Unisex Version
17a Stated Death Benefit 17b Definition of Life Insurance Test:
_
|_| Guideline Annual Premium Test
_
|_| Cash Value Accumulation Test
17c Death Benefit Options:
_
|_| Option 1 (Stated Death Benefit)
_
|_| Option 2 (Stated Death Benefit plus
account value)
_
|_| Option 3 (Stated Death Benefit plus
premiums paid minus withdrawals
SECTION F - GUARANTEED MINIMUM DEATH BENEFIT OPTION
18 GUARANTEE PERIOD (SELECT ONE, IF OPTION DESIRED; OTHERWISE THERE WILL BE NO
GUARANTEED PERIOD)
_ _
|_| Later of ten years or proposed insured's age 65 |_| Lifetime of
proposed insured
Note: The Guarantee Period will terminate if:
a. You fail to pay the required Guarantee Period Annual premium defined in
your prospectus; or
b. Your Account Value on any Monthly Processing date is not diversified
according to the following rules:
1. No more than 35% of your Net Account Value may be invested in any one
division; and
2. Your Net Account Value must be invested in at least FIVE divisions.
You will satisfy these diversification requirements if: (i) you
participate in the Automatic Rebalancing feature defined in and governed
by the policy prospectus in effect at the time you elect the Guarantee
Period and your Automatic Rebalancing allocations comply with the
diversifications specified above; or (ii) you elect Dollar Cost Averaging
and direct the resulting transfers into at least four other Divisions
with no more than 35% of any transfer being to any one division.
There may be other circumstances that will cause the Guarantee Period to
terminate before its scheduled expiration date. See your prospectus for
further information.
2
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<PAGE>
SECTION G - SUITABILITY
19 a. Have you, the Proposed Insured, and the Owner, if other than the
Proposed Insured, received a current Prospectus dated ________________
for the Variable Life Insurance policy applied for and current prospectus
_ _
for each of the Variable Account Divisions? |_| Yes |_| No
b. DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR THE AMOUNT OR
DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED CONDITIONS; POLICY
VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE INVESTMENT
EXPERIENCE OF INVESTMENT DIVISIONS IN A SEPARATE ACCOUNT, AND MAY
INCREASE IN ACCORDANCE WITH THE INTEREST CREDITED IN THE GUARANTEED
INTEREST DIVISION; AND THE AMOUNT PAYABLE AT THE FINAL POLICY DATE IS NOT
GUARANTEED BUT IS DEPENDENT ON THE AMOUNT THEN IN THE ACCOUNT VALUE?
_ _
|_| YES |_| NO
c. Do you understand that any personalized illustrations received are based
on hypothetical interest assumptions which may not be indicative of
actual future investment experience of our Separate Account or of actual
_ _
interest credited in our Guaranteed Interest Division? |_| Yes |_| No
d. With this in mind, is the policy in accord with your insurance objectives
_ _
and your anticipated financial needs? |_| Yes |_| No
20 Special Instructions
HOME OFFICE CORRECTIONS (INSURANCE COMPANY USE ONLY)
(NOT APPLICABLE IN NORTH DAKOTA, OREGON, PENNSYLVANIA, AND WEST VIRGINIA.)
3
Q2009-11/97 (Guaranteed Issue Application)
<PAGE>
<TABLE>
<CAPTION>
FRAUD WARNINGS (FOR ALL STATES EXCEPT OREGON)
<S> <C>
FOR APPLICANTS IN ALL STATES Any person who knowingly and with intent to injure, defraud, or deceive any insurance company,
EXCEPT COLORADO, CONNECTICUT, files an application, statement or claim containing any false, incomplete, or misleading information
PENNSYLVANIA AND VIRGINIA: may be guilty of insurance fraud.
FOR APPLICANTS IN COLORADO: IT IS UNLAWFUL TO KNOWINGLY PROVIDE FALSE, INCOMPLETE, OR MISLEADING FACTS OR INFORMATION TO AN
INSURANCE COMPANY FOR THE PURPOSE OF DEFRAUDING OR ATTEMPTING TO DEFRAUD THE COMPANY. PENALTIES MAY
INCLUDE IMPRISONMENT, FINES, DENIAL OF INSURANCE, AND CIVIL DAMAGES. ANY INSURANCE COMPANY OR AGENT
OF AN INSURANCE COMPANY WHO KNOWINGLY PROVIDES FALSE, INCOMPLETE, OR MISLEADING FACTS OR INFORMATION
TO A POLICYHOLDER OR CLAIMANT FOR THE PURPOSE OF DEFRAUDING OR ATTEMPTING TO DEFRAUD THE
POLICYHOLDER OR CLAIMANT WITH REGARD TO A SETTLEMENT OF AWARD PAYABLE FROM INSURANCE PROCEEDS SHALL
BE REPORTED TO THE COLORADO DIVISION OF INSURANCE WITHIN THE DEPARTMENT OF REGULATORY AGENCIES.
FOR APPLICANTS IN CONNECTICUT: Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, files
an application, statement or claim containing any false, incomplete, or misleading information may
be guilty of insurance fraud as determined by a court of competent jurisdiction.
FOR APPLICANTS IN PENNSYLVANIA: Any person who knowingly and with intent to defraud any insurance company or other person files an
application for insurance or statement of claim containing any materially false information or
conceals for the purpose of misleading, information concerning any fact material thereto commits a
fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties.
FOR APPLICANTS IN VIRGINIA: Any person who with intent to defraud, or knowing that he is facilitating a fraud against an
insurer, submits an application, statement or files a claim containing false, or deceptive statement
may have violated state law.
</TABLE>
AGREEMENTS: All statements and answers in this application (which
includes supplements and amendments) are true and complete to the best of
my knowledge and belief. I also agree that:
1. The statements and answers in this application will be relied upon and form
the basis of any insurance.
2. No information will be considered as having been given to Security Life
unless it is written in this application. (THIS PARAGRAPH DOES NOT APPLY IN
THE STATES OF ALASKA, MAINE, MISSOURI, OREGON, SOUTH CAROLINA, SOUTH DAKOTA
AND WISCONSIN.)
3. No agent or any other unauthorized person can make or change any insurance
contract or give up any of Security Life's rights or requirements. Any
change must be in writing and signed by an officer of Security Life.
4. Security Life may amend this application by an appropriate notation in the
space designated "Home Office Corrections" in order to correct errors or
omissions or to conform the application with any policy that may be issued.
The acceptance of the policy constitutes a ratification of such amendments.
(THIS PARAGRAPH DOES NOT APPLY IN THE STATES OF NORTH DAKOTA, OREGON,
PENNSYLVANIA, AND WEST VIRGINIA.) In those states, including Maryland, where
change in amount, age at issue, classification, plan, premium, or benefit
requires the written consent of the applicant, no change may be ratified
except by a written acceptance. We reserve the right to make any changes
required by law.
5. INSURANCE UNDER POLICY APPLIED FOR - EXCEPT AS MAY BE PRO- VIDED IN ANY
COVERAGE PROVIDED BY A CONDITIONAL RECEIPT, NO POLICY OF INSURANCE WILL BE
IN FORCE UNTIL (1) THE FIRST POLICY PREMIUM IS PAID AND (2) THE POLICY IS
DELIVERED WHILE THE FACTS AND HEALTH CONDITION OF THE PROPOSED INSURED(S)
ARE AS REPRESENTED IN THIS APPLICATION. WHEN THESE CONDITIONS ARE SATISFIED,
THE POLICY AS DELIVERED WILL THEN TAKE EFFECT.
6. I certify, under penalty of perjury, that my social security/tax
identification number(s) is shown and is correct and that I am not subject
to back up withholding.
7. If the contract applied for is for a pension, profit-sharing, HR10, or other
tax qualified plan, any policy issued shall not be transferable other than
to the insurer, except as directed by the Plan Administrator. Other
applicable provisions may be added to the contract.
I know of nothing else affecting the risk. In addition to the Agreements above,
I have read and agree to the information and agreements contained in Section 21,
Special Instructions.
- -> Signature of Proposed Insured________________________ -> Date______________
- -> Signature of Owner___________________________________ -> Date______________
(If other than Proposed Insured)
- -> Name and Title of Owner______________________________________________________
(If owner is a business entity, print the business entity's name and the
title of person signing.)
- -> APPLICATION SIGNED BY PROPOSED INSURED OR OWNER (IF OTHER THAN PROPOSED
INSURED) IN: -> STATE ____________
AGENT USE ONLY (Please print)
Do you have knowledge or reason to believe that replacement of existing life
_ _
insurance or annuity may be involved? |_| Yes |_| No
If "Yes" please provide appropriate replacement forms.
<TABLE>
<S> <C> <C>
Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________
Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________
Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________
</TABLE>
________________________________________ _____________________________________
Name of Broker/Dealer/Branch/OSJ Name of Broker/Dealer/Branch/OSJ
4
Q2009-11/97 (Guaranteed Issue Application)
<PAGE>
[Logo of Security Life] Security Life of Denver
Insurance Company
1290 Broadway
Denver, CO 80203-5699
Guaranteed Issue
Binding Limited Life Insurance Coverage
For premium(s) received from the employer in connection with the following
Guaranteed Issue Applications, Security Life provides a limited amount of life
insurance coverage for a short time while it decides whether to issue and
deliver the policy or certificate applied for. This coverage is subject to the
terms and conditions set out below.
<TABLE>
<CAPTION>
AMOUNT | AMOUNT
PROPOSED PREMIUM OF LIMITED | PROPOSED PREMIUM OF LIMITED
APP.# INSURED RECEIVED LIFE INS. | APP.# INSURED RECEIVED LIFE INS.
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
</TABLE>
TERMS AND CONDITIONS
AMOUNT OF COVERAGE
If a Proposed Insured dies while this coverage is in effect, Security Life will
pay the Amount of Limited Life Insurance on the Proposed Insured set out above.
There is no premium waiver coverage.
DATE COVERAGE BEGINS
Coverage on the Proposed Insured under this agreement starts when a premium has
been accepted while the Proposed Insured is currently engaged in active
full-time work. Active full-time work is working at least 30 hours per week in a
normal capacity with no hospitalizations and no absences from work due to
illness or accident (except absences due to minor illnesses or accidents for no
more than 5 total days during the 3-month period).
DATE COVERAGE ENDS
The coverage on the Proposed Insured will end automatically on the EARLIEST of
the dates:
o Security Life returns the premium(s)
o Five days after Security Life mails a notice of termination to the owner's
address on the Application; or
o Coverage starts under any Security Life policy or certificate resulting from
Application.
Security Life may send the notice of return premium(s) at any time before
delivery of the policy or certificate.
There is no insurance coverage if:
o The Proposed Insured dies by suicide, or self-inflicted injury;
o The premium check is not honored; or
o The Proposed Insured is not currently engaged in active full-time work at
the time the premium is accepted.
BENEFICIARY
Any benefit will be paid to the beneficiary named in the application on the
Proposed Insured. If death is before such an application is completed, it will
be paid to (check one):
_
|_| Proposed Insured's estate, or
_
|_| Other __________________________________________________
Premiums for an application will be returned if: an application is not approved;
or a benefit is paid under this coverage; or any condition of the Guaranteed
Issue offer is not met.
No agent can waive or modify this coverage in any way.
- --------------------------------------------------------------------------------
No premium may be accepted if:
o the Proposed Insured is not currently engaged in active
full-time work; or
o any condition of the Guaranteed Issue offer is not met.
The amount of Limited Life Insurance shall be no more than the lesser of:
the amount specified in the Guaranteed Issue offer; or $3 million.
- --------------------------------------------------------------------------------
Agreed to on ______________________________, 19________
_____________________________________________(EMPLOYER)
By ____________________________________________________
Print employer's name and have officer sign.
Agent _________________________________________________
Q1112 B-6/98 HOME OFFICE COPY
<PAGE>
Initial Premium Allocation. Please allocate your Initial Premium to the
Guaranteed Interest Division and/or among the Separate Account Divisions. Please
use whole number percentages for each Division elected. You must allocate at
least 1% of your Premium Allocation to each Division in which you elect to
invest. The total must equal 100%.
% GUARANTEED INTEREST DIVISION
- --------
SEPARATE ACCOUNT INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
<TABLE>
AIM INVESCO Van Eck
<S> <C> <C>
% V.I. Government Securities % Equity Income % Worldwide Emerging Markets
- --------- --------- ---------
% V.I. Capital Appreciation % High Yield % Worldwide Bond
- --------- --------- ---------
% VIF Small Company Growth % Worldwide Real Estate
--------- ---------
Alger American
% Small Capitalization Merrill Lynch GCG Trust
- ---------
% Basic Value Focus % Growth
--------- ---------
Fidelity Investments % Special Value Focus % Research
--------- ---------
% Growth Portfolio % Index 500 % Equity Income
- --------- --------- ---------
% Overseas % Global Growth Focus % MidCap Growth
- --------- --------- ---------
% Capital Focus % Hard Assets
--------- ---------
% Liquid Assets Money Market
---------
% Limited Maturity Bond
---------
% Total Return
---------
</TABLE>
Automatic Telephone Privileges
I acknowledge that my policy automatically will provide telephone transfer
privileges and telephone allocation change privileges as described in the
current prospectus to me as policy owner and to my agent/registered
representative. I also agree that ING Security Life and its distributor will not
be liable for any loss, damage, costs or expenses incurred in acting on
telephone instructions reasonably believed to be authentic. ING Security Life
may employ procedures which might include requiring forms of personal
identification before accepting such telephone instructions. I understand that
if I do not want myself or my agent/registered representative to have such
telephone privileges, I must indicate so below. I also understand that once
granted, such privilege can be revoked only upon receipt of signed, written
instructions at ING Security Life.
_
|_| I do not want telephone transfer or allocation privileges.
_
|_| I do not want telephone transfer or allocation privileges granted
to my agent/registered representative.
(Guaranteed Issue Application) Insert Strategic Benefit
Initial Premium Allocation. Please allocate your Initial Premium to the
Guaranteed Interest Division and/or among the Separate Account Divisions. Please
use whole number percentages for each Division elected. You must allocate at
least 1% of your Premium Allocation to each Division in which you elect to
invest. The total must equal 100%.
% GUARANTEED INTEREST DIVISION
- --------
SEPARATE ACCOUNT INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
<TABLE>
AIM INVESCO Van Eck
<S> <C> <C>
% V.I. Government Securities % Equity Income % Worldwide Emerging Markets
- --------- --------- ---------
% V.I. Capital Appreciation % High Yield % Worldwide Bond
- --------- --------- ---------
% Utilities % Worldwide Real Estate
--------- ---------
Alger American % Total Return
---------
% Small Capitalization % VIF Small Company Growth GCG Trust
- --------- ---------
% MidCap Growth % Growth
- --------- ---------
% Growth Neuberger Berman % Research
- --------- ---------
% Limited Maturity Bond % Equity Income
--------- ---------
Fidelity Investments % Partners Portfolio % MidCap Growth
--------- ---------
% Growth Portfolio % Hard Assets
- --------- ---------
% Overseas % Liquid Assets Money Market
- --------- ---------
% Index 500 % Limited Maturity Bond
- --------- ---------
</TABLE>
Automatic Telephone Privileges
I acknowledge that my policy automatically will provide telephone transfer
privileges and telephone allocation change privileges as described in the
current prospectus to me as policy owner and to my agent/registered
representative. I also agree that ING Security Life and its distributor will not
be liable for any loss, damage, costs or expenses incurred in acting on
telephone instructions reasonably believed to be authentic. ING Security Life
may employ procedures which might include requiring forms of personal
identification before accepting such telephone instructions. I understand that
if I do not want myself or my agent/registered representative to have such
telephone privileges, I must indicate so below. I also understand that once
granted, such privilege can be revoked only upon receipt of signed, written
instructions at ING Security Life.
_
|_| I do not want telephone transfer or allocation privileges.
_
|_| I do not want telephone transfer or allocation privileges granted
to my agent/registered representative.
(Guaranteed Issue Application) Insert Corporate Benefits
EXHIBIT 11
CORPORATE BENEFITS VUL
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES
FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(12)(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
Corporate Benefits and Strategic Benefit flexible premium variable universal
life insurance policies (the "policies") issued through Security Life Separate
Account L1 (the "Separate Account"), the transfer of assets held under the
policies, and the redemption of interests in policies for use on multi-life
basis when the insured people share a common employment or business
relationship.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
A. Offering of the Policy
The policy is offered only to corporate entities or qualifying groups
of ten or more insured people who may be individual owners ("owners")
who satisfy certain suitability standards. The policy may be purchased
to insure the life of a person (an "insured") in whom the owner has an
insurable interest. Security Life requires satisfactory evidence of
insurability, which may include a medical examination of the insured.
The issue ages are 15 through 85. Age is determined by the insured's
age as of the birthday nearest the policy date.
Generally, a minimum total group first year premium of at least
$250,000 is required. However, depending on underwriting circumstances,
the minimum total group first year premium may be reduced. There is no
minimum required base death benefit, although a minimum target death
benefit of $50,000 per policy is required. The minimum target death
benefit on some policies may be less as long as the average target
death benefit for the group at policy issuance is at least $50,000.
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 for 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 insured in a premium class when the policy is
issued, based on underwriting. This original premium class applies to
the initial stated death benefit.
1
<PAGE>
The cost of insurance charge for a policy is based on the age at issue,
sex, premium class of the insured, and on the policy year. Therefore
the charge varies from time to time. Security Life places insureds in
the following premium classes, based on underwriting: Standard smoker
(ages 0-85); and Standard Non-smoker (ages 20-85). Security Life's
definition of "Smoker" includes the use of cigarettes, cigars, pipes,
chewing tobacco, nicotine chewing gun or patch, snuff or any other
tobacco or nicotine-based product or, insureds may be placed in a
substandard rate class, with a higher mortality risk than the standard
smoker or standard non-smoker classes.
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 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.
At any time, 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 are determined based on 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 non-tobacco 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 non-tobacco 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 will not be the same for all policies. 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 actuarially
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. However, 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 or rider benefits,
and if the misstatement becomes known during the lifetime of the
insured, then policy values will be adjusted to reflect the correct
monthly deductions (based on 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, 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.
2
<PAGE>
C. Death Benefit
The policy provides coverage on a named insured and a Death Benefit
payable upon the death of the insured. The policy will remain in force
as long as the policy's cash surrender value is sufficient to cover the
charges due.
On or after one year from the policy date, the owner may request a
reduction in the stated death benefit, by written 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, and
any decrease in stated death benefit will become effective on the
monthly processing date next following the date that notice requesting
the decrease is received and 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 the owner may request an increase in the stated death
benefit; any increase in the stated death benefit must be at least
$1,000 (unless the increase is effected pursuant to a rider providing
for automatic increases in stated death benefit), and an application
must be submitted. An increase that is not guaranteed by rider will
require 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 after the request
is approved. The account value will be adjusted to reflect a monthly
deduction (as of the effective date) based on the increased stated
death benefit.
Security Life will determine a cost of insurance rate for each increase
in coverage based on the age of the insured at the time of the
increase. The following rules will apply to determine the risk amount
for each rate.
When an increase in stated death benefit is requested, Security Life
conducts underwriting before approving the increase 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.
3
<PAGE>
For the purposes of determining the risk amount associated with a
stated death benefit, Security Life will attribute the total net amount
at risk for the total stated death benefit. If there is a decrease in
stated death benefit after an increase, the 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.
D. Application and Payment Processing
To purchase a policy, an application must be completed and submitted
through an authorized Security Life agent. 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.
An owner's policy coverage will become effective on the policy date,
which may be specified on the application. The Policy Date is used to
determine the monthly processing date, coverage effective date and
policy anniversaries.
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 first applies
premium to the Policy. It is the first valuation date following
Security Life's: 1) receipt of the initial premium, 2) approval of the
policy for issue, and 3) receipt of all issue requirements.
As provided under state insurance law, the owner may be permitted to
backdate the policy to preserve insurance age. In no case may the
policy date be more than six months prior to the application date. The
monthly deductions for the backdated period are deducted on the policy
date.
The initial premium payment must be at least equal to the sum of the
scheduled premiums from the policy date through the investment date.
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 Security Life. If a
premium payment is rejected, Security Life will return it promptly,
without adjustment.
4
<PAGE>
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 processing date and ending with the day
immediately preceding the next following monthly processing date (i.e.
8/15 - 9/14). The monthly processing date is the same as the policy
date for each succeeding month. The monthly deductions are made on each
monthly processing date.
A policy year is twelve months commencing with the policy date and
ending with the day immediately preceding the next annual date (i.e.
8/15/1999 - 8/14/2000).
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.
E. Allocation of Net Premiums
On the investment date, the account value equals the initial premium
payment minus premium expense charges, minus 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 amounts
in the variable investment options, the guaranteed interest division,
and the loan division. The account value will vary with the performance
of the selected investment options, interest credited on amounts in the
guaranteed interest division, interest credited on amounts in the loan
division, charges, transfers, partial withdrawals, loans and loan
repayments. The net account value is cash value minus outstanding
policy debt.
When applying for a policy, the owner selects a plan for paying premium
payments at specified intervals, e.g., quarterly, semi-annually 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, electronic funds transfer (bank draft)
arrangement. The owner is not required to pay premium in accordance
with the plan; but can pay more or less than planned or skip a planned
premium entirely. Currently, there is no minimum amount for each
premium payment. Security Life may establish a minimum amount effective
90 days after sending a written notice to the owner. Subject to certain
limits (described below), the owner can change the amount and frequency
of planned periodic premiums at any time by sending a notice to
Security Life. However, Security Life reserves the right to limit the
amount of a premium payment or the total premium paid.
In the application, the owner specifies the percentage of net premium
to be allocated to each investment option including the guaranteed
interest division (G.I.D.). Net premiums generally will be invested on
the valuation date that Security Life receives them and in accordance
with the owner's most recent allocation instructions.
The net premium allocation percentages specified in the application
will apply to subsequent premium payments until the owner instructs
otherwise. The minimum percentage that may be specified for an
investment option is 1%, and all percentages must be whole numbers. The
sum of allocations must equal 100%. Security Life limits the number of
investment options (18) to which account value may be allocated over
the life of the policy. An owner can change the allocation percentages
5
<PAGE>
at any time by sending a notice to the home office or, if telephone
privileges are in effect, the request can be received by phone. The
change applies to all premium payments received with or after receipt
of the owner's notice.
F. Free Look
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
if the owner exercises his/her free look option he/she is entitled to
receive the value of the fund allocations plus a refund of 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
Liquid Asset Portfolio. Later, these amounts are transferred from the
Liquid Asset Portfolio to the selected variable investment options, at
the earlier of:
1) five days after we mailed your policy and you 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.
G. 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.
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 payment of premiums may cause a policy to be a Modified Endowment
Contract (M.E.C.) under the Internal Revenue Code. If acceptance of a
premium paid would, in Security Life's view, cause the policy to become
a M.E.C., then to the extent feasible Security Life will not accept
that portion of the premium that would cause the policy to become a
M.E.C. unless the owner confirms in writing that it is his/her intent
to convert the policy to a M.E.C.. Security Life may return the excess
portion of the payment pending receipt of instructions from the owner.
6
<PAGE>
The owner may specify that a specific unscheduled payment is to be a
repayment of policy debt.
H. Policy Termination and Grace Period
The policy terminates at the earliest of: 1) the end of the grace
period, 2) the surrender of the policy or, 3) 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, the policy will be
in default. In addition, if on a monthly processing date the
outstanding policy debt exceeds the account value, the policy will be
in default. The owner, and any assignee of record, will be sent notice
of the default.
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 two additional months,
or a sufficient amount to avoid termination caused by a high
outstanding loan balance. Security Life will send notice of the amount
required ("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. The policy will remain in effect
during the grace period. If the insured should die during the grace
period, the death benefit proceeds will be payable to the beneficiary,
but the amount paid will be reduced for the monthly deductions which
were due as of the date of death and for outstanding policy debt. If
the grace period premium payment is not paid by the end of the grace
period, the policy will lapse. It will have no value and no benefits
will be payable.
I. 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.
J. Repayment of a Loan
An owner may repay all or part of his/her policy debt at any time while
the 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 instruct Security Life that a specific
unscheduled payment is to be applied as a loan repayment. When a loan
repayment is made, account value in the loan division in an amount
equal to the repayment, is transferred from the loan division to the
investment options according to the owner's current net premium
allocation instructions.
7
<PAGE>
K. Policy Riders
Rider benefits may be available to be added to the policy. Monthly
charges for the rider will be deducted from the account value as part
of the monthly deductions. The only rider available is the Adjustable
Term Insurance Rider.
Additional rules and limits apply to the rider benefits and are set
forth in the rider.
II. TRANSFERS AMONG INVESTMENT OPTIONS
Several investment options of the Separate Account are available for
allocation of net premiums paid under the policy, subject to certain
limitations set forth in the policy. Each invests in shares or units of an
underlying portfolio. Currently available investment options invest in
portfolios of AIM Variable Insurance Funds, Inc., The Alger American Fund,
Fidelity Variable Insurance Products Fund and Variable Insurance Products
Fund II, the GCG Trust, INVESCO Variable Investment Funds, Inc., Neuberger
Berman Advisors Management Trust, Van Eck Worldwide Insurance Trust. The
Strategic Benefit policy also offers access to portfolios of Merrill Lynch
Asset Management, L.P. All Funds are registered under the Investment Company
Act of 1940 as open-end management investment companies. Additional funds
may be made 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 the investment options to
other investment options or to the guaranteed interest division. An amount
may be transferred from the guaranteed interest division 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 $100.00. 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 on the number (12) of free transfers that can be made between
investment options in a policy year. Currently, Security Life assesses an
excess transfer charge of $10 for each transfer in excess of the first
twelve transfers during a policy year. The excess transfer charge will be
deducted from the investment option from which the requested transfer is
being made.
Transfer requests will be accepted by telephone, provided the appropriate
authorization 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.
8
<PAGE>
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,
premium may not be allocated to the variable account, 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 the dollar cost averaging or auto
rebalancing feature if elected by the owner as described in the current
prospectus.
III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS
A. Surrender for Cash Surrender Value
An owner may surrender the policy at any time for its 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 be reinstated later.
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 insured's death, plus rider
benefits, minus outstanding policy debt, minus unpaid monthly
deductions incurred prior to the date of death. If the 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 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 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 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.
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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, which includes the account value or
the applicable percentage of account value on the date of the insured's
death. Under Option 2, the base death benefit is the greater of the
specified amount plus the account value on the date of death, or the
applicable percentage of the account value on the date of the insured's
death. Under Option 3, the base death benefit is the greater of the
stated death benefit plus the sum of all premiums received minus
partial withdrawals, or the account value multiplied by the applicable
percentage of the account value on the date of the insured's death.
The "applicable percentage" is the appropriate factor from the
Definition of Life Insurance factors shown in the policy's appendix A.
A table showing the applicable percentages for attained ages 0 to 95 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
minimum to issue a policy. The effective date of the change will be the
next monthly processing date next following the day that Security life
approves the request. 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 amount 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, the specified death benefit amount after the change will be
the specified death benefit amount 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 amount will be the stated death
benefit before the change plus the sum of premiums received minus
partial withdrawals taken as of the effective date of the change.
C. Policy Loan
After the first monthly processing date and while the 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
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.
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An outstanding loan reduces the amount available for a new loan. A loan
is processed as of the date the loan request 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 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 division will
be transferred to the loan division on each policy anniversary. Such
interest will be transferred from each investment option in the same
proportion that account value in each 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 3.25%.
Interest is due in arrears on each policy anniversary. Outstanding loan
amounts (including unpaid interest added to the loan) plus accrued
interest not yet due equals the total policy debt.
D. Partial Withdrawals
An owner may make partial cash surrenders (known as partial
withdrawals) under 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 $500 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,
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 on a pro-rata basis 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 minimum 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 withdrawal requests will be processed as of the valuation date
the request is received by Security Life, and generally will be paid
within seven calendar days.
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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,
(3) mortality and expense charge, and (4) charges for rider benefits.
The monthly deduction is deducted from the investment options,
including the guaranteed interest division pro rata based on the
account value in each investment option, 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 not 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
$200 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 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
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 not available
for ages not shown in this Table.
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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.
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 $2,000 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 an 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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