THE GUARDIAN INSURANCE & ANNUITY COMPANY, INC.
VARIABLE WHOLE LIFE INSURANCE POLICY
WITH MODIFIED SCHEDULED PREMIUMS
Description of the
Issuance, Transfer and Redemption Procedures for MSPVL Policies
Pursuant to Rule 6e-2(b)(12)(ii)
Under the Investment Company Act of 1940
and
Method of Computing Adjustments in
Payment and Cash Values
Upon Conversion to Fixed Benefit Life Policies
Pursuant to Rule 6e-2(b)(13)(v)(B)
Under the Investment Company Act of 1940
This document sets forth the administrative procedures that will be
followed by The Guardian Insurance & Annuity Company, Inc. ("GIAC") in
connection with the issuance of its Variable Whole Life Insurance Policy with
Modified Scheduled Premiums (the "Policy/Policies"), the transfer of assets held
under the Policies, and the redemption by Policyowners of their interests in
said Policies. This document also explains the method that GIAC will follow in
making cash adjustments when a Policy is exchanged for a fixed benefit life
insurance policy. Defined terms indicated by initial upper case letters have the
same meaning herein as in the registration statement on Form S-6 for the
Policies and the Separate Account through which they are issued (Reg. No.
33-_____).
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I. Procedures Relating to Issuance of the Policy*
A. Premium Schedules and Underwriting Standards
Basic Scheduled Premiums for GIAC's Policy will not be the same for all
owners. Insurance is based on the principle of pooling and distribution of
mortality risks, which assumes that each owner pays premiums commensurate with
the insured's mortality risk as actuarially determined, reflecting factors such
as age, sex, health and occupation. A uniform premium for all insureds would
discriminate unfairly in favor of those insureds representing greater risks.
Although there will be no uniform Basic Scheduled Premium for all insureds,
there will be a single price for all insureds of the same age and sex who are
within the same risk classification.
The Policy will be offered and sold pursuant to established premium
schedules and underwriting standards and in accordance with state insurance
laws. The Basic Scheduled Premiums and any Policy Premium Assessments relating
to additional risks identified with respect to the insured and/or any additional
benefits acquired by rider to the Policy that are to be paid by a Policyowner
will be specified in the Policy issued to such owner.
B. Application and the Processing of Policy Premium Payments
When a completed application is received, GIAC will follow certain
insurance underwriting (i.e., evaluation of risk) procedures designed to
determine whether the proposed insured is insurable. This process may involve
such verification procedures as medical examinations, and may require that
further information be provided about the proposed
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* The term "Policy" refers to the Policy described in the Prospectus (contained
in the registration statement to which this document is an exhibit) exclusive of
any additional benefit riders described in Appendix C to the Prospectus.
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insured before a determination can be made. A Policy will not be issued until
this underwriting procedure has been completed. Permanent coverage under a
Policy begins when all underwriting requirements have been met, the first Policy
Premium has been paid, and the Policy has been delivered while the insured is
living.
Although a Policy will not be issued until after the underwriting process
has been completed, if all or a portion of the first Policy Premium is paid with
the application, conditional receipt coverage (for the amount of insurance
applied for up to a specified maximum) will take effect on the later of the date
shown on Part I of the application or the last dated Part II of the application.
If a prospective insured does not qualify for conditional receipt coverage based
on the information supplied in the application, GIAC will return any amount paid
to the prospective owner until the underwriting process has been completed.
Owners of certain fixed-benefit life insurance policies issued by GIAC or
its parent, The Guardian Life Insurance Company of America, may be able to
purchase the Policy (i) without evidence of insurability, by exchanging their
present policies or (ii) without evidence of insurability, or with simplified
underwriting, by exercising applicable riders to their fixed-benefit life
insurance policies. Policyowners who elect to convert to a Park Avenue Life
policy may receive a credit upon conversion in an amount up to one Basic
Scheduled Premium.
The Policy Date is the date as of which the insured's Age is determined
and can be the same as the effective date of any conditional receipt coverage if
a sufficient portion of the first Policy Premium is paid concurrently with the
signing of the completed application. If no such Policy Premium payment is
submitted with the application, the Policy Date is the date when the Policy is
issued. The Policy Date is used to measure Policy months and Policy years.
Under certain circumstances, GIAC will permit a policy to be backdated,
upon request, but only to a Policy Date not earlier than six months prior to the
date the application is signed. To backdate a policy, GIAC will require the
payment of all Policy Premiums that would have been due had the application date
coincided with the backdated Policy Date.
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Also, on the Issue Date, all monthly deductions for the period from the
backdated Policy Date to the Issue Date will be deducted.
GIAC credits and allocates any payment received on or before the Issue
Date in an amount not exceeding $100,000 to the investment divisions of the
Separate Account (i.e., the Variable Investment Options) chosen by the
Policyowner and/or the Fixed-Rate Option as of the Issue Date. The payment may
include the Policy Premium and a permitted unscheduled payment amount, but only
the Net Premium amount will be allocated among the Variable Investment Options
and the Fixed-Rate Option. The Net Premium is the Basic Scheduled Premium or
unscheduled payment minus the Premium Charge which is described in the
prospectus. Once a Policy is in force, GIAC credits and allocates that portion
of any payment that is used to pay a Policy Premium on the premium due date if
such payment is received on or during the 31 days preceding such premium due
date. GIAC normally credits and allocates any other payment as of the Business
Day of receipt if it receives such a payment before the close of business at its
Customer Service Office. Prior to the later of (i) 45 days after the application
is signed or (ii) 15 days after the Issue Date, Net Premium in excess of
$100,000 will be allocated to The Guardian Cash Fund. After expiration of this
period, any amounts so allocated will be re-allocated in accordance with the
Policyowner's instructions. Policy Premiums may be paid annually or
periodically. Annual payments are due on Policy Anniversaries. Periodic payments
are due on the Monthly Dates specified by GIAC and will reflect the mode
selected for payment (i.e., semi-annually, quarterly or monthly pursuant to an
automatic premium payment plan). The sum of periodic Policy Premiums is higher
than annual Policy Premiums. This reflects an administrative charge for the
expense incurred in collecting and processing Policy Premiums, as well as an
interest adjustment to take account of the fact that when premiums are paid
annually, GIAC has the use of the funds for the entire year.
After the first policy year, the Policyowner may "skip" paying one or more
Policy Premiums without causing the Policy to lapse or reducing its Face Amount
if this privilege has been elected and specified eligibility criteria are
satisfied. The Policyowner may also elect to pay Policy Premiums through
Automatic Premium Loans.
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II. Procedures Relating to Transfers Among Investment Divisions
The Account is subdivided into investment divisions which correspond to
the mutual funds (collectively referred to as the "Funds") currently offered
under the Policies. Each of the Funds is registered under the Investment Company
Act of 1940 as an open-end diversified management investment company.
Net Premiums for the Policy are allocated to the investment divisions
designated in the application, or as changed in writing by the Policyowner.
The Policyowner may transfer all or a portion of the unloaned Policy
Account Value among the Account's investment divisions as often as he/she
wishes. However, the number of options in which the Policy Account Value may be
invested or held cannot exceed 7 at any one time and GIAC reserves the right to
limit such transfers to no more frequently than once every 30 days. Transfers
may be requested in writing or by telephone. Transfers are effective as of the
end of the Business Day on which the request is received. The minimum transfer
amount is the lesser of $500 or the entire amount held in the investment
division from which the transfer is requested.
The Policyowner may elect to have designated dollar amounts automatically
transferred on each Monthly Date from The Guardian Cash Fund Investment Division
to one or more of the other investment divisions or the Fixed-Rate Option. The
minimum automatic transfer amount is $100 per receiving option.
III. Procedures Relating to Redemptions Under the Policy
A. Partial Withdrawals
After the first Policy year and while the insured is living, the
Policyowner may take withdrawals from the Unloaned Cash Surrender Value. The
minimum partial withdrawal amount is $500. GIAC reserves the right to limit the
number of partial withdrawals to 12 per policy year. All partial withdrawals
will reduce the Policy Account Value by the amount of the partial withdrawal.
The requested partial withdrawal amount will be deducted from the Variable
Investment Options specified in the Policyowner's request as of the Business Day
of the Policyowner's request until the Policy Account Value attributable
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thereto is exhausted and then proportionately from all other variable investment
options and, finally, from the Fixed-Rate Option. If no options are specified
the amount will be deducted proportionately from the Variable Investment Options
until exhausted and then from the Fixed-Rate Option. Payment will typically be
made within seven days of the date that GIAC received the Policyowner's partial
withdrawal request. A partial withdrawal is only permitted if the remaining Cash
Surrender Value exceeds the adjusted interpolated Benchmark Value, and the
remaining Cash Surrender Value is greater than zero.
Any portion of a partial withdrawal that exceeds the amount eligible for a
reduction-free partial withdrawal, as described below, will reduce the Face
Amount. GIAC will calculate the amount eligible for a reduction-free partial
withdrawal as of the date it receives the policyowner's written request for a
partial withdrawal as follows:
Under death benefit option 1, the amount of a reduction-free partial
withdrawal is any positive amount resulting from:
(a) the Policy Account Value, minus
(b) the Face Amount divided by $1,000, multiplied by the interpolated net
single premium.
For death benefit option 2, all partial withdrawals are reduction-free.
B. Face Amount Reduction
After the first Policy year, the Policyowner may ask GIAC to reduce the
Face Amount of his/her Policy. The minimum reduction is $10,000. The reduction
will take effect on the Monthly Date next following the date that GIAC approves
the change.
GIAC will not deduct a surrender charge if the Face Amount is reduced. The
Policy's Basic Scheduled Premium, Benchmark Value, Tabular Values, Policy
Account Value, monthly deduction for cost of insurance, and any benefits
provided under additional benefit riders, will generally decrease after a Face
Amount reduction. The surrender charge will not change and the policy account
value must always be greater than the full surrender charge.
C. Policy Loans
While the insured is alive, a Policyowner may borrow all or part of a
Policy's "loan value," by assigning the Policy to GIAC as security for the loan.
A Policy's loan value is 90% of the Unloaned Cash Surrender Value on the date
that GIAC receives a proper, written loan request (which includes an assignment
of the Policy) at its Customer Service Office, minus any then outstanding Policy
Debt. The sum of any outstanding loan amounts plus accrued loan interest is the
Policy Debt. Policy loan proceeds will ordinarily be paid within seven days of
the date that GIAC received the loan request. The minimum loan amount is $500 or
90% of the Unloaned Cash Surrender Value, if less, unless the loan is an
Automatic Premium Loan.
When a Policyowner takes a loan, GIAC transfers the amount of the loan
from the Variable Investment Options and the Fixed-Rate Option into a Loan
Collateral Account within GIAC's general account. GIAC will first transfer
amounts held in the Variable Investment Options in proportion to the Policy
Account Value held in such options as of the
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date it received the loan request. If the requested loan exceeds the Policy
Account Value held in the Variable Investment Options, GIAC will transfer the
excess amount from any Policy Account Value then held in the Fixed-Rate Option.
GIAC charges the Policyowner interest on all outstanding loans at an
annual rate of 5% until the twentieth Policy Anniversary at which time the
annual rate decreases to 4.5% for all existing and new loans. Interest accrues
daily and is payable in arrears on Policy Anniversaries. If loan interest is not
paid when due, GIAC automatically increases the outstanding loan by transferring
amounts from the Variable Investment Options and the Fixed-Rate Option to the
Loan Collateral Account, in the manner and order described above, so that the
Loan Collateral Account will be equal to the Policy Debt as of the Policy
Anniversary that loan interest was not paid. Amounts in the Loan Collateral
Account earn interest at a minimum annual rate which is 4%.
The Policyowner may repay all or part of the Policy Debt. The minimum loan
repayment amount is the lesser of $100, unless the repayment accompanies a then
due Policy Premium, or the then outstanding Policy Debt.
When GIAC credits and allocates a loan repayment, it transfers from the
Loan Collateral Account the amount of the repayment, minus a proportional amount
of accrued loan interest, plus a proportional amount of accrued Loan Collateral
Account interest, to the Fixed-Rate Option and the Variable Investment Options
in accordance with the Net Premium allocation instructions then in effect.
If the Policy Debt exceeds the Cash Surrender Value on a Monthly Date, the
Policy could lapse. GIAC will notify the Policyowner that a specified loan
repayment is required to keep the Policy in force.
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D. Surrender
If the insured is alive, the Policyowner may surrender the Policy by
submitting to GIAC a written and signed request (in a form acceptable to GIAC)
together with the Policy or an acceptable affidavit of loss. GIAC will normally
pay the Net Cash Surrender Value within 7 days after the Business Day as of
which it received the surrender request. All insurance coverage ends as of the
Business Day that GIAC computes the Net Cash Surrender Value for surrender.
The Net Cash Surrender Value on any given date is the Policy Account Value
minus any surrender charge, minus any Policy Debt, plus any previously paid
Policy Premium Assessments that relate to periods beyond the next Monthly Date.
GIAC assesses a surrender charge if a Policy is surrendered during the first 9
Policy years. This charge is described in the prospectus for the Policy.
The Net Cash Surrender Value can be paid in a single sum or under one of
the payment options described in the prospectus for the Policy. At least $5,000
must be applied under each option selected, and periodic payments under a
payment option must be at least $50. Other restrictions and limitations are set
forth in the Policy and described in the prospectus.
If a Policy Premium or required loan repayment (see above) remains unpaid
by the end of a 31-day grace period from its due date, the Policy lapses as of
the end of the grace period unless a Policy Value Option becomes effective.
These options include fixed-benefit extended term insurance, reduced paid-up
insurance and variable paid-up insurance. The Policyowner may, alternatively,
surrender the Policy for its Net Cash Surrender Value (see above) or take steps
to fulfill the conditions for reinstatement (see below).
E. Death Claims
GIAC will normally pay the death proceeds under a Policy to the
beneficiary within seven (7) days after it has received due proof of the
insured's death and all other
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required information or documentation necessary to make payment.**
The Policy provides two death benefit options. The Policyowner must choose
an option on the Policy application. Regardless which death benefit option is
chosen by the policyowner, after the Policy Anniversary nearest to the insured's
100th birthday, the death benefit is equal to the Policy Account Value.
The death benefit provided under Option 1 is the greater of:
*the Face Amount on the date of the insured's death; or
*the minimum death benefit then required under Section
7702 of the Internal Revenue Code on the Monthly
Date preceding the insured's death; or
*after the first Policy year, the Policy's "Variable
Insurance Amount," which is defined below.
The death benefit provided under Option 2 is the greater of:
*the Face Amount on the date of the insured's death
plus any amount by which the Policy Account Value
then exceeds the Benchmark Value as adjusted
to the Monthly Date preceding the insured's date of
death; or
*the minimum death benefit then required under Section
7702 of the Internal Revenue Code on the Monthly
Date preceding the insured's death; or
*after the first Policy year, the Policy's Variable
Insurance Amount.
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** State insurance laws impose various requirements, such as receipt of a tax
waiver, before an insurer may pay a death benefit. In addition, payment of the
death benefit is subject to the provisions of the Policy regarding suicide and
incontestability.
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The minimum death benefit required under Section 7702 of the Internal Revenue
Code on any Monthly Date is $1,000 multiplied by the Policy Account Value
divided by the Net Single Premium for the insured's Attained Age, sex and
premium class. The Net Single Premium is adjusted to the Monthly Date preceding
the date of death. A table of Net Single Premiums is set forth in the Policy.
The variable insurance amount provides a guarantee that the death benefit
will be greater than the then effective Face Amount if Policy Account Value is
greater than the Net Single Premium on any Policy Review Date. GIAC determines
the variable insurance amount for each Policy year after the first by
multiplying $1,000 by the Policy Account Value on each Policy Review Date and
dividing the result by the Net Single Premium that applies for such Policy
Review Date. The Variable Insurance Amount will be reduced during a Policy year
if the Face Amount is reduced or if a partial withdrawal is effected. On a Face
amount decrease, the Variable Insurance Amount will be reduced by the same
amount that the base policy is reduced. On a partial withdrawal, the Variable
Insurance Amount is reduced by the full amount of the partial withdrawal
including any reduction-free amount.
On or after the first Policy Anniversary, the Policyowner may change the
death benefit option in effect for his/her Policy once each Policy year.
Evidence of insurability is required to change from Option 1 to Option 2.
The death proceeds payable to the beneficiary will include Policy Premium
Assessments which relate to a period beyond the Policy month of death and any
proceeds provided by additional benefit riders, but are reduced by any
outstanding Policy Debt and any partial withdrawals taken between the Monthly
Date and the date of death. If the insured dies during the grace period for an
unpaid Policy Premium, GIAC will calculate the death benefit as though such
premium had been paid and then deduct the portion of such premium that relates
to periods through the Policy month of death from the payable death proceeds.
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GIAC will pay the death benefit from its general account, and will
transfer assets from the Separate Account to its general account in an amount
equal to the reserve liability applicable to the Policy held in the Account. Any
excess of the insurance amount over the Face Amount will be paid out of the
general account reserve maintained for that purpose.
The death proceeds can be paid in a single sum or under one of the payment
options described in the prospectus for the Policy. The Policyowner may elect
how death proceeds are to be paid while the insured is alive. If no election is
in effect when the insured dies, the beneficiary makes the election. An option
in effect at death may not be changed after death. At least $5,000 must be
applied under each option selected, and periodic payments under a payment option
must be at least $50. Other restrictions and limitations are set forth in the
Policy and described in the prospectus.
IV. Deferment of Benefits
GIAC can delay the payment of death proceeds if the Policy is being
contested and may postpone calculating or paying any benefit or effecting other
Policy transactions involving any Policy Account Value held in the Separate
Account's investment divisions if: (i) the New York Stock Exchange is closed for
other than weekends or holidays, or trading is restricted; (ii) the Securities
and Exchange Commission determines that a state of emergency exists which may
make Policy transactions impracticable; or (iii) at any other time when one or
more of the Variable Investment Options' corresponding Funds lawfully suspends
payment or redemption of their shares.
V. Reinstatement
A lapsed Policy that has not been surrendered for cash may be eligible for
reinstatement for up to five years after the date of default. The insured must
be living when GIAC effects the reinstatement. GIAC must receive a written
application for reinstatement, which includes satisfactory evidence of
insurability. In addition, GIAC requires:
*repayment or reinstatement of any outstanding Policy Debt with applicable
interest compounded yearly; and
*payment of
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all overdue Policy Premiums with 6% interest
compounded yearly
If you are reinstating you Policy after a Policy lapse based on Policy Debt
exceeding the Cash Surrender Value, the Policy Debt is reinstated, the
reinstatement payment must also include the required loan repayment equal to the
Policy Debt minus 90% of the Cash Surrender Value.
A reinstated Policy has the same Policy Date, Face Amount and death
benefit option as the Policy which lapsed.
VI. Cash Adjustment Upon Exchange of Policy
The Policyowner may exchange all or a portion of the Policy for a
permanent level premium fixed-benefit whole life insurance policy offered by
GIAC or its affiliate, without submission of new evidence of insurability, at
any time prior to the insured's 70th birthday or the second Policy Anniversary.
The new policy will have the same Face Amount as the original Policy on the
exchange date. The new policy will have the same Policy Date, and the insured's
Age and risk classification will be retained for the new policy. This exchange
privilege is designed to permit a Policyowner to opt out of this Policy which
provides benefits that vary with investment results in order to obtain a similar
policy which provides a fixed benefit.
There may be a cost or credit to be paid upon this type of exchange,
depending on the amount applied to the new policy. The amount applied to the new
policy during the first 5 Policy Years is the greater of (1) or (2) where:
*(1) is the cumulative premiums for the new policy
(less any dividends that would have been paid)
with interest at 6% minus the prorata portion of the Policy
Premiums for the exchanged Policy to the date of the exchange
with interest at 6%; and
*(2) is the guaranteed cash value of the new policy minus the
prorata portion of the exchanged policy's Cash Surrender Value
on the exchange date applicable to the face amount exchanged.
The cash value will depend on the new policy's face amount,
premium class, and the insured's age and sex on the policy date.
After the fifth policy year, the exchange cost or credit is equal to
number (2) above.
If the greater amount is less than zero, the issuer of the new policy will
pay an exchange credit to the owner or may permit the owner to purchase paid-up
additions on the new policy. If the greater amount is more than zero, the owner
must pay the exchange cost to the issuer of the new policy.
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