Flexible Premium SURVIVORSHIP VARIable Universal Life Insurance Contracts
KANSAS CITY LIFE VARIABLE LIFE SEPARATE ACCOUNT OF
Kansas City Life Insurance Company
Home Office: Correspondence to:
3520 Broadway Variable Administration
Kansas City, Missouri 64111-2565 P.O. Box 419364
Telephone (816) 753-7000 Kansas City, Missouri 64141-6364
Telephone (800) 616-3670
This Prospectus describes a flexible premium survivorship variable universal
life insurance contract (the "Contract") offered by Kansas City Life Insurance
Company ("Kansas City Life," "we," "us" or "our"). The Contract is designed to
provide insurance protection on the death of the last surviving of the two
Insureds named in the Contract, and at the same time provide you with the
flexibility to vary the amount and timing of premium payments and to change the
amount of Death Benefits payable under the Contract. This flexibility allows you
to provide for your changing insurance needs under a single insurance contract.
You also have the opportunity to allocate Net Premium payments and Contract
Value to one or more Subaccounts of the Kansas City Life Variable Life Separate
Account (the "Variable Account") and to Kansas City Life's general account (the
"Fixed Account"), within limits. This Prospectus generally describes only that
portion of the Contract Value allocated to the Variable Account. For a brief
summary of the Fixed Account, see "Fixed Account," page 24. The assets of each
Subaccount are invested in a corresponding portfolio (each, a "Portfolio") of
MFS Variable Insurance Trust ("MFS Trust"), of American Century Variable
Portfolios, Inc. ("American Century Variable Portfolios"), of Federated
Insurance Series, of Dreyfus Variable Investment Fund, and of Dreyfus Stock
Index Fund. (MFS Trust, American Century Variable Portfolios, Federated
Insurance Series, Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund
are each referred to as a "Fund"). Each Fund is managed by the investment
adviser shown below:
MFS(R) Variable Insurance TrustSM Manager
MFS Research Series Massachusetts Financial Services
MFS Emerging Growth Series Company
MFS Total Return Series
MFS Bond Series
MFS World Governments Series
MFS Utilities Series
American Century Variable Portfolios Manager
American Century VP Capital Appreciation American Century Investment
American Century VP International Management, Inc.
Federated Insurance Series Manager
Federated American Leaders Fund II Federated Advisers
Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Manager
Capital Appreciation Portfolio The Dreyfus Corporation
Small Cap Portfolio
Dreyfus Stock Index Fund Manager
The Dreyfus Corporation
The accompanying prospectuses for MFS Trust, American Century Variable
Portfolios, Federated Insurance Series, Dreyfus Variable Investment Fund and
Dreyfus Stock Index Fund describe their respective Portfolios, including the
risks of investing in the Portfolios, and provide other information on MFS
Trust, American Century Variable Portfolios, Federated Insurance Series, Dreyfus
Variable Investment Fund and Dreyfus Stock Index Fund.
You can select from three Coverage Options available under the Contract which
determine the amount of Death Benefit proceeds payable. Kansas City Life offers
a Guaranteed Minimum Death Benefit Option which guarantees payment of the
Specified Amount (less Indebtedness and past due charges) upon the death of the
last surviving Insured provided that you meet the premium payment requirements.
The Contract provides for a Cash Surrender Value that can be obtained by
surrendering the Contract. Because this value is based on the performance of the
Portfolios of the Funds, to the extent of allocations to the Variable Account,
there is no guaranteed minimum Cash Surrender Value. If the Cash Surrender Value
is insufficient to cover the charges due under the Contract, the Contract will
lapse without value. The Contract also permits loans and partial surrenders,
within limits.
It may not be advantageous to replace existing insurance with this Contract.
Within certain limits, you may return the Contract.
THIS PROSPECTUS PRESENTS CONCISELY THE INFORMATION YOU SHOULD KNOW BEFORE
DECIDING TO PURCHASE A CONTRACT. IT SHOULD BE RETAINED FOR FUTURE REFERENCE.
PROSPECTUSES FOR MFS VARIABLE INSURANCE TRUST, AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC., FEDERATED INSURANCE SERIES, DREYFUS VARIABLE INVESTMENT FUND
AND DREYFUS STOCK INDEX FUND MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ
IN CONJUNCTION WITH THIS PROSPECTUS.
AN INVESTMENT IN THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED
OR ENDORSED BY, ANY BANK, NOR IS THE CONTRACT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE LOSS OF PREMIUM PAYMENTS
(PRINCIPAL).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Date of this Prospectus is May 1, 1998.
<PAGE>
PROSPECTUS CONTENTS
Page
DEFINITIONS OF TERMS 5
SUMMARY AND DIAGRAM OF THE CONTRACT 9
GENERAL INFORMATION ABOUT KANSAS CITY LIFE,
THE VARIABLE ACCOUNT AND THE FUNDS 17
Kansas City Life Insurance Company 17
Kansas City Life Variable Life Separate Account 17
The Funds 17
Resolving Material Conflicts 20
Addition, Deletion or Substitution of Investments 20
Voting Rights 21
PREMIUM PAYMENTS AND ALLOCATIONS 21
Applying for a Contract 21
Free Look Right to Cancel Contract 23
Premiums 23
Premium Payments to Prevent Lapse 23
Premium Allocations and Crediting 24
Transfer Privilege 24
Dollar Cost Averaging Plan 25
Portfolio Rebalancing Plan 25
FIXED ACCOUNT 26
Minimum Guaranteed and Current Interest Rates 26
Calculation of Fixed Account Value 27
Transfers from Fixed Account 27
Payment Deferral 27
CHARGES AND DEDUCTIONS 27
Premium Expense Charges 27
Monthly Deduction 28
Daily Mortality and Expense Risk Charge 30
Transfer Processing Fee 30
Partial Surrender Fee 30
Fund Expenses 30
Bonus on Contract Value in the Variable Account 30
Reduced Charges for Eligible Groups 30
Other Tax Charge 31
HOW YOUR CONTRACT VALUES VARY 31
Determining the Contract Value 31
Cash Surrender Value 32
DEATH BENEFIT 32
Amount of Death Benefit Proceeds 32
Total Sum Insured, Specified Amount, Additional Insurance Amount 32
Coverage Options 33
Corridor Death Benefit 33
Guaranteed Minimum Death Benefit Option 33
Effect of Combinations of Specified Amount and Additional Insurance Amount34
Selecting and Changing the Beneficiary 34
CHANGES IN DEATH BENEFIT 35
Investment Performance Impact on Death Benefit 35
Changes in Coverage Option 35
Increases in the Additional Insurance Amount 35
Decreases in Total Sum Insured 36
CASH BENEFITS 36
Contract Loans 36
Surrendering the Contract for Cash Surrender Value 38
Partial Surrenders 38
Payment Options 38
Specialized Uses of the Contract 39
ILLUSTRATIONS OF CONTRACT VALUES, CASH SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED PREMIUM PAYMENTS 40
OTHER CONTRACT BENEFITS AND PROVISIONS 45
Limits on Rights to Contest the Contract 45
Changes in the Contract or Benefits 45
Payment of Proceeds 45
Reports to Contract Owners 46
Assignment 46
Reinstatement of Contract 46
Optional Benefits and Riders 46
TAX CONSIDERATIONS 48
Tax Status of the Contract 48
Tax Treatment of Contract Benefits 49
Possible Charge for Kansas City Life's Taxes 51
OTHER INFORMATION ABOUT THE CONTRACTS AND KANSAS CITY LIFE 51
Sale of the Contracts 51
Telephone Transfer, Premium Allocation and Loan Privileges 51
Kansas City Life Directors and Executive Officers 52
State Regulation 54
Additional Information 54
Experts 54
Litigation 54
Legal Matters 55
Company Holidays 55
Financial Statements 55
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUSES OF THE FUNDS, OR THE STATEMENTS OF ADDITIONAL
INFORMATION OF THE FUNDS.
<PAGE>
DEFINITIONS OF TERMS
Accumulation Unit An accounting unit used to calculate Variable Account Value.
It is a measure of the net investment results of each of the Subaccounts.
Additional Insurance Amount The amount of insurance coverage under the Contract
which is not part of the Specified Amount. The Guaranteed Minimum Death Benefit
Option, if elected, does not guarantee the Additional Insurance Amount.
Age Age means the age of each Insured on their last birthday as of each Contract
Anniversary.
Allocation Date The date on which the initial Net Premium is allocated to the
Federated Prime Money Fund II Subaccount. The Allocation Date is the later of
the date when all underwriting and other requirements have been met and your
application has been approved, or the date the initial premium is received at
the Home Office.
Beneficiary The Beneficiary is the person you have designated in the application
or in the last beneficiary designation filed with us to receive any proceeds
payable under the Contract at the death of the last surviving Insured.
Cash Surrender Value The Contract Value at the time of surrender less any
Contract Indebtedness.
Contract Anniversary The same day and month as the Contract Date each year that
the Contract remains in force.
Contract Date The date on which coverage under the Contract takes effect.
Contract Months, Years and Anniversaries are measured from the Contract Date.
The incontestability and suicide periods for the Total Sum Insured are measured
from this date.
Contract Value The sum of the Variable Account Value and the Fixed Account Value
(including the Loan Account Value). Calculation of the Contract Value is
described on page 30.
Contract Year A period of twelve months starting with the Contract Date and each
Contract Anniversary thereafter.
Corridor Death Benefit A Death Benefit under the Contract designed to ensure
that in certain situations the Contract will not be disqualified as a life
insurance contract under Section 7702 of the Internal Revenue Code, as amended.
The Corridor Death Benefit is calculated by multiplying the Contract Value by
the applicable corridor percentage.
Coverage Options The Coverage Option selected determines the amount of Death
Benefit proceeds payable. Three coverage options (A, B or L) are available.
These options are described in "Coverage Options," page 32.
Death Benefit Proceeds The amount of proceeds payable upon the death of the last
surviving Insured. The Death Benefit is determined according to the Coverage
Option that has been elected. The Death Benefit will also be affected if the
Corridor Death Benefit is applicable or if the Guaranteed Minimum Death Benefit
Option is in effect. Any Indebtedness is deducted from the amount payable.
Excess Premium The portion of total premiums received during any Contract Year
that exceeds the Target Premium.
Fixed Account An account that is part of our General Account, and is not part of
or dependent on the investment performance of the Variable Account.
Fixed Account Value The Contract Value in the Fixed Account.
Guaranteed Minimum An optional benefit, available only at issue of the Contract.
If elected, it Death Benefit Option guarantees payment of the Specified Amount
less Indebtedness and any past due charges upon the death of the last surviving
Insured, provided that the Guaranteed Minimum Death Benefit Option Premium
requirement is met.
Guaranteed Minimum Death The Guaranteed Minimum Death Benefit Option Premium is
the amount Benefit Option Premium required to guarantee that the Guaranteed
Minimum Death Benefit Option will remain in effect.
Home Office 3520 Broadway, P.O. Box 419364, Kansas City, Missouri 64141-6364.
Indebtedness The sum of all outstanding Contract loans plus accrued interest.
Insureds The two persons whose lives are insured under the Contract.
Lapse Termination of the Contract at the expiration of the Grace Period while
one or both of the Insureds are still living.
Loan Account The Loan Account is part of the Fixed Account, which is part of the
General Account.
Loan Account Value The Contract Value in the Loan Account.
Minimum Premium The Minimum Premium is the amount required in the first Contract
Year to issue the Contract.
Monthly Anniversary Day The day of each month as of which we make the Monthly
Deduction. It is the same day of each month as the Contract Date or the last day
of the month for those months not having such a day.
Monthly Deduction The amount we deduct as of each Monthly Anniversary Day from
the Contract Value to pay the Deductions from Contract Value as described on
page 27.
Net Investment Factor An index used to measure Subaccount performance of the
current Valuation Period. Subaccount performance includes gains or losses in the
Subaccounts, dividends paid, any capital gains or losses, any taxes, and
mortality and expense risk charges. The calculation of the Net Investment Factor
is described on page 31.
Net Premium A premium payment minus the applicable Premium Expense Charges. See
page 26.
Owner, You The person(s) entitled to exercise all rights and privileges provided
in the Contract.
Planned Premium Payments The amount and frequency of premium payments you
elected to pay in your last application. This is the amount we will bill you and
is only an indication of your preferences of future premium payments. You may
change the amount and frequency of premium payments at any time. The actual
amount and frequency of premium payments will affect the Contract Value and the
amount and duration of insurance.
Premium Expense Charges The Premium Expense Charges are the amounts we deduct
from each premium payment. See page 26.
Premium Payment(s) The amount(s) paid by the Owner to fund the Contract; either
a Planned Premium Payment or Unscheduled Premium.
Proceeds The total amount we are obligated to pay under the terms of the
Contract.
Reallocation Date The date as of which Contract Value in the Federated Prime
Money Fund II Subaccount is allocated to the Subaccounts and to the Fixed
Account based on the Net Premium allocation percentages specified in the
application. The Reallocation Date is 30 days after the Allocation Date.
Specified Amount The Total Sum Insured less any Additional Insurance Amount
provided under the Contract.
Subaccounts The division of accounts making up the Variable Account. The assets
of each Subaccount are invested in a corresponding portfolio of a designated
mutual fund.
Subaccount Value The Contract Value in a Subaccount.
Target Premium The annual Target Premium is specified in the Contract. This
amount is segregated from Excess Premium for the purpose of calculating certain
charges.
Total Sum Insured The Total Sum Insured equals the sum of the Specified Amount
and any Additional Insurance Amount provided under the Contract. This amount
does not include any additional benefits provided by riders.
Unscheduled Premium Any premium other than a Planned Premium Payment.
Valuation Day Each day on which both the New York Stock Exchange and Kansas City
Life are open for business.
Valuation Period The interval of time commencing at the close of business on one
Valuation Day and ending at the close of business on the next succeeding
Valuation Day. Variable Account The Kansas City Life Variable Life Separate
Account. This is not part of our General Account. The Variable Account has
Subaccounts. Variable Account Value The total value of a Contract allocated to
Subaccounts of the Variable Account.
Written Notice A written notice in a form satisfactory to Kansas City Life that
is signed by the Owner and received at the Home Office.
<PAGE>
SUMMARY AND DIAGRAM OF THE CONTRACT
The following summary of Prospectus information and diagram of the Contract
should be read in conjunction with the detailed information appearing elsewhere
in this Prospectus. Unless otherwise indicated, the description of the Contract
in this Prospectus assumes that the Contract is in force and there is no
outstanding Contract Indebtedness.
The Contract, for as long as it remains in force, provides lifetime insurance
protection with the Death Benefit paid on the death of the last surviving of the
two Insureds named in the Contract.
The Contract is similar in many ways to fixed-benefit life insurance. As with
fixed-benefit life insurance, the Owner of a Contract pays premium payments for
insurance coverage on the Insureds. Also like fixed-benefit life insurance, the
Contract provides for accumulation of Net Premiums and a Cash Surrender Value
that is payable if the Contract is surrendered during the lifetime of one or
both of the Insureds. As with fixed-benefit life insurance, the Cash Surrender
Value during the early Contract Years is likely to be substantially lower than
the amount of premiums paid.
However, the Contract differs from fixed-benefit life insurance in several
important respects. Unlike fixed-benefit life insurance, the Death Benefit may
and the Contract Value will increase or decrease to reflect the investment
performance of the Subaccounts to which Contract Value is allocated. Also, there
is no guaranteed minimum Cash Surrender Value. If elected at issue, the
Guaranteed Minimum Death Benefit Option does guarantee the payment of the
Specified Amount upon the death of the last surviving Insured, regardless of the
Contract's investment performance, provided that the Guaranteed Minimum Death
Benefit Option Premium requirement has been met. See "Guaranteed Minimum Death
Benefit Option," page 32. Otherwise, if the Cash Surrender Value is insufficient
to pay charges due, the Contract will lapse without value after a grace period.
See "Premium Payments to Prevent Lapse," page 23. If a Contract lapses while
loans are outstanding, adverse tax consequences may result. See "Tax
Considerations," page 47.
The most important features of the Contract, such as charges, cash surrender
benefits, Death Benefits, and calculation of Contract Values, are summarized in
the diagram on the following pages.
Purpose of the Contract. The Contract is designed to provide long-term
insurance benefits, and may also provide long-term accumulation of Contract
Value. The Contract should be evaluated in conjunction with other insurance
policies that you own, as well as the need for insurance and the Contract's
long-term investment potential. It may not be advantageous to replace existing
insurance coverage with this Contract. In particular, replacement should be
carefully considered if the decision to replace existing coverage is based
solely on a comparison of Contract illustrations. See "Illustrations" below and
"Specialized Uses of the Contract" on page 39.
Illustrations. Illustrations in this Prospectus or used in connection
with the purchase of a Contract are based on hypothetical rates of return. These
rates are not guaranteed. They are illustrative only and should not be deemed a
representation of past or future performance. Actual rates of return may be
higher or lower than those reflected in Contract illustrations, and therefore,
actual Contract Values will be different from those illustrated.
The illustrations show Contract Values based on current charges and,
alternatively, based on guaranteed charges. See "Illustrations of Contract
Values, Cash Surrender Values, Death Benefits and Accumulated Premium Payments,"
page 39.
Contract Tax Compliance. Kansas City Life intends for the Contract to
satisfy the definition of a life insurance contract under Section 7702 of the
Internal Revenue Code. Under certain circumstances, a Contract will be treated
as a "modified endowment contract" under federal tax law. Kansas City Life will
monitor Contracts and will notify you on a timely basis if your Contract is in
jeopardy of violating the definition of life insurance or becoming a modified
endowment contract. For further discussion of the tax status of a Contract and
the tax consequences of being treated as a life insurance contract or a modified
endowment contract, see "Tax Considerations," page 47.
Free Look Right to Cancel. For a limited time, you have the right to
cancel your Contract and receive a refund. See "Free Look Right to Cancel
Contract," page 22.
Owner Inquiries. If you have any questions, you may write or call Kansas
City Life's Home Office at 3520 Broadway, P.O. Box 419364, Kansas City, Missouri
64141-6364, 1-800-616-3670.
<PAGE>
DIAGRAM OF CONTRACT
PREMIUM PAYMENTS
You select a payment plan but are not required to pay premium payments according
to the plan. You can vary the amount and frequency and can skip planned premium
payments. The actual amount and frequency of premium payments will affect the
Contract Value and the amount and duration of insurance. See page 23 for rules
and limits.
The Contract's minimum initial premium payment and planned premium payment
depend on the Insureds' Age, sex, risk class, Specified Amount and any optional
benefits and riders selected.
Unplanned premium payments may be made, within limits. See page 23.
Under certain circumstances, which include taking excessive Contract loans,
extra premium payments may be required to prevent lapse. See page 23.
DEDUCTIONS FROM PREMIUM PAYMENTS
Sales Charge equal to 50% of premium up to Target Premium and 2% of Excess
Premium in Contract Year 1, 15% of premium up to Target Premium and 2% of Excess
Premium in Contract Years 2-5, 6% of premium up to Target Premium and 2% of
Excess Premium in Contract Years 6-10, 2% of premium up to Target and Excess
Premium in Contract Years 11-20. Beginning in the 21st Contract Year there is no
charge. The Target Premium is shown in your Contract. Target Premiums and Excess
Premiums are amounts used to determine the amount of Sales Charge.
Premium Processing Charge equal to 4.85% of premium for all Contract Years.
NET PREMIUM PAYMENTS
You direct the allocation of Net Premium payments among 14 Subaccounts of the
Variable Account and the Fixed Account. See page 24 for rules and limits on Net
Premium payment allocations.
Each Subaccount invests in a corresponding portfolio of a mutual fund:
Mutual Fund Portfolio
MFS(R) Variable Insurance TrustSM MFS Research Series
Manager: Massachusetts Financial MFS Emerging Growth Series
Services Company MFS Total Return Series
MFS Bond Series
MFS World Governments Series
MFS Utilities Series
American Century Variable Portfolios American Century VP Capital
Manager: American Century Investment Appreciation
Management, Inc. American Century VP International
Federated Insurance Series Federated American Leaders Fund II
Manager: Federated Advisers Federated High Income Bond Fund II
Federated Prime Money Fund II
Dreyfus Variable Investment Fund Capital Appreciation Portfolio
Manager: The Dreyfus Corporation Small Cap Portfolio
Dreyfus Stock Index Fund Dreyfus Stock Index Fund
Manager: The Dreyfus Corporation
Interest is credited on amounts allocated to the Fixed Account at a minimum
guaranteed rate of 4%. See page 24 for rules and limits on transfers from the
Fixed Account.
DEDUCTIONS FROM CONTRACT VALUE
Monthly Administrative Expense Charge of $7.50 per month plus $.02 per $1,000 of
Total Sum Insured per month for all Contract Years
Monthly Issue Expense Charge
of $12.50 per month for the first five Contract Years
Guaranteed Minimum Death
Benefit Option Charge beginning in the 11th Contract Year-- Current: $.01 per
$1,000 of Specified Amount per month; Guaranteed: $.03 per $1,000 of Specified
Amount per month.
Cost of insurance charges deducted each month for all Contract
Years. See page 27.
Fee applicable upon a partial surrender of the Contract
Value equal to the lesser of : (a) 2% of the amount surrendered; or (b) $25.
Charges for any additional benefits or riders. See page 29.
DEDUCTIONS FROM ASSETS
Daily charge at an annual rate of 0.625% on a current basis and 0.90% on a
guaranteed basis from the Subaccounts for mortality and expense risks. See page
29. This charge is not deducted from the Fixed Account Value. Investment
advisory fees and operating expenses are deducted from the assets of each
Portfolio. See tables below and page 30.
Annual Fund Expenses--(See below)
<TABLE>
MFS
MFS MFS World
Emerging MFS Total MFS Govern- MFS
Growth Research Return Utilities ments Bond
Series Series Series Series Series Series
<S> <C> <C> <C> <C> <C> <C>
MFSR Variable Insurance TrustSM
Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.75% 0.75% 0.75% 0.75% 0.75% 0.60%
Other Expenses (after any expense
reimbursement)1/ 2/ 0.12% 0.13% 0.25% 0.25% 0.25% 0.40%
Total Fund Annual Expenses 1/ 0.87% 0.88% 1.00% 1.00% 1.00% 1.00%
</TABLE>
<TABLE>
AM Cent
VP Capital Am Cent VP
Appreciation International
<S> <C> <C>
American Century Variable Portfolios
Annual Expenses
(as a percentage of average net assets)
Management Fees(Investment Advisory Fees) 1.00% 1.50%
Other Expenses 0.00% 0.00%
Total Fund Annual Expenses3/ 1.00% 1.50%
</TABLE>
<TABLE>
Federated Federated Federated
American High Income Prime
Leaders Bond Money
Fund II Fund II Fund II
<S> <C> <C> <C>
Federated Insurance Series Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.66% 0.51% 0.30%
Other Expenses (after any expense
reimbursement) 0.19% 0.29% 0.50%
Total Fund Annual Expenses4/ 0.85% 0.80% 0.80%
</TABLE>
<TABLE>
Dreyfus
Capital Dreyfus
Appreciation Small Cap
<S> <C> <C>
Dreyfus Variable Investment Fund Annual
Expenses (as a percentage of average
net assets)
Management Fees (Investment Advisory Fees) 0.75% 0.75%
Other Expenses (after any expense
reimbursement) 0.05% 0.03%
Total Fund Annual Expenses 0.80% 0.78%
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Stock Index
Fund
<S> <C>
Dreyfus Stock Index Fund Annual Expenses
(as a percentage of average net assets)
Management Fees (Investment Advisory Fees) 0.25%
Other Expenses (after any expense
reimbursement) 0.03%
Total Fund Annual Expenses 0.28%
</TABLE>
Premium taxes, currently ranging up to 3.5%, may be applicable, depending on
various states' laws.
The above tables are intended to assist you in understanding the fund expenses
that you will bear, directly or indirectly. The tables reflect expenses of the
Funds. The Annual Expenses for the Funds are expenses for the most recent fiscal
year, except as noted below. For a more complete description of the various
expenses see the Prospectuses for the underlying Funds that accompany this
Prospectus.
- --------------------------
1/ The investment adviser to MFS Variable Insurance Trust has agreed to bear
expenses for each Series, subject to reimbursement by each Series, such
that each Series' "Other Expenses" shall not exceed the following
percentages of the average daily net assets of the Series during the
current fiscal year: .40% for the Bond Series, and .25% for each remaining
Series. Absent this expense arrangement, "Other Expenses" for the Total
Return Series, Utilities Series, World Governments Series and Bond Series
would be .27%, .45%, .40% and 2.98%, respectively, and Total Annual Fund
Expenses would be 1.02%, 1.20%, 1.15% and 3.58%, respectively, for these
Series.
2/ Each Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which would also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
3/ The investment adviser to American Century Variable Portfolios pays all the
expenses of the Fund except brokerage, taxes, interest, fees and expenses
of the non-interested person directors (including counsel fees) and
extraordinary expenses. For its services, the adviser is paid a fee of
1.50% and 1.00% of the average net assets of the Am Cent VP International
and Am Cent VP Capital Appreciation, respectively.
<PAGE>
4/ The adviser to Federated Insurance Series has agreed to waive all or a
portion of its fee or reimburse the Fund for certain operating expenses so
that the Total Fund Annual Expenses would not exceed .85%, .80%, and .80%
respectively, of average net assets of those Portfolios. The adviser can
terminate this voluntary waiver at any time at its sole discretion. Without
this waiver, the Management Fees would be .75%, .60% and .50% of the
average net assets of Federated American Leaders Fund II, Federated High
Income Bond Fund II and the Federated Prime Money Fund II, respectively,
and the Total Fund Annual Expenses for these Portfolios would be .94%,
.89%, and 1.00%, respectively, of average net assets.
<PAGE>
CONTRACT VALUE
Contract Value is equal to Net Premiums, as adjusted each Valuation Day to
reflect Subaccount investment experience, interest credited on Fixed Account
Value, charges deducted and other Contract transactions (such as transfers and
partial surrenders). See page 30.
Varies from day to day. There is no minimum guaranteed Contract Value. The
Contract may lapse if the Contract Value is insufficient to cover a Monthly
Deduction due. See page 30.
Can be transferred among the Subaccounts and Fixed Account. A transfer fee of
$25.00 will apply for each transfer if more than 6 transfers are made in a
Contract Year. See page 24 for rules and limits.
Is the starting point for calculating certain values under a Contract, such as
the Cash Surrender Value and the Death Benefit, used to determine Death Benefit
Proceeds.
A "bonus" may be credited to the Contract Value on each Monthly Anniversary Day
beginning on the first Monthly Anniversary following the Contract Date. The
monthly bonus applies to Contracts with a Total Sum Insured of $5,000,000 or
above and equals an annual rate of 0.125% of the Variable Account Value. This
bonus is not guaranteed.
CASH BENEFITS
Loans may be taken for amounts up to Cash Surrender Value less loan interest to
the next Contract Anniversary, at an annual effective interest rate of 6.0%.
Currently, a preferred loan is available beginning in the 11th Contract Year.
See page 36 for rules and limits.
Partial surrenders generally can be made provided there is sufficient remaining
Cash Surrender Value. A partial surrender fee of the lesser of 2% of the amount
surrendered or $25 will apply. See page 37 for limits. Partial surrenders may be
subject to adverse tax consequences.
The Contract may be surrendered in full at any time for its Cash Surrender
Value. See page 37. Surrenders may be subject to adverse tax consequences.
Payment options are available. See page 38.
DEATH BENEFITS
Income tax free to Beneficiary.
May be paid to the beneficiary as lump sum or under a variety of payment
options.
For all Contracts, a minimum initial Total Sum Insured of $200,000 is required
which may be made up of a combination of Specified Amount and Additional
Insurance Amount as long as the Specified Amount is at least $100,000. We may
allow these minimum limits to be reduced. See page 32.
Three Coverage Options available:
Coverage Option A provides a Death Benefit at least equal to the Total Sum
Insured on the date of death of the last surviving Insured. Coverage Option B
provides a Death Benefit at least equal to the Total Sum Insured on the date of
death of the last surviving Insured, plus the Contract Value on the date of
death. Coverage Option L provides a Death Benefit that is at least equal to the
sum of: (a) the Total Sum Insured on the date of death of the last surviving
Insured; and (b) an amount calculated on the last Contract Anniversary equal to
the Contract Value multiplied by the applicable Coverage Option L Death Benefit
percentage less the Total Sum Insured. The Death Benefit under all three of
these Coverage Options will be the greater of the amount described above and the
Corridor Death Benefit Percentage amount which ensures that the Contract will
not be disqualified as a life insurance contract. See page 32.
Guaranteed Minimum Death Benefit Option available at issue (restrictions may
apply) if Guaranteed Minimum Death Benefit Premium requirement is met. See page
32.
Flexibility to change the Coverage Option or increase or decrease the Total Sum
Insured. See page 32 for rules and limits (restrictions may apply).
Optional benefits and/or riders may be available. See page 46.
Any Indebtedness is deducted from the amount payable.
<PAGE>
GENERAL INFORMATION ABOUT KANSAS CITY LIFE, THE VARIABLE ACCOUNT AND THE FUNDS
Kansas City Life Insurance Company
The Contracts are issued by Kansas City Life Insurance Company, which is a stock
life insurance company organized under the laws of the State of Missouri in
1895. Kansas City Life is currently licensed to transact life insurance business
in 48 states and the District of Columbia.
Kansas City Life is subject to regulation by the Department of Insurance of the
State of Missouri as well as by the insurance departments of all other states
and jurisdictions in which it does business. We submit annual statements on our
operations and finances to insurance officials in such states and jurisdictions.
The forms for the Contract described in this Prospectus are filed with and
(where required) approved by insurance officials in each state and jurisdiction
in which Contracts are sold.
Kansas City Life Insurance Company is a member of the Insurance Marketplace
Standards Association ("IMSA") and, as such, may include the IMSA logo and
information about IMSA membership in its advertisements. Companies that belong
to IMSA subscribe to a set of ethical standards covering the various aspects of
sales and service for individually sold life insurance and annuities.
Kansas City Life Variable Life Separate Account
Kansas City Life Variable Life Separate Account was established as a separate
investment account under Missouri law on April 24, 1995. It is used to support
the Contracts and other variable life insurance contracts issued by Kansas City
Life, and may be used for other purposes permitted by law. The Variable Account
is registered with the Securities and Exchange Commission ("SEC") as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act") and
is a "separate account" within the meaning of the federal securities laws.
Kansas City Life has established other separate investment accounts that are
also registered with the SEC.
The Variable Account is divided into Subaccounts. The Subaccounts available
under the Contracts invest in shares of Portfolios of the Funds. The Variable
Account includes other Subaccounts that are used to support other variable life
insurance contracts issued by Kansas City Life. These Subaccounts are not
available under the Contracts and are not otherwise discussed in this
Prospectus.
The assets in the Variable Account are owned by Kansas City Life.
Income, gains and losses, realized or unrealized, of a Subaccount are credited
to or charged against the Subaccount without regard to any other income, gains
or losses of Kansas City Life. Applicable insurance law provides that assets
equal to the reserves and other contract liabilities of the Variable Account are
not chargeable with liabilities arising out of any other business of Kansas City
Life. The Variable Account may, however, be subject to liabilities arising from
the Subaccounts that are used to support the other variable life insurance
contracts issued by Kansas City Life. Kansas City Life is obligated to pay all
benefits provided under the Contracts.
The Funds
MFS(R) Trust, American Century Variable Portfolios, Federated Insurance Series,
Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund are each
registered with the SEC as a diversified open-end management investment company
under the 1940 Act. The SEC does not supervise their management or investment
practices and policies. Each of the Funds is a series fund-type mutual fund made
up of the Portfolios and other series that are not available under the
Contracts. The investment objectives of each of the Portfolios is described
below.
The investment objectives and policies of certain Portfolios are similar to the
investment objectives and policies of mutual fund portfolios other than the
Portfolios that may be managed by the same investment advisor or manager. The
investment results of the Portfolios, however, may be higher or lower than the
results of such other portfolios. There can be no assurance, and no
representation is made, that the investment results of any of the Portfolios
will be comparable to the investment results of any other portfolios, even if
the other portfolio has the same investment adviser or manager.
MFS(R) Variable Insurance TrustSM
(Manager: Massachusetts Financial Services Company)
MFS(R) Research SeriesSM. The Research Series' investment objective is
to provide long-term growth of capital and future income. The Series' assets are
allocated to selected economic sectors and then to industry groups within those
sectors.
MFS(R) Emerging Growth SeriesSM. The Emerging Growth Series seeks to
provide long-term growth of capital. Dividend and interest income from portfolio
securities, if any, is incidental to the Series' investment objective of
long-term growth of capital. The Series' policy is to invest primarily (i.e., at
least 80% of its assets under normal circumstances) in common stocks of
companies that MFS believes are early in their life cycle but which have the
potential to become major enterprises (emerging growth companies).
MFS(R) Total Return SeriesSM. The Total Return Series' primary
investment objective is to obtain above-average income (compared to a portfolio
entirely invested in equity securities) consistent with the prudent employment
of capital, and its secondary objective is to provide a reasonable opportunity
for growth of capital and income, since many securities offering a better than
average yield may also possess growth potential.
MFS(R) Bond SeriesSM. The Bond Series' primary investment objective is
to provide as high a level of current income as is believed to be consistent
with prudent investment risk. The Series' secondary objective is to protect
shareholders' capital. Up to 20% of the Series' total assets may be invested in
lower-rated or non-rated debt securities commonly known as "junk bonds." The
risks of investing in junk bonds are described in the prospectus for the MFS(R)
Variable Insurance TrustSM, which should be read carefully before investing.
MFS(R) World Governments SeriesSM. The World Governments Series'
investment objective is to seek not only preservation, but also growth of
capital, together with moderate current income. The Series seeks to achieve its
investment objective through a professionally managed, internationally
diversified portfolio consisting primarily of debt securities and to a lesser
extent equity securities.
MFS(R) Utilities SeriesSM. The Utilities Series' investment objective
is to seek capital growth and current income (income above that available from a
portfolio invested entirely in equity securities). The Series will seek to
achieve its objective by investing, under normal circumstances, at least 65%
(but up to 100% at the discretion of the Series' adviser) of its assets in
equity and debt securities of both domestic and foreign companies in the
utilities industry.
American Century Variable Portfolios, Inc. (formerly TCI Portfolios, Inc.)
(Manager: American Century Investment Management, Inc. (formerly Investors
Research Corporation))
American Century VP Capital Appreciation Portfolio (formerly TCI Growth
Portfolio). The investment objective of American Century VP Capital Appreciation
is capital growth. The Portfolio will seek to achieve its investment objective
by investing primarily in common stocks that are considered by the investment
adviser to have better-than-average prospects for appreciation.
American Century VP International Portfolio (formerly TCI International
Portfolio). The investment objective of American Century VP International
Portfolio is capital growth. The Portfolio will seek to achieve its investment
objective by investing primarily in securities of foreign companies that meet
certain fundamental and technical standards of selection and that have, in the
opinion of the investment manager, potential for appreciation.
Federated Insurance Series
(Manager: Federated Advisers)
Federated American Leaders Fund II. The primary investment objective of
the Federated American Leaders Fund II is to achieve long-term growth of
capital. The Fund's secondary objective is to provide income. The Fund pursues
its investment objectives by investing, under normal circumstances, at least 65%
of its total assets in common stock of "blue-chip" companies, which are
generally top-quality, established growth companies.
Federated High Income Bond Fund II. The investment objective of the
Federated High Income Bond Fund II is to seek high current income. The Fund
endeavors to achieve its objective by investing primarily in lower-rated
corporate debt obligations commonly referred to as "junk bonds." The risks of
investing in junk bonds is described in the prospectus for Federated Insurance
Series, which should be read carefully before investing.
Federated Prime Money Fund II. The investment objective of the
Federated Prime Money Fund II is to provide current income consistent with
stability of principal and liquidity. The Fund pursues its investment objective
by investing exclusively in a portfolio of money market instruments maturing in
397 days or less.
Dreyfus Variable Investment Fund
(Manager: The Dreyfus Corporation)
Capital Appreciation Portfolio. The primary investment objective of the
Capital Appreciation Portfolio is to provide long-term capital growth consistent
with the preservation of capital. Current income is a secondary investment
objective. This series invests primarily in the common stocks of domestic and
foreign issuers.
Small Cap Portfolio. The investment objective of the Small Cap Portfolio is
to maximize capital appreciation. This series invests primarily in common stocks
of domestic and foreign issuers. This series will be particularly alert to
companies that it considers to be emerging smaller-sized companies which are
believed to be characterized by new or innovative products, services or
processes which should enhance prospects for growth in future earnings.
Dreyfus Stock Index Fund
(Manager: The Dreyfus Corporation)
The primary investment objective of the Stock Index Fund is to provide
investment results that correspond to the price and yield performance of
publicly traded common stocks in the aggregate, as represented by the Standard &
Poor's 500 Composite Stock Price Index. In anticipation of taking a market
position, the Fund is permitted to purchase and sell stock index futures. The
Fund is neither sponsored by nor affiliated with Standard & Poor's.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives, policies, and
restrictions pertaining to the Funds and Portfolios and their expenses,
investment advisory services and charges and the risks involved with investing
in the Portfolios and other aspects of their operations can be found in the
current prospectus for each Fund or Portfolio that accompanies this Prospectus
and the current Statement of Additional Information for each Fund or Portfolio.
The prospectuses for the Funds or Portfolios should be read carefully before any
decision is made concerning the allocation of Net Premium payments or transfers
among the Subaccounts.
Kansas City Life has entered into agreements with either the investment adviser
or distributor for each of the Funds pursuant to which the adviser or
distributor will pay Kansas City Life a fee based upon an annual percentage of
the average aggregate net amount invested by Kansas City Life on behalf of the
Variable Account and other separate accounts of Kansas City Life. These
percentages differ, and Kansas City Life is paid a greater percentage by some
investment advisers or distributors than other advisers or distributors. These
agreements reflect administrative services provided by Kansas City Life.
Kansas City Life cannot guarantee that each Fund or Portfolio will always be
available for the Contracts, but in the event that a Fund or Portfolio is not
available, Kansas City Life will take reasonable steps to secure the
availability of a comparable fund. Shares of each Portfolio are purchased and
redeemed at net asset value, without a sales charge.
Resolving Material Conflicts
The Funds presently serve as the investment medium for the Contracts. In
addition, the Funds are available to registered separate accounts of insurance
companies, other than Kansas City Life, offering variable annuity and variable
life insurance contracts.
We do not currently foresee any disadvantages to you resulting from the Funds
selling shares to fund products other than the Contracts. However, there is a
possibility that a material conflict of interest may arise between Owners whose
Contract Values are allocated to the Variable Account and the owners of variable
life insurance policies and variable annuity contracts issued by other companies
whose values are allocated to one or more other separate accounts investing in
any one of the Funds. Shares of some of the Funds may also be sold to certain
qualified pension and retirement plans qualifying under Section 401 of the Code.
As a result, there is a possibility that a material conflict may arise between
the interests of Owners or owners of other contracts (including contracts issued
by other companies), and such retirement plans or participants in such
retirement plans. In the event of a material conflict, we will take any
necessary steps, including removing the Variable Account from that Fund, to
resolve the matter. The Board of Directors of each Fund will monitor events in
order to identify any material conflicts that may arise and determine what
action, if any, should be taken in response to those events or conflicts. See
the accompanying prospectuses for the Funds and Portfolios for more information.
Addition, Deletion or Substitution of Investments
We reserve the right, subject to applicable law, to make additions to, deletions
from, or substitutions for the shares that are held in the Variable Account or
that the Variable Account may purchase. If the shares of a Portfolio of a Fund
are no longer available for investment or if, in our judgment, further
investment in any Portfolio should become inappropriate in view of the purposes
of the Variable Account, we may redeem the shares, if any, of that Portfolio and
substitute shares of another registered open-end management investment company.
We will not substitute any shares attributable to a Contract's interest in a
Subaccount of the Variable Account without notice and prior approval of the SEC
and state insurance authorities, to the extent required by the 1940 Act or other
applicable law.
We also reserve the right to establish additional Subaccounts of the Variable
Account, each of which would invest in shares corresponding to a Portfolio of a
Fund or in shares of another investment company having a specified investment
objective. Subject to applicable law and any required SEC approval, we may, in
our sole discretion, establish new Subaccounts or eliminate one or more
Subaccounts if marketing needs, tax considerations or investment conditions
warrant. Any new Subaccounts may be made available to existing Contract Owners
on a basis to be determined by Kansas City Life.
If any of these substitutions or changes are made, we may, by appropriate
endorsement, change the Contract to reflect the substitution or change. If we
deem it to be in the best interests of Contract Owners (subject to any approvals
that may be required under applicable law), the Variable Account may be operated
as a management investment company under the 1940 Act, it may be deregistered
under that Act if registration is no longer required, or it may be combined with
other Kansas City Life separate accounts.
Voting Rights
Kansas City Life is the legal owner of shares held by the Subaccounts and as
such has the right to vote on all matters submitted to shareholders of the
Funds. However, as required by law, Kansas City Life will vote shares held in
the Subaccounts at regular and special meetings of shareholders of the Funds in
accordance with instructions received from Owners with Contract Value in the
Subaccounts. Should the applicable federal securities laws, regulations or
interpretations thereof change, Kansas City Life may be permitted to vote shares
of the Funds in its own right, and if so, Kansas City Life may elect to do so.
To obtain voting instructions from Owners, before a meeting Owners will be sent
voting instruction material, a voting instruction form and any other related
material. The number of votes that are available to an Owner will be calculated
separately for each Subaccount of the Variable Account, and may include
fractional shares. The number of votes attributable to a Subaccount will be
determined by applying an Owner's percentage interest, if any, in a particular
Subaccount to the total number of votes attributable to that Subaccount. The
number of votes for which an Owner may give instructions will be determined as
of the date coincident with the date established by the Fund for determining
shareholders eligible to vote at the relevant meeting of the Fund. Shares held
by a Subaccount for which no timely instructions are received will be voted by
Kansas City Life in the same proportion as those shares for which voting
instructions are received.
Kansas City Life may, if required by state insurance officials, disregard Owner
voting instructions if such instructions would require shares to be voted so as
to cause a change in sub-classification or investment objectives of one or more
of the Portfolios, or to approve or disapprove an investment advisory agreement.
In addition, Kansas City Life may under certain circumstances disregard voting
instructions that would require changes in the investment advisory contract or
investment adviser of one or more of the Portfolios, provided that Kansas City
Life reasonably disapproves of such changes in accordance with applicable
federal regulations. If Kansas City Life ever disregards voting instructions,
Owners will be advised of that action and of the reasons for such action in the
next semiannual report. Finally, Kansas City Life reserves the right to modify
the manner in which the weight to be given to pass-through voting instructions
is calculated when such a change is necessary to comply with current federal
regulations or the current interpretation thereof.
PREMIUM PAYMENTS AND ALLOCATIONS
Applying for a Contract
To purchase a Contract, you must complete an application and submit it through
an authorized Kansas City Life agent. If you are eligible for temporary
insurance coverage, a temporary insurance agreement ("TIA") should also
accompany the application. The TIA provides temporary insurance coverage prior
to the date when all underwriting and other requirements have been met and your
application has been approved, with certain limitations, as long as an initial
premium payment accompanies the TIA. In accordance with Kansas City Life's
underwriting rules, temporary life insurance coverage may not exceed $250,000.
The TIA may not be in effect for more than 60 days. At the end of the 60 days,
the TIA coverage terminates and the initial premium will be returned to the
applicant.
With the TIA, you must pay an initial premium payment at the time of application
that is at least equal to two months of minimum initial premium (one month of
minimum initial premium is required for Contracts when premium payments will be
made under a pre-authorized payment arrangement). See "Premiums," page 23. In
general, policies that are submitted with the required premium payment will have
a Contract Date which will be the date of the TIA. However, if the Contract Date
is calculated to be the 29th, 30th or 31st of the month then the date will be
set to the 1st of the next following month. For Contracts where premium is not
accepted at the time of application or Contracts where values are applied to the
new Contract from another contract, the Contract Date will be the approval date
plus up to two days, unless the approval date is the 27th, 28th or 29th of the
month in which case the Contract Date would be the first of the next month.
There are several exceptions to these rules, based on the type of billing,
whether the contract involves a conversion and/or whether the specified amount
exceeds $250,000.
Pre-Authorized Check Payment Plan (PAC) or Combined Billing (CB)--Premium With
Application If PAC or CB is requested and the initial premium is taken with the
application, the Contract Date will be the later of the TIA date or the first of
the month of approval. Combined Billing is a billing where more than one Kansas
City Life contract is billed together.
Combined Billing (CB)--No Premium With Application
If CB is requested and the initial premium is not taken with the application,
the Contract Date will be the earlier of the 1st of the month after the Contract
is approved or the date the initial premium is received. However, if approval
occurs on the 1st, 2nd, 3rd, 4th or 5th of the month the Contract Date will be
the first of the same month that the Contract is approved. In addition, if the
Contract Date is calculated to be the 29th, 30th or 31st of the month then the
date will be set to the 1st of the following month.
Government Allotment (GA) and Federal Allotment (FA)
If GA or FA is requested on the application and an initial premium is taken with
the application, the Contract Date will be the 1st of the month of approval. If
GA or FA is requested and no initial premium is received the Contract Date will
be the first of the month for which a full monthly allotment is received.
Conversions
If a Kansas City Life term insurance product is converted to a new Contract, the
Contract Date will be the date that the previous contract was paid to. If there
is more than one term policy being converted, the Contract Date will be
determined by the contract with the earliest date that premiums were paid to.
Total Sum Insured Exceeds $250,000
If the Total Sum Insured requested exceeds $250,000 and an initial premium is
taken with the application, the Contract Date will be the later of the TIA date
or the 1st of the month of approval.
The Contract Date is determined by these guidelines except, as provided for
under state insurance law, the Owner may be permitted to backdate the Contract
to preserve insurance age. In no case may the Contract Date be more than six
months prior to the date the application was completed. Monthly Deductions will
be charged from the Contract Date.
If coverage under an existing Kansas City Life insurance contract is being
replaced, that contract will be terminated and values will be transferred on the
date when all underwriting and other requirements have been met and your
application has been approved. Kansas City Life will deduct Contract charges as
of the Contract Date.
Kansas City Life requires satisfactory evidence of both proposed Insureds'
insurability, which may include a medical examination of the proposed Insureds.
The available issue ages are 20 through 85. Age is determined on each Insured's
age last birthday on the Contract Date. The minimum Total Sum Insured is
$200,000. Acceptance of an application depends on Kansas City Life's
underwriting rules, and Kansas City Life reserves the right to reject an
application.
As the Owner of the Contract, you may exercise all rights provided under the
Contract. The Insureds are the Owner, unless a different Owner is named in the
application. The Owner may by Written Notice name a contingent Owner or a new
Owner while at least one of the Insureds is living. Unless a contingent Owner
has been named, on the death of the last surviving Owner, ownership of the
Contract passes to the estate of the last surviving Owner, who will become the
Owner if the Owner dies. The Owner may also be changed prior to the last
surviving Insured's death by Written Notice satisfactory to us. A change in
Owner may have tax consequences. See "Tax Considerations," page 47.
Free Look Right to Cancel Contract
You may cancel your Contract for a refund during your "free-look" period. This
period expires 10 days after you receive your Contract. If you decide to cancel
the Contract, you must return it by mail or other delivery method to the Home
Office or to your Kansas City Life agent. Immediately after mailing or delivery
for cancellation, the Contract will be deemed void from the beginning. Within
seven calendar days after Kansas City Life receives the returned Contract,
Kansas City Life will refund premiums paid.
Premiums
The minimum initial premium payment required depends on a number of factors,
such as the Age, sex, and risk class of the proposed Insureds, the Specified
Amount, any optional benefits and riders selected and the Planned Periodic
Premium payments you propose to make. See "Planned Periodic Premiums," below.
Consult your Kansas City Life agent for information about the initial premium
required for the coverage you desire.
Premium payments may be made at any time while the Contract is in force. We
reserve the right to limit the number and amount of unscheduled premium payments
subject to the procedures described below. See "Net Premium Allocations and
Crediting," page 24.
If premiums are paid which would affect the tax qualification of the Contract as
described in Section 7702 of the Internal Revenue Code, as amended, we will
inform you of this. We will offer you the choice of a refund of the premium or
the option to increase the Additional Insurance Amount, subject to our
underwriting requirements. If you choose to increase the Additional Insurance
Amount and the Insured fails to meet our underwriting requirements for the
required increase in coverage, we reserve the right to refund, with interest,
any premium that would cause your contract to not be in compliance with Section
7702. See "Tax Considerations," page 47.
Your Contract may become a modified endowment contract if premiums paid exceed
the "7-Pay Test" as set forth in the Internal Revenue Code. Kansas City Life
will monitor Contracts and will attempt to notify you on a timely basis if,
based on Kansas City Life's interpretation of the relevant tax rules, your
Contract is in jeopardy of becoming a modified endowment contract. See "Tax
Considerations," page 47.
Premium payments must be made by check payable to Kansas City Life Insurance
Company or by any other method that Kansas City Life deems acceptable. A loan
repayment must be clearly marked as such or it will be credited as a premium.
See "Loan Repayment," page 36.
Planned Periodic Premiums. When applying for a Contract, you may select a
plan for paying level premium payments quarterly, semi-annually or annually. If
you elect, Kansas City Life will also arrange for payment of Planned Periodic
Premiums on a special monthly, quarterly, semi-annual or annual basis under a
pre-authorized payment arrangement. You are not required to pay premium payments
in accordance with these plans; rather, you can pay more or less than planned or
skip a Planned Periodic Premium entirely. (See, however, "Premium Payments to
Prevent Lapse," page 23, and "Guaranteed Minimum Death Benefit Option," page
32.) Each premium after the initial premium must be at least $25. Subject to the
limits described above, you can change the amount and frequency of Planned
Periodic Premiums at any time. However, Kansas City Life reserves the right to
limit the amount of any increase in planned premium payment.
Premium Payments to Prevent Lapse
If the Guaranteed Minimum Death Benefit Option has been elected, the Specified
Amount is guaranteed to remain in force as long as the Guaranteed Minimum Death
Benefit Option Premium requirement is met on each Monthly Anniversary Day.
However, while failure to meet the Guaranteed Minimum Death Benefit Option
Premium requirement will cause the Guaranteed Minimum Death Benefit Option to
terminate, such failure will not necessarily cause the Contract to lapse. Riders
are not guaranteed by the Guaranteed Minimum Death Benefit Option and will
terminate if the Cash Surrender Value becomes negative. (See "Guaranteed Minimum
Death Benefit Option," page 32.)
If the Guaranteed Minimum Death Benefit Option has not been elected or has been
removed, a grace period starts if the Cash Surrender Value on a Monthly
Anniversary Day will not cover the Monthly Deduction.
The grace period is a 61-day period to make a premium payment sufficient to
prevent lapse. We will send notice of the amount required to be paid during the
grace period to your last known address and the address of any assignee of
record. The grace period will begin when the notice is sent. Your Contract will
remain in force during the grace period. If the last surviving Insured should
die during the grace period, the Death Benefit proceeds will still be payable to
the Beneficiary, although the amount paid will reflect a reduction for the
Monthly Deductions due on or before the date of the last surviving Insured's
death (and for any Indebtedness). See "Amount of Death Benefit Proceeds," page
32. If the grace period premium payment has not been paid before the grace
period ends, your Contract will lapse. It will have no value and no benefits
will be payable. See "Reinstatement of Contract," page 46.
A grace period also may begin if Indebtedness becomes excessive. See "Effect of
Contract Loan," page 37.
Net Premium Allocations and Crediting
In the Contract application, you specify the percentage of a Net Premium to be
allocated to each Subaccount and to the Fixed Account. The sum of your
allocations must equal 100%, and Kansas City Life reserves the right to limit
the number of Subaccounts to which premiums may be allocated. (In any case, we
will never limit the number to less than 12.) You can change the allocation
percentages at any time, subject to these rules, by sending Written Notice to
the Home Office. Changes in your allocation may also be made by telephone if
proper authorization has been provided. See "Telephone Transfers, Premium
Allocation and Loan Privileges," page 51. The change will apply to the premium
payments received with or after receipt of your notice.
On the Allocation Date, the initial Net Premium will be allocated to the
Federated Prime Money Fund II Subaccount. If any additional premiums are
received before the Reallocation Date, the corresponding Net Premiums also will
be allocated to the Federated Prime Money Fund II Subaccount. On the
Reallocation Date the Contract Value in the Federated Prime Money Fund II
Subaccount will be allocated to the Subaccounts and to the Fixed Account as
requested. See "Determining the Contract Value," page 30.
Premiums received on or after the Reallocation Date will be credited to the
Contract and the Net Premiums will be invested as requested on the Valuation
Period such premiums are received at our Home Office, except if additional
underwriting is required. Premium payments requiring additional underwriting
will not be credited to the Contract until underwriting has been completed and
the premium payment has been accepted. If the additional premium payment is
rejected, Kansas City Life will return the premium payment immediately, without
any adjustment for investment experience.
Transfer Privilege
After the Reallocation Date, you may transfer all or part of an amount in the
Subaccount(s) to another Subaccount(s) or to the Fixed Account, or transfer a
part of the amount in the Fixed Account to the Subaccount(s), subject to the
following restrictions. The minimum transfer amount is the lesser of $250 or the
entire amount in that Subaccount or the Fixed Account. A transfer request that
would reduce the amount in a Subaccount or the Fixed Account below $250 will be
treated as a transfer request for the entire amount in that Subaccount or the
Fixed Account.
We will make the transfer on the Valuation Day on which we receive Written
Notice requesting such transfer. Transfers may also be made by telephone if the
appropriate election has been made at the time of application or proper
authorization has been provided to us. See "Telephone Transfer, Premium
Allocation and Loan Privileges," page 51. There is no limit on the number of
transfers that can be made between Subaccounts or to the Fixed Account. However,
only one transfer may be made from the Fixed Account each Contract Year. See
"Transfers from Fixed Account," page 26, for restrictions. The first six
transfers during each Contract Year are free. Any unused free transfers do not
carry over to the next Contract Year. We will assess a $25 Transfer Processing
Fee for the seventh and each subsequent transfer during a Contract Year. For the
purpose of assessing the fee, each Written Notice or telephone request is
considered to be one transfer, regardless of the number of Subaccounts or the
Fixed Account affected by the transfer. The processing fee will be deducted from
the remaining Contract Value.
Dollar Cost Averaging Plan
The Dollar Cost Averaging Plan, if elected, enables you to transfer
systematically and automatically, on a monthly basis for a period of 3 to 36
months, specified dollar amounts from the Federated Prime Money Fund II
Subaccount to other Subaccounts. By allocating on a regularly scheduled basis,
as opposed to allocating the total amount at one particular time, you may be
less susceptible to the impact of market fluctuations. However, we make no
guarantee that the Dollar Cost Averaging Plan will result in a gain.
At least $250 must be transferred from the Federated Prime Money Fund II
Subaccount each month. The required amounts may be allocated to the Federated
Prime Money Fund II Subaccount through initial or subsequent premium payments or
by transferring amounts into the Federated Prime Money Fund II Subaccount from
the other Subaccounts or from the Fixed Account (which may be subject to certain
restrictions).
You may elect this plan at the time of application by completing the
authorization on the application or at any time after the Contract is issued by
properly completing the election form and returning it to us. The election form
allows you to specify the number of months for the Dollar Cost Averaging Plan to
be in effect. Dollar cost averaging transfers will commence on the next Monthly
Anniversary Day on or next following the Reallocation Date or the date you
request. Dollar cost averaging will terminate at the completion of the
designated number of months, or when the value of the Federated Prime Money Fund
II Subaccount is completely depleted, or the day we receive Written Notice
instructing us to cancel the Dollar Cost Averaging Plan.
Transfers made from the Federated Prime Money Fund II Subaccount for the Dollar
Cost Averaging Plan will not count toward the six transfers permitted each
Contract Year without imposing the Transfer Processing Fee.
Portfolio Rebalancing Plan
You may elect to have the accumulated balance of each Subaccount redistributed
to equal a specified percentage of the Variable Account Value. This will be done
on a quarterly basis at three-month intervals from the Monthly Anniversary Day
on which the Portfolio Rebalancing Plan commences. If elected, this plan
automatically adjusts your Portfolio mix to be consistent with the allocation
most recently requested. The redistribution will not count toward the six
transfers permitted each Contract Year without imposing the Transfer Processing
Fee. If the Dollar Cost Averaging Plan has been elected and has not been
completed, the Portfolio Rebalancing Plan will commence on the Monthly
Anniversary Day following the termination of the Dollar Cost Averaging Plan.
You may elect this plan at the time of application by completing the
authorization on the application or at any time after the Contract is issued by
properly completing the election form and returning it to us. Portfolio
rebalancing will terminate when you request any transfer or the day we receive
Written Notice instructing us to cancel the Portfolio Rebalancing Plan. If the
Contract Value is negative at the time portfolio rebalancing is scheduled, the
re-distribution will not be completed.
FIXED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the Fixed Account
have not been registered under the Securities Act of 1933 nor has the Fixed
Account been registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the Fixed Account nor any interests therein
are subject to the provisions of these Acts and, as a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosure in this
Prospectus relating to the Fixed Account. The disclosure regarding the Fixed
Account may, however, be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
You may allocate some or all of the Net Premiums and transfer some or all of the
Variable Account Value to the Fixed Account, which is part of our General
Account and pays interest at declared rates guaranteed for each calendar year
(subject to a minimum interest rate we guarantee to be 4%). Our General Account
supports our insurance and annuity obligations.
The portion of the Contract Value allocated to the Fixed Account will be
credited with rates of interest, as described below. Since the Fixed Account is
part of our General Account, we assume the risk of investment gain or loss on
this amount. All assets in the General Account are subject to our general
liabilities from business operations.
Minimum Guaranteed and Current Interest Rates
Fixed Account Value is guaranteed to accumulate at a minimum effective annual
interest rate of 4%. We intend to credit Fixed Account Value with current rates
in excess of the minimum guarantee but we are not obligated to do so. These
current interest rates are influenced by, but do not necessarily correspond to,
prevailing general market interest rates. Since we, in our sole discretion,
anticipate changing the current interest rate from time to time, different
allocations to and from the Fixed Account Value will be credited with different
interest rates, based upon the date amounts are allocated into the Fixed
Account. While we may change the interest rate credited to allocations from Net
Premiums or transfers at any time, the interest rate credited to amounts
allocated to the Fixed Account and accrued interest thereon will not change more
often than once per year. Any interest credited on the amounts in the Fixed
Account in excess of the minimum guaranteed rate of 4% per year will be
determined in our sole discretion. You assume the risk that interest credited
may not exceed the guaranteed rate.
Amounts deducted from the Fixed Account for the Monthly Deduction, surrenders,
transfers to the Subaccounts, or charges are currently, for the purpose of
crediting interest, accounted for on a last-in, first-out ("LIFO") method. We
reserve the right to change the method of crediting from time to time, provided
that such changes do not have the effect of reducing the guaranteed rate of
interest below 4% per annum or shorten the period for which the interest rate
applies to less than a year (except for the year in which such amount is
received or transferred).
Calculation of Fixed Account Value
Fixed Account Value at any time is equal to amounts allocated or transferred to
it, plus interest credited to it, minus amounts deducted, transferred, or
surrendered from it.
Transfers from Fixed Account
One transfer each Contract Year is allowed from the Fixed Account to any or all
of the Subaccounts. The amount transferred from the Fixed Account may not exceed
25% of the unloaned Fixed Account Value on the date of transfer, unless the
balance after the transfer is less than $250, in which case we will transfer the
entire amount.
Payment Deferral
We reserve the right to defer payment of any surrender, partial surrender, or
transfer from the Fixed Account for up to six months from the date of receipt of
the Written Notice for the partial or full surrender or transfer.
CHARGES AND DEDUCTIONS
We may realize a profit on any charges and deductions under the Contract. We may
use any such profit for any purpose, including payment of distribution charges.
Premium Expense Charges
Sales Charge. When premiums are paid, a Sales Charge may be deducted
from the premium before allocation to the Variable Account and/or the Fixed
Account. The amount of the Sales Charge depends on which Contract Year the
premium is received at our Home office and the amount of premium received during
that Contract Year. During Contract Years 1 through 10, premiums paid during a
Contract Year in an amount up to a "Target Premium" are subject to a higher
Sales Charge than "Excess Premiums." The "Target Premium" is an amount
calculated based on Age, sex, and risk class of the Insureds, the Guaranteed
Minimum Death Benefit Option if elected and level of Specified Amount. "Excess
Premiums" are premiums paid during a Contract year in an amount greater than the
Target Premium.
The Sales Charge applicable to total premiums paid up to the Target Premium and
to total premiums paid that are "Excess Premiums" is described in the following
table:
Sales Charge as % of
Premiums Paid Sales Charge % of Excess
Contract Year up to Target Premium Premiums Paid
Year 1 50% of premiums 2% of premiums
Years 2-5 15% of premiums 2% of premiums
Years 6-10 6% of premiums 2% of premiums
Years 11-20 2% of premiums 2% of premiums
Years 21+ 0% 0%
Following is an example of how the Sales Charge is calculated:
Assume that the Target Premium specified in a Contract is $1,000. If premiums of
$1,500 are paid during Contract Year 1, $1,000 of the premiums paid (the amount
up to the Target Premium) would be subject to a 50% Sales Charge, or $500. The
Excess Premium of $500 would be subject to a 2% Sales Charge, or $10. The total
Sales Charge deducted in Contract Year 1 would be $510. If premiums of $1,500
were paid in Contract Year 6, $1,000 of the premiums paid would be subject to a
6% Sales Charge, or $60. The Excess Premium of $500 would be subject to a 2%
Sales Charge, or $10. The total Sales Charge deducted in Contract Year 6 would
be $70.
While this example demonstrates that premiums paid in later Contract Years may
be subject to lower Sales Charges than premiums paid during earlier Contract
Years, deferring payment of premiums until later Contract Years may result in
not enough premiums being paid to meet the Guaranteed Minimum Death Benefit
Option Premium requirement in the early Contract Years, or may also result in
not enough premiums being paid for the Cash Surrender Value to cover Monthly
Deductions. In either case, the Contract could lapse.
The Sales Charge reimburses Kansas City Life for various sales and
administrative expenses associated with issuing the Contract.
Premium Processing Charge. The Premium Processing Charge is deducted
from each premium payment and equals 4.85% of the premium. This charge
reimburses Kansas City Life for a Federal "deferred acquisition" tax on premiums
received, state and local premium taxes and for administrative expenses
associated with processing premium payments.
Monthly Deduction
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary that has occurred prior to or on the
Allocation Date. See "Applying for Contract," page 21. Subsequent Monthly
Deductions will be made as of each Monthly Anniversary Day thereafter. Your
Contract Date is the date used to determine your Monthly Anniversary Day. The
Monthly Deduction consists of (1) monthly expense charges, (2) cost of insurance
charges, and (3) any optional benefit and/or rider charges, as described below.
The Monthly Deduction is deducted from the Variable Accounts and Fixed Account
pro rata on the basis of the portion of Contract Value in each account on the
Monthly Anniversary Day.
Monthly Expense Charge. The Monthly Expense Charge is made up of two parts:
(1) a charge of $12.50 per month for the first five Contract Years.
(2) a monthly expense charge of $7.50 plus $.02 per $1,000 of Total Sum Insured
per month for all Contract Years.
The Monthly Expense Charge reimburses Kansas City Life for expenses incurred in
the administration of the Contracts and the Variable Account. Such expenses
include but are not limited to: underwriting and issuing the Contract,
confirmations, annual reports and account statements, maintenance of Contract
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees, filing
fees, the costs of other services necessary for Contract Owner servicing and all
accounting, valuation, regulatory and updating requirements.
The Monthly Expense Charge is guaranteed not to increase. Should these
guaranteed charges prove to be insufficient to pay for the associated expenses,
the Company will not increase the charges above such guaranteed levels and will
incur the loss.
Cost of Insurance Charge. This charge compensates Kansas City Life for
the expense of providing insurance coverage. The charge depends on a number of
variables and therefore will vary from Contract to Contract and from Monthly
Anniversary Day to Monthly Anniversary Day. For any Contract, the cost of
insurance on a Monthly Anniversary Day is calculated by multiplying the current
cost of insurance rate for the Insureds by the net amount at risk for that
Monthly Anniversary Day.
The net amount at risk on a Monthly Anniversary Day is the difference between
the Death Benefit (see "Coverage Options," page 32), discounted with one month
of interest and the Contract Value allocated to the coverage, as calculated on
that Monthly Anniversary Day before the cost of insurance charge is taken. The
interest rate used to discount the Death Benefit is the monthly equivalent of 4%
per year. Contract Value is allocated first to Specified Amount and then to the
Additional Insurance Amount coverage in the order in which those coverages were
issued, then to any additional coverage amount applicable under Coverage Option
L.
The cost of insurance rate for a Contract on a Monthly Anniversary Day is based
on the Insureds' Age, sex, number of completed Contract Years, Total Sum
Insured, risk class, and therefore varies from time to time. Kansas City Life
currently places Insureds in the following classes, based on underwriting:
Standard Tobacco User, Standard Nontobacco User, Preferred Nontobacco User and
Preferred Tobacco User. The Insureds may be placed in a substandard risk class,
which involves a higher mortality risk than the Standard Tobacco User or
Standard Nontobacco User classes.
Kansas City Life places the Insureds in risk classes when the Contract is given
underwriting approval, based on Kansas City Life's underwriting of the
application. When an increase in Additional Insurance Amount is requested,
Kansas City Life conducts underwriting before approving the increase to
determine the risk class that will apply to the increase. If the risk class for
the increase has lower cost of insurance rates than the existing risk class, the
lower rates will apply to the entire Total Sum Insured. If the risk class for
the increase has higher cost of insurance rates than the existing class, the
higher rates will apply only to the increase in Total Sum Insured, and the
existing risk class will continue to apply to the existing Total Sum Insured.
Kansas City 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 rates set forth in the Contract. The guaranteed rates for standard and
preferred risk classes are based on the 1980 Commissioners' Standard Ordinary
Mortality Tables, Male or Female, Smoker or Nonsmoker Mortality Rates ("1980 CSO
Tables"). The guaranteed rates for substandard classes are based on multiples of
or additives to the 1980 CSO Tables.
Kansas City Life's current cost of insurance rates may be less than the
guaranteed rates that are set forth in the Contract. Current cost of insurance
rates will be determined based on Kansas City Life's expectations as to future
mortality experience. These rates may change from time to time.
Cost of insurance rates (whether guaranteed or current) for one or both Insureds
in a nontobacco user standard class are lower than rates for one or both
Insureds of the same age and sex in a tobacco user standard class. Cost of
insurance rates (whether guaranteed or current) for one or both Insureds in a
nontobacco user or tobacco user standard risk class are lower than rates for one
or both Insureds of the same age, sex and tobacco user class in a substandard
risk class.
Guaranteed Minimum Death Benefit Option Charge. There is no charge for
the Guaranteed Minimum Death Benefit Option in the first ten Contract Years.
Beginning in Contract Year 11, the charge will be $.01 per $1,000 on a current
basis and $.03 per $1,000 on a guaranteed basis. This charge will be based on
the Specified Amount and will be deducted monthly.
Cost of Additional Benefits Provided by Riders. The cost of additional
benefits provided by riders is part of the Monthly Deduction and is charged to
the Contract Value on the Monthly Anniversary Day.
Legal Considerations Relating to Sex-Distinct Premium Payments and
Benefits. Cost of insurance rates for Contracts generally distinguish between
males and females. Thus, premium payments and benefits under Contracts covering
males and females of the same Age will generally differ. (In some states, the
cost of insurance rates do not vary by sex.)
Kansas City Life does, however, also offer Contracts that do not distinguish
between males and females if required by state law. Employers and employee
organizations considering purchase of a Contract should consult with their legal
advisors to determine whether purchase of a Contract based on sex-distinct cost
of insurance rates is consistent with Title VII of the Civil Rights Act of 1964
or other applicable law. Kansas City Life will offer to such prospective
purchasers Contracts with cost of insurance rates that do not distinguish
between males and females.
Daily Mortality and Expense Risk Charge
Kansas City Life deducts a daily charge from assets in the Subaccounts
attributable to the Contracts. This charge does not apply to Fixed Account
assets attributable to the Contracts. The current charge is at an annual rate of
0.625% of net assets, and is guaranteed never to exceed an annual rate of 0.90%.
The mortality risk Kansas City Life assumes is that the Insureds under the
Contracts may die sooner than anticipated and therefore Kansas City Life will
pay an aggregate amount of death benefits greater than anticipated. The expense
risk Kansas City Life assumes is that expenses incurred in issuing and
administering the Contracts and the Variable Account will exceed the amounts
realized from the administrative charges assessed against the Contracts.
Transfer Processing Fee
The first six transfers during each Contract Year are free. We will assess a $25
Transfer Processing Fee for each additional transfer during such Contract Year.
For the purpose of assessing the fee, we will consider each written or telephone
request seeking a transfer to be one transfer, regardless of the number of
accounts affected by the transfer. We will deduct the Transfer Processing Fee
from the amount being transferred or from the remaining Contract Value,
according to your instructions. We do not expect a profit from this fee.
Partial Surrender Fee
Kansas City Life will deduct an administrative charge upon a partial surrender.
This charge is the lesser of 2% of the amount surrendered or $25. This charge
will be deducted from the Contract Value in addition to the amount requested to
be surrendered and will be considered to be part of the partial surrender
amount. Kansas City Life does not anticipate making a profit on this charge.
Fund Expenses
The value of the net assets of each Subaccount reflects the investment advisory
fees and other expenses incurred by the corresponding Portfolio in which the
Subaccount invests. See the prospectuses for the Funds or Portfolios.
Bonus on Contract Value in the Variable Account
A bonus may be credited to the Contract on each Monthly Anniversary Day
beginning on the first Monthly Anniversary Day following the Contract Date. The
monthly bonus applies to Contracts with a Total Sum Insured of $5,000,000 and
above and equals an annual rate of 0.125% of the Contract Value in each
Subaccount of the Variable Account. The bonus is not guaranteed and will be paid
at Kansas City Life's sole discretion.
Reduced Charges for Eligible Groups
The charges otherwise applicable may be reduced with respect to Contracts issued
to a class of associated individuals or to a trustee, employer or similar entity
where Kansas City Life anticipates that the sales to the members of the class
will result in lower than normal sales or administrative expenses. These
reductions will be made in accordance with our rules in effect at the time of
the application for a Contract. The factors we will consider in determining the
eligibility of a particular group for reduced charges and the level of the
reduction are as follows: the nature of the association and its organizational
framework, the method by which sales will be made to the members of the class,
the facility with which premiums will be collected from the associated
individuals and the association's capabilities with respect to administrative
tasks, the anticipated persistency of the Contract, the size of the class of
associated individuals and the number of years it has been in existence and any
other such circumstances which justify a reduction in sales or administrative
expenses. Any reduction will be reasonable and will apply uniformly to all
prospective Contract purchases in the class and will not be unfairly
discriminatory to the interests of any Contract holder.
Other Tax Charge
Kansas City Life does not currently assess a charge for any taxes other than
state and local premium taxes and Federal DAC taxes incurred as a result of the
operations of the Subaccounts of the Variable Account. We reserve the right,
however, to assess a charge for such taxes against the Subaccounts if we
determine that such taxes will be incurred.
HOW YOUR CONTRACT VALUES VARY
There is no minimum guaranteed Contract Value or Cash Surrender Value. These
values will vary with the investment experience of the Subaccounts and/or the
crediting of interest in the Fixed Account, and will depend on the allocation of
Contract Value. If the Cash Surrender Value on a Monthly Anniversary Day is less
than the amount of the Monthly Deduction to be deducted on that date (see
"Premium Payments To Prevent Lapse," page 23) and the Guaranteed Minimum Death
Benefit Option is not then in effect, the Contract will be in default and a
grace period will begin. See "Guaranteed Minimum Death Benefit Option," page 32.
Determining the Contract Value
On the Allocation Date, the Contract Value is equal to the initial Net Premium
less the Monthly Deductions deducted from the Contract Date. On each Valuation
Day thereafter, the Contract Value is the aggregate of the Subaccount Values and
the Fixed Account Value (including the Loan Account Value). The Contract Value
will vary to reflect the performance of the Subaccounts to which amounts have
been allocated, interest credited on amounts allocated to the Fixed Account,
interest credited on amounts in the Loan Account, charges, transfers, partial
surrenders, loans and loan repayments.
Subaccount Values. When you allocate an amount to a Subaccount, either
by Net Premium payment allocation or transfer, your Contract is credited with
accumulation units in that Subaccount. The number of accumulation units is
determined by dividing the amount allocated to the Subaccount by the
Subaccount's accumulation unit value for the Valuation Day when the allocation
is effected.
The number of Subaccount accumulation units credited to your Contract will
increase when Net Premium payments are allocated to the Subaccount and when
amounts are transferred to the Subaccount. The number of Subaccount accumulation
units credited to a Contract will decrease when the allocated portion of the
Monthly Deduction is taken from the Subaccount, a loan is made, an amount is
transferred from the Subaccount, or a partial surrender, including the Partial
Surrender Fee, is taken from the Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit value varies
to reflect the investment experience of the underlying Portfolio, and may
increase or decrease from one Valuation Day to the next. The accumulation unit
value for each Subaccount was arbitrarily set at $10 when the Subaccount was
established. For each Valuation Period after the date of establishment, the
accumulation unit value is determined by multiplying the value of an
accumulation unit for a Subaccount for the prior valuation period by the net
investment factor for the Subaccount for the current valuation period.
Net Investment Factor. The net investment factor is an index used to
measure the investment performance of a Subaccount from one Valuation Day to the
next. It is based on the change in net asset value of the Fund shares held by
the Subaccount, and reflects any gains or losses in the Subaccounts, dividends
paid, any capital gains or losses, any taxes, and the daily mortality and
expense risk charge.
Fixed Account Value. On any Valuation Day, the Fixed Account Value of a
Contract is the total of all Net Premium payments allocated to the Fixed
Account, plus any amounts transferred to the Fixed Account (including amounts
transferred in connection with Contract loans), plus interest credited on such
Net Premium payments and amounts transferred, less the amount of any transfers
from the Fixed Account, less the amount of any partial surrenders, including the
Partial Surrender Fee, taken from the Fixed Account, and less the pro-rata
portion of the Monthly Deduction deducted from the Fixed Account.
Loan Account Value. On any Valuation Day, if there have been any Contract
loans, the Loan Account Value is equal to amounts transferred to the Loan
Account from the Subaccounts and from the unloaned value in the Fixed Account as
collateral for Contract loans and for due and unpaid loan interest, less amounts
transferred from the Loan Account to the Subaccounts and the unloaned value in
the Fixed Account as Indebtedness is repaid. Cash Surrender Value
The Cash Surrender Value on a Valuation Day is the Contract Value reduced by any
Indebtedness. Cash Surrender Value is used to determine whether a partial
surrender may be taken, whether Contract loans may be taken, and whether a grace
period starts. See "Premium Payments to Prevent Lapse," page 23. It is also the
amount that is available upon full surrender of the Contract. See "Surrendering
the Contract for Cash Surrender Value," page 37.
DEATH BENEFIT
As long as the Contract remains in force, Kansas City Life will pay the Death
Benefit proceeds upon receipt at the Home Office of proof of death that Kansas
City Life deems satisfactory of the last surviving Insured. Kansas City Life may
also require proof of the death of the Insured who died first and may require
return of the Contract. The Death Benefit proceeds will be paid in a lump sum
generally within seven calendar days of receipt of satisfactory proof (see
"Payment of Proceeds," page 45) or, if elected, under a payment option (see
"Payment Options," page 38). The Death Benefit proceeds will be paid to the
Beneficiary. See "Selecting and Changing the Beneficiary," page 34.
Amount of Death Benefit Proceeds
The Death Benefit proceeds payable upon the death of the last surviving Insured
are equal to the sum of: (1) the greater of: (a) the Death Benefit under the
Coverage Option selected, calculated as of the date of the last surviving
Insured's death, or (b) the Corridor Death Benefit; and (2) an amount equal to
any benefits provided by any optional benefits or riders, plus any premiums
received after the date of death, minus any indebtedness on that date, and, if
the death occurred during a grace period, minus any past due Monthly Deductions.
A minimum Death Benefit may be provided under the Guaranteed Minimum Death
Benefit Option. If all or part of the Death Benefit proceeds are paid in one
sum, Kansas City Life will pay interest on this sum as required by applicable
state law from the date of receipt of due proof of the last surviving Insured's
death to the date of payment.
Total Sum Insured, Specified Amount, Additional Insurance Amount
The Total Sum Insured, Specified Amount and the Additional Insurance Amount are
set at the time the Contract is issued and the Specified Amount plus the
Additional Insurance Amount equals the Total Sum Insured. The minimum Total Sum
Insured is $200,000. Within the Total Sum Insured minimum, there is also the
requirement that the minimum Specified Amount be $100,000 while the minimum
Additional Insurance Amount is $10,000. The maximum amount of initial Additional
Insurance Amount coverage is four times the Specified Amount at issue.
You may decrease the Total Sum Insured from time to time, as discussed below.
You may increase the Additional Insurance Amount as described below. The
Guaranteed Minimum Death Benefit Option only applies to the Specified Amount and
not to the Additional Insurance Amount. Therefore, if the Contract Value is
insufficient to pay monthly deductions, the Additional Insurance Amount may
lapse. See "Guaranteed Minimum Death Benefit Option," page 32.
Coverage Options
When you apply for the Contract you may choose one of three Coverage Options,
which will be used to determine the Death Benefit. You may also change the
Coverage Option, as described below. However, Coverage Option L is only
available at issue. Under Option A, the Death Benefit is equal to the Total Sum
Insured on the date of death of the last surviving Insured. Under Option B, the
Death Benefit is equal to the Total Sum Insured on the date of death of the last
surviving Insured, plus the Contract Value on the date of such death. Under
Coverage Option L, the Death Benefit will be the sum of: (1) the Total Sum
Insured on the date of death of the last surviving Insured; and (2) the Contract
Value on the Contract Anniversary preceding the death of the last surviving
Insured multiplied by the applicable Option L Death Benefit Percentage less the
Total Sum Insured on that Contract Anniversary. If the amount in (2) of the
Option L Death Benefit calculation is less than zero then the Option L Death
Benefit will be equal to the amount calculated in (1).
Corridor Death Benefit
The purpose of the Corridor Death Benefit is to ensure that your Contract will
not be disqualified as a life insurance contract under Section 7702 of the
Internal Revenue Code, as amended. The Corridor Death Benefit is calculated by
multiplying the Contract Value by the appropriate corridor percentage. The
corridor percentages vary by Age, sex, risk class, Specified Amount, Additional
Insurance Amount, the number of years coverage has been in effect and any
applicable optional benefits or riders.
Guaranteed Minimum Death Benefit Option
An optional Guaranteed Minimum Death Benefit Option is available only at issue.
This option is not available if Coverage Option B is elected or if the Joint
First to Die Rider is issued with the Contract. If this option has been elected,
it guarantees payment of the Specified Amount (less Indebtedness and any past
due charges) upon the death of the last surviving Insured, regardless of the
Contract's investment performance, provided that the Guaranteed Minimum Death
Benefit Option Premium requirement is met. The Guaranteed Minimum Death Benefit
Option does not guarantee any Additional Insurance Amount.
The Guaranteed Minimum Death Benefit Option Premium is the amount which
guarantees that the Guaranteed Minimum Death Benefit Option will remain in
effect. The Guaranteed Minimum Death Benefit Option Premium requirement is met
if, on each Monthly Anniversary Day:
the cumulative premiums that you have paid equal or exceed the cumulative
Guaranteed Minimum Death Benefit Option Premiums (the amount of the Guaranteed
Minimum Death Benefit Option Premium is shown in your Contract), plus
Indebtedness, where the term "the cumulative premiums that you have paid" means
the amount that is equal to (a) the sum of all premiums paid, less (b) the sum
of all partial surrenders, with (a) and (b) each accumulated at an annual
effective interest rate of 4% from the date your Contract is issued to the
Monthly Anniversary Date on which the Guaranteed Minimum Death Benefit Option
Premium requirement is calculated, and the term "cumulative Guaranteed Minimum
Death Benefit Option Premiums" means the amount that is equal to the sum of the
Guaranteed Minimum Death Benefit Option Premiums, with each such premium
accumulated at an annual effective interest rate of 4% to the Monthly
Anniversary Date on which the Guaranteed Minimum Death Benefit Option Premium
requirement is calculated.
If the Guaranteed Minimum Death Benefit Option Premium requirement is not met,
the Guaranteed Minimum Death Benefit Option is in default. A 61-day notice
period begins on the day we mail the notice that the Guaranteed Minimum Death
Benefit Option is in default and inform you of the amount of premium required to
maintain the Guaranteed Minimum Death Benefit Option. The default premium will
be the amount by which the cumulative Guaranteed Minimum Death Benefit Option
Premium plus indebtedness is greater than the cumulative paid premium. The
Guaranteed Minimum Death Benefit Option will terminate if sufficient premium is
not paid by the end of the notice period.
If the policy contains any Additional Insurance Amount coverage or any optional
benefit riders, then in addition to testing the Guaranteed Minimum Death Benefit
Option Premium requirement as outlined above, the Contract Value will be tested
to ensure that the policy is funded at a sufficient level to support the
Additional Insurance Amount or other optional riders. On each Monthly
Anniversary Day the Cash Surrender Value will be tested to determine if it is
sufficient to cover the Monthly Deduction. If not, a 61-day notice period begins
on the day we mail notice of the default premium amount. The default premium
will be equal to the payment which would be sufficient to provide a Cash
Surrender Value equal to three monthly deductions. The Additional Insurance
Amount coverage and other optional riders will be removed from the contract if
payment at least equal to the default premium is not received by the end of the
notice period.
There is no charge for this option during the first 10 Contract Years. Beginning
in Contract Year 11 a monthly charge per $1,000 of Specified Amount at issue
will apply. The Guaranteed Minimum Death Benefit Option is not available for
Coverage Option B Contracts, for Contracts on which the Additional Insurance
Amount exceeds or is scheduled to exceed the Specified Amount or for Contracts
which include the Joint First to Die Rider. The Guaranteed Minimum Death Benefit
Option will terminate upon your request, if the Coverage Option is changed to B
or if the amount of the Additional Insurance Amount is increased to more than
the Specified Amount.
You may apply to have the Guaranteed Minimum Death Benefit Option reactivated
within two years of termination of such option. Re-activation requires: (1)
written notice to restore the option, (2) evidence of insurability of the
Insureds satisfactory to us, unless re-activation is requested within one year
after the beginning of the notice period; and (3) payment of the amount by which
the cumulative Guaranteed Minimum Death Benefit Option Premium plus Indebtedness
exceeds the cumulative paid premiums on the date of re-activation. On the
Monthly Anniversary Day on which the re-activation takes effect, we will deduct
from the Contract Value any unpaid Guaranteed Minimum Death Benefit Option
charges. We reserve the right to deny re-activation of the Guaranteed Minimum
Death Benefit Option more than once during the life of the Contract.
Effect of Combinations of Specified Amount and Additional Insurance Amount
You should consider various factors in determining how to allocate coverage in
the form of the Specified Amount or in the form of an Additional Insurance
Amount. The Specified Amount cannot be increased after issue, while the
Additional Insurance Amount may be increased after issue, subject to application
and evidence of insurability. The Additional Insurance Amount does not increase
the Target Premium under a Contract. Accordingly, the amount of sales charge
paid and the amount of compensation paid to the agent may be less if coverage is
included as Additional Insurance Amount, rather than as Specified Amount. The
Guaranteed Minimum Death Benefit Option covers only the Specified Amount and
does not cover the Additional Insurance Amount. If the Contract Value is
insufficient to pay the monthly expenses (including charges for the Additional
Insurance Amount) the Additional Insurance Amount and rider coverage will
terminate, even though the Specified Amount may stay in effect under the
Guaranteed Minimum Death Benefit Option.
Generally, you will incur lower Contract Year charges and have more flexible
coverage with respect to the Additional Insurance Amount than with the Specified
Amount. On the other hand, if you wish to take advantage of the Guaranteed
Minimum Death Benefit Option, the proportion of the Total Sum Insured that is
guaranteed can be increased by taking out a larger part of the coverage as
Specified Amount at the time of issue. The Guaranteed Minimum Death Benefit
Option is not available at all if the Additional Insurance Amount exceeds or is
scheduled to exceed the Specified Amount at any time. In such case, it could be
to your advantage to either increase the amount of coverage applied for at issue
as Specified Amount in order that the Guaranteed Minimum Death Benefit Option
will be available, or, if such guarantee is not of value to you, to maximize the
proportion of the Additional Insurance Amount.
Selecting and Changing the Beneficiary
You select the Beneficiary in your application. You may later change the
Beneficiary in accordance with the terms of the Contract. The Primary
Beneficiary, or, if the Primary Beneficiary is not living, the Contingent
Beneficiary is the person entitled to receive the Death Benefit proceeds under
the Contract. If both Insureds die and there is no surviving Beneficiary, the
Owner will be the Beneficiary. If a Beneficiary is designated as irrevocable,
then the Beneficiary's consent must be obtained to change the Beneficiary.
CHANGES IN DEATH BENEFIT
Effect of Investment Performance on Death Benefit
If investment performance is favorable, the amount of the Death Benefit Proceeds
may increase. However, under Option A, the Death Benefit Proceeds ordinarily
will not change for several years to reflect any favorable investment
performance and may not change at all. To see how and when investment
performance may begin to affect the Death Benefit Proceeds, see the
illustrations beginning on page 39. Under Option B, the Death Benefit will vary
directly with the investment performance of the Contract Value. Under Option L,
the Death Benefit Proceeds will result in a Death Benefit pattern that can be
level for several years and then can increase at a particular time of your
choosing.
Changes in Coverage Option
You may change the Coverage Option on your Contract subject to the following
rules. We reserve the right to require that no change in Coverage Option occur
during the first Contract Year and that no more than one increase be made in any
12-month period. Coverage Option L is only available at issue. After any change,
the Total Sum Insured must be at least $200,000 and the Specified Amount must be
at least $100,000. The effective date of change will be the Monthly Anniversary
Day following the date we approve your application for change.
If the Coverage Option is B or L, it may be changed to A. The Total Sum Insured
will not change. If the Coverage Option is A or L, it may be changed to B
subject to evidence of insurability satisfactory to us. The new Total Sum
Insured will be the greater of the Total Sum Insured less the Contract Value as
of the date of change or $25,000. If the Coverage Option is changed to B, the
Guaranteed Minimum Death Benefit Option, if in effect, will terminate.
We reserve the right to decline any Coverage Option change that we determine
would cause the Contract to not qualify as life insurance under applicable tax
laws. Changes in the Coverage Option may have tax consequences. See "Tax
Considerations," page 47.
Increases in the Additional Insurance Amount
Increases to the Additional Insurance Amount may be made either through
scheduled annual increases requested at issue and through unscheduled increases
requested at any other time of your choosing. The maximum Additional Insurance
Amount coverage at issue is four times the Specified Amount. This coverage may
increase to a maximum of eight times the Specified Amount after issue under
scheduled annual increases.
Scheduled increases to the Additional Insurance Amount, subject to our approval,
may be based on a flat amount annual increase or a percentage annual increase.
Available percentage increases range from 0-25% of the Additional Insurance
Amount. The percentage increase will be based on the specified percentage of the
Additional Insurance Amount at the time the scheduled increase occurs. Available
amounts for a flat amount increase range from 0-25% of the Additional Insurance
Amount at issue. The Guaranteed Minimum Death Benefit Option will not be
available if the Additional Insurance Amount is, or is scheduled to, exceed the
Specified Amount.
You may request increases to the Additional Insurance Amount other than the
annual, scheduled increases available at issue. We reserve the right to require
that no increases in Additional Insurance Amount occur during the first Contract
Year and that no more than one increase be made in any 12-month period.
Any requested, unscheduled increase in the Additional Insurance Amount must be
at least $10,000 and an application must be submitted. Kansas City Life reserves
the right to require satisfactory evidence of insurability. In addition, the
Insureds' attained Age must be less than the current maximum issue Age for the
Contracts, as determined by Kansas City Life from time to time.
A change in Planned Periodic Premiums may be advisable.
The increase in the Additional Insurance Amount will become effective on the
Monthly Anniversary Day on or next following the date the request for the
increase is received and approved. If the Additional Insurance Amount is
increased to be greater than the Specified Amount, the Guaranteed Minimum Death
Benefit Option, if applicable, will terminate. In addition, if the Cash
Surrender Value is at any time insufficient to pay monthly deductions for the
Contract, the Additional Insurance Amount and riders will terminate in order to
preserve the Guaranteed Minimum Death Benefit Option. See "Guaranteed Minimum
Death Benefit Option," page 32. Increases in the Additional Insurance Amount may
have tax consequences. See "Tax Considerations," page 47.
Decreases in Total Sum Insured
You may request a decrease in the Total Sum Insured. When a decrease in Total
Sum Insured is made, we will first reduce any amount of Additional Insurance
Amount remaining and only then reduce the Specified Amount, starting with the
latest increase and continuing in the reverse order in which the increases were
made. If the Specified Amount is decreased, the Guaranteed Minimum Death Benefit
Option coverage amount will be decreased by the same amount. Under certain
circumstances, a partial surrender will result in a decrease in the Total Sum
Insured. See "Partial Surrenders," page 37.
We reserve the right to require that no decreases occur during the first
Contract Year and that no more than one decrease be made in any 12-month period.
We reserve the right to require that the Total Sum Insured after any decrease be
at least $200,000 and the Specified Amount must be $100,000. You must provide
written notice to the Home Office of your intention to decrease your Specified
Amount. The effective date of the decrease will be the Monthly Anniversary Day
following the date we approve your request for decrease.
Decreasing the Total Sum Insured may have the effect of decreasing monthly Cost
of Insurance Charges. However, a decrease will not decrease the Target Premium
or Guaranteed Minimum Death Benefit Option Premium.
A decrease in the Total Sum Insured may have adverse tax consequences. See "Tax
Considerations," page 47.
CASH BENEFITS
Contract Loans
Prior to the death of the last surviving Insured, you may borrow against your
Contract at any time by submitting a written request to the Home Office,
provided that the Cash Surrender Value of the Contract is greater than zero.
Loans may also be made by telephone if the appropriate election has been made at
the time of application or proper authorization has been provided to us. See
"Telephone Transfer, Premium Allocation and Loan Privileges," page 51. The
maximum loan amount is equal to the Contract's Cash Surrender Value on the
effective date of the loan less loan interest to the next Contract Anniversary.
Outstanding loans reduce the amount available for new loans. Contract loans will
be processed as of the date your written request is received and approved. Loan
proceeds generally will be sent to you within seven calendar days. See "Payment
of Proceeds," page 45.
Interest. Kansas City Life will charge interest on any Indebtedness at
an annual rate of 6.0%. Interest is due and payable at the end of each Contract
Year while a loan is outstanding. If interest is not paid when due, the amount
of the interest is added to the loan and becomes part of the Indebtedness.
Loan Collateral. When a Contract loan is made, an amount sufficient to
secure the loan is transferred out of the Subaccounts and the unloaned value in
the Fixed Account and into the Contract's Loan Account. Thus, a loan will have
no immediate effect on the Contract Value, but the Cash Surrender Value will be
reduced immediately by the amount transferred to the Loan Account. The Owner may
specify the Variable Accounts and/or Fixed Account from which collateral will be
transferred. If no allocation is specified, collateral will be transferred from
each Subaccount and from the unloaned value in the Fixed Account in the same
proportion that the Contract Value in each Subaccount and the unloaned value in
the Fixed Account bears to the total unloaned Contract Value on the date that
the loan is made. An amount of Cash Surrender Value equal to any due and unpaid
loan interest will also be transferred to the Loan Account on each Contract
Anniversary. Due and unpaid interest will be transferred from each Subaccount
and the unloaned value in the Fixed Account in the same proportion that each
Subaccount Value and the unloaned value in the Fixed Account Value bears to the
total unloaned Contract Value.
The Loan Account will be credited with interest at an effective annual rate of
not less than 4.0%. Thus, the maximum net cost of a loan is 2.0% per year (the
net cost of a loan is the difference between the rate of interest charged on
Indebtedness and the amount credited to the Loan Account). Interest earned on
the Loan Account will be added to the Fixed Account.
Preferred Loan Provision. Beginning in the eleventh Contract Year, a
preferred loan may be made. The maximum amount available for a preferred loan is
the Contract Value less premiums paid and may not exceed the maximum loan
amount. The amount in the Loan Account securing the preferred loan will be
credited with interest at an effective annual rate of 6.0%. Thus, the net cost
of the preferred loan is 0.0% per year. The preferred loan provision is not
guaranteed.
Loan Repayment. You may repay all or part of your Indebtedness at any
time while at least one Insured is living and the Contract is in force. We
reserve the right to require that each loan repayment be at least $10.00. Loan
repayments must be sent to the Home Office and will be credited as of the date
received. A loan repayment must be clearly marked as "loan repayment" or it will
be credited as a premium. (Loan repayments, unlike unscheduled premium payments,
are not subject to Premium Expense Charges.) When a loan repayment is made,
Contract Value in the Loan Account in an amount equal to the repayment is
transferred from the Loan Account to the Subaccounts and the unloaned value in
the Fixed Account. Thus, a loan repayment will have no immediate effect on the
Contract Value, but the Cash Surrender Value will be increased immediately by
the amount transferred from the Loan Account. Unless specified otherwise by the
Owner, loan repayment amounts will be transferred to the Subaccounts and the
unloaned value in the Fixed Account according to the premium allocation
instructions in effect at that time.
Effect of Contract Loan. A loan, whether or not repaid, will have a
permanent effect on the Death Benefit and Contract Values because the investment
results of the Subaccounts of the Variable Account and current interest rates
credited on Contract Value in the Fixed Account will apply only to the
non-loaned portion of the Contract Value. The longer the loan is outstanding,
the greater the effect is likely to be. Depending on the investment results of
the Subaccounts or credited interest rates for the unloaned value in the Fixed
Account while the loan is outstanding, the effect could be favorable or
unfavorable. Contract loans may increase the potential for lapse if investment
results of the Subaccounts are less than anticipated. Also, loans could,
particularly if not repaid, make it more likely than otherwise for a Contract to
terminate. See "Tax Considerations," page 47, for a discussion of the tax
treatment of policy loans, and the adverse tax consequences if a Contract lapses
with loans outstanding. In particular, if your Contract is a "modified endowment
contract," loans may be currently taxable and subject to a 10% penalty tax. In
addition, interest paid on Contract Loans generally is not tax deductible.
If the Death Benefit becomes payable while a loan is outstanding, the
Indebtedness will be deducted in calculating the Death Benefit proceeds. See
"Amount of Death Benefit Proceeds," page 32.
If the Loan Account Value exceeds the Contract Value on any Valuation Day, the
Contract will be in default. You, and any assignee of record, will be sent
notice of the default. You will have a 61-day grace period to submit a
sufficient payment to avoid termination of coverage under the Contract. The
notice will specify the amount that must be repaid to prevent termination. See
"Premium Payments to Prevent Lapse," page 23.
Surrendering the Contract for Cash Surrender Value
You may surrender your Contract at any time for its Cash Surrender Value by
submitting a written request to the Home Office. Kansas City Life may require
return of the Contract. A surrender request will be processed as of the date
your written request and all required documents are received. Payment will
generally be made within seven calendar days. See "Payment of Proceeds," page
45. The Cash Surrender Value may be taken in one lump sum or it may be applied
to a payment option. See "Payment Options," page 38. Your Contract will
terminate and cease to be in force if it is surrendered for one lump sum. It
cannot later be reinstated.
Surrenders may have adverse tax consequences. See "Tax Considerations," page 47.
Partial Surrenders
You may make partial surrenders under your Contract at any time subject to the
conditions below. You must submit a written request to the Home Office. Each
partial surrender must be at least $500. The partial surrender amount may not
exceed the Cash Surrender Value, less $300. A Partial Surrender Fee will be
assessed on a partial surrender. See "Partial Surrender Fee," page 29. This
charge will be deducted from your Contract Value along with the amount requested
to be surrendered and will be considered part of the surrender (together,
"partial surrender amount"). As of the date Kansas City Life receives a written
request for a partial surrender, the Contract Value will be reduced by the
partial surrender amount.
When you request a partial surrender, you can direct how the partial surrender
amount will be deducted from your Contract Value in the Subaccounts and Fixed
Account. If you provide no directions, the partial surrender amount will be
deducted from your Contract Value in the Subaccounts and Fixed Account on a
pro-rata basis. See "Minimum Guaranteed and Current Interest Rates," page 26.
Partial surrenders may have adverse tax consequences. See "Tax Considerations,"
page 47.
If Coverage Option A or L is in effect, Kansas City Life will reduce the
Contract Value by the partial surrender amount. The Total Sum Insured will be
reduced by the partial surrender amount minus the excess, if any, of the Death
Benefit over the Total Sum Insured at the time the partial surrender is made. If
the partial surrender amount is less than the excess of the Death Benefit over
the Total Sum Insured, the Total Sum Insured will not be reduced. If Coverage
Option B is in effect we will reduce the Contract Value by the partial surrender
amount. We reserve the right to reject a partial surrender request if the
partial surrender would reduce the Total Sum Insured below the minimum amount
for which the Contract would be issued under Kansas City Life's then-current
rules, as interpreted by Kansas City Life.
Partial surrender requests will be processed as of the date your written request
is received, and generally will be paid within seven calendar days. See "Payment
of Proceeds," page 45.
Payment Options
The Contract offers a variety of ways of receiving proceeds payable under the
Contract, such as on surrender or death, other than in a lump sum. These payment
options are summarized below. All of these options are forms of fixed-benefit
annuities which do not vary with the investment performance of a separate
account. Any agent authorized to sell this Contract can further explain these
options upon request.
You may apply proceeds of $2,000 ($2,000 minimum may not apply in some states)
or more which are payable under this Contract to any of the following options:
Option 1 - Interest Payments. We will make interest payments to the
payee annually or monthly as elected. Interest on the proceeds will be paid at
the guaranteed rate of 3.0% per year and may be increased by additional interest
paid annually. The proceeds and any unpaid interest may be withdrawn in full at
any time.
Option 2 - Installments of a Specified Amount. We will make annual or
monthly payments until the proceeds plus interest are fully paid. Interest on
the proceeds will be paid at the guaranteed rate of 3.0% per year and may be
increased by additional interest. The present value of any unpaid installments
may be withdrawn at any time.
Option 3 - Installments For a Specified Period. Payment of the proceeds
may be made in equal annual or monthly payments for a specified number of years.
Interest on the proceeds will be paid at the guaranteed rate of 3.0% per year
and may be increased by additional interest. The present value of any unpaid
installments may be withdrawn at any time.
Option 4 - Life Income. We will pay an income during the payee's
lifetime. You also may choose a minimum guaranteed payment period or an
installment refund option as part of your life income payment option. The
minimum guaranteed payment period guarantees that life income payments will
continue after death until payments have been paid for the full guaranteed
payment period selected. The installment refund option guarantees that life
income payments will continue after death until the total income payments
received equal the amount of proceeds applied when the option was initially
selected.
Option 5 - Joint and Survivor Income. We will pay an income during the
lifetime of two persons and will continue to pay the same income as long as
either person is living. The minimum guaranteed payment period will be ten
years.
Minimum Amounts. Kansas City Life reserves the right to pay the total
amount of the Contract in one lump sum, if less than $2,000. If payments are
less than $50, payments may be made less frequently at Kansas City Life's
option.
If Kansas City Life has available at the time a payment option is elected
options or rates on a more favorable basis than those guaranteed, the more
favorable benefits will apply.
Specialized Uses of the Contract
Because the Contract provides for an accumulation of cash value as well as a
Death Benefit, the Contract can be used for various individual and business
financial planning purposes. Purchasing the Contract in part for such purposes
entails certain risks. For example, if the investment performance of Subaccounts
to which Variable Account Value is allocated is poorer than expected or if
sufficient premiums are not paid, the Contract may lapse or may not accumulate
sufficient Variable Account Value to fund the purpose for which the Contract was
purchased. Partial surrenders and Contract loans may significantly affect
current and future Contract Value, Cash Surrender Value, or Death Benefit
proceeds. Depending upon Subaccount investment performance and the amount of a
Contract loan, the loan may cause a Contract to lapse. Because the Contract is
designed to provide benefits on a long-term basis, before purchasing a Contract
for a specialized purpose a purchaser should consider whether the long-term
nature of the Contract is consistent with the purpose for which it is being
considered. Using a Contract for a specialized purpose may have tax
consequences.
See "Tax Considerations" on page 47.
ILLUSTRATIONS OF CONTRACT VALUES, CASH SURRENDER VALUES, DEATH BENEFITS AND
ACCUMULATED PREMIUM PAYMENTS
The following tables have been prepared to illustrate hypothetically how certain
values under a Contract change with investment performance over an extended
period of time. The tables illustrate how Contract Values, Cash Surrender Values
and Death Benefits under a Contract covering both Insureds of a given age on the
Contract Date, would vary over time if planned premium payments were paid
annually and the return on the assets in each of the Funds were an assumed
uniform gross annual rate of 0%, 6% and 12%. The values would be different from
those shown if the returns averaged 0%, 6% or 12% but fluctuated over and under
those averages throughout the years shown. The tables also show Planned Periodic
Premiums accumulated at 5% interest compounded annually. The hypothetical
investment rates of return are illustrative only and should not be deemed a
representation of past or future investment rates of return. Actual rates of
return for a particular Contract may be more or less than the hypothetical
investment rates of return and will depend on a number of factors including the
investment allocations made by an Owner and prevailing interest rates and rates
of inflation. These illustrations assume that Net Premiums are allocated equally
among the 14 Subaccounts available under the Contract, and that no amounts are
allocated to the Fixed Account. These illustrations also assume that no Contract
loans have been made and that the premium is paid at the beginning of each
Contract Year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
The illustrations reflect the fact that the net investment return on the assets
held in the Subaccounts is lower than the gross after tax return of the selected
Portfolios. The current values shown in the tables assume an average annual
expense ratio of 0.90% of the average daily net assets of the Portfolios
available under the Contracts. This average annual expense ratio is based on the
expense ratios of each of the Portfolios for the last fiscal year, adjusted, as
appropriate, for any material changes in expenses effective for the current
fiscal year of a Portfolio. For information on the Portfolios' expenses, see the
prospectuses for the Funds and Portfolios accompanying this Prospectus.
In addition, the values calculated using current charges shown in the
illustrations reflect the current daily charge to the Variable Account for
assuming mortality and expense risks, which is equivalent to an annual charge of
0.625%. After deduction of Portfolio expenses and the current mortality and
expense risk charge, the illustrated gross annual investment rates of return of
0%, 6% and 12% would correspond to approximate net annual rates of -1.52%, 4.45%
and 10.41% respectively on a current basis. The values calculated using
guaranteed charges shown in the illustrations reflect the guaranteed daily
charge to the Variable Account for assuming mortality and expense risks, which
is equivalent to an annual charge of 0.90%. After deduction of Portfolio
expenses and the guaranteed mortality and expense risk charge, the illustrated
gross annual investment rates of return of 0%, 6% and 12% would correspond to
approximate net annual rates of -1.79%, 4.16% and 10.10%, respectively.
The illustrations also reflect the deduction of the Premium Expense Charges and
the Monthly Deductions and assume that the Guaranteed Minimum Death Benefit
Option is not in effect. The Monthly Deduction includes the cost of insurance
charge. Kansas City Life has the contractual right to charge higher guaranteed
maximum charges than its current cost of insurance charges. In addition, the
bonus, which, if paid, would partially offset the Monthly Deduction, is not
guaranteed and will be paid in Kansas City Life's sole discretion. The current
cost of insurance charges and payment of the bonus and, alternatively, the
guaranteed cost of insurance charges and nonpayment of the bonus, are reflected
in separate illustrations on each of the following pages. All the illustrations
reflect the fact that no charges for Federal or state income taxes are currently
made against the Variable Account and assume no Indebtedness or charges for
optional benefits.
The illustrations are based on Kansas City Life's sex distinct rates for
nontobacco users. Upon request, an Owner will be furnished with a comparable
illustration based upon the proposed Insureds' specific circumstances. Such
illustrations may assume different hypothetical rates of return than those
illustrated in the following tables.
<PAGE>
<TABLE>
$6,540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING CURRENT COST CHARGES
Male, Standard Nontobacco, Age 35; Female, Standard Nontobacco, Age 35
<CAPTION>
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accumulated Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year at 5% Interest Value Value Value
per Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,430 2,430 1,000,000 2,591 2,591 1,000,000 2,751 2,751 1,000,000
2 14,077 7,072 7,072 1,000,000 7,681 7,681 1,000,000 8,310 8,310 1,000,000
3 21,648 11,636 11,636 1,000,000 12,991 12,991 1,000,000 14,441 14,441 1,000,000
4 29,598 16,124 16,124 1,000,000 18,529 18,529 1,000,000 21,201 21,201 1,000,000
5 37,945 20,534 20,534 1,000,000 24,304 24,304 1,000,000 28,656 28,656 1,000,000
6 46,709 25,596 25,596 1,000,000 31,094 31,094 1,000,000 37,684 37,684 1,000,000
7 55,911 30,568 30,568 1,000,000 38,172 38,172 1,000,000 47,638 47,638 1,000,000
8 65,574 35,449 35,449 1,000,000 45,549 45,549 1,000,000 58,612 58,612 1,000,000
9 75,719 40,238 40,238 1,000,000 53,236 53,236 1,000,000 70,710 70,710 1,000,000
10 86,372 44,933 44,933 1,000,000 61,244 61,244 1,000,000 84,047 84,047 1,000,000
15 148,180 68,164 68,164 1,000,000 107,969 107,969 1,000,000 175,974 175,974 1,000,000
20 227,064 88,578 88,578 1,000,000 164,886 164,886 1,000,000 325,724 325,724 1,000,000
25 327,742 106,519 106,519 1,000,000 234,857 234,857 1,000,000 570,432 570,432 1,393,627
30 456,236 121,125 121,125 1,000,000 320,251 320,251 1,000,000 967,860 967,860 1,981,315
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE VALUES FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATION CAN BE MADE BY KANSAS CITY LIFE OR ANY
FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<TABLE>
$6,540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION A
USING GUARANTEED CHARGES
Male, Standard Nontobacco, Age 35; Fmale, Standard Nontobacco, Age 35
<CAPTION>
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accumulated Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year at 5% Interest Value Value Value
per Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,423 2,423 1,000,000 2,583 2,583 1,000,000 2,743 2,743 1,000,000
2 14,077 7,044 7,044 1,000,000 7,651 7,651 1,000,000 8,277 8,277 1,000,000
3 21,648 11,576 11,576 1,000,000 12,923 12,923 1,000,000 14,363 14,363 1,000,000
4 29,598 16,018 16,018 1,000,000 18,405 18,405 1,000,000 21,056 21,056 1,000,000
5 37,945 20,372 20,372 1,000,000 24,106 24,106 1,000,000 28,415 28,415 1,000,000
6 46,709 25,363 25,363 1,000,000 30,798 30,798 1,000,000 37,311 37,311 1,000,000
7 55,911 30,250 30,250 1,000,000 37,754 37,754 1,000,000 47,091 47,091 1,000,000
8 65,574 35,033 35,033 1,000,000 44,982 44,982 1,000,000 57,843 57,843 1,000,000
9 75,719 39,712 39,712 1,000,000 52,492 52,492 1,000,000 69,662 69,662 1,000,000
10 86,372 44,285 44,285 1,000,000 60,292 60,292 1,000,000 82,653 82,653 1,000,000
15 148,180 66,709 66,709 1,000,000 105,407 105,407 1,000,000 171,408 171,408 1,000,000
20 227,064 85,698 85,698 1,000,000 159,148 159,148 1,000,000 313,569 313,569 1,000,000
25 327,742 100,264 100,264 1,000,000 222,447 222,447 1,000,000 540,939 540,939 1,321,573
30 456,236 105,876 105,876 1,000,000 293,276 293,276 1,000,000 897,256 897,256 1,836,780
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE VALUES FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATION CAN BE MADE BY KANSAS CITY LIFE OR ANY
FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<TABLE>
$6,540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING CURRENT CHARGES
Male, Standard Nontobacco, Age 35; Female, Standard Nontobacco, Age 35
<CAPTION>
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accumulated Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year at 5% Interest Value Value Value
per Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,430 2,430 1,002,430 2,591 2,591 1,002,591 2,751 2,751 1,002,751
2 14,077 7,072 7,072 1,007,072 7,681 7,681 1,007,681 8,310 8,310 1,008,310
3 21,648 11,636 11,636 1,011,636 12,991 12,991 1,012,991 14,440 14,440 1,014,440
4 29,598 16,123 16,123 1,016,123 18,529 18,529 1,018,529 21,200 21,200 1,021,200
5 37,945 20,533 20,533 1,020,533 24,303 24,303 1,024,303 28,654 28,654 1,028,654
6 46,709 25,594 25,594 1,025,594 31,091 31,091 1,031,091 37,680 37,680 1,037,680
7 55,911 30,564 30,564 1,030,564 38,167 38,167 1,038,167 47,631 47,631 1,047,631
8 65,574 35,442 35,442 1,035,442 45,540 45,540 1,045,540 58,600 58,600 1,058,600
9 75,719 40,228 40,228 1,040,228 53,222 53,222 1,053,222 70,691 70,691 1,070,691
10 86,372 44,918 44,918 1,044,918 61,222 61,222 1,061,222 84,016 84,016 1,084,016
15 148,180 68,086 68,086 1,068,086 107,835 107,835 1,107,835 175,745 175,745 1,175,745
20 227,064 88,316 88,316 1,088,316 164,354 164,354 1,164,354 324,605 324,605 1,324,605
25 327,742 105,859 105,859 1,105,859 233,237 233,237 1,233,237 567,273 567,273 1,567,273
30 456,236 119,750 119,750 1,119,750 316,148 316,148 1,316,148 962,231 962,231 1,969,792
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE VALUES FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATION CAN BE MADE BY KANSAS CITY LIFE OR ANY
FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
</TABLE>
<TABLE>
$6,540 ANNUAL PREMIUM
$1,000,000 TOTAL SUM INSURED: $1,000,000 SPECIFIED AMOUNT
COVERAGE OPTION B
USING GUARANTEED CHARGES
Male, Standard Nontobacco, Age 35; Female, Standard Nontobacco, Age 35
<CAPTION>
0% Hypothetical Gross 6% Hypothetical Gross 12% Hypothetical Gross
Investment Return Investment Return Investment Return
End of Premiums Contract Cash Death Contract Cash Death Contract Cash Death
Contract Accumulated Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year at 5% Interest Value Value Value
per Year
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,867 2,423 2,423 1,002,423 2,583 2,583 1,002,583 2,743 2,743 1,002,743
2 14,077 7,044 7,044 1,007,044 7,651 7,651 1,007,651 8,277 8,277 1,008,277
3 21,648 11,575 11,575 1,011,575 12,922 12,922 1,012,922 14,363 14,363 1,014,363
4 29,598 16,018 16,018 1,016,018 18,404 18,404 1,018,404 21,055 21,055 1,021,055
5 37,945 20,371 20,371 1,020,371 24,104 24,104 1,024,104 28,413 28,413 1,028,413
6 46,709 25,371 25,371 1,025,371 30,795 30,795 1,030,795 37,307 37,307 1,037,307
7 55,911 30,245 30,245 1,030,245 37,748 37,748 1,037,748 47,084 47,084 1,047,084
8 65,574 35,026 35,026 1,035,026 44,973 44,973 1,044,973 57,830 57,830 1,057,830
9 75,719 39,701 39,701 1,039,701 52,477 52,477 1,052,477 69,641 69,641 1,069,641
10 86,372 44,268 44,268 1,044,268 60,269 60,269 1,060,269 82,620 82,620 1,082,620
15 148,180 66,627 66,627 1,066,627 105,267 105,267 1,105,267 171,167 171,167 1,171,167
20 227,064 85,397 85,397 1,085,397 158,542 158,542 1,158,542 312,303 312,303 1,312,303
25 327,742 99,343 99,343 1,099,343 220,226 220,226 1,220,226 536,584 536,584 1,536,584
30 456,236 103,384 103,384 1,103,384 285,941 285,941 1,285,941 888,250 888,250 1,888,250
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE VALUES FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL
CONTRACT YEARS. NO REPRESENTATION CAN BE MADE BY KANSAS CITY LIFE OR ANY
FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE>
OTHER CONTRACT BENEFITS AND PROVISIONS
Limits on Rights to Contest the Contract
Incontestability. After the Contract has been in force during the
Insureds' lifetime for two years from the Contract Date (or less if required by
state law), Kansas City Life may not contest the Contract, except if the
Contract lapses after the end of a grace period.
Any increase in the Additional Insurance Amount will not be contested after the
increase has been in force during the Insureds' lifetimes for two years
following the effective date of the increase (or less if required by state law).
If a Contract lapses and it is reinstated, we cannot contest the reinstated
Contract after the Contract has been in force during the Insureds' lifetimes for
two years from the date of the reinstatement application (or less if required by
state law).
Suicide Exclusion. If either Insured dies by suicide, while sane or
insane, within two years of the Contract Date (or less if required by state
law), the Contract will terminate on the date of such suicide and the amount
payable by Kansas City Life (in place of all other benefits, if any) will be
equal to the Contract Value less any Indebtedness.
If either Insured dies by suicide, while sane or insane, within two years after
the effective date of any increase in the Additional Insurance Amount (or less
if required by state law), the amount of the Additional Insurance Amount
associated with the increase will terminate and the amount payable by Kansas
City Life associated with such increase will be limited to the cost of insurance
charges associated with the increase.
Changes in the Contract or Benefits
Misstatement of Age or Sex. If, while the Contract is in force and
either or both the Insureds are alive, it is determined that the Age or sex of
either Insured as stated in the Contract is not correct, Kansas City Life will
adjust the Contract Value under the Contract. The adjustment to the Contract
Value will be the difference between the following amounts accumulated at 4%
interest annually. The two amounts are: (1) the cost of insurance deductions
that have been made; and (2) the cost of insurance deductions that should have
been made. If, after the death of the last surviving Insured while this Contract
is in force, it is determined the Age or sex of either Insured as stated in the
Contract is not correct, the Death Benefit will be the net amount at risk that
the most recent cost of insurance deductions at the correct Age and sex would
have provided plus the Contract Value on the date of death (unless otherwise
required by state law).
Other Changes. Upon notice, Kansas City Life may modify the Contract,
but only if such modification is necessary to: (1) make the Contract or the
Variable Account comply with any applicable law or regulation issued by a
governmental agency to which Kansas City Life is subject; (2) assure continued
qualification of the Contract under the Internal Revenue Code or other federal
or state laws relating to variable life contracts; (3) reflect a change in the
operation of the Variable Account; or (4) provide additional Variable Account
and/or fixed accumulation options. Kansas City Life reserves the right to modify
the Contract as necessary to attempt to prevent the Contract Owner from being
considered the owner of the assets of the Variable Account. In the event of any
such modification, Kansas City Life will issue an appropriate endorsement to the
Contract, if required. Kansas City Life will exercise these rights in accordance
with applicable law, including approval of Contract Owners if required.
Payment of Proceeds
Kansas City Life will ordinarily pay any Death Benefit proceeds, loan proceeds,
partial surrender proceeds, or full surrender proceeds within seven calendar
days after receipt at the Home Office of all the documents required for such a
payment. Under certain circumstances and in accordance with established
administrative procedures, we will pay Death Benefit proceeds through Kansas
City Life's Personal Growth Account, an interest bearing account. Proceeds paid
through the Personal Growth Account are placed in our general account.
Check-writing privileges are provided in the Personal Growth Account under which
the bank that pays the check will be reimbursed by Kansas City Life out of the
proceeds held in our general account. The Personal Growth Account is not a bank
account and is not insured nor guaranteed by the FDIC or any other government
agency. A Contract Owner or beneficiary (whichever applicable) will have
immediate access to the proceeds by writing a check on the account. We pay
interest from the date of death to the date the Personal Growth Account is
closed.
Other than the Death Benefit, which is determined as of the date of death, the
amount of a Contract transaction will be determined as of the date of receipt of
required documents. However, Kansas City Life may delay making a payment or
processing a transfer request if (1) the New York Stock Exchange is closed for
other than a regular holiday or weekend, trading is restricted by the SEC, or
the SEC declares that an emergency exists as a result of which the disposal or
valuation of Variable Account assets is not reasonably practicable; or (2) the
SEC by order permits postponement of payment to protect Kansas City Life's
Contract Owners.
Reports to Contract Owners
At least once each Contract Year, you will be sent a report at your last known
address showing, as of the end of the current report period providing updated
information about the Contract since the last report, including any information
required by law. You will also be sent an annual and a semi-annual report for
each Fund or Portfolio underlying a Subaccount to which you have allocated
Contract Value, including a list of the securities held in each Fund, as
required by the 1940 Act. In addition, when you pay premium payments , or if you
take out a loan, transfer amounts among the Variable Accounts and Fixed Account
or take surrenders, you will receive a written confirmation of these
transactions.
Assignment
The Contract may be assigned in accordance with its terms. In order for any
assignment to be binding on Kansas City Life, it must be in writing and filed at
the Home Office. Once Kansas City Life has received a signed copy of the
assignment, the Owner's rights and the interest of any Beneficiary (or any other
person) will be subject to the assignment. Kansas City Life assumes no
responsibility for the validity or sufficiency of any assignment. An assignment
is subject to any Indebtedness.
Reinstatement of Contract
The Contract may be reinstated within two years (or such longer period if
required by state law) after lapse, subject to compliance with certain
conditions, including the payment of the necessary premium and submission of
satisfactory evidence of insurability. See your Contract for further
information.
Optional Riders
The following optional riders are available and may be added to your Contract.
Monthly charges for these optional riders will be deducted from your Contract
Value as part of the Monthly Deduction. All of these riders may not be available
in all states.
Contract Split Option Rider
Issue Ages: 20-75
This rider allows you to split the Contract equally into two individual
policies, one on the life of each Insured. This split option will be offered
without evidence of insurability under the conditions that the request is made
as the result of either : (1) the divorce of the two Insureds; or (2) as a
result of a change in the Unlimited Federal Estate Tax marital deduction or a
reduction in the maximum Federal Estate Tax bracket rate to a rate below 25%.
Specific other conditions must also be met in order to qualify. When this option
is exercised, the existing Contract will be terminated. (In Pennsylvania this
option may not be exercised in the event of divorce.)
The new contracts will be based on the Insureds' Age, sex, and based on
the risk class at the time of issue of the original Contract.
This rider will terminate at the older Insured's age 80. The rider will
also terminate if you elect to keep the Guaranteed Minimum Death Benefit Option
in effect after it is determined that funding is not adequate to cover these
rider charges. See "Guaranteed Minimum Death Benefit Option," page 32.
The tax consequences of a contract split are uncertain and could affect
whether the Contract is treated as a life insurance contract for federal tax
purposes and, if it is so treated, whether it will be treated as a "Modified
Endowment Contract" (see "Tax Treatment of Contract Benefits," page 48). A
significant unresolved federal tax issue affecting a contract is whether the
issuance of two individual life insurance contracts in exchange for a
survivorship life insurance contract will be treated as a nontaxable exchange
under the provisions of the Internal Revenue Code of 1986, as amended (the
"Code") dealing with common nontaxable exchanges (Sections 1031 through 1043).
If you are considering receiving the Contract pursuant to a contract split, you
should be aware that it is possible that such a contract split may not be
treated as a nontaxable exchange, in which case the tax treatment of the
Contract could be significantly less favorable than that described in this
discussion. Before proceeding with a contract split, you should consult a
competent tax advisor as to the possible tax consequences of such a split.
Joint First to Die Term Life Insurance Rider
Issue Ages: 20-85
This rider covers the Insureds under the Contract and provides yearly
renewable term coverage on the first Insured to die on or before the older
Insured's age 100 and while this rider is in force. The coverage under this
rider may be increased (subject to insurability) or decreased. You may also
choose at issue a schedule for the coverage to decrease annually. The scheduled
decreases may be based on the percentage of the coverage amount or may be a flat
dollar amount. If this rider is elected, the Guaranteed Minimum Death Benefit
Option is not available on the Contract.
Joint Survivorship Four-Year Term Life Insurance Rider
Issue Ages: 20-85
This rider provides four-year level term insurance and expires four
years after the effective date of the rider. The term insurance provides a death
benefit payable at the death of the last surviving Insured. The minimum coverage
is $100,000 and the maximum coverage is equal to the Total Sum Insured. This
rider is available at issue only.
The rider will also terminate if you elect to keep the Guaranteed
Minimum Death Benefit Option in effect after it is determined that funding is
not adequate to cover these rider charges. See "Guaranteed Minimum Death Benefit
Option," page 32.
Additional rules and limits apply to these optional riders. Not all such
benefits may be available at any time, and optional benefits or riders in
addition to those listed above may be made available. Please ask your Kansas
City Life agent for further information, or contact the Home Office.
TAX CONSIDERATIONS
The following summary provides a general description of the Federal income tax
considerations associated with the Contract and does not purport to be complete
or to cover all 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 Kansas City Life's understanding of
the present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present Federal income tax laws or of the
current interpretations by the Service.
Tax Status of the Contract
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") sets
forth a definition of a life insurance contract for Federal income tax purposes.
Although the Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702, while proposed regulations and
other interim guidance has been issued, final regulations have not been adopted.
In short, guidance as to how Section 7702 is to be applied is limited. If a
Contract were determined not to be a life insurance contract for purposes of
Section 7702, such Contract would not provide the tax advantages normally
provided by a life insurance contract.
Kansas City Life believes that such a Contract should meet the Section 7702
definition of a life insurance contract. If it is subsequently determined that a
Contract does not satisfy Section 7702, Kansas City Life may take whatever steps
are appropriate and reasonable to attempt to cause such a Contract to comply
with Section 7702. For these reasons, Kansas City Life reserves the right to
restrict Contract transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of each of the
Subaccounts must be "adequately diversified" in accordance with Treasury
regulations in order for the Contract to qualify as a life insurance contract
under Section 7702 of the Code (discussed above). The Subaccounts, through the
Portfolios, intend to comply with the diversification requirements prescribed in
Treas. Reg. ss. 1.817-5, which affect how the Portfolio's assets are to be
invested. Kansas City Life believes that the Subaccounts will, thus, meet the
diversification requirements, and Kansas City Life will monitor continued
compliance with this requirement.
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
subaccounts used to support their contracts. In those circumstances, income and
gains from the subaccount assets would be includible in the variable contract
owner's gross income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of subaccount assets if the contract
owner possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. The Treasury Department has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Contract Owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which Contract holders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Contract are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that Contract owners were not owners of subaccount assets. For example, an Owner
has additional flexibility in allocating Net Premium payments and Contract
Value. These differences could result in an Owner being treated as the owner of
a pro rata portion of the assets of the Subaccounts. In addition, Kansas City
Life does not know what standards will be set forth, if any, in the regulations
or rulings which the Treasury Department has stated it expects to issue. Kansas
City Life therefore reserves the right to modify the Contract as necessary to
attempt to prevent an Owner from being considered the Owner of a pro rata share
of the assets of the Subaccounts.
The following discussion assumes that the Contract will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Contract Benefits
In General. Kansas City Life believes that the proceeds and Contract
Value increases of a Contract should be treated in a manner consistent with a
fixed-benefit life insurance Contract for Federal income tax purposes. Thus, the
Death Benefit under the Contract should be excludable from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Contract, a change in the
Contract's Coverage Option, a change in the Additional Insurance Amount, a
change in the Total Sum Insured, a Contract loan, a partial surrender, a
surrender, a change in ownership, or an assignment of the Contract may have
Federal income tax consequences. In addition, federal, state and local transfer,
and other tax consequences of ownership or receipt of Contract proceeds depends
on the circumstances of each Owner or beneficiary.
The Contract may also be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax adviser regarding the tax attributes of the 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 Contract or a
change in an existing Contract should consult a tax advisor.
Generally, the Owner will not be deemed to be in constructive receipt of the
Contract Value, including increments thereof, until there is a distribution. The
tax consequences of distributions from, and loans taken from or secured by, a
Contract depend on whether the Contract is classified as a "Modified Endowment
Contract." Whether a Contract is or is not a Modified Endowment Contract, upon a
complete surrender or lapse of a Contract, if the amount received plus the
amount of Indebtedness exceeds the total investment in the Contract, the excess
will generally be treated as ordinary income subject to tax.
Modified Endowment Contracts. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts." The rules
relating to whether a Contract will be treated as a Modified Endowment Contract
are extremely complex and cannot be adequately described in the limited confines
of this summary. In general, a Contract will be a Modified Endowment Contract if
the accumulated premiums paid at any time during the first seven Contract Years
exceed the sum of the net level premiums which would have been paid on or before
such time if the Contract provided for paid-up future benefits after the payment
of seven level annual premiums. A Contract may also become a Modified Endowment
Contract after a material change. The determination of whether a Contract will
be a Modified Endowment Contract after a material change generally depends upon
the relationship of the Death Benefit and Contract Value at the time of such
change and the additional premiums paid in the seven years following the
material change.
Due to the Contract's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Contract. In view
of the foregoing, a current or prospective Owner should consult with a tax
adviser to determine whether a Contract transaction will cause the Contract to
be treated as a Modified Endowment Contract. However, at the time a premium is
credited which in Kansas City Life's view would cause the Contract to become a
Modified Endowment Contract, Kansas City Life will notify the Owner that unless
a refund of the excess premium (with any appropriate interest) is requested by
the Owner, the Contract will become a Modified Endowment Contract. The Owner
will have 30 days after receiving such notification to request the refund.
Distributions from Contracts Classified as Modified Endowment
Contracts. Contracts classified as Modified Endowment Contracts will be subject
to the following tax rules: First, all distributions, including distributions
upon surrender and partial surrender from such a Contract are treated as
ordinary income subject to tax up to the amount equal to the excess (if any) of
the Contract Value immediately before the distribution over the investment in
the Contract (described below) at such time. Second, loans taken from or secured
by such a Contract, are treated as distributions from the Contract and taxed
accordingly. Past due loan interest that is added to the loan amount will be
treated as a loan. Third, a 10 percent additional income tax is imposed on the
portion of any distribution from, or loan taken from or secured by, such a
Contract that is included in income except where the distribution or loan is
made on or after the Owner attains age 59 1/2, is attributable to the Owner's
becoming disabled, or is part of a series of substantially equal periodic
payments for the life (or life expectancy) of the Owner or the joint lives (or
joint life expectancies) of the Owner and the Owner's beneficiary.
If a Contract becomes a modified endowment contract after it is issued,
distributions made during the Contract Year in which it becomes a modified
endowment contract, distributions in any subsequent Contract Year and
distributions within two years before the Contract becomes a modified endowment
contract will be subject to the tax treatment described above. This means that a
distribution from a Contract that is not a Modified Endowment Contract could
later become taxable as a distribution from a Modified Endowment contract.
Distributions From Contracts Not Classified as Modified Endowment
Contracts. Distributions from a Contract that is not a Modified Endowment
Contract are generally treated as first, recovering the investment in the
Contract (described below) and then, only after the return of all such
investment in the Contract, as distributing taxable income. An exception to this
general rule occurs in the case of a decrease in the Contract's Death Benefit or
any other change that reduces benefits under the Contract in the first 15 years
after the Contract is issued and that results in a cash distribution to the
Owner in order for the Contract to continue complying with the Section 7702
definitional limits. Such a cash distribution will be taxed in whole or in part
as ordinary income (to the extent of any gain in the Contract) under rules
prescribed in Section 7702.
Loans from, or secured by, a Contract that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
Indebtedness of the Owner. A preferred loan may not, however, be treated as
Indebtedness; instead it may be treated as a distribution.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Contract that is not a Modified Endowment Contract
are subject to the 10 percent additional income tax rule.
Contract Loan Interest. Interest paid on a loan under a Contract generally
is not deductible. A qualified tax adviser should be consulted before deducting
any Contract loan interest.
Investment in the Contract. Investment in the Contract means: (i) the
aggregate amount of any premiums or other consideration paid for a Contract,
minus (ii) the aggregate amount received under the Contract which is excluded
from gross income of the Owner (except that the amount of any loan from, or
secured by, a Contract that is a Modified Endowment Contract, to the extent such
amount is excluded from gross income, will be disregarded), plus (iii) the
amount of any loan from, or secured by, a Contract that is a Modified Endowment
Contract to the extent that such amount is included in the gross income of the
owner.
Multiple Contracts. All Modified Endowment Contracts that are issued by
Kansas City Life (or its affiliates) to the same Owner during any calendar year
are treated as one Modified Endowment Contract for purposes of determining the
amount includible in an Owner's gross income under Section 72(e) of the Code.
Continuation of Contract Beyond Younger Insured's 100th Birthday. If a
Contract continues in force beyond the 100th birthday of the younger Insured the
tax consequences are uncertain. In the event it appears that this might occur a
qualified tax adviser should be consulted.
Possible Charge for Kansas City Life's Taxes
At the present time, Kansas City Life only makes a charge for the Federal DAC
tax and for state and local premium taxes. Kansas City Life, however, reserves
the right in the future to make additional charges for any additional Federal,
state or local taxes or other economic burden resulting from the application of
the tax laws that it determines to be properly attributable to the Subaccounts
or to the Contracts.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the
possibility that the tax treatment of the Contract could change by legislation
or otherwise. For instance, the President's 1999 Budget Proposal recommended
legislation that, if enacted, would adversely modify the federal taxation of
this Contract. It is possible that any legislative change could be retroactive
(that is, effective prior to the date of the change). A tax adviser should be
consulted with respect to legislative developments and their effect on the
Contract.
OTHER INFORMATION ABOUT THE CONTRACTS AND KANSAS CITY LIFE
Sale of the Contracts
The Contracts will be offered to the public on a continuous basis, and we do not
anticipate discontinuing the offering of the Contracts. However, we reserve the
right to discontinue the offering. Applications for Contracts are solicited by
agents who are licensed by applicable state insurance authorities to sell our
variable life contracts and who are also registered representatives of Sunset
Financial Services, Inc. ("Sunset Financial"), one of our wholly-owned
subsidiaries, or of broker-dealers who have entered into written sales
agreements with Sunset Financial. Sunset Financial is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer and is a member of
the National Association of Securities Dealers, Inc.
Sunset Financial acts as the Principal Underwriter, as defined in the 1940 Act,
of the Contracts for the Variable Account pursuant to an Underwriting Agreement
between Kansas City Life and Sunset Financial. Sunset Financial is not obligated
to sell any specific number of Contracts. Sunset Financial's principal business
address is P.O. Box 419365, Kansas City, Missouri 64141-6365.
Registered representatives may be paid commissions on a Contract they sell based
on premiums paid in amounts up to 50% of premiums paid during the first Contract
Year and up to 3% of premiums paid after the first Contract Year. Additional
commissions may be paid in certain circumstances. Other allowances and overrides
also may be paid.
When Contracts are sold through other broker-dealers that have entered into
selling agreements with us, the commission which will be paid by such
broker-dealers to their representatives will be in accordance with their
established rules. The commission rates may be more or less than those set forth
above for Kansas City Life's representatives. In addition, their qualified
registered representatives may be reimbursed by the broker-dealers under expense
reimbursement allowance programs in any year for approved voucherable expenses
incurred. We will compensate the broker-dealers as provided in the selling
agreements, and Sunset Financial Services, Inc. will reimburse Kansas City Life
for such amounts and for certain other direct expenses in connection with
marketing the Contracts through other broker-dealers.
Telephone Transfer, Premium Allocation and Loan Privileges
A transfer of Contract Value, change in premium allocation or Contract loan may
be made by telephone provided the appropriate election has been made at the time
of application or proper authorization has been provided to us. We reserve the
right to suspend telephone transfer and loan privileges at any time, for any
reason, if we deem such suspension to be in the best interests of Contract
Owners.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine, and if we follow those procedures we will not be
liable for any losses due to unauthorized or fraudulent instructions. We may be
liable for such losses if we do not follow those reasonable procedures. The
procedures we will follow for telephone transfers and loans include requiring
some form of personal identification prior to acting on instructions received by
telephone, providing written confirmation of the transaction, and making a tape
recording of the instructions given by telephone.
Kansas City Life Directors and Executive Officers
The following table sets forth the name, address and principal occupations
during the past five years of each of Kansas City Life's directors and executive
officers.
Name and Principal
Business Address * Principal Occupation During Past Five Years
Joseph R. Bixby Director, Kansas City Life; Chairman of the
Board since 1972; President from 1964 until
he retired in April, 1990; responsible for
overall corporate policy. Director of
Sunset Life and Old American Insurance
Company, subsidiaries of Kansas City
Life.
Walter E. Bixby Director, Kansas City Life; Vice Chairman of
the Board since 1974;President from 1990
until he retired in April, 1998. Chairman
of the Board of Sunset Life and Chairman of
the Board of Old American Insurance Company,
subsidiaries of Kansas City Life.
R. Philip Bixby Director, Kansas City Life; Elected
Assistant Secretary in 1979; Assistant Vice
President in 1982, Vice President in 1984,
Senior Vice President, Operations in
1990; Executive Vice President in 1996 and
President and CEO in April 1998; primarily
responsible for the operation of the
Company.
W. E. Bixby, III Director, Kansas City Life; Director and
President of Old American Insurance
Company, a subsidiary of Kansas City Life.
Director of Sunset Life, a subsidiary of
Kansas City Life.
Charles R. Duffy Jr. Elected Vice President, Insurance
Administration in November, 1989; Senior
Account Executive, Cybertek Corporation,
January, 1989 to November, 1989; Senior Vice
President, Operations in 1996; responsible
for Computer Information Systems, Customer
Services and Claims, Premium Collection and
Agency Administration. Director of Sunset
Life and Old American, subsidiaries of
Kansas City Life.
Richard L. Finn Director, Kansas City Life; Elected Vice
President in 1976; Financial Vice President
in 1983 and Senior Vice President, Finance,
in 1984; Chief Financial Officer and
responsible for investment of Kansas City
Life's funds, accounting and taxes.
Director, Vice President and Chief Financial
Officer of Old American, and Director of
Sunset Life subsidiaries of Kansas City
Life.
Jack D. Hayes Director, Kansas City Life; Elected Senior
Vice President, Marketing in February, 1994,
responsible for Marketing, Marketing
Administration, Communications and Public
Relations. Served as Executive Vice
President and Chief Marketing Officer of
Fidelity Union Life, Dallas, Texas, from
June, 1981 to January, 1994.
Francis P. Lemery Director, Kansas City Life; Elected Vice
President in 1979; Vice President and
Actuary in 1980, and Senior Vice President
and Actuary in 1984; responsible for Group
Insurance Department, Actuarial, State
Compliance and New Business Issue and
Underwriting. Director of Sunset Life and
Old American, subsidiaries of Kansas City
Life.
C. John Malacarne Director, Kansas City Life; Elected
Associate General Counsel in 1976; General
Counsel in 1980; Vice President and General
Counsel in 1981; and Vice President, General
Counsel and Secretary in 1991. Responsible
for Legal Department, Office of the
Secretary and Stock Transfer Department.
Director and Secretary of Sunset Life and
Director and Secretary of Old American,
subsidiaries of Kansas City Life.
Robert C. Miller Elected Assistant Auditor in 1972; Auditor
in 1973; Vice President and Auditor in 1987,
and Senior Vice President, Administrative
Services, in 1991. Responsible for Human
Resources and Home Office building and
maintenance.
Webb R. Gilmore Director, Kansas City Life since 1990;
Partner -Gilmore and Bell.
Nancy Bixby Hudson Director, Kansas City Life since 1996;
Investor.
Warren J. Hunzicker, M.D. Director, Kansas City Life since 1989.
Daryl D. Jensen Director, Kansas City Life; Elected Vice
Chairman of the Board and President, Sunset
Life Insurance Company of America, a
subsidiary of Kansas City Life, in 1975.
Michael J. Ross Director, Kansas City Life since 1972;
President and Chairman of the Board,
Jefferson Bank and Trust Company, St. Louis,
Missouri, since 1971.
Elizabeth T. Solberg Director, Kansas City Life since 1997;
Executive Vice President and Senior Partner,
Fleischman-Hilliard, Inc., a position she
has held since 1984.
Larry Winn Jr. Director, Kansas City Life since 1985;
Retired as the Kansas Third District
Representative to the U.S. Congress.
John K. Koetting Elected Assistant Controller in 1975 and
Vice President and Controller in 1980; chief
accounting officer; responsible for all
corporate accounting reports. Director of
Old American Insurance Company, a subsidiary
of Kansas City Life.
* The principal business address of all the persons listed above is
3520 Broadway, Kansas City, Missouri 64111.
State Regulation
Kansas City Life is subject to regulation by the Department of Insurance of the
State of Missouri, which periodically examines the financial condition and
operations of Kansas City Life. Kansas City Life is also subject to the
insurance laws and regulations of all jurisdictions where it does business. The
Contract described in this prospectus has been filed with and, where required,
approved by, insurance officials in those jurisdictions where it is sold.
Kansas City Life is required to submit annual statements of operations,
including financial statements, to the insurance departments of the various
jurisdictions where it does business to determine solvency and compliance with
applicable insurance laws and regulations.
Additional Information
A registration statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
The omitted information may be obtained at the SEC's principal office in
Washington, D.C. by paying the SEC's prescribed fees.
Experts
The consolidated balance sheets for Kansas City Life at December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997, and the statement of net assets of the Variable Account at December 31,
1997, and the related statements of operations and changes in net assets for the
year ended December 31, 1997, and for the period from January 29, 1996
(inception), to December 31, 1996, appearing herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Mark A.
Milton, Vice President and Associate Actuary of Kansas City Life.
Litigation
Kansas City Life and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Kansas City Life believes that at
the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Variable Account or
Kansas City Life.
Preparing for Year 2000
Like all financial services providers, Kansas City Life utilizes systems that
may be affected by Year 2000 transition issues, and it relies on service
providers, including the Funds, that also may be affected. Kansas City Life has
developed, and is in the process of implementing, a Year 2000 transition plan,
and is confirming that its service providers are also so engaged. The resources
that are being devoted to this effort are substantial. It is difficult to
predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on Kansas City Life.
However, as of the date of this prospectus, it is not anticipated that Contract
Owners will experience negative effects of their investment, or on the services
provided in connection therewith, as a result of Year 2000 transition
implementation. Kansas City Life currently anticipates that its systems will be
Year 2000 compliant on or about January 1, 1999, but there can be no assurance
that we will be successful, or that interaction with other service providers
will not impair our services at that time.
Legal Matters
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the federal securities laws. Matters relating to the
federal securities laws and matters of Missouri law pertaining to the Contracts,
including Kansas City Life's right to issue the Contracts and its qualification
to do so under applicable laws and regulations issued thereunder, have been
passed upon by C. John Malacarne, General Counsel of Kansas City Life.
Company Holidays
We are closed on the following holidays: New Year's Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Additional holidays in 1998 will be September 25 and November 27. Holidays that
fall on a Saturday will be recognized on the previous Friday. Holidays that fall
on a Sunday will be recognized on the following Monday.
Financial Statements
Kansas City Life's audited consolidated balance sheet as of December 31, 1997
and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997 appearing herein, should be considered only as bearing upon Kansas City
Life's ability to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the assets held in the
Account. The statement of net assets of the Variable Account at December 31,
1997, and the related Statement of Operations and changes in net assets for the
period ended December 31, 1997, and for the period from January 29, 1996
(inception), to December 31, 1996, are also included herein.
CONSOLIDATED INCOME STATEMENT
1997 1996 1995
REVENUE
Insurance revenues:
Premiums:
Life insurance $106 051 103 263 101 341
Accident and health 44 931 37 575 29 475
Contract charges 93 713 78 755 74 642
Investment revenues:
Investment income, net 193 696 186 743 188 087
Realized investment gains, net 14 505 3 013 4 950
Other 9 998 9 768 10 290
TOTAL REVENUES 462 894 419 117 408 785
BENEFITS AND EXPENSES
Policy benefits:
Death benefits 100 037 87 940 85 388
Surrenders of life insurance 14 999 15 488 16 345
Other benefits 71 338 65 437 53 441
Increase in benefit and contract reserves 86 804 85 614 89 139
Amortization of policy acquisition costs 35 712 30 086 27 992
Insurance operating expenses 91 381 75 227 76 557
TOTAL BENEFITS AND EXPENSES 400 271 359 792 348 862
Income before Federal income taxes 62 623 59 325 59 923
Federal income taxes:
Current 15 073 26 073 22 038
Deferred 2 689 (9 063) (3 853)
17 762 17 010 18 185
NET INCOME $ 44 861 42 315 41 738
Basic and diluted earnings per share $7.25 6.84 6.76
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
1997 1996
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost $1,952,741,000;
$1,762,091,000 - 1996) $2 004 516 1 759 153
Held to maturity, at amortized cost
(fair value $151,495,000;
$256,042,000 - 1996) 145 661 248 433
Equity securities available for sale,
at fair value (cost $107,034,000;
$71,522,000 - 1996) 114 986 79 018
Mortgage loans on real estate, net 270 054 246 493
Real estate, net 36 764 43 750
Real estate joint ventures 43 347 28 356
Policy loans 123 186 94 412
Short-term 74 341 19 642
Other 7 500 -
TOTAL INVESTMENTS 2 820 355 2 519 257
Cash 50 927 4 577
Accrued investment income 42 385 41 847
Receivables, net 10 204 6 854
Property and equipment, net 23 628 24 791
Deferred acquisition costs 209 826 207 020
Value of purchased insurance in force 108 458 38 031
Reinsurance assets 99 593 93 328
Other 16 096 5 089
Separate account assets 57 980 13 916
$3 439 452 2 954 710
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits:
Life insurance $ 766 583 671 204
Accident and health 37 155 30 356
Accumulated contract values 1 755 133 1 544 714
Policy and contract claims 37 569 35 223
Other policyholders' funds:
Dividend and coupon accumulations 62 056 43 141
Other 68 861 60 970
Income taxes:
Current 16 113 3 537
Deferred 39 917 19 748
Other 67 491 69 037
Separate account liabilities 57 980 13 916
TOTAL LIABILITIES 2 908 858 2 491 846
Stockholders' equity:
Common stock, par value $2.50 per share
Authorized 18,000,000 shares,
issued 9,248,340 shares 23 121 23 121
Paid-in capital 16 256 14 761
Unrealized gains on securities
available for sale, net 36 448 2 963
Retained earnings 543 715 509 748
Less treasury stock, at cost
(3,055,275 shares; 3,058,871 shares -1996) (88 946) (87 729)
TOTAL STOCKHOLDERS' EQUITY 530 594 462 864
$3 439 452 2 954 710
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
1997 1996 1995
COMMON STOCK, beginning and end of year $ 23 121 23 121 23 121
PAID IN CAPITAL:
Beginning of year 14 761 13 039 11 847
Excess of proceeds over
cost of treasury stock sold 1 495 1 722 1 192
End of year 16 256 14 761 13 039
UNREALIZED GAINS (LOSSES ON SECURITIES
AVAILABLE FOR SALE:
Beginning of year 2 963 29 740 (51 345)
Unrealized appreciation (depreciation)
on securities available for sale, net 33 485 (26 777) 81 085
End of year 36 448 2 963 29 740
RETAINED EARNINGS:
Beginning of year 509 748 477 826 446 149
Net income 44 861 42 315 41 738
Stockholder dividends of $1.76 per share
($1.68 - 1996 and $1.63 - 1995) (10 894) (10 393) (10 061)
End of year 543 715 509 748 477 826
TREASURY STOCK, at cost:
Beginning of year (87 729) (86 599) (86 077)
Cost of 20,090 shares acquired
(27,876 shares - 1996 and
17,240 shares - 1995) (1 440) (1 501) (829)
Cost of 23,686 shares sold
(39,440 shares - 1996 and
32,709 shares - 1995) 223 371 307
End of year (88 946) (87 729) (86 599)
TOTAL STOCKHOLDERS' EQUITY $530 594 462 864 457 127
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
1997 1996 1995
OPERATING ACTIVITIES
Net income $ 44 861 42 315 41 738
Adjustments to reconcile net income to
net cash from operating activities:
Amortization of investment discount, net (1 290) (4 071) (5 215)
Depreciation 5 379 4 995 5 265
Policy acquisition costs capitalized (42 170) (38 639) (40 388)
Amortization of deferred
policy acquisition costs 35 712 30 086 27 992
Realized investment gains (14 505) (3 013) (4 950)
Changes in assets and liabilities:
Future policy benefits 16 227 15 831 15 071
Accumulated contract values (9 933) 3 183 8 135
Other policy liabilities 7 137 5 294 3 852
Income taxes payable and deferred 4 768 (8 322) (1 595)
Other, net (3 685) 5 886 4 318
NET CASH PROVIDED 42 501 53 545 54 223
INVESTING ACTIVITIES
Investments called, matured or repaid:
Fixed maturities available for sale 163 867 131 545 136 574
Fixed maturities held to maturity 106 188 79 017 63 433
Equity securities available for sale 31 473 8 899 13 727
Mortgage loans on real estate 47 048 53 430 67 722
Other 278 (100) 1 542
Investments sold:
Fixed maturities available for sale 503 351 140 372 165 563
Fixed maturities held to maturity - - 4 207
Other 19 969 11 503 22 326
Investments purchased or originated:
Fixed maturities available for sale (855 980) (431 916) (495 766)
Equity securities available for sale (69 434) (18 071) (12 896)
Real estate joint ventures (16 731) (6 439) (8 093)
Mortgage loans on real estate (68 599) (54 161) (31 053)
Decrease (increase) in
short-term investments, net (54 699) 17 256 (17 558)
Other (9 144) (2 150) (1 068)
Acquisition of life block:
Cash received net of purchase price paid 213 092 - -
Net additions to property and equipment (2 872) (527) (2 918)
NET CASH PROVIDED (USED) 7 807 (71 342) (94 258)
FINANCING ACTIVITIES
Proceeds from borrowings 245 050 1 650 22 730
Repayment of borrowings (245 050) (1 650) (22 730)
Policyowner contract deposits 169 699 164 677 179 135
Withdrawals of policyowner
contract deposits (163 041) (142 114) (127 347)
Cash dividends to stockholders (10 894) (10 393) (10 061)
Disposition of treasury stock, net 278 592 670
NET CASH PROVIDED (USED) (3 958) 12 762 42 397
Increase (decrease) in cash 46 350 (5 035) 2 362
Cash at beginning of year 4 577 9 612 7 250
CASH AT END OF YEAR $ 50 927 4 577 9 612
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in tables are generally stated in thousands,
except per share data.)
SIGNIFICANT ACCOUNTING POLICIES
Organization
Kansas City Life Insurance Company is a Missouri domiciled stock life
insurance company which, with its affiliates, is licensed to sell insurance
products in 48 states and the District of Columbia. The Company offers a
diversified portfolio of individual insurance, annuity and group products
distributed through numerous general agencies. In recent years, the
Company's new business activities have been concentrated in interest
sensitive and variable products.
Basis of Presentation
The accompanying consolidated financial statements have been prepared on
the basis of generally accepted accounting principles (GAAP) and include
the accounts of Kansas City Life Insurance Company and its subsidiaries.
Significant intercompany transactions have been eliminated in
consolidation. Certain reclassifications have been made to prior year
results to conform with the current year's presentation. GAAP requires
management to make certain estimates and assumptions which affect amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates.
Recognition of Revenues
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these products are recognized
as revenues when due. Accident and health insurance premiums are recognized
as revenues over the terms of the policies. Universal life-type products
include universal life insurance and flexible annuities. Revenues for these
products are amounts assessed against contract values for cost of
insurance, policy administration and surrenders, as well as amortization of
deferred front-end contract charges.
Future Policy Benefits
For traditional life insurance products, reserves have been computed by a
net level premium method based upon estimates at the time of issue for
investment yields, mortality and withdrawals. These estimates include
provisions for experience less favorable than actually expected.
Investment yield assumptions for new issues are graded and range from 5.75
percent to 7.75 percent. Mortality assumptions are based on standard
mortality tables. The 1965-70 Select and Ultimate Basic Table is used for
business issued since 1977.
Reserves and claim liabilities for accident and health insurance include
estimated unpaid claims and claims incurred but not reported. For
traditional life and accident and health insurance, benefits and claims are
charged to expense in the period incurred.
Liabilities for universal life-type products represent accumulated contract
values, without reduction for potential surrender charges, and deferred
front-end contract charges which are amortized over the term of the
policies. Benefits and claims are charged to expense in the period incurred
net of related accumulated contract values. Interest on accumulated
contract values is credited to contracts as earned. Crediting rates for
universal life insurance and flexible annuity products ranged from 4.75
percent to 6.50 percent during 1997 (4.75 percent to 6.75 percent during
1996 and 4.79 percent to 7.00 percent during
1995).
Withdrawal assumptions for all products are based on corporate experience.
Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain
policy issue and underwriting expenses and certain variable agency
expenses, are deferred. For traditional life products, deferred acquisition
costs are amortized in proportion to premium revenues over the
premium-paying period of related policies, using assumptions consistent
with those used in computing benefit reserves. Acquisition costs for
universal life-type products are amortized over a period not exceeding 30
years in proportion to estimated gross profits arising from interest
spreads and mortality, expense and surrender charges expected to be
realized over the term of the contracts.
Value of Purchased Insurance in Force
The value of purchased insurance in force arising from the acquisition of a
life insurance subsidiary and, in 1997, the acquisition of a life insurance
block of business is being amortized in proportion to projected future
gross profits. This asset was increased $76,533,000 for the acquisition of
the life insurance block of business and $8,856,000 ($5,030,000 -1996 and
$5,157,000 - 1995) for accrual of interest and reduced $14,962,000
($6,082,000 - 1996 and $6,088,000 - 1995) for amortization. The increase
for accrual of interest was calculated using a 13.0 percent interest
rate for the life insurance subsidiary and, on the acquired block, a 7.0
percent interest rate on the traditional life portion and a 5.4 percent
rate on the interest sensitive portion. Through 1997, total accumulated
accrual of interest and amortization equal $35,496,000 and $47,071,000,
respectively. The percentage of the asset's current carrying amount which
will be amortized in each of the next five years is 6.9 percent - 1998, 6.8
percent - 1999, 6.7 percent - 2000, 6.5 percent - 2001 and 6.1 percent -
2002.
Participating Policies
Participating business at year end approximates 15 percent of the
consolidated life insurance in force. The amount of dividends to be paid is
determined annually by the Board of Directors. Provision has been made in
the liability for future policy benefits to allocate amounts to
participating policyholders on the basis of dividend scales contemplated at
the time the policies were issued. Additional provisions have been made for
policyholder dividends in excess of the original scale which have been
declared by the Board of Directors.
Investments
Securities held to maturity and short-term investments are stated at cost
adjusted for amortization of premium and accrual of discount. Securities
available for sale are stated at fair value. Unrealized gains and losses on
securities available for sale are reduced by deferred income taxes and
related adjustments in deferred acquisition costs, and are included in a
separate stockholders' equity account.
Mortgage loans are stated at cost adjusted for amortization of premium and
accrual of discount less an allowance for possible losses. Foreclosed real
estate is stated at fair value at the date of foreclosure (cost) or net
realizable value, whichever is lower. Other real estate investments are
carried at depreciated cost. Real estate joint ventures are valued at cost
adjusted for the Company's equity in earnings since acquisition. Policy
loans are carried at cost less payments received. Realized gains and losses
on disposals of investments, determined by the specific identification
method, are included in investment revenues.
Federal Income Taxes
Income taxes have been provided using the liability method. Under that
method, deferred tax assets and liabilities are determined based on the
differences between their financial reporting and their tax bases and are
measured using the enacted tax rates.
Income Per Share
In 1997 the Company adopted Financial Accounting Standard No. 128,
"Earnings per Share". Due to the Company's capital structure and lack of
other potentially dilutive securities, there is no difference between basic
and diluted earnings per common share for any of the years or periods
reported. The weighted average number of shares outstanding during the year
was 6,190,793 shares (6,188,489 shares - 1996 and 6,173,294 shares - 1995).
Statutory Information and
Stockholder Dividends Restriction
The Company's earnings, unassigned surplus (retained earnings) and
stockholders' equity, on the statutory basis used to report to regulatory
authorities, follow.
1997 1996 1995
Net gain (loss) from operations for the year $(21 214) 27 345 29 307
Net income (loss) for the year (18 681) 25 574 29 484
Unassigned surplus at December 31 246 717 284 417 268 239
Stockholders' equity at December 31 197 147 234 570 217 801
The statutory loss reported in 1997 arose from the acquisition of a block
of business as discussed in a following Note. In accordance with statutory
accounting guidelines for coinsurance transactions, the acquisition reduced
statutory earnings and stockholders' equity at the date of acquisition
$51.4 million, the purchase price paid less related tax benefits.
Stockholder dividends may not exceed statutory unassigned surplus.
Additionally, under Missouri law, the Company must have the prior approval
of the Missouri Director of Insurance in order to pay a dividend exceeding
the greater of statutory net gain from operations for the preceding year or
10 percent of statutory stockholders' equity at the end of the preceding
year. The maximum payable in 1998 without prior approval is $19,715,000.
The Company believes these statutory limitations impose no practical
restrictions on its dividend payment plans.
The Company is required to deposit a defined amount of assets with state
regulatory authorities. Such assets had an aggregate carrying value of
approximately $36,000,000 ($36,000,000 - 1996 and $100,000,000 - 1995).
INVESTMENTS
Investment Revenues
Major categories of investment revenues are summarized as follows.
1997 1996 1995
Investment income:
Fixed maturities $154 393 150 421 144 242
Equity securities 7 288 5 503 6 259
Mortgage loans 23 984 23 127 31 378
Real estate 10 350 13 237 12 342
Policy loans 7 296 6 372 6 174
Short-term 3 612 2 353 2 753
Other 3 132 2 222 2 533
210 055 203 235 205 681
Less investment expenses (16 359) (16 492) (17 594)
$193 696 186 743 188 087
Realized gains (losses:
Fixed maturities $ 4 778 (1 862) (1 718)
Equity securities 3 702 961 4 634
Mortgage loans - 2 000 (108)
Real estate 6 025 1 894 2 172
Other - 20 (30)
$ 14 505 3 013 4 950
Unrealized Gains and Losses
Unrealized gains (losses) on the Company's securities follow.
1997 1996 1995
Available for sale:
End of year $ 59 726 4 558 51 744
Deferred income taxes (19 626) (1 595) (16 013)
Effect on deferred acquisition costs (3 652) - (5 991)
$ 36 448 2 963 29 740
Increase (decrease) in net unrealized gains during the year:
Fixed maturities $ 33 209 (26 216) 78 876
Equity securities 276 (561) 2 209
$ 33 485 (26 777) 81 085
Held to maturity:
End of year $ 5 834 7 609 19 517
Increase (decrease) in
net unrealized gains during the year $ (1 775) (11 908) 16 667
The Company's securities categorized as available for sale are stated at
fair value. The resulting adjustment to fair value results in significant
volatility on stockholders' equity and the various calculations that are
dependent on stockholders' equity, such as return on equity.
Securities
The amortized cost and fair value of investments in securities at
December 31, 1997, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 135 182 3 166 297 138 051
Public utility bonds 281 781 6 956 662 288 075
Corporate bonds 1 130 938 34 827 3 315 1 162 450
Mortgage-backed bonds 315 621 9 416 375 324 662
Other bonds 81 469 2 260 425 83 304
Redeemable preferred stocks 7 750 261 38 7 974
Total fixed maturities 1 952 741 56 886 5 112 2 004 516
Equity securities 107 034 8 709 757 114 986
2 059 775 65 595 5 869 2 119 502
Held to maturity:
Public utility bonds 50 291 2 494 56 52 729
Corporate bonds 92 350 3 727 641 95 436
Other bonds 3 020 310 - 3 330
145 661 6 531 697 151 495
$2 205 436 72 126 6 566 2 270 997
The amortized cost and fair value of investments in securities
at December 31, 1996, follow.
Gross
Amortized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. government bonds $ 144 299 1 633 518 145 414
Public utility bonds 254 875 2 755 3 631 253 999
Corporate bonds 981 157 10 122 17 161 974 118
Mortgage-backed bonds 253 810 6 473 1 532 258 751
Other bonds 114 539 850 2 238 113 151
Redeemable preferred stocks 13 411 419 110 13 720
Total fixed maturities 1 762 091 22 252 25 190 1 759 153
Equity securities 71 522 8 340 844 79 018
1 833 613 30 592 26 034 1 838 171
Held to maturity:
Public utility bonds 138 592 5 619 306 143 905
Corporate bonds 104 713 3 387 1 416 106 684
Other bonds 5 128 325 - 5 453
248 433 9 331 1 722 256 042
$2 082 046 39 923 27 756 2 094 213
All fixed maturity securities produced income in 1997.
The distribution of the fixed maturity securities' contractual maturities
follows. However, expected maturities may differ from these contractual
maturities since borrowers may have the right to call or prepay
obligations.
Amortized Fair
Cost Value
Available for sale:
Due in one year or less $ 60 259 60 510
Due after one year through five years 290 534 295 928
Due after five years through ten years 706 504 717 050
Due after ten years 579 823 606 366
Mortgage-backed bonds 315 621 324 662
$1 952 741 2 004 516
Held to maturity:
Due in one year or less $ 27 043 27 342
Due after one year through five years 50 554 53 023
Due after five years through ten years 28 944 30 892
Due after ten years 39 120 40 238
$ 145 661 151 495
Sales of investments in securities available for sale, excluding normal
maturities and calls, follow.
1997 1996 1995
Proceeds $509 502 141 335 184 547
Gross realized gains 11 597 1 400 6 416
Gross realized losses 2 349 1 420 6 527
At December 31, 1997, the Company did not hold securities of any
corporation and its affiliates which exceeded 10 percent of stockholders'
equity.
Kansas City Life employs no derivative financial instruments.
The Company maintains a $60 million bank line of credit which may be used
to support investment strategies. This line is unused at December 31, 1997,
and will expire in April 1998.
Mortgage Loans
The Company holds non-income producing mortgage loans equaling $327,000
($2,077,000 - 1996). Mortgage loans are carried net of a valuation reserve
of $8,500,000 ($8,500,000 - 1996).
At December 31, 1997 and 1996, the mortgage portfolio is diversified
geographically and by property type as follows.
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Geographic region:
East north central $ 26 937 27 421 21 890 22 162
Mountain 64 602 66 321 75 058 76 163
Pacific 91 963 94 366 81 955 82 599
West south central 32 997 33 961 36 155 36 940
West north central 55 320 56 485 35 463 36 003
Other 6 735 7 017 4 472 4 662
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$270 054 277 071 246 493 250 029
Property type:
Industrial $170 199 174 278 136 266 137 633
Retail 29 532 30 531 45 555 46 681
Office 58 658 60 267 54 332 55 280
Other 20 165 20 495 18 840 18 935
Valuation reserve (8 500) (8 500) (8 500) (8 500)
$270 054 277 071 246 493 250 029
As of December 31, 1997, the Company has commitments which expire in 1998
to originate mortgage loans of $13,794,000 and to advance $10,454,000 on an
existing short-term line of credit.
Mortgage loans foreclosed upon and transferred to real estate investments
during the year equaled $3,189,000 ($2,977,000 - 1996 and $4,322,000 -
1995).
Mortgage loans acquired in the sale of real estate assets during the year
totaled $4,299,000 ($6,579,000 - 1996 and $9,571,000 - 1995).
Real Estate
Detail concerning the Company's real estate investments follows.
1997 1996
Penntower office building, at cost:
Land $ 1 106 1 106
Building 18 068 17 644
Less accumulated depreciation (9 809) (9 303)
Foreclosed real estate, at lower of
cost or net realizable value 13 362 18 218
Other investment properties, at cost:
Land 3 214 3 370
Buildings 24 216 25 907
Less accumulated depreciation (13 393) (13 192)
$ 36 764 43 750
Investment real estate, other than foreclosed properties, is depreciated on
a straight-line basis. Penntower office building is depreciated over 60
years and all other properties from 10 to 35 years. Foreclosed real estate
is carried net of a valuation allowance of $3,686,000 ($5,227,000 - 1996)
to reflect net realizable value.
The Company held non-income producing real estate equaling $820,000
($758,000 - 1996).
PROPERTY AND EQUIPMENT
1997 1996
Land $ 1 029 1 029
Home office buildings 23 149 23 131
Furniture and equipment 27 502 24 760
51 680 48 920
Less accumulated depreciation (28 052) (24 129)
$23 628 24 791
Property and equipment are stated at cost and depreciated using the
straight-line method. Home office buildings are depreciated over 25 to 50
years and furniture and equipment over 3 to 10 years, their estimated
useful lives.
POSTRETIREMENT BENEFIT PLANS
The Company has defined benefit postretirement plans providing medical
benefits for substantially all its employees, full-time agents, and their
dependents, and life insurance coverage for its employees. The Company and
retirees share the cost of the postretirement medical plan which
incorporates cost-sharing features such as annually adjusted contributions,
deductibles and coinsurance. The medical benefits for agents are
contributory, incorporating cost-sharing features similar to the retired
employees' medical plan. The life insurance benefit is non-contributory.
The Company pays the cost of the postretirement health care benefits as
they occur. The Company makes level annual contributions to its life
insurance plan over the plan participants' expected service periods.
The plans' funded status, reconciled with the amounts recognized
in the Company's balance sheet, follows.
1997 1996
Accumulated postretirement benefit obligation:
Retirees $ 6 516 7 750
Fully eligible active plan participants 2 914 1 904
Other active plan participants 8 242 5 803
17 672 15 457
Unrecognized net loss (1 735) (590)
$15 937 14 867
The net periodic postretirement benefit cost included the following
components.
1997 1996 1995
Service cost $ 560 536 314
Interest cost 930 794 669
Net amortization of experience gains (6) - (93)
$1 484 1 330 890
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits for the medical plans is 10 percent for 1998, and is
assumed to decrease gradually to 6 percent in 2004. Increasing the assumed
health care cost growth rates by one percentage point increases the accrued
postretirement benefit costs $2,207,000 and $2,040,000 as of December 31,
1997 and 1996, respectively. The aggregate service and interest cost
components of the net periodic postretirement benefit cost for 1997 would
increase $312,000. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.25 percent and 7.75
percent at December 31, 1997 and 1996, respectively.
EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all
its employees. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The
Company annually funds an amount greater than the minimum required by ERISA
but no more than the maximum deductible for Federal income tax purposes.
Contributions provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future. The table below
outlines the plan's funded status and those amounts recognized in the
Company's financial statements.
1997 1996
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$94,698,000 ($79,913,000 - 1996) $102 846 86 635
Projected benefit obligation for service
rendered to date $119 651 100 571
Plan assets at fair value, primarily
listed corporate and U.S. bonds 95 899 85 241
Plan assets less than projected benefit obligation (23 752) (15 330)
Items not yet recognized in earnings:
Net loss from past experience 25 452 15 571
Prior service costs 12 14
Net asset at January 1, 1987, being recognized
over 16 years (1 030) (1 236)
Net prepaid (unfunded) pension costs $ 682 (981)
1997 1996 1995
Net pension cost includes:
Service costs - benefits earned
during the period $ 3 150 3 369 2 403
Interest cost on projected benefit obligation 7 823 6 647 6 156
Actual return on plan assets (9 752) (2 951)(14 139)
Net amortization and deferral 2 354 (4 547) 7 412
Net periodic pension cost $ 3 575 2 518 1 832
Assumptions were as follows:
Weighted average discount rate 7.25 % 7.75 7.00
Weighted average compensation increase 4.50 4.50 5.50
Weighted average expected
long-term return on plan assets 9.00 9.00 9.00
At December 31, 1996, the Company utilized more recent mortality experience
which caused some increase in the benefit obligations.
The 1997 contribution to the pension plan was $4,967,000 (none - 1996 and
$992,000 - 1995).
Non-contributory defined contribution retirement plans are offered for
general agents and eligible sales agents which provide supplemental
payments based upon earned agency first-year individual life and annuity
commissions. Contributions to these plans were $133,000 ($174,000 -1996 and
$287,000 - 1995). The Company also sponsors a non-contributory
deferred compensation plan for eligible agents based upon earned
first-year commissions. Contributions to this plan were $226,000
($318,000 - 1996 and $405,000 - 1995).
Savings plans for eligible employees and agents are sponsored in which the
Company matches employee contributions up to 10 percent of salary and agent
contributions up to 2.5 percent of prior year paid commissions.
Contributions to the plans were $2,102,000 ($2,082,000 -1996 and $1,826,000
- - 1995). The employees' plan will change for 1998 in that the Company will
match employee contributions up to 6 percent of salary and the Company may
contribute a profit sharing amount up to 4 percent of salary depending upon
the Company's profit performance.
The Company also has a non-contributory trusteed employee stock ownership
plan covering substantially all salaried employees. The Company made no
contributions to this plan between 1995 and 1997.
Effective January 1, 1998, the Company amended the defined benefit plan for
all employees other than those who are age 55 or over with at least 15
years of vested service. For these employees the defined benefit pension
plan is converted to a cash balance plan whereby each employee will have a
cash balance account. Generally, the cash balance account consists of
credits to the account based on an employee's years of service and
compensation, and interest credits, which for 1998 will be 7 percent.
FEDERAL INCOME TAXES
A reconciliation of the Federal income tax rate and the actual
tax rate experienced is shown below.
1997 1996 1995
Federal income tax rate 35% 35 35
Special tax credits (6) (5) (4)
Other permanent differences (1) (1) (1)
Actual income tax rate 28% 29 30
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below.
1997 1996
Deferred tax assets:
Future policy benefits $ 53 923 46 518
Employee retirement benefits 13 104 13 055
Other 2 882 5 176
Gross deferred tax assets 69 909 64 749
Deferred tax liabilities:
Capitalization of policy acquisition
costs, net of amortization 40 844 49 175
Basis differences between tax and GAAP
accounting for investments 28 080 20 093
Property and equipment, net 1 704 1 770
Value of insurance in force 36 551 11 790
Other 2 647 1 669
Gross deferred tax liabilities 109 826 84 497
Net deferred tax liability $ 39 917 (19 748)
Federal income taxes paid for the year were $14,335,000 ($25,332,000 - 1996
and $19,981,000 - 1995).
Policyholders' surplus, which is frozen under the Deficit Reduction Act of
1984, is $40,500,000 for Kansas City Life, $2,800,000 for Sunset Life
Insurance Company of America (Sunset Life) and $13,700,000 for Old American
Insurance Company (Old American). The Companies do not plan to distribute
their policyholders' surplus. Consequently, the possibility of such
surplus becoming subject to tax is remote, and no provision has been made
in the financial statements for taxes thereon. Should the balance in
policyholders' surplus become taxable, the tax computed at current rates
would approximate $19,950,000.
Income taxed on a current basis is accumulated in "shareholders' surplus"
and can be distributed to stockholders without tax to the Company. At
December 31, 1997, this shareholders' surplus was $348,057,000 for Kansas
City Life, $73,170,000 for Sunset Life and $44,703,000 for Old American.
SEPARATE ACCOUNTS
These accounts arise from the variable line of business. Their assets are
legally segregated and are not subject to the claims which may arise from
any other business of the Company. These assets are reported at fair value
since the underlying investment risks are assumed by the policyholders.
Therefore the related liabilities are recorded at amounts equal to the
underlying assets. Investment income and gains or losses arising from
separate accounts accrue directly to the policyholders and are, therefore,
not included in investment earnings in the accompanying consolidated income
statement. Revenues to the Company from separate accounts consist
principally of contract maintenance charges, administrative fees and
mortality and risk charges.
REINSURANCE
1997 1996 1995
Life insurance in force (in millions):
Direct $ 22 800 22 121 20 991
Ceded (3 375) (2 742) (2 442)
Assumed 3 796 28 33
Net $ 23 221 19 407 18 582
Premiums:
Life insurance:
Direct $128 491 127 150 124 504
Ceded (26 262) (24 380) (23 292)
Assumed 3 822 493 129
Net $106 051 103 263 101 341
Accident and health:
Direct $ 55 022 48 694 42 971
Ceded (10 091) (11 370) (13 496)
Assumed - 251 -
Net $ 44 931 37 575 29 475
Contract charges arise generally from directly issued business. However
contract charges also arise from a block of business assumed during 1997 as
described below. Ceded benefit recoveries were $39,483,000 ($37,829,000 -
1996 and $27,613,000 - 1995).
Old American has a coinsurance agreement with Employers Reassurance
Corporation which reinsures certain whole life policies issued by Old
American prior to December 1, 1986. As of December 31, 1997, these policies
had a face value of $136,519,000. The reserve for future policy benefits
ceded under this agreement was $51,003,000 ($52,556,000 - 1996).
As discussed in a following Note, the Company acquired a block of life
insurance business through a reinsurance treaty during 1997. At December
31, 1997, the block had $3.8 billion of insurance in force, future policy
benefits of $88,476,000 and accumulated contract values of $213,300,000.
During 1997, life insurance premiums of $3,096,000 and contract charges of
$9,997,000 were recognized related to this block.
The maximum retention on any one life is $350,000 for ordinary life plans
and $100,000 for group coverage. A contingent liability exists with respect
to reinsurance, which may become a liability of the Company in the unlikely
event that the reinsurers should be unable to meet obligations assumed
under reinsurance contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, short-term investments and policy loans as
reported in the accompanying balance sheet approximate their fair values.
The fair values for securities are based on quoted market prices, where
available. For those securities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in
the case of private placements, are estimated by discounting expected
future cash flows using a current market rate applicable to the yield,
credit quality and maturity of the investments. Fair values for mortgage
loans are based upon discounted cash flow analyses using an interest rate
assumption 2 percent above the comparable U.S. Treasury rate.
Fair values for the Company's liabilities under investment-type insurance
contracts, included with accumulated contract values for flexible annuities
and with other policyholder funds for supplementary contracts without life
contingencies, are estimated to be their cash surrender values.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in
the Company's overall management of interest rate risk, which minimizes
exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
The carrying amounts and fair values of the financial instruments follow.
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Investments:
Securities available
for sale $2 119 502 2 119 502 1 838 171 1 838 171
Securities held
to maturity 145 661 151 495 248 433 256 042
Mortgage loans 270 054 277 071 246 493 250 029
Liabilities:
Individual and
group annuities 830 495 802 461 862 605 829 261
Supplementary contracts
without life contingencies 21 526 21 526 21 835 21 835
The Investments Note provides further details regarding the investments
above.
QUARTERLY CONSOLIDATED FINANCIAL DATA
(unaudited)
First Second Third Fourth
1997:
Total revenues $108 379 108 836 124 932 120 747
Operating income $ 10 299 8 548 7 639 8 946
Realized gains, net 1 835 957 4 119 2 517
Net income $ 12 134 9 505 11 758 11 463
Per common share:
Operating income $ 1.66 1.39 1.23 1.44
Realized gains, net .30 .15 .67 .41
Net income $ 1.96 1.54 1.90 1.85
1996:
Total revenues $106 434 101 263 104 924 106 497
Operating income $ 11 933 10 002 8 643 9 777
Realized gains (losses), net 614 (308) 671 982
Net income $ 12 547 9 694 9 314 10 759
Per common share:
Operating income $ 1.93 1.62 1.39 1.58
Realized gains (losses), net .10 (.05) .11 .16
Net income $ 2.03 1.57 1.50 1.74
CONTINGENT LIABILITIES
The Company and certain of its subsidiaries are defendants in lawsuits
involving claims and disputes with policyholders that may include claims
seeking punitive damages. Some of these lawsuits arise in jurisdictions
that permit punitive damages disproportionate to the actual damages
alleged. Although no assurances can be given and no determinations can be
made at this time as to the outcome of any particular lawsuit or
proceeding, the Company and its subsidiaries believe that there are
meritorious defenses for these claims and are defending them vigorously.
Management believes that the amounts that would ultimately be paid, if any,
would have no material effect on the Company's consolidated results of
operations and financial position.
ACQUISITION OF A BLOCK OF BUSINESS
In September 1997, the Company acquired a block of traditional life and
universal life-type products through a reinsurance treaty. The ceding
company transferred $331,434,000 in liabilities and $254,901,000 in assets,
principally cash. The difference was recorded as value of purchased
insurance inforce and is being amortized in proportion to projected future
gross profits over 30 years, the estimated life of the business.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Kansas City Life Insurance Company
We have audited the accompanying consolidated balance sheet of Kansas City Life
Insurance Company (the Company) as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Kansas
City Life Insurance Company at December 31, 1997 and 1996 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
January 26, 1998
Kansas City Life
Variable Life
Separate Account
Financial Statements
Year ended December 31, 1997 and
Period from January 29, 1996 (inception)
to December 31, 1996
Table of Contents
Statement of Net Assets 1
Statement of Operations and Changes in Net Assets 3
Notes to Financial Statements 5
Report of Independent Auditors 10
Kansas City Life Variable Life Separate Account
Statement of Net Assets
December 31, 1997
(in thousands except shares, net asset value per share, and cost)
Assets
Investments:
Federated Advisors - Federated Insurance Series:
American Leaders Fund II - 31,587 shares at net asset
value of $19.63 per share (cost $560,000) $ 620
High Income Bond Fund II - 32,891 shares at net asset
value of $10.95 per share (cost $346,000) 360
Prime Money Fund II - 1,762,046 shares at net asset
value of $1.00 per share (cost $1,762,000) 1,762
Massachusetts Financial Services - (MFS):
Research Series - 70,989 shares at net asset
value of $15.79 per share (cost $1,028,000) 1,121
Emerging Growth Series - 75,773 shares at net asset
value of $16.14 per share (cost $1,101,000) 1,223
Total Return Series - 27,442 shares at net asset
value of $16.63 per share (cost $422,000) 457
Bond Series - 10,960 shares at net asset
value of $11.08 per share (cost $117,000) 121
World Governments Series - 3,375 shares at net asset
value of $10.21 per share (cost $34,000) 34
Utilities Series - 16,833 shares at net asset
value of $17.99 per share (cost $264,000) 303
American Century, Inc. - ACI Variable Portfolios:
VP Capital Appreciation - 22,232 shares at net asset
value of $9.68 per share (cost $224,000) 215
VP International - 51,737 shares at net asset
value of $6.84 per share (cost $337,000) 354
Dreyfus Corporation:
Capital Appreciation Portfolio - 8,480 shares at net asset
value of $27.90 per share (cost $235,000) 237
Small Cap Portfolio - 7,273 shares at net asset
value of $57.14 per share (cost $442,000) 416
Stock Index Fund - 29,401 shares at net asset
value of $25.75 per share (cost $750,000) 757
Total Assets $ 7,980
See accompanying Notes to Financial Statements
Kansas City Life Variable Life Separate Account
Statement of Net Assets
(Continued)
Net Assets
Federated Advisors - Federated Insurance Series:
American Leaders Fund II $ 620
High Income Bond Fund II 360
Prime Money Fund II 1,762
Massachusetts Financial Services - (MFS):
Research Series 1,121
Emerging Growth Series 1,223
Total Return Series 457
Bond Series 121
World Governments Series 34
Utilities Series 303
American Century, Inc. - ACI Variable Portfolios:
VP Capital Appreciation 215
VP International 354
Dreyfus Corporation:
Capital Appreciation Portfolio 237
Small Cap Portfolio 416
Stock Index Fund 757
Total Net Assets $7,980
See accompanying Notes to Financial Statements
<TABLE>
Kansas City Life Variable Life Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(in thousands)
<CAPTION>
Federated Ins. Series MFS Variable Insurance Trust ACI Port. Dreyfus Corporation
High
Amern. Income Prime Emerging Total World VP Capital Small
Leaders Bond Money Resch. Growth Return Bond Gov'ts Util Capital VP Apprec Cap Stock
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Port. Port. Index Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Universal Life:
Invest. Income:
Dividend Distributions $ 1 6 21 - - - - - - - 1 2 - 3 34
Capital Gains
Distributions 2 - - - - - - - - 3 3 - 23 14 45
Realized Gain (Loss) 8 3 - 8 6 4 1 - 1 (2) 2 - 1 1 33
Unrealized Appreciation
(Depreciation) 55 13 - 79 120 30 4 - 38 (5) 13 2 (26) 6 329
Net Investment Income 66 22 21 87 126 34 5 - 39 (4) 19 4 (2) 24 441
Expenses:
Mortality and Expense
Fees 2 1 4 5 6 2 - - 1 1 2 - 1 1 26
Contract Expense Charges 72 46 218 133 176 48 8 5 26 41 45 9 19 45 891
Change in Net Assets
from Operations (8) (25) (201) (51) (56) (16) (3) (5) 12 (46) (28) (5) (22) (22) (476)
Deposits 293 214 4,299 509 643 176 36 22 107 134 168 52 112 267 7,032
Withdrawals (12) (16) (72) (17) (21) (4) (3) (1) (4) (7) (6) (2) (2) (35) (202)
Transfers in (out) 281 147 (2,773) 411 331 216 72 7 135 9 143 189 322 425 (85)
Net Assets:
Net Increase 554 320 1,253 852 897 372 102 23 250 90 277 234 410 635 6,269
Beginning of Year 65 40 146 266 324 84 19 11 52 125 76 - - - 1,208
End of Year $619 360 1,399 1,118 1,221 456 121 34 302 215 353 234 410 635 7,477
Survivorship Variable Universal Life:
Invest. Income:
Dividend Distributions $ - - 1 - - - - - - - - - - - 1
Capital Gains
Distributions - - - - - - - - - - - - - 2 2
Realized Gain (Loss) - - - - - - - - - - - - - - -
Unrealized Appreciation
(Depreciation) - - - - - - - - - - - - - 1 1
Net Investment Income - - 1 - - - - - - - - - - 3 4
Expenses:
Mortality and Expense
Fees - - - - - - - - - - - - - - -
Contract Expense Charges - - 3 - - - - - - - - - - 1 4
Change in Net Assets
from Operations - - (2) - - - - - - - - - - 2 -
Deposits - - 460 - - - - - - - - - - 43 503
Withdrawals - - - - - - - - - - - - - - -
Transfers in (out) 1 - (95) 3 2 1 - - 1 - 1 3 6 77 -
Net Assets:
Net Increase 1 - 363 3 2 1 - - 1 - 1 3 6 122 503
Beginning of Period - - - - - - - - - - - - - - -
End of Year $ 1 - 363 3 2 1 - - 1 - 1 3 6 122 503
Total Survivorship &
Variable Universal Life
End of Year $620 360 1,762 1,121 1,223 457 121 34 303 215 354 237 416 757 7,980
See accompanying Notes to Financial Statements
</TABLE>
<TABLE>
Kansas City Life Variable Life Separate Account
Statement of Operations and Changes in Net Assets
Period from January 29, 1996 (inception) to December 31, 1996
(in thousands)
<CAPTION>
Federated Insurance Series MFS Variable Insurance Trust ACI Portfolios
High
American Income Prime Emerging Total World VP
Leaders Bond Money Research Growth Return Bond Gov'ts Utilities Capital VP
Fund II Fund II Fund II Series Series Series Series Series Series Apprec Int'l Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividend Distributions $ - 1 5 - - 1 1 1 1 - - 10
Capital Gains Distributions - - - 4 3 1 - - 3 - - 11
Realized Gain (Loss) - - - - - - - - - - - -
Unrealized Appreciation
(Depreciation) 5 1 - 13 2 4 - - 1 (4) 4 26
Net Investment Income 5 2 5 17 5 6 1 1 5 (4) 4 47
Expenses:
Mortality and Expense Fees - - 1 1 1 - - - - - - 3
Contract Expense Charges 5 4 62 22 33 5 3 3 4 12 8 161
Change in Net Assets from
Operations - (2) (58) (6) (29) 1 (2) (2) 1 (16) (4) (117)
Deposits 12 12 1,019 73 105 11 9 6 14 44 25 1,330
Withdrawals - (2) - - - - (3) - - - - (5)
Transfers In (Out) 53 32 (815) 199 248 72 15 7 37 97 55 -
Net Assets:
Net Increase 65 40 146 266 324 84 19 11 52 125 76 1,208
Beginning of Period - - - - - - - - - - - -
End of Year $65 40 146 266 324 84 19 11 52 125 76 1,208
See accompanying Notes to Financial Statements
</TABLE>
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Organization
Kansas City Life Variable Life Separate Account, marketed as Century II Variable
Universal Life and Century II Survivorship Variable Universal Life, (the
Account) is a separate account of Kansas City Life Insurance Company (KCL). The
inception date for the Century II Survivorship Variable Universal Life product
was August 1, 1997. The Account is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. All deposits received by the
Account have been directed by the contract owners into subaccounts of four
series-type mutual funds, as listed below, or into KCL's Fixed Account. The
Dreyfus Corporation subaccounts were added in May, 1997.
Federated Insurance Series
American Leaders Fund II Long-term growth of capital
High Income Bond Fund II High current income
Prime Money Fund II Current income with stability of
principal and liquidity
MFS Variable Insurance Trust
MFS Research Series Long-term growth of capital and future
income
MFS Emerging Growth Series Long-term growth of capital
MFS Total Return Series Income and opportunities for growth of
capital and income
MFS Bond Series Current income and protection of
shareholders' capital
MFS World Governments Series Preservation and growth of capital
with moderate current income
MFS Utilities Series Capital growth and current income
ACI Variable Portfolios, Inc.
ACI VP Capital Appreciation Capital growth through investment in
(formerly TCI Growth) common stocks
ACI VP International Capital growth through investment in
(formerly TCI International) foreign securities
Dreyfus Corporation
Capital Appreciation Portfolio Long-term capital growth with
preservation of capital
Small Cap Portfolio Capital appreciation
Stock Index Fund Price and yield performance that
corresponds to the Standard & Poor's
500 Composite Stock Price Index
Basis of Presentation and Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
Reinvestment of Dividends
Interest and dividend income and capital gains distributions paid by the mutual
funds to the Account are reinvested in additional shares of each respective
subaccount. Capital gains distributions are recorded as income on the date of
receipt.
Federal Income Taxes
Under current law, no Federal income taxes are payable with respect to the
Account.
Investment Valuation
Investments in mutual fund shares are carried in the statement of net assets at
quoted market value (net asset value of the underlying mutual fund). The average
cost method is used to determine gains and losses.
The aggregate cost of purchases and proceeds from sales, and the number of
shares thereon were as follows:
1997:
Cost of Proceeds Shares
Purchases from Sales Purchased Sold
(in thousands)
American Leaders Fund II $ 713 221 39,267 11,971
High Income Bond Fund II 485 181 46,117 17,107
Prime Money Fund II 5,826 4,210 5,825,963 4,209,855
MFS Research 1,088 321 71,955 21,229
MFS Emerging Growth Series 1,136 363 75,073 23,766
MFS Total Return Series 458 120 29,009 7,686
MFS Bond Series 133 36 12,428 3,383
MFS World Governments Series 33 10 3,243 938
MFS Utilities Series 281 69 17,379 4,340
ACI VP Capital Appreciation 228 131 23,295 13,242
ACI VP International 379 116 56,237 17,245
Dreyfus Capital Appreciation Portfolio 271 36 9,788 1,308
Dreyfus Small Cap Portfolio 521 80 8,602 1,329
Dreyfus Stock Index 887 138 34,785 5,384
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
1996:
Cost of Proceeds Shares
Purchases from Sales Purchased Sold
(in thousands)
American Leaders Fund II $ 69 9 4,936 646
High Income Bond Fund II 59 20 5,946 2,066
Prime Money Fund II 1,354 1,208 1,353,623 1,207,685
MFS Research 338 85 26,925 6,662
MFS Emerging Growth Series 425 103 32,224 7,759
MFS Total Return Series 91 11 6,949 831
MFS Bond Series 26 7 2,573 657
MFS World Governments Series 15 4 1,491 421
MFS Utilities Series 83 32 6,138 2,344
ACI VP Capital Appreciation Portfolio 156 27 14,700 2,520
ACI VP International 88 16 15,517 2,772
2. Accumulation Unit Value
The unit values and the number of units outstanding for each subaccount follow.
Century II Variable Universal Life:
Unit Value Number of Units
American Leaders Fund II $15.49 39,960
High Income Bond Fund II 12.59 28,582
Prime Money Fund II 10.77 129,968
MFS Research Series 14.46 77,326
MFS Emerging Growth Series 14.03 86,997
MFS Total Return Series 13.63 33,428
MFS Bond Series 11.07 10,935
MFS World Governments Series 10.16 3,392
MFS Utilities Series 15.24 19,829
ACI VP Capital Appreciation 9.40 22,893
ACI VP International 13.34 26,447
Dreyfus Capital Appreciation Portfolio 11.00 21,282
Dreyfus Small Cap Portfolio 11.54 35,500
Dreyfus Stock Index Fund 11.56 54,922
Kansas City Life Variable Life Separate Account
Notes to Financial Statements (continued)
Century II Survivorship Variable Universal Life:
Unit Value Number of
as of Units as of
December 31 August 1 December 31
1997 1997 1997
American Leaders Fund II $10.71 10.00 109
High Income Bond Fund II 10.44 10.00 16
Prime Money Fund II 10.15 10.00 35,724
MFS Research Series 10.17 10.00 290
MFS Emerging Growth Series 10.23 10.00 219
MFS Total Return Series 10.60 10.00 56
MFS Bond Series 10.49 10.00 35
MFS World Governments Series 10.12 10.00 -
MFS Utilities Series 11.49 10.00 53
ACI VP Capital Appreciation Portfolio 9.06 10.00 -
ACI VP International 10.04 10.00 111
Dreyfus Capital Appreciation Portfolio 10.40 10.00 236
Dreyfus Small Cap Portfolio 10.08 10.00 600
Dreyfus Stock Index Fund 10.65 10.00 11,495
3. Variable Life Contract Charges
KCL deducts an administrative fee for each contract of $26 per month for the
first 12 months and $6 per month thereafter. An additional deduction of $20 per
month is made for the 12 contract months following an increase in specified
amount. A deduction for insurance costs also is made monthly and is based on the
insured's attained age, sex, risk class, specified amount, supplemental benefit,
rider benefits, contract value, and the number of completed policy years.
Mortality and expense risks assumed by KCL are compensated for by a fee
equivalent to an annual rate of 0.9 percent of the asset value of each contract.
A premium expense charge for premium taxes of 2.25 percent of premium receipts
are deducted from each premium receipt prior to their transfer to the separate
accounts. Other charges are deducted from each contract when certain events
occur, such as the seventh fund transfer in a contract year.
A contingent deferred sales charge is assessed against certain withdrawals
during the first 15 years of the contract. During 1997, $130,000 (none - 1996)
was assessed in surrender charges and other contract charges totaled $917,000
($164,000 - 1996).
4. Survivorship Variable Life Contract Charges
KCL deducts a monthly administrative fee for each contract of $7.50 plus $.02
per $1,000 of the total amount insured per month for all contracts. An
additional fee of $12.50 per month is charged for the first five contract years.
A deduction for insurance costs also is made monthly and is based on the
insured's attained age, sex, risk class, total amount insured, any optional
benefits, or any additional benefits provided by riders, contract value, and the
number of completed policy years. Mortality and expense risks assumed by KCL are
compensated for by a fee equivalent to 0.625 percent of the average daily net
assets of each contract.
Kansas City Life Insurance Company
Notes to Financial Statements (continued)
A sliding premium expense charge, which varies by contract year for the first 20
years, is deducted from each target and excess premium payment.
In addition, a 4.85 percent premium processing charge is deducted from each
premium payment for all contract years. Other charges are deducted from each
contract when certain events occur, such as the seventh fund transfer in a
contract year.
The plan has no contingent deferred sales charge. During 1997, other contract
charges totaled $4,000.
Report of Independent Auditors
The Contract Owners of Kansas City Life Variable
Life Separate Account and The Board of Directors
of Kansas City Life Insurance Company
We have audited the accompanying statement of net assets of Kansas City Life
Variable Life Separate Account (the Company) as of December 31, 1997, and the
related statements of operations and changes in net assets for the year ended
December 31, 1997 and the period from January 29, 1996 (inception) to December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
resonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1997 by correspondence with
the custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kansas City Life Variable Life
Separate Account at December 31, 1997, and the results of its operations and
changes in its net assets for the year ended December 31, 1997 and the period
from January 29, 1996 (inception) to December 31 1996, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
Ernst & Young LLP
April 17, 1998
Supplement Dated May 1, 1998 to Prospectus
Dated May 1, 1998
Kansas City Variable Life Separate Account
Survivorship VUL Contract
Illinois
For Contracts sold in the state of Illinois, the prospectus is supplemented as
follows:
The Guaranteed Minimum Death Benefit Option described in the prospectus is not
applicable and any reference to or discussion of the Guaranteed Minimum Death
Benefit is replaced with the following description of the Guaranteed Monthly
Premium and Guaranteed Payment Period.
The Guaranteed Payment Period and Guaranteed Monthly Premium provisions
guarantee that your policy will remain in effect for five years following the
Issue Date, provided that you meet the Guaranteed Monthly Premium requirement.
The Guaranteed Payment Period and Guaranteed Monthly Premium provisions are
provided on each Contract and there is no charge for these provisions. Unlike
the Guaranteed Minimum Death Benefit described in the prospectus, the Guaranteed
Payment Period and Guaranteed Monthly Premium provisions apply to the Additional
Insurance Amount and these provisions are available regardless of which Coverage
Option and riders you select. These provisions will not terminate if certain
riders are deleted, if the Coverage Option is changed or if the amount of
Additional Insurance Amount is changed. The illustrations in the prospectus
assume that the Guaranteed Monthly Premium requirement has been met.
The Guaranteed Monthly Premium and Guaranteed Payment Period provisions operate
as follows: Guaranteed Payment Period --The five years following the issue date
of the Contract, during which one of the following conditions must exist to
prevent your Contract from lapsing: (1) the Cash Surrender Value of this
Contract on a Monthly Anniversary Date must be sufficient to cover the Monthly
Deduction for the month beginning on that Monthly Anniversary Date; or (2) total
premiums paid must be equal to or greater than the Guaranteed Monthly Premium
times the number of Monthly Anniversary Dates that the Contract has been in
force, plus the amount of current indebtedness and the total amount of partial
surrenders.
Guaranteed Monthly Premiums--If you pay the Guaranteed Monthly Premium, your
Contract will not lapse during the Guaranteed Payment Period. The Guaranteed
Monthly Premium will change for the remainder of the Guaranteed Payment Period
if you increase the Additional Insurance Amount, add or delete any riders. A
decrease in the Total Sum Insured will not decrease the Guaranteed Monthly
Premium during the Guaranteed Payment Period. The initial Guaranteed Monthly
Premium is shown in the Contract.
(over)
The Grace Period provision in the Contract is also impacted by the fact that the
Guaranteed Payment Period and Guaranteed Monthly Premium are applicable, rather
than the Guaranteed Death Benefit. Any reference to or discussion of the Grace
Period provision is replaced with the following description of this provision.
The Grace Period provision operates as follows:
Grace Period--The conditions which will result in your Contract lapsing will
vary, as follows, depending on whether the Guaranteed Payment Period has
expired.
During the Guaranteed Payment Period: A grace period begins if on any
Monthly Anniversary Day the Cash Surrender Value will not cover the Monthly
Deduction for the month beginning on that Monthly Anniversary Day and if the
accumulated premiums paid as of each Monthly Anniversary Day are less than: X +
Y + Z "X" is the accumulated Guaranteed Monthly Premium in effect on each
Monthly Anniversary Day that the Contract is in force based on the coverage in
force for that month. "Y" is the amount of current indebtedness. "Z" is the
total amount of partial surrenders.
A 61-day grace period will begin on the day we mail the notice of the
premium required to keep this Contract in force. The premium required to keep
this Contract in force will be an amount equal to the lesser of: (1) the amount
by which X + Y + Z is greater than the accumulated premiums paid as of the
Monthly Anniversary Date on which the grace period began; and (2) an amount
sufficient to provide a Cash Surrender Value equal to three Monthly Deductions.
After the Guaranteed Payment Period: A grace period begins if the Cash
Surrender Value on a Monthly Anniversary Day will not cover the Monthly
Deduction for the month beginning on that Monthly Anniversary Day.
A 61-day grace period will begin on the day we mail notice of the premium
required to keep this Contract in force. A total premium sufficient to provide a
Cash Surrender Value equal to the next three Monthly Deductions must be paid
during the grace period to keep this Contract in force.
This Contract will terminate without value if sufficient premium is not paid by
the end of the grace period.
If the last surviving Insured dies during the grace period, any past due Monthly
Deductions will be deducted from the death benefit proceeds.
Scheduled increases to the Additional Insurance Amount are limited to between
0-10% instead of between 0-25%.
Supplement Dated May 1, 1998 to Prospectus Dated May 1, 1998
Kansas City Variable Life Separate Account
Survivorship VUL Contract
Massachusetts
For Contracts sold in the state of Massachusetts, the prospectus is supplemented
as follows:
The Guaranteed Minimum Death Benefit Option described in the prospectus is not
applicable and any reference to or discussion of the Guaranteed Minimum Death
Benefit is replaced with the following description of the Guaranteed Monthly
Premium and Guaranteed Payment Period.
The Guaranteed Payment Period and Guaranteed Monthly Premium provisions
guarantee that your policy will remain in effect for five years following the
Issue Date, provided that you meet the Guaranteed Monthly Premium requirement.
The Guaranteed Payment Period and Guaranteed Monthly Premium provisions are
provided on each Contract and there is no charge for these provisions. Unlike
the Guaranteed Minimum Death Benefit described in the prospectus, the Guaranteed
Payment Period and Guaranteed Monthly Premium provisions apply to the Additional
Insurance Amount and these provisions are available regardless of which Coverage
Option and riders you select. These provisions will not terminate if certain
riders are deleted, if the Coverage Option is changed or if the amount of
Additional Insurance Amount is changed. The illustrations in the prospectus
assume that the Guaranteed Monthly Premium requirement has been met.
The Guaranteed Monthly Premium and Guaranteed Payment Period provisions operate
as follows: Guaranteed Payment Period --The five years following the issue date
of the Contract, during which one of the following conditions must exist to
prevent your Contract from lapsing:
(1) the Cash Surrender Value of this Contract on a Monthly Anniversary Date must
be sufficient to cover the Monthly Deduction for the month beginning on that
Monthly Anniversary Date ; or
(2) total premiums paid must be equal to or greater than the Guaranteed Monthly
Premium times the number of Monthly Anniversary Dates that the Contract has been
in force, plus the amount of current indebtedness and the total amount of
partial surrenders.
Guaranteed Monthly Premiums--If you pay the Guaranteed Monthly Premium, your
Contract will not lapse during the Guaranteed Payment Period. The Guaranteed
Monthly Premium will change for the remainder of the Guaranteed Payment Period
if you increase the Additional Insurance Amount, add or delete any riders. A
decrease in the Total Sum Insured will not decrease the Guaranteed Monthly
Premium during the Guaranteed Payment Period. The initial Guaranteed Monthly
Premium is shown in the Contract.
(over)
The Grace Period provision in the Contract is also impacted by the fact that the
Guaranteed Payment Period and Guaranteed Monthly Premium are applicable, rather
than the Guaranteed Death Benefit. Any reference to or discussion of the Grace
Period provision is replaced with the following description of this provision.
The Grace Period provision operates as follows:
Grace Period--~The conditions which will result in your Contract lapsing will
vary, as follows, depending on whether the Guaranteed Payment Period has
expired.
During the Guaranteed Payment Period : A grace period begins if on any
Monthly Anniversary Day the Cash Surrender Value will not cover the Monthly
Deduction for the month beginning on that Monthly Anniversary Day and if the
accumulated premiums paid as of each Monthly Anniversary Day are less than:
X + Y + Z
"X" is the accumulated Guaranteed Monthly Premium in effect on each
Monthly Anniversary Day that the Contract is in force based on the
coverage in force for that month.
"Y" is the amount of current indebtedness.
"Z" is the total amount of partial surrenders.
A 61-day grace period will begin on the day we mail the notice of the
premium required to keep this Contract in force. The premium required to keep
this Contract in force will be an amount equal to the lesser of: (1) the amount
by which X + Y + Z is greater than the accumulated premiums paid as of the
Monthly Anniversary Date on which the grace period began; and (2) an amount
sufficient to provide a Cash Surrender Value equal to three Monthly Deductions.
After the Guaranteed Payment Period: A grace period begins if the Cash
Surrender Value on a Monthly Anniversary Day will not cover the Monthly
Deduction for the month beginning on that Monthly Anniversary Day.
A 61-day grace period will begin on the day we mail notice of the premium
required to keep this Contract in force. A total premium sufficient to provide a
Cash Surrender Value equal to the next three Monthly Deductions must be paid
during the grace period to keep this Contract in force.
This Contract will terminate without value if sufficient premium is not paid by
the end of the grace period.
If the last surviving Insured dies during the grace period, any past due Monthly
Deductions will be deducted from the death benefit proceeds.
The term Issue Date replaces any reference in the prospectus to Contract Date.
Scheduled increases to the Additional Insurance Amount are limited to between
0-10% instead of between 0-25%.
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.
RULE 484 UNDERTAKING
The By-Laws of Kansas City Life Insurance Company provide, in part, in
Article XII:
1. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the Company, by reason of the fact
that he or she is or was a Director, Officer or employee of the Company, or is
or was serving at the request of the Company as a Director, Officer or
employee of another company, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
2. The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the company to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer or employee
of the company, or is or was serving at the request of the company as a
director, officer or employee of another company, partnership, joint venture,
trust or other enterprise against expenses, including attorneys' fees,
actually and reasonably incurred by him or her in connection with the defense
or settlement of the action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the company; except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the company unless and only to the extent that the court in
which the action or suit was brought determines upon application that, despite
the adjudication of liability and in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Missouri law authorizes Missouri corporations to provide indemnification
to directors, officers and other persons.
Kansas City Life owns a directors and officers liability insurance policy
covering liabilities that directors and officers of Kansas City Life and its
subsidiaries and affiliates may incur in acting as directors and officers.
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
precedent, 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.
REPRESENTATIONS RELATING TO FEES AND CHARGES
Kansas City Life Insurance Company hereby represents that the fees and charges
deducted under the contracts described in this post-effective amendment are, in
the aggregate, reasonable in relationship to the services rendered, the
expenses expected to be incurred, and the risks assumed by Kansas City Life
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 71 pages.
Undertaking to file reports.
Rule 484 undertaking.
Representations relating to fees and charges.
The signatures.
Written consents of the following persons:
(a) C. John Malacarne, Esq.
(b) Mark A. Milton, Vice President and Associate Actuary
(c) Sutherland, Asbill & Brennan.
(d) Independent Auditors.
The following exhibits, corresponding to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
1.A. (1) Resolutions of the Board of Directors of Kansas City Life Insurance
Company establishing the Kansas City Life Variable Life Separate
Account.*
(2) Not applicable.
(3) Distributing Contracts:
(a) Distribution Agreement between Kansas City Life Insurance
Company and Sunset Financial Services, Inc..*
(b) Not applicable.
(c) Schedule of Sales Commissions.***
(4) Not applicable.
(5) (a) Specimen Contract Form.***
(b) Contract Split Option Rider.***
(c) Joint First to Die Term Life Insurance Rider.***
(d) Joint Survivorship Four-Year Term Life Insurance Rider.***
(6) (a) Articles of Incorporation of Bankers Life Association of
Kansas City.*
(b) Restated Articles of Incorporation of Kansas City Life
Insurance Company.*
(c) By-Laws of Kansas City Life Insurance Company.*
(7) Not applicable.
(8) (a) Agreement between Kansas City Life Insurance Company, MFS
Variable Insurance Trust, and Massachusetts Financial Services
Company.*
(b) Agreement between Kansas City Life Insurance Company, TCI
Portfolios, Inc. and Investors Research Corporation.*
(c) Agreement between Kansas City Life Insurance Company,
Insurance Management Series, and Federated Securities Corp.*
(d) Agreement between Kansas City Life Insurance Company
and each of Dreyfus Variable Investment Fund, The Dreyfus
Socially Responsible Growth Fund, Inc., and Dreyfus Life
and Annuity Index Fund, Inc.***
(9) Not Applicable.
(10) Application Form.*
(11) Memorandum describing issuance, transfer, and redemption
procedures.
B. Not applicable.
C. Not applicable.
2. Opinion and consent of C. John Malacarne, Esq.,
as to the legality of the securities being registered. **
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Opinion and Consent of Mark A. Milton, Vice President and Associate
Actuary, as to actuarial matters pertaining to the securities being
registered.
7. (a) Consent of Ernst & Young LLP.
(b) Consent of Sutherland, Asbill & Brennan LLP.
(c) Consent of C. John Malacarne. See Exhibit 2.
______________________
* Incorporated herein by reference to the Form S-6 Registration Statement (File
No. 033-95354) for Kansas City Life Variable Life Separate Account filed on
August 2, 1995.
** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form
N-4 Registration statement (File No. 033-89984) for Kansas City Life Variable
Annuity Separate Account filed in August 25, 1995.
*** Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement (File No. 333-25443) for Kansas City Variable
Life Separate Account filed on July 15, 1997
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Kansas City Life
Insurance Company certifies that it meets all of the requirements of Securities
Act Rule 485(b) for effectiveness of this Post-Effective Amendment to its
Registration Statement and has duly caused this Post-Effective Amendment ot be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be herunto affixed and attested, all in the City of Kansas City and the State
of Missouri on the 27th day of April, 1998.
[SEAL]
Kansas City
Life Insurance Company
By:/s/ R. Philip Bixby
R. Philip Bixby, President
Attest: /s/ C. John Malacarne
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities indicated on the date(s) set
forth below.
Signature Title Date
/s/ R. Philip Bixby President, CEO and Director April 27, 1998
R. Philip Bixby
/s/ Richard L. Finn Senior Vice President, Finance April 27, 1998
Richard L. Finn and Director
(Principal Financial Officer)
/s/ John K. Koetting Vice President and Controller April 27, 1998
John K. Koetting (Principal Accounting Officer)
/s/ J. R. Bixby Chairman of the Board and
R. Philip Bixby Director April 27, 1998
/s/ W. E. Bixby III Director April 27, 1998
W. E. Bixby III
/s/ W. E. Bixby Vice Chairman of the Board and April 27, 1998
W. E. Bixby Director
/s/ Daryl D. Jensen Director April 27, 1998
Daryl D. Jensen
/s/ Francis P. Lemery Director April 27, 1998
Francis P. Lemery
/s/ C. John Malacarne Director April 27, 1998
C. John Malacarne
/s/ Jack D. Hayes Director April 27, 1998
Jack D. Hayes
/s/ Webb R. Gilmore Director April 27, 1998
Webb R. Gilmore
/s/ Warren J. Hunzicker, M.D. Director April 27, 1998
Warren J. Hunzicker, M.D.
/s/ Michael J. Ross Director April 27, 1998
Michael J. Ross
/s/ Elizabeth T. Solberg Director April 27, 1998
Elizabeth T. Solberg
/s/ E. Larry Winn Jr. Director April 27, 1998
E. Larry Winn Jr.
/s/ Nancy Bixby Hudson Director April 27, 1998
Nancy Bixby Hudson
Exhibit Index
List
Page
1.A.(11) Memorandum describing issuance, transfer and redemption
procedures.
2. Opinion and Consent of C. John Malacarne, Esq., as to the
legality of the securities being registered.
6. Opinion and Consent of Mark A. Milton, Vice President and
Associate Actuary, as to actuarial matters pertaining to the
securities being registered.
7.(a) Consent of Ernst & Young, L.L.P.
7.(b) Consent of Sutherland Asbill & Brennan LLP
Exhibit 1.A.(11)
MARCH 1998
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES FOR CONTRACTS
PURSUANT TO RULE 6e-3(T)(b)(12)(iii)
FOR FLEXIBLE PREMIUM SURVIVORSHIP LIFE INSURANCE CONTRACTS
ISSUED BY
KANSAS CITY LIFE INSURANCE COMPANY
This document sets forth the current administrative procedures that will be
followed by Kansas City Life Insurance Company ("Kansas City Life") in
connection with its issuance of individual flexible premium variable
survivorship life insurance contra cts (the "Contracts"), the transfer of assets
held thereunder, and the redemption by Contract owners (the "Owners") of their
interests in those Contracts. Capitalized terms used herein have the same
meaning as in the prospectus for the Contract that is included in the current
registration statement on Form S-6 for the Contract as filed with the Securities
and Exchange Commission ("Commission" or "SEC").
I. Procedures Relating to Purchase and Issuance of the Contracts and
Acceptance of Premiums
A. Offer of the Contracts, Applications, Initial Net Premiums, and Issuance
of the Contracts
1. Offer of the Contracts. The Contracts will be offered and sold for
premiums pursuant to established premium schedules and underwriting
standards in accordance with state insurance laws.
Premiums for the Contracts and related insurance charges will not be the same
for all Owners selecting the same amount and type of Death Benefit. Insurance
is based on the principle of pooling and distribution of mortality risks, which
assumes that each Owner pays a premium and related insurance charges
commensurate with the Insureds mortality risk as actuarially determined
utilizing factors such as Age, sex, level of Specified Amount, health and
occupation of each Insured. A uniform premium and insurance charges for all
Insureds would discriminate unfairly in favor of those Insureds representing
greater risk. Although there will be no uniform insurance charges for all
Insureds, there will be a uniform insurance rate for all Insureds of the same
risk class and same Total Sum Insured. A description of the Monthly Deduction
under the Contract , which includes charges for cost of insurance and for
supplemental benefits, is in Appendix A to this memorandum.
2. Application. To purchase a Contract, the Owner must complete an
application and submit it through an authorized Kansas City Life agent. An
application will not be deemed to be complete unless all required information,
including without limi tation age, sex, and medical and other background
information on each proposed Insured, has been provided in the application.
If the applicant is eligible for temporary insurance coverage, a temporary
insurance agreement "TIA") should also accompany the application. The TIA
provides temporary insurance coverage
prior to the date when all underwriting and other requirements have been met and
the application has been approved, with certain limitations, as long as an
initial premium payment accompanies the TIA. In accordance with Kansas City
Life's underwriti ng rules, temporary life insurance coverage may not
exceed $250,000. The TIA may not be in effect for more than 60 days. At the
end of the 60 days, the TIA coverage terminates and the initial premium will be
returned to the applicant.
3. Payment of Minimum Initial Premium and Determination of Contract Date.
With the TIA, the applicant must pay an initial premium payment at the time of
application that is at least equal to two months of minimum initial premium (one
month of m inimum initial premium is required for Contracts when premium
payments will be made under a pre-authorized payment arrangement). The minimum
initial premium payment required depends on a number of factors, such as the
age, sex and risk class of the proposed Insureds, the Specified Amount, any
optional benefits and riders selected and the Planned Periodic Premium payments
the Owner proposes to make. (See "Planned Periodic Premiums," below.)
In general, policies that are submitted with the required premium payment (and
the premium payment is submitted in "good order") will have a Contract Date
which will be the date of the TIA. However, if the Contract Date is calculated
to be the 29th, 30th or 31st of the month then the date will be set to the 1st
of the next following month. For Contracts where values are applied to the new
Contract from another contract, the Contract Date will be the approval date plus
up to two days, unless the approval is the 27th, 28th or 29th of the month in
which case then the Contract Date would be the first of the next month. There
are several exceptions to these rules based on the type of billing, whether the
contract involves a conversion and/or whether the specified amount exceeds
$250,000.
Pre-Authorized Check Payment Plan (PAC) or Combined Billing (CB) -- Premium with
Application
If PAC or CB is requested and the initial premium is taken with the application,
the Contract Date will be the later of the TIA date or the first of the month of
approval. Combined Billing is a billing where more than one Kansas City Life
contract i s billed together.
Combined Billing (CB)--No Premium With Application
If CB is requested and the initial premium is not taken with the application,
the Contract Date will be the earlier of the 1st month after the Contract is
approved or the date the initial premium is received. However, if approval
occurs on the 1st, 2nd, 3rd, 4th or 5th of the month the Contract Date will be
the first of the same month that the Contract is approved. In addition, if the
Contract Date is calculated to be the 29th, 30th or 31st of the month then the
date will be set to the 1st of t he following month.
Government Allotment (GA) and Federal Allotment (FA)
If GA or FA is requested on the application and an initial premium is taken with
the application, the Contract Date will be the 1st of the month of approval. If
GA or FA is requested and no initial premium is received the Contract Date will
be the f irst of the month for which a full monthly allotment is received.
Conversions
If a Kansas City Life term insurance product is converted to a new Contract the
Contract Date will be the date that the previous contract was paid to. If
there is more than one term policy being converted, the Contract Date will be
determined by the contract with the earliest date that premiums were paid to.
Specified Amount Exceeds $250,000
If the specified amount requested exceeds $250,000 and an initial premium is
taken with the application, the Contract Date will be the later of the TIA date
or the 1st of the month of approval.
Kansas City Life may specify the form in which a premium payment must be made in
order for the premium to be in "good order." Ordinarily, a check will be deemed
to be in good order upon receipt, although Kansas City Life may require that the
check f irst be converted into federal funds. In addition, for a premium to be
received in "good order," it must be accompanied by all required supporting
documentation, in whatever form required.
An initial premium will not be accepted from applicants that are not eligible
for TIA coverage. Coverage under the Contract begins on the Contract Date, and
Kansas City Life will deduct Contract charges as of the Contract Date.
The Contract Date is determined by these guidelines except, as provided for
under state insurance law, the Owner may be permitted to backdate the Contract
to preserve insurance age. In no case may the Contract Date be more than six
months prior to t he date the application was completed. Monthly Deductions
will be charged from the Contract Date. If coverage under an existing Kansas
City Life insurance contract is being replaced, that contract will be terminated
and values will be transferred o n the date when all underwriting and other
requirements have been met and the application has been
approved. (For a discussion of underwriting requirements, see "Underwriting
Requirements" below). Kansas City Life will deduct contract charges as of the
Contract Date.
4. Underwriting Requirements. Kansas City Life requires satisfactory
evidence of the proposed Insureds insurability, which may include a medical
examination of the proposed Insureds. The available issue ages are 20 through 85
for each Insured . There are four risk classes available:
preferred non-tobacco user, standard non-tobacco user, preferred tobacco user,
tobacco user. Age is determined on the Insured's age last birthday on the
Contract Date. For various purposes under the Cont racts the Insureds joint age
will be calculated under the Frasier method. The minimum Total Sum Insured is
$200,000. The minimum Specified Amount is $100,000. The minimum Additional
Insured Amount is $10,000 and the maximum Additional Insurance A mount at the
time of issue is four times the Specified Amount. This coverage may increase to
a maximum of 8 times the Specified Amount after issue. Acceptance of an
application depends on Kansas City Life's underwriting rules , and Kansas City
Life reserves the right to reject an application.
5. Determination of Owner of the Contract. The Owner of the Contract may
exercise all rights provided under the Contract. The Insureds are the
Owner, unless a different Owner is named in
the application. The Owner may by Written Notice name a contingent Owner or a
new Owner while at least one Insured is living. Unless a contingent Owner has
been named, on the death of the last surviving Owner, ownership of the Contract
passes to th e estate of the last surviving Owner, who will become the Owner if
the Owner dies. The Owner may also be changed prior to both Insureds deaths by
Written Notice satisfactory to Kansas City Life.
B. Payment and Acceptance of Additional Premiums
1. Generally. Additional unscheduled premium payments can be made at any
time while the Contract is in force. Kansas City Life has the right to limit
the number and amount of such premium payments, subject to the procedures
described below. A loan repayment must be clearly marked as such or it will be
credited as a premium. No premium payment will be accepted after the Maturity
Date.
2. Procedures for Accepting Additional Premium Payments.
Premium payments must be made by check payable to Kansas City Life Insurance
Company or by any other method that Kansas City Life deems acceptable. Kansas
City Life may specify the form in
which a premium payment must be made in order for the premium to be in "good
order." Ordinarily, a check will be deemed to be in good order upon receipt,
although Kansas City Life may require that the check first be converted into
federal funds. In addition, for a premium to be received in "good order," it
must be accompanied by all required supporting documentation, in whatever form
required.
Total premiums paid may not exceed premium limitations for life insurance set
forth in the Internal Revenue Code. Kansas City Life will monitor Contracts and
will notify the Owner if a premium payment exceeds this limit and will cause the
Contract t o violate the definition of insurance. The owner may choose to take
a refund of the portion of the premium payment that is determined to be in
excess of applicable limitations, or the Owner may submit an application to
increase the Additional Insura nce Amount, subject to our underwriting
requirements. (See "Underwriting Requirements" above.) Kansas City Life will
monitor Contracts and will attempt to notify the Owner on a timely basis if
premiums paid under a Contract exceed the "7-Pay Test" as set forth in the
Internal Revenue Code and, therefore, the Contract is in jeopardy of becoming a
modified endowment contract.
3. Planned Periodic Premiums. When applying for a Contract, the Owner selects a
plan for paying level premium payments at specified intervals, e.g., quarterly,
semi-annually or annually. If the Owner elects, Kansas City Life will also
arrange for payment of Planned Periodic Premiums on a special monthly,
quarterly, semi-annual or annual basis under a pre-authorized payment
arrangement. The Owner is not required to pay premium payments in accordance
with these plans; rather, the Owner can pay more or less th an planned or skip a
Planned Periodic Premium entirely. Each premium after the initial premium must
be at least $25. Kansas City Life may increase this minimum limit 90 days after
sending the Owner a Written Notice of such increase. Subject to the limits
described above, the Owner can change the amount and frequency of Planned
Periodic Premiums by sending Written Notice to the Home Office. Kansas City
Life, however, reserves the right to limit the amount of any increase in planned
premium payment.
4. Guaranteed Minimum Death Benefit Option and Guaranteed Minimum Death
Benefit Option Premium.
An optional Guaranteed Minimum Death Benefit Option is available only at issue.
This option is not available if Coverage Option B is elected or if the Joint
First to Die Rider is issued with the Contract. If this option has been
elected, it guarante es payment of the Specified Amount (less Indebtedness and
any past due charges) upon the death of the last surviving Insured, regardless
of the Contracts investment performance, provided that the Guaranteed Minimum
Death Benefit Option Premium requi rement is met. The Guaranteed Minimum Death
Benefit Option does not guarantee any Additional Insurance Amount.
The Guaranteed Minimum Death Benefit Option Premium is the amount which
guarantees that the Guaranteed Minimum Death Benefit Option will remain in
effect. The Guaranteed Minimum Death Benefit Option Premium requirement is met
if, on each Monthly Ann iversary Day:
the cumulative premiums paid equal or exceed the cumulative Guaranteed Minimum
Death Benefit Options Premiums (the amount of the Guaranteed Minimum Death
Benefit Option Premium is shown in the Contract), plus Indebtedness, where
the term the cumulative premiums paid means the amount that is equal to (A)
the sum of all premiums paid, less (B) the sum of all partial surrenders, with
(A) and (B) each accumulated at an annual effective interest rate of 4.)% from
the date the C ontract is issued to the Monthly Anniversary Date on which the
Guaranteed Minimum Death Benefit Option Premium requirement is calculated, and
the term cumulative Guaranteed Minimum Death Benefit Option Premiums means the
amount that is equal to the sum of the Guaranteed Minimum Death Benefit Option
Premiums, with each such premium accumulated at an annual effective interest
rate of 4% to the Monthly Anniversary Date on which the Guaranteed Minimum Death
Benefit Option Premium requirement is calculated.
If the Guaranteed Minimum Death Benefit Option Premium requirement is not met,
the Guaranteed Minimum Death Benefit Option is in default. A 61-day notice
period begins on the day Kansas City Life mails the notice that the Guaranteed
Minimum Death Be nefit Option is in default and the amount of premium required
to maintain the Guaranteed Minimum Death Benefit Option. The default premium
will be the amount by which the cumulative Guaranteed Minimum Death Benefit
Option Premium plus indebtedness is greater than the cumulative paid premium.
The Guaranteed Minimum Death Benefit Option will terminate if sufficient premium
is not paid by the end of the notice period.
If the policy contains any Additional Insurance Amount coverage or any optional
benefit riders, then in addition to testing the Guaranteed Minimum Death
Benefit Option Premium requirement as outlined above, the Contract Value will
be tested to ensure that the policy is funded at a sufficient level to support
the Additional Insurance Amount or other optional benefit riders. On each
Monthly Anniversary Day the Cash Surrender Value will be tested to determine if
it is sufficient to cover the Monthl y Deduction. If not, a 61-day notice
period begins on the day Kansas City Life mail notice of the default premium
amount. The default premium will be equal to the payment which would be
sufficient to provide a Cash Surrender Value equal to three mon thly
deductions. The Additional Insurance Amount coverage and other optional
benefit riders will be removed from the contract if payment at least equal to
the default premium is not received by the end of the notice period.
There is no charge for this option during the first 10 Contract Years.
Beginning in Contract Year 11 a monthly charge per $1,000 of Specified Amount at
issue will apply. The Guaranteed Minimum Death Benefit Option is not available
for Coverage Option B Contracts, for Contracts on which the Additional
Insurance Amount exceeds or is scheduled to exceed the Specified Amount or for
Contracts which include the Joint First to Die Rider. The Guaranteed Minimum
Death Benefit Option will terminate upo n your request, if the Coverage Option
is changed to B or if the amount of the Additional Insurance Amount is increased
to more than the Specified Amount.
The Guaranteed Minimum Death Benefit Option may be reactivated within two years
of termination of such option. Re-activation requires: (1) written notice to
restore the option, (2) evidence of insurability of the Insureds satisfactory
to us, unless Re-activiation is requested within one year after the beginning
of the notice period; and (3) payment of the amount by which the cumulative
Guaranteed Minimum Death Benefit Option Premium plus Indebtedness exceeds the
cumulative paid premiums on the date of Re-activation. On the Monthly
Anniversary Day on which the Re-activation takes effect, Kansas City Life will
deduct from the Contract Value any unpaid Guaranteed Minimum Death Benefit
Option Charges. Kansas City Life reserves the right to deny Re-activation of
the Guaranteed Minimum Death Benefit Option more than once during the life of
the Contract.
5. Premium Payments Upon Increase in Additional Insurance Amount.
Depending on the Contract Value at the time of an increase in the Additional
Insured Amount and the amount of the increase requested, an additional premium
payment may be necessa ry or a change in the amount of Planned Periodic Premiums
may be advisable.
6. Premium Payments to Prevent Lapse. If the Guaranteed Minimum Death
Benefit Option has been elected, the Specified Amount is guaranteed to remain in
force as long as the Guaranteed Minimum Death Benefit Option Premium requirement
is met on eac h Monthly Anniversary Day. However, while failure to meet the
Guaranteed Minimum Death Benefit Option Premium requirement will cause the
Guaranteed Minimum Death Benefit Option to terminate, such failure will not
necessarily cause the Contract to lapse. Riders are not guaranteed by the
Guaranteed Minimum Death Benefit Option and will terminate if the Cash Surrender
Value becomes negative.
If the Guaranteed Minimum Death Benefit Option has not been elected or has been
removed, a grace period starts if the Cash Surrender Value on a Monthly
Anniversary Day will not cover the Monthly Deduction. A premium sufficient to
provide a Cash Surr ender Value equal to three Monthly Deductions must be paid
during the grace period to keep the Contract in force.
7. Grace Period. The grace period is a 61-day period to make a premium payment
sufficient to prevent lapse. Kansas City Life will send notice of the amount
required to be paid during the grace period to the Owner's last known address
and the addres s of any assignee of record. The grace period will begin when
the notice is sent. The Contract will remain in force during the grace period.
If the last surviving Insured should die during the grace period, the Death
Benefit proceeds will still be payable to the Beneficiary, although the amount
paid will reflect a reduction for the Monthly Deductions due on or before the
date of the last surviving Insured's death (and for any Indebtedness). If the
grace period premium payment has not been pa id before the grace period ends,
the Contract will lapse. It will have no value and no benefits will be payable.
A grace period also may begin if Indebtedness becomes excessive.
C. Allocation and Crediting of Initial and Additional Premiums
1. The Separate Account, Subaccounts, and Fixed Account. The variable
benefits under the Contracts are supported by the Kansas City Life Variable Life
Separate Account (the "Variable Account"). The Variable Account currently
consists of twenty-eight Subaccounts, fourteen of which support the Contracts,
and fourteen of which support other flexible premium variable life insurance
contracts used by Kansas City Life. The assets of the Subaccounts are used to
purchase shares of a designated corresponding mutual fund Portfolio that is
part of one of the following Funds: MFS Variable Insurance Trust ("MFS Trust"),
American Century Variable Portfolios Inc. ("American Century Variable
Portfolios), Federated Insurance Series, Dreyfus Variable Investment Fund and
Dreyfus Stock Index Fund. Each Fund is registered under the Investment Company
Act of 1940 as an open-end management investment company. Owners also may
allocate Contract Value to Kansas City Life's general account (the "Fixed
Account"). Additional Subaccounts may be added from time to time to invest in
portfolios of MFS Trust, American Century Variable Portfolios, Federated
Insurance Series, Dreyfus Variable Investment Fund and Dreyfus Stock Index Fund
or any other inv estment company.
2. Allocations Among the Accounts. Net Premiums and Contract Value are
allocated to the Subaccounts and the Fixed Account in accordance with
the following procedures.
a. General. In the Contract application, the Owner specifies the
percentage of a Net Premium to be allocated to each Subaccount and to the Fixed
Account. The sum of the allocations must equal 100%, and Kansas City Life
reserves the right to li mit the number of Subaccounts to which premiums may be
allocated, although the number of Subaccounts to which net premiums may be
allocated will never be less than twelve. The Owner can change the allocation
percentages at any time, subject to these rules, by sending Written Notice to
the Home Office. Changes in allocation may also be made by telephone if a
proper authorization has been provided. The change will apply to premium
payments received with or after receipt of notice.
b. Allocation of Initial Net Premium. On the Allocation Date, the initial
Net Premium will be allocated to the Money Market Subaccount. The Allocation
Date is the later of the date when all underwriting and other requirements have
been met and an application has been approved, or the date the initial premium
is received in good order at the Home Office. Kansas City Life may specify the
form in which a premium payment must be made in order for the premium to be in
"good order." Ordinarily, a check will be deemed to be in good order upon
receipt, although Kansas City Life may require that the check first be converted
into federal funds. In addition, for a premium to be received in "good order,"
it must be accompanied by all required supporting documentation, in whatever
form required. If any additional premiums are received in good order before the
Reallocation Date (as defined below), the corresponding Net Premiums also will
be allocated to the Money Market Subaccount. On the Reallocation Date Contract
Value in the Money Market Subaccount will be allocated to the Subaccounts and
to the Fixed Account based on the Net Premium allocation percentages specified
in the application. The Reallocation Date is 30 days after the Allocation Date.
c. Allocation of Additional Premiums. Premiums received on or after the
Reallocation Date will be credited to the Contract and the Net Premiums will be
invested as requested on the Valuation Day they are received at Kansas City
Life's Home Office, except if additional underwriting is required. Premium
payments requiring additional underwriting will not be credited to the Contract
until underwriting has been completed and the premium payment has been accepted.
(See "Underwriting Requirements" above). If the additional premium payment is
rejected, Kansas City Life will return the premium payment immediately, without
any adjustment for investment experience.
II. Transfers Among Accounts
A. Transfer Privilege
1. General. After the Reallocation Date and prior to the Maturity Date,
the Owner may transfer all or part of an amount in the Subaccount(s) to another
Subaccount(s) or to the Fixed Account, or transfer a part of an amount in the
Fixed Account to the Subaccount(s), subject to the restrictions described below.
Kansas City Life will make the transfer on the Valuation Day that it receives
Written Notice requesting such transfer. Transfers may also be made by
telephone if the appropriate ele ction has been made at the time of application
or proper authorization has been provided.
2. General Restrictions on Transfer Privilege. The minimum transfer amount
is the lesser of $250 or the entire amount in that Subaccount or the Fixed
Account. A transfer request that would reduce the amount in a Subaccount or the
Fixed Account below $250 will be treated as a transfer request for the entire
amount in that Subaccount or the Fixed Account. There is no limit on the number
of transfers that can be made among Subaccounts or to the Fixed Account.
However, only one transfer may be made from the Fixed Account each Contract
Year. (For a description of those restrictions, see "Restrictions on Transfers
from Fixed Account," below.) The first six transfers during each Contract Year
are free. Any unused free transfers do not carry over to the next Contract
Year. Kansas City Life will assess a $25 Transfer Processing Fee for the
seventh and each subsequent transfer during a Contract Year. For the purp ose
of assessing the fee, each Written Request (or telephone request) is considered
to be one transfer, regardless of the number of Subaccounts or the Fixed Account
affected by the transfer. The processing fee will be deducted from the amount
being transferred or from the remaining Contract Value, according to the Owner's
instructions.
3. Restrictions on Transfers from Fixed Account. One transfer each
Contract Year is allowed from the Fixed Account to any or all of the
Subaccounts. The amount transferred from the Fixed Account may not
exceed 25% of the unloaned Fixed Account Value on the date of transfer,
unless the balance after the transfer is less than $250, in which case
Kansas City Life will transfer the entire amount.
B. Dollar Cost Averaging Plan
1. General. The Dollar Cost Averaging Plan, if elected, enables the Owner
to transfer systematically and automatically, on a monthly basis for a
period of 3 to 36 months, specified dollar amounts from the Money Market
Subaccount to other Subaccounts. At least $250 must be transferred
from the Money Market Subaccount each month. The required amounts may
be allocated to the Money Market Subaccount through initial or
subsequent premium payments or by transferring amounts into the Money
Market Subaccount from the other Subaccounts or from the Fixed Account
(which may be subject to certain restrictions).
2. Election and Operation of the Program. The Owner may elect this plan at
the time of application by completing the authorization on the
application or at any time after the Contract is issued by properly
completing the election form and retu rning it to Kansas City Life. The
election form allows the Owner to specify the number of months for the
Dollar Cost Averaging Plan to be in effect. Dollar cost averaging
transfers will commence on the next Monthly Anniversary Day on or next
following the Reallocation Date or the date The Owner requests. Dollar
cost averaging will terminate at the completion of the designated number
of months or the day Kansas City Life receives Written Notice
instructing Kansas City Life to cancel the Dollar Cost Averaging Plan.
Transfers made from the Money Market Subaccount for the Dollar Cost Averaging
Plan will not count toward the six transfers permitted each Contract Year
without imposing the Transfer Processing Fee.
C. Portfolio Rebalancing Plan
1. General. The Owner may elect to have the accumulated balance of each
Subaccount redistributed to equal a specified percentage of the Variable Account
Value. This will be done on a quarterly basis at three-month intervals from the
Monthly Anniversary Day on which the Portfolio Rebalancing Plan commences.
2. Election and Operation of the Plan. The Owner may elect this plan at the
time of application by completing the authorization on the application or at
any time after the Contract is issued by properly completing the election form
and returning it to us. If elected, this plan automatically adjusts the
Owner's Portfolio mix to be consistent with the allocation most recently
requested. The redistribution will not count toward the six transfers
permitted each Contract Year without imposing the Transfer Processing Fee. If
the Dollar Cost Averaging Plan has been elected and has not been completed, the
Portfolio Rebalancing Plan will commence on the Monthly Anniversary Day
following the termination of the Dollar Cost Averaging Plan. Portfolio
rebalancing will terminate when you request any transfer or the day Kansas City
Life receive Written Notice instructing us to cancel the Portfolio Rebalancing
Plan. If the Contract Value is negative at the time portfolio rebalancing is
scheduled, the re-distribution will not be completed.
III. "Redemption" Procedures: Full and Partial Surrenders, Maturity Benefit,
Death Benefits, and Loans
A. "Free-Look" Period
The Owner may cancel the Contract for a refund during the "free-look" period.
This period expires 10 days after the Owner receives the Contract. If the Owner
decides to cancel the Contract, the Owner must return it by mail or other
delivery method to the Home Office or to the authorized Kansas City Life agent
who sold it. Immediately after mailing or delivery, the Contract will be deemed
void. Within seven calendar days after Kansas City Life receives the returned
Contract, Kansas City Life will refund premiums paid. In some states Kansas
City Life may be required to refund the greater of Contract Value and premiums
paid.
B. Surrendering the Contract for Cash Surrender Value
The Owner may surrender the Contract at any time for its Cash Surrender Value by
submitting a written request to the Home Office. Kansas City Life may require
return of the Contract. A surrender request will be processed as of the date
the Owner's written request and all required documents are received. Payment
will generally be made within seven calendar days. The Cash Surrender Value may
be taken in one lump sum or it may be applied to a payment option. The Owner's
Contract will terminate and cease to be in force if it is surrendered for one
lump sum. It cannot later be reinstated.
C. Partial Surrenders
1. General. The Owner may make partial surrenders under the contract at
any time, subject to the conditions below. The Owner must submit a Written
Request to the Home Office. Each partial surrender must be at least $500. The
partial surrende r amount may not exceed the Cash Surrender Value, less $300. A
Partial Surrender Fee will be assessed on a partial surrender. This charge will
be deducted from the Owner's Contract Value in addition to the amount requested
to be surrendered and will be considered part of the surrender (together,
"partial surrender amount"). As of the date Kansas City Life receives a Written
Request for a p artial surrender, the Contract Value will be reduced by the
partial surrender amount.
2. Allocation of Partial Surrender Among the Accounts. When the Owner
requests a partial surrender, the Owner can direct how the partial surrender
amount will be deducted from Contract Value in the Subaccounts and Fixed
Account. If the Owner p rovides no directions, the partial surrender amount
will be deducted from Contract Value in the Subaccounts and Fixed Account on a
pro-rata basis.
3. Effect of Partial Surrender on Death Benefit. If Coverage Option A or L
is in effect, Kansas City Life will reduce the Contract Value by the partial
surrender amount. The Total Sum Insured will be reduced by the partial
surrender amount min us the excess, if any, of the Death Benefit over the Total
Sum Insured at the time the partial surrender is made. If the partial surrender
amount is less than the excess of the Death Benefit over the Total Sum Insured,
the Total Sum Insured will not be reduced. If Coverage Option B is in effect
Kansas City Life will reduce the Contract Value by the partial surrender amount.
Kansas City Life reserves the right to reject a partial surrender request if the
partial surrender would reduce the Tot al Sum Insured below the minimum amount
for which the Contract would be issued under Kansas City Life's then-current
rules, as interpreted by Kansas City Life.
4. Date Partial Surrender Requests Are Processed. Partial surrender
requests will be processed as of the date the Owner's written request is
received in good order, and generally will be paid within seven calendar days.
A written request for a partial surrender will be deemed to be good order when,
among other things, all required supporting documentation has been received.
D. Partial Surrender Fee
Kansas City Life will deduct an administrative charge upon a partial surrender.
This charge is the lesser of 2% of the amount surrendered or $25. This charge
will be deducted from the Contract Value in addition to the amount requested to
be surrend ered and will be considered to be part of the partial surrender
amount.
E.. Redemptions for Monthly Deduction
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary that has occurred prior or on to the
Allocation Date. (The Monthly Deduction is described in Appendix A.)
Subsequent Monthly Deductions will be made as of each Monthly Anniversary Day
thereafter. The Owner's Contract Date is the date used to determine the Owner's
Monthly Anniversary Day. The Monthly Deduction consists of (1) monthly expense
charges, (2) cost of insurance charges, and (3) any charges for optional
benefits. The Monthly Deduction is deducted from the Variable Accounts and
Fixed Account pro rata on the basis of the portion of Contract Value in each
account on the Monthly Anniversary Day.
F. Death Benefits
As long as the Contract remains in force, Kansas City Life will pay the Death
Benefit proceeds upon receipt at the Home Office of proof of the death of the
last surviving Insured that Kansas City Life deems satisfactory. Kansas City
Life may also re quire proof of the death of the Insured who died first and may
require return of the Contract. The Death Benefit will be paid in a lump sum
generally within seven calendar days of receipt of satisfactory proof or, if
elected, under a payment option. The Death Benefit will be paid to the
Beneficiary.
Under certain circumstances and in accordance with established administrative
procedures, Kansas City Life will pay death benefit proceeds through Kansas City
Life's Personal Growth Account, an interest bearing account. Proceeds paid
through the Per sonal Growth Account are placed in our general account. Check-
writing privileges are provided in the Personal Growth Account under which the
bank that pays the check will be reimbursed by Kansas City Life out of the
proceeds held in our general acco unt. A Contract Owner or beneficiary
(whichever applicable) will have immediate access to the proceeds by writing a
check on the account. Kansas City Life pays interest from the date of death to
the date the Personal Growth Account is closed. The pr ospectus for the
Contracts advises prospective and current Contract Owners of the foregoing and
that the Personal Growth Account is not a bank account and is not insured nor
guaranteed by the FDIC or any other government agency.
1. Amount of Death Benefit Proceeds. The Death Benefit proceeds payable
upon the death of the last surviving Insured are equal to the sum of: (1) the
greater of: (a) the Death Benefit under the Coverage Option selected,
calculated as of the da te of the last surviving Insured's death, or (b) the
Corridor Death Benefit; and (2) an amount equal to any benefits provided by any
option benefits or riders, plus any premiums received after the date of death,
minus any indebtedness on that date, a nd, if the death occurred during a grace
period, minus any past due Monthly Deductions. A minimum Death Benefit may be
provided under the Guaranteed Minimum Death Benefit Option. If all or part of
the Death Benefit proceeds are paid in one sum, Kan sas City Life will pay
interest on this sum as required by applicable state law from the date of
receipt of due proof of the last surviving Insured's death to the date of
payment.
2. Coverage Options. The Contract Owner may choose one of three Coverage
Options, which will be used to determine the Death Benefit. Under Option A,
the Death Benefit is equal to the Total Sum Insured on the date of death of the
last surviving Insured. Under Option B, the Death Benefit is the Total Sum
Insured on the date of death of the last surviving Insured plus the Contract
Value on the date of such death. Under Coverage Option L, the Death Benefit
will be the sum of: (1) the Total Sum Insured on the date of death of the last
surviving Insured; and (2) the Contract Value on the Contract Anniversary
preceding the death of the last surviving Insured multiplied by the applicable
Option L Death Benefit Percentage less the Total Su m Insured on that Contract
Anniversary. If the amount in (2) of the Option L Death Benefit calculation is
less than zero then the Option L Death Benefit will be equal to the amount
calculated in (1).
3. Initial Specified Amount and Coverage Option. The Initial Specified
Amount is set at the time the Contract is issued. The Owner may change
the Specified Amount from time to time, as discussed below. The Owner
selects the Coverage Option when the Owner applies for the Contract.
The Owner also may change the Coverage Option, as discussed below.
4. Changes in Coverage Option. Kansas City Life reserves the right to
require that no change in Coverage Option occur during the first Contract Year
and that no more than one increase be made in any 12-month period. Coverage
Option L is only a vailable at issue. After any change, the Total Sum Insured
must be at least $200,000 and the Specified Amount must be at least $100,000.
The effective date of the change will be the Monthly Anniversary Day following
the date Kansas City Life approv es the Owner's application for change.
If the Coverage Option is B or L, it may be changed to A. The Total Sum Insured
will not change. If the Coverage Option is A or L, it may be changed to B
subject to evidence of insurability satisfactory to Kansas City Life. (See
Underwriting Requirements,above.) The new Total Sum Insured will be the
greater of the Total Sum Insured less the Contract Value as of the date of
change or $25,000. If the Coverage Option is changed to B, the Guaranteed
Minimum Death Benefit Option, if in effect , will terminate.
Kansas City Life reserves the right to decline any Coverage Option change that
Kansas City Life determines would cause the Contract to not qualify as life
insurance under applicable tax laws.
5. Increases in the Additional Insurance Amount
Increases to the Additional Insurance Amount may be made either through
scheduled annual increases requested and through unscheduled increases requested
at any other time of the Owner's choosing. The maximum Additional Insurance
Amount coverage is f our times the Specified Amount at issue. This coverage may
increase to a maximum of eight times the Specified Amount after issue under
scheduled annual increases.
Scheduled increases to the Additional Insurance Amount, subject to Kansas City
Life's approval, may be based on a flat amount annual increase or a percentage
annual increase. Available percentage increases range from 0-25% of the
Additional Insuran ce Amount. The percentage increase will be based on the
specified percentage of the Additional Insurance Amount at the time the
scheduled increase occurs. Available amounts for a flat amount increase not to
exceed a dollar amount equal to 25% of t he Additional Insurance Amount at
issue. The Guaranteed Minimum Death Benefit Option will not be available if the
Additional Insurance Amount is, or is scheduled to, exceed the Specified Amount.
The Owner may request increases to the Additional Insurance Amount other than
the annual, scheduled increases available at issue. Kansas City Life reserve
the right to require that no increases in Additional Insurance Amount occur
during the first C ontract Year and that no more than one increase be made in
any 12-month period.
Any requested, unscheduled increase in the Additional Insurance Amount must be
at least $10,000 and an application must be submitted. Kansas City Life
reserves the right to require satisfactory evidence of insurability. In
addition, the Insureds' attained Age must be less than the current maximum
issue Age for the Contracts, as determined by Kansas City Life from time to
time. A change in Planned Periodic Premiums may be advisable.
The increase in the Additional Insurance Amount will become effective on the
Monthly Anniversary Day on or next following the date the request for the
increase is received and approved. If the Additional Insurance Amount is
increased to be greater t han the Specified Amount, the Guaranteed Minimum Death
Benefit Option, if applicable, will terminate. In addition, if the Cash
Surrender Value is at any time insufficient to pay monthly deductions for the
Contract, the Additional Insurance Amount an d riders will terminate in order to
preserve the Guaranteed Minimum Death Benefit Option.
6. Decreases in Total Sum Insured
The Owner may request a decrease in the Total Sum Insured. When a decrease in
Total Sum Insured is made, Kansas City Life will first reduce any amount of
Additional Insurance Amount remaining and only then reduce the Specified Amount,
starting with the latest increase and continuing in the reverse order in which
the increases were made. If the Specified Amount is decreased, the Guaranteed
Minimum Death Benefit Option coverage amount will be decreased by the same
amount. Under certain circumst ances, a partial surrender will result in a
decrease in the Total Sum Insured.
Kansas City Life reserves the right to require that no decreases occur during
the first Contract Year and that no more than one decrease be made in any 12-
month period.
Kansas City Life reserves the right to require that the Total Sum Insured after
any decrease be at least $200,000 and the Specified Amount must be $100,000. The
Owner must provide written notice to the Home Office of his intention to
decrease the Spe cified Amount. The effective date of the decrease will be the
Monthly Anniversary Day following the date Kansas City Life approves the Owner's
request for a decrease.
Decreasing the Total Sum Insured may have the effect of decreasing monthly Cost
of Insurance Charges. However, a decrease will not decrease the Target Premium
or Guaranteed Minimum Death Benefit Option Premium.
G. Loans
1. When Loans are Permitted. Prior to the death of the Insured, the Owner
may borrow against the Contract at any time by submitting a written request to
the Home Office, provided that the Cash Surrender Value of the Contract is
greater than zero. Loans may also be made by telephone if the appropriate
election has been made at the time of application or proper authorization has
been provided to us. The maximum loan amount is equal to the Contract's Cash
Surrender Value on the effective date of the loan less loan interest to the
next Contract Anniversary. Contract loans will be processed as of the date the
Owner's written request is received and approved. Loan proceeds generally will
be sent to the Owner within seven calendar days.
2. Interest. Kansas City Life will charge interest on any Indebtedness at
an annual rate of 6.0%. Interest is due and payable at the end of each Contract
Year while a loan is outstanding. If interest is not paid when due, the amount
of the in terest is added to the loan and becomes part of the Indebtedness.
3. Loan Collateral. When a Contract loan is made, an amount sufficient to
secure the loan is transferred out of the Subaccounts and the unloaned value in
the Fixed Account and into the Contract's Loan Account. Thus, a loan will have
no immediate effect on the Contract Value, but the Cash Surrender Value will be
reduced immediately by the amount transferred to the Loan Account. The Owner
may specify the Variable Accounts and/or Fixed Account from which collateral
will be transferred. If no allocation is specified, collateral will be
transferred from each Subaccount and from the unloaned value in the Fixed
Account in the same proportion that the Contract Value in each Subaccount and
the unloaned value in the Fixed Account bears to the total Contract Value in
those accounts on the date that the loan is made. An amount of Cash Surrender
Value equal to any due and unpaid loan interest will also be transferred to the
Loan Account on each Contract Anniversary. Due and unpaid interest will be
transferred from each Subaccount and the unloaned value in the Fixed Account in
the same proportion that each Subaccount Value and the unloaned value in the
Fixed Account Value bears to the total unloaned Contract Value.
The Loan Account will be credited with interest at an effective annual rate of
not less than 4%. Interest earned on the Loan Account will be added to the
Fixed Account.
4. Preferred Loan Provision. Beginning in the eleventh Contract Year, a
preferred loan may be requested. The maximum amount available for a
preferred loan is the Contract Value less premiums paid and may not
exceed the maximum loan amount. The amount in the Loan Account securing
the preferred loan will be credited with interest at an effective annual
rate of 6.0%. The preferred loan provision is not guaranteed.
5. Loan Repayment;. The Owner may repay all or part of the Owner's
Indebtedness at any time while the Insured is living and the Contract is in
force. Kansas City Life reserves the right to require that each loan repayment
be at least $10.00. L oan repayments must be sent to the Home Office and will
be credited as of the date received. A loan repayment must be clearly marked as
"loan repayment" or it will be credited as a premium. When a loan repayment is
made, Contract Value in the Loan Account in an amount equal to the repayment is
transferred from the Loan Account to the Subaccounts and the unloaned value in
the Fixed Account. Unless specified otherwise by the Owner, loan repayment
amounts will be transferred to the Subaccounts a nd the unloaned value in the
Fixed Account according to the premium allocation instructions in effect at that
time.
6. Reduction in Death Benefit. If the Death Benefit becomes payable while
a loan is outstanding, the Indebtedness will be deducted in calculating
the Death Benefit proceeds.
7. Default. If the Loan Account Value exceeds the Contract Value less any
applicable Surrender Charge on any Valuation Day, the Contract will be
in default. The Owner, and any assignee of record, will be sent notice
of the default. The Owner will have a 61-day grace period to submit a
sufficient payment to avoid termination of coverage under the Contract.
The notice will specify the amount that must be repaid to prevent
termination.
H. Payment Options
The Contract offers a variety of ways of receiving proceeds payable under the
Contract, such as on surrender, death or maturity, other than in a lump sum.
These payment options are summarized below. The Owner may apply proceeds of
$2,000 or more which are payable under this Contract to any of the following
options:
1. Option 1 - Interest Payments. Kansas City Life will make interest
payments to the payee annually or monthly as elected. Interest on the
proceeds will be paid at the guaranteed rate of 3.0% per year and may be
increased by additional interest paid annually. The proceeds and any
unpaid interest may be withdrawn in full at any time.
2. Option 2 - Installments of a Specified Amount. Kansas City Life will
make annual or monthly payments until the proceeds plus interest are
fully paid. Interest on the proceeds will be paid at the guaranteed
rate of 3.0% per year and may be increased by additional interest. The
present value of any unpaid installments may be withdrawn at any time.
3. Option 3 - Installments For a Specified Period. Payment of the proceeds
may be made in equal annual or monthly payments for a specified number
of years. Interest on the proceeds will be paid at the guaranteed rate
of 3.0% per year and may be increased by additional interest. The
present value of any unpaid installments may be withdrawn at any time.
4. Option 4 - Life Income. Kansas City Life will pay an income during the
payee's lifetime. You also may choose a minimum guaranteed payment period or an
installment refund option as part of your life income payment option. The
minimum guaranteed payment period guarantees that life income payments will
continue after death until payments have been paid for the full guaranteed
payment period selected. The installment refund option guarantees that life
income payments will continue after death until the total income payments
received equal the amount of proceeds applied when the option was initially
selected.
5. Option 5 - Joint and Survivor Income. Kansas City Life will pay an
income during the lifetime of two persons and will continue to pay the same
income as long as either person is living. The minimum guaranteed payment
period will be ten years.
6. Minimum Amounts. Kansas City Life reserves the right to pay the total
amount of the Contract in one lump sum, if less than $2000. If payments
are less than $50, payments may be made less frequently at Kansas City
Life's option. If Kansas City Life has available at the time a payment
option is elected options or rates on a more favorable basis than those
guaranteed, the more favorable benefits will apply.
I. Delay in Redemptions or Transfers
Kansas City Life will ordinarily pay any Death Benefit proceeds, loan proceeds,
partial surrender proceeds, or full surrender proceeds within seven calendar
days after receipt at the Home Office of all the documents required for such a
payment. Othe r than the Death Benefit, which is determined as of the date of
death, the amount will be determined as of the date of receipt of required
documents. However, Kansas City Life may delay making a payment or processing a
transfer request if (1) the New York Stock Exchange is closed for other than a
regular holiday or weekend, trading is restricted by the SEC, or the SEC
declares that an emergency exists as a result of which the disposal or valuation
of Variable Account assets is not reasonably practicable; or (2) the SEC by
order permits postponement of payment to protect Kansas City Life's Contract
Owners.
J. Telephone Transfer, Premium Allocation Changes and Loan Privileges
1. Election of the Program. Transfers, changes in premium allocation and
loan requests will be based upon instructions given by telephone, provided the
appropriate election has been made at the time of application or proper
authorization has be en provided to Kansas City Life. Kansas City Life reserves
the right to suspend telephone transfer, premium allocation and/or loan
privileges at any time, for any reason, if it deems such suspension to be in the
best interests of Contract Owners.
2. Procedures Employed to Confirm Genuineness of Telephone Transfer,
Premium Allocation Changes and Loan Privileges Instructions. Kansas City Life
will employ reasonable procedures to confirm that instructions communicated by
telephone are gen uine, and if Kansas City Life follows those procedures it will
not be liable for any losses due to unauthorized or fraudulent instructions.
Kansas City Life may be liable for such losses if it does not follow those
reasonable procedures. The procedures Kansas City Life will follow for
telephone transfers, premium allocation changes and loans include requiring some
form of personal ident ification prior to acting on instructions received by
telephone, providing written confirmation of the transaction, and making a tape
recording of the instructions given by telephone.
APPENDIX A
On the Allocation Date, Kansas City Life will deduct Monthly Deductions for the
Contract Date and each Monthly Anniversary that has occurred prior to or on the
Allocation Date. Subsequent Monthly Deductions will be made as of each Monthly
Anniversar y Day thereafter. The Contract Date is the date used to determine
Monthly Anniversary Day. The Monthly Deduction consists of (1) monthly expense
charges, (2)cost of insurance charges, and (3) any optional benefit charges, as
described below. The Monthly Deduction is deducted from the Variable Accounts
and Fixed Account pro rata on the basis of the portion of Contract Value in each
account on the Monthly Anniversary Day.
Monthly Expense Charge. The Monthly Expense Charge is made up of two
parts:
(1) a charge of $12.50 per month for the first five Contract
Years.
(2) a monthly expense charge of $7.50 plus $.02 per $1,000
of Total Sum Insured per month for all Contract Years.
The Monthly Expense Charge reimburses Kansas City Life for expenses incurred in
the administration of the Contracts and the Variable Account. Such expenses
include but are not limited to: underwriting and issuing the Contract,
confirmations, annual reports and account statements, maintenance of Contract
records, maintenance of Variable Account records, administrative personnel
costs, mailing costs, data processing costs, legal fees, accounting fees,
filing fees, the costs of other services necessary for Contract Owner
servicing and all accounting, valuation, regulatory and updating
requirements. The Monthly Expense Charge is guaranteed not to increase.
Cost of Insurance Charge. This charge compensates Kansas City Life for
the expense of providing insurance coverage. The charge depends on a number of
variables and therefore will vary from Contract to Contract and from Monthly
Anniversary Day to Monthly Anniversary Day. For any Contract, the cost of
insurance on a Monthly Anniversary Day is calculated by multiplying the current
cost of insurance rate for the Insureds by the net amount at risk for that
Monthly Anniversary Day.
The net amount at risk on a Monthly Anniversary Day is the difference between
the Death Benefit (see Coverage Options, page 30), discounted with one month
of interest and the Contract Value, as calculated on that Monthly Anniversary
Day before the cost of insurance charge is taken. The interest rate used to
discount the Death Benefit is the monthly equivalent of 4% per year.
The cost of insurance rate for a Contract on a Monthly Anniversary Day is based
on the Insureds' Age, sex, number of completed Contract Years, Total Sum
Insured and risk class, and therefore varies from time to time. Kansas City
Life currently places
Insureds in the following classes, based on underwriting: Standard Tobacco
User, Standard Nontobacco User, Preferred Nontobacco User and Preferred Tobacco
User. The Insureds may be placed in a substandard risk class, which involves a
higher mort ality risk than the Standard Tobacco User or Standard Nontobacco
User classes.
Kansas City Life places the Insureds in a risk class when the Contract is given
underwriting approval, based on Kansas City Life's underwriting of the
application. When an increase in Additional Insurance Amount is requested,
Kansas City Life conduc ts underwriting before approving the increase to
determine the risk class that will apply to the increase. If the risk class for
the increase has lower cost of insurance rates than the existing risk class, the
lower rates will apply to the entire Sp ecified Amount. If the risk class for
the increase has higher cost of insurance rates than the
existing class, the higher rates will apply only to the increase in Additional
Insurance Amount, and the existing risk class will continue to apply to the
existing Additional Insurance Amount.
Kansas City 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 rates set forth in the Contract. The guaranteed rates for standard
and preferred risk classes are based on the 1980 Commissioners' Standard
Ordinary Mortality Tables, Male or Female, Smoker or Nonsmoker Mortality Rates
(1980 CSO Tables). The guaranteed rates for substandard classes are based on
multiples of or additives to the 1980 CSO Tables.
Kansas City Life's current cost of insurance rates may be less than the
guaranteed rates that are set forth in the Contract. Current cost of insurance
rates will be determined based on Kansas City Life's expectations as to future
mortality experience. These rates may change from time to time.
Cost of insurance rates (whether guaranteed or current) for one or both Insureds
in a nontobacco user standard class are lower than rates for one or both
Insureds of the same age and sex in a tobacco user standard class. Cost of
insurance rates (whether guaranteed or current) for one or both Insureds in a
nontobacco user or tobacco user standard risk class are lower than rates for one
or both Insureds of the same age, sex and tobacco user class in a substandard
risk class.
Guaranteed Minimum Death Benefit Option Charge. There is no charge for
the Guaranteed Minimum Death Benefit Option in the first ten Contract Years.
Beginning in Contract Year 11, the charge will be $.01 per $1,000 on a current
basis and $.0 3 per $1,000 on a guaranteed basis. This charge will be based on
the Specified Amount and will be deducted monthly.
Reduced Charges for Eligible Groups
The charges otherwise applicable may be reduced with respect to Contracts issued
to a class of associated individuals or to a trustee, employer or similar entity
where Kansas City Life anticipates that the sales to the members of the class
will result in lower than normal sales or administrative expenses. These
reductions will be made in accordance with our rules in effect at the time of
the application for a Contract. The factors Kansas City Life will consider in
determining the eligibility of a particular group for reduced charges and the
level of the reduction are as follows: the nature of the association and it
organizational fr amework, the method by which sales will be made to the members
of the class, the facility with which premiums will be collected from the
associated individuals and the association capabilities with respect to
administrative tasks, the anticipated per sistency of the Contract, the size of
the class of associated individuals and the number of years it has been in
existence and any other such circumstances which justify a reduction in sales or
administrative expenses. Any reduction will be reasonable and will apply
uniformly to all prospective Contract purchases in the class and will not be
unfairly discriminatory to the interest of any Contract holder.
Supplemental and/or Rider Benefits
The following optional benefits are available and may be added to the Contract.
Monthly charges for these optional benefits will be deducted from Contract Value
as part of the Monthly Deduction. All of these benefits may not be available in
all states.
Contract Split Option Rider
Issue Ages: 20-75
This rider allows the Owner to split the Contract equally into two
individual policies, one on the life of each Insured. This split option will be
offered without evidence of insurability under the conditions that the request
is made as the result of either (1) the divorce of the two Insureds; or (2) as a
result of a change in the Unlimited Federal Estate Tax marital deduction or a
reduction in the maximum Federal Estate Tax bracket rate to a rate below 25%.
Specific other conditions must also be met in order to qualify. When this
option is exercised, the existing Contract will be terminated. The new
contracts will be based on the Insureds' Age, sex, and risk class at the time of
issue of the original Contract. This rider will terminate at the older
Insured's age 80. The rider will also terminate if the Owner elects to keep the
Guaranteed Minimum Death Benefit Option in effect after it is determined that
funding is not adequate to cover these rider charges.
Joint First to Die Term Life Insurance Rider
Issue Ages: 20-85
This rider covers the Insureds under the Contract and provides yearly
renewable term coverage on the first Insured to die on or before the
older Insured's age 100 and while this rider is in force. The coverage
under this rider may be increased (subject to insurability) or
decreased. The Owner may also choose at issue a schedule for the
coverage to decrease annually. The scheduled decreases may be based on
the percentage of the coverage amount or may be a flat dollar amount.
If this rider is elected, the Guaranteed Minimum Death Benefit Option is
not available on the Contract.
Joint Survivorship Four-Year Term Life Insurance Rider
Issue Ages: 20-85
This rider provides four-year level term insurance and expires four
years after the effective date of the rider. The term insurance provides a
death benefit payable at the death of the last surviving Insured. The
minimum coverage is $100,000 and the maximum coverage is equal to the Total
Sum Insured.
The rider will also terminate if the Owner elects to keep the Guaranteed
Minimum Death Benefit Option in effect after it is determined that funding
is not adequate to cover these rider charges.
Bonus on Contract Value in the Variable Account
A bonus may be credited to the Contract on each Monthly Anniversary Day
following the Contract Date. The monthly bonus applies to Contracts with a
Total Sum Insured of $5,000,000 and above and equals an annual rate of .125% of
the Contract Value in each Subaccount of the Variable Account. The bonus is not
guaranteed and will be paid at Kansas City Life's sole discretion.
