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MAY 15, 1996
SUPPLEMENT TO PROSPECTUS DATED MARCH 13, 1996 FOR VARITRAK FLEXIBLE PREMIUM
ADJUSTABLE BENEFIT VARIABLE LIFE INSURANCE POLICY
ISSUED BY
NATIONAL LIFE INSURANCE COMPANY
ONE NATIONAL LIFE DRIVE, MONTPELIER, VT 05604
TELEPHONE: 802-229-3333
The following supplements the information appearing in the section "Payment and
Allocation of Premiums - Issuance of a Policy":
National Life will offer a one time credit on conversions of
eligible National Life term insurance policies to a VariTrak Policy.
The amount of the credit is based on the Minimum Annual Premium, which
is calculated as the amount equal to twelve times the Minimum Monthly
Premium, excluding any Rider charges and assuming a standard Rate
Class. If the term policy being converted has been in force for at
least twelve months, the amount of the credit is equal to 12% of the
Minimum Annual Premium. However, for the period from May 15, 1996
to September 1, 1996, the credit on conversion of a term policy is 25%
of the Minimum Annual Premium. If the term policy being converted has
been in force for less than twelve months, the credit will be prorated
based on the number of months the term policy has been outstanding at
the time of conversion. For GRT term policies, the credit will be 18%
of the Minimum Annual Premium if the GRT term policy has been in force
for at least two years but not more than five years. For GRT term
policies in force for less than two years, the credit is 0.5% per month
for each month in the first year, and 1.0% per month for each month in
the second year. For GRT policies in force more than five years, the
credit decreases from 18% by 0.5% for each month beyond five years,
until it becomes zero at the end of year eight.
The amount of the credit will be added to the initial premium
payment, if any, submitted by the Policy Owner converting the term
policy, and will be treated as part of the Initial Premium for the
Policy. Thus, the credit will be included in premium payments for
purposes of calculating and deducting the Premium Tax Charge. If the
Policy is surrendered, the credit will not be recaptured by National
Life. The amount of the credit will not be included for purposes of
calculating agent compensation.
National Life will also offer a one time credit to Home Office
employees who purchase a VariTrak Policy as both Owner and Insured.
This one time credit is calculated differently from the credit
described above; in particular, the amount of the credit will be 50% of
the target premium used in the calculation of commissions on the
Policy. Otherwise, the credit will be treated in the same manner as
the credit described above.
The following supplements the information appearing in the section "Payment and
Allocation of Premiums - Specialized Uses of the Policy":
For Policies that are intended to be used in STEP plans,
prospective purchasers should be aware that there is a risk that the
intended tax consequences of such a plan may not be realized. In two
audits, the Internal Revenue Service has proposed tax treatment less
advantageous than intended, and those matters are currently in
litigation. The plans under audit may have considerable differences
from those a prospective Policy Owner may be considering, and the
litigation regarding such plans may or may not be controlling with
respect to STEP Plans of prospective Policy Owners. National Life does
not guarantee any particular tax consequences of any use of the
Policies, including but not limited to use in STEP Plans, and
recommends that prospective purchasers of Policies seek independent tax
advice with respect to applications in which particular tax
consequences are sought.
