| October 18, 2011 | |
| Via EDGAR | |
| Rebecca A. Marquigny, Esq. | |
| Senior Counsel | |
| Office of Insurance Products | |
| Securities and Exchange Commission | |
| 100 F Street, NE | |
| Washington, DC 20549-8629 | |
| Re: | Principal National Life Insurance Company Variable Life Separate Account |
| Pre-Effective Amendment No. 1 to Initial Registration Statement on Form N-6 | |
| Principal Variable Universal Life Income III (“VULI III”) | |
| (File Nos. 333-175768 & 811-22589) | |
| Dear Ms. Marquigny: | |
| Registrant has reviewed your letter dated September 15, 2011, providing comments to its registration | |
| statement on Form N-6 as filed on July 25, 2011 (the “Registration Statement”). The purpose of this | |
| letter is to respond to your comments. In order to facilitate your review of Registrant’s responses and the | |
| corresponding revisions to the Registration Statement, we have set forth below each of your comments in | |
| numerical order immediately followed by Registrant’s response. Registrant has also enclosed a redlined | |
| Pre-Effective Amendment No. 1 to Form N-6 (the “Pre-Effective Amendment”), which tracks all of the | |
| revisions made pursuant to your comments. Page references in Registrant’s responses correspond to | |
| pages in the redlined Pre-Effective Amendment. | |
| Comment 1.General: Completeness.Please include a representation to the effect that the prospectus | |
| contains all material provisions of the contract and that any variations are pursuant to state law. If any | |
| provision varies based on state law, specifically disclose this in the description of the feature and identify | |
| any elements that may vary (e.g., length of free-look period, what may be returned pursuant to free look, | |
| limits on loan amounts etc.). | |
| Response: We have included a representation to the effect that the prospectus contains all | |
| material provisions of the Policy and that any variations are pursuant to state law. Disclosure on | |
| page 22, 2ndparagraph following the heading GENERAL DESCRIPTION OF THE POLICY — | |
| The Contract, now provides: | |
| “The Policy is an individual flexible premium variable universal life insurance policy. |
| This prospectus describes all material provisions of the Policy. Your Policy’s provisions |
| may differ from the description in this prospectus, and certain riders and options may not |
| be available, because of legal requirements or restrictions in the state in which the Policy |
| was issued. The specific variations from the information appearing in this prospectus |
| which are required due to individual state requirements are contained in Your Policy, or |
| in riders or endorsements attached to Your Policy. You should refer to Your Policy for |
| these state specific features.” |
| 1 |
| We also added more disclose relating to elements of Policy provisions and features that vary | |
| based on state law. We added this disclosure to the descriptions of the following features: | |
| • | Accelerated Death Benefit Rider – page 26 |
| • | Death Benefit Advance Rider – page 26 |
| • | Death Benefit Guarantee Rider – page 26 |
| • | Extended Coverage Rider – page 27 |
| • | Right to Exchange – page 29 |
| • | Suicide – page 29 |
| • | Policy Loans – page 41 |
| • | Grace Period – page 43 |
| • | Reinstatement – page 44 |
| Comment 2.Policy Benefits Summary: Death Benefits & Proceeds (p.4).Please identify the default |
| death benefit if a contractowner does not specify a choice on the application. Alternatively, clarify that the |
| death benefit option must be selected before a contract will be issued. |
| Response: The default death benefit is disclosed in the first paragraph of the Death Benefit |
| Options section (p.34): |
| “The death benefit option is selected at the time of application. If a death benefit option |
| is not chosen, the Policy will be issued with Death Benefit Option 1.” |
| Comment 3.Policy Risks Summary (pp. 5-6).Please use plain English to describe the risk of poor |
| investment performance more clearly and directly (e.g., if your selected underlying finds perform poorly, |
| you could lose the entire amount you invested in them). The revised summary should also explain why |
| policy and surrender charges make this product an inappropriate short-term investment (i.e., during the |
| earlier policy years these expenses are higher and have a more negative impact on contract value).SeeIC- |
| 25522. Also, in the summary of adverse tax consequences, please indicate that death benefits may be |
| subject to estate taxes. Finally, in the underlying find risk section, briefly summarize the risks of fund of |
| funds and/or asset allocation finds if applicable. |
| Response: We have revised the Risks of Poor Investment Performance section to be more clear |
| and specific. It now reads as follows (p. 5): |
| “It is possible that investment performance of the Divisions could cause a loss of Your |
| premium payments. There is no assurance that the value of Your Policy will equal the |
| total of Your premium payments. Even if a Division’s performance has positive yields, |
| Your Policy Value may still be less than the total of Your premium payments after |
| deducting for applicable Policy and rider charges. Without additional premium |
| payments, investments in the Fixed Account, the fixed Dollar Cost Averaging (“DCA”) |
| account or a Death Benefit Guarantee Rider, it is possible that no death benefit would be |
| paid upon the Insured’s death.” |
| We have added two sentences to the beginning of the Policy Termination (Lapse) section to better |
| define the specific policy risk (p. 5): |
| “Policy charges and surrender charges are among the reasons why the Policy is not |
| intended to be a short-term savings vehicle. Surrender charges apply in the first ten |
| Policy Years (and the first ten Policy Years after a face increase) and reduce the Policy |
| Value available to collect Policy charges.” |
| 2 |
| We have added a new paragraph to the Adverse Tax Consequences section (p. 5): |
| “Federal estate taxes and state and local estate, inheritance and other taxes may become |
| due depending on applicable law and Your circumstances or the circumstances of the |
| Policy’s beneficiary(ies) if You or the Insured dies.” |
| We have added a new paragraph to the Risks of Underlying Mutual Funds section (p. 7): |
| “Fund of Funds |
| A fund of funds is subject to the particular risks of the underlying funds in the |
| proportions in which the fund of funds invests in them, and its share prices will fluctuate |
| as the prices of underlying funds shares rise or fall with changing market conditions. In |
| addition, a fund of funds indirectly bears its pro rata share of the management fees |
| incurred by the underlying funds thus the cost of investing in a fund of funds will |
| generally be higher than the cost of investing in a fund that invests directly in individual |
| stocks and bonds.” |
| Comment 4.Fee Tables: Generally (pp. 7-10). |
| a. Charge Names.Generally, fee names that identify an expense without using industry jargon are easier |
| to understand. Where expenses have similar sounding, vague names (like Sales Charge, Monthly |
| Administration Charge, Monthly Policy Issue Charge, and Asset Based Charge), please consider using |
| more descriptive alternatives instead. Also, where a particular feature has more than one fee, use a unique |
| name for each charge to avoid confusion. For example, the name "Death Benefit Advance Rider" |
| currently refers to: (i) the annual charge for this feature; and (ii) the $150 administrative service charge |
| that is assessed only at the time the benefit is exercised. Consider substituting a more descriptive name for |
| the transaction charge (e.g., "Benefit Processing Charge" or something similar). |
| Response: We respectfully decline to make this change for the several reasons. First, we use |
| these same fee names in the policy, which we have already filed in fifty jurisdictions. Second, we |
| use these fee names in contractowner correspondence, illustrations, confirmations and annual |
| reports. Thus, changing the fee names in the prospectus would confuse contractowners. |
| b. Uniform, Organized Presentation.For clarity and continuity, please present the footnote numbers in |
| sequential order throughout the fee table section. If information applies to more than one entry or table, |
| state it in the text of the first footnote and cross-reference it in the text of subsequent footnotes (e.g., "see |
| Footnote 4"). Likewise, you may show current charges in addition to the maximum charge, but please do |
| so consistently. Presently, some charges have separate line items even though the current charge is |
| already at the maximum level. Other times, there is just a "maximum" designation (e.g., the Death Benefit |
| Advance Rider) or no designation at all (e.g., Salary Increase Rider). Revise where appropriate. |
| Response: As requested, we modified the footnote numbers to be sequential throughout the fee |
| table. In addition, we included current charges for all policy charges stated in the fee table. |
| 3 |
| Comment 5.Transaction Table (p. 7). |
| a. Premium Tax.If the current charge varies by jurisdiction, state the range in the "current" line. See |
| Instruction 2 to Item 5(a). |
| Response: The current premium tax charge does not vary by jurisdiction. |
| b. Transfer Fee for Unscheduled Division Transfer: Footnote 3.The footnote text states that the charge |
| does not include any transfer charges imposed by underlying funds. Registrants may not reserve the right |
| to impose fee that are not disclosed in the fee table. Please delete the reference or add an underlying fund |
| transfer fee line to the transaction table stating the maximum charge applicable under the contract. |
| Response: We deleted the reference “additional transfer fees or” in previous footnote 3, now |
| footnote 4. |
| Comment 6.Periodic Charge Table (pp. 8-10). |
| a. Asset Based Charge.Please remove the qualifying language ("equivalent to") from the Amount |
| Deducted column. Registrant can make the same point more clearly without this language by simply |
| substituting "(annualized charge)" instead of "per year" after "0.15% of net policy value." |
| Response: The term “equivalent to” has been deleted. The term “(annualized charge)” has been |
| added. |
| b. Footnotes.Only one of the two footnotes about charges based on personal characteristics mentions |
| personalized illustrations. Is this intentional? Also, please state that illustrations will be provided free of |
| charge or add the illustration charge to the fee table line and corresponding narrative to the prospectus |
| where appropriate. |
| Response: An additional policy fee was added for illustration requests on Page 8 in the |
| Transaction Fee Table. In addition, we have added “Illustration Fee” disclosure on page 19 in the |
| CHARGES AND DEDUCTIONS section: |
| “Currently there is no charge for requesting illustrations. However, We reserve the right |
| to impose an illustration fee in the future of up to $25 on each illustration after the first |
| illustration in a Policy Year. An illustration fee is intended to reimburse Us for the |
| additional administrative effort of creating and providing projection numbers.” |
| Comment 7.Portfolio Fee Table (p. 10).In your response letter, please confirm that the service fee and |
| all acquired fund fees and expenses are reflected in the minimum and maximum figures in the table. |
| Response: We confirm that the service fee and all acquired fund fees and expenses are reflected |
| in the minimum and maximum figure in the Portfolio Fee Table. |
| 4 |
| Comment 8.Glossary (pp. 11-13).Many of the terms in the glossary are ordinary words that have a |
| special meaning in this product. For the glossary to be useful, readers should be able to recognize them as |
| defined terms when they appear in the prospectus text. Please capitalize them throughout or use some |
| other method to distinguish them from ordinary language (e.g., underlining, bold, italics, different font or |
| other recognizable indicator). |
| Response: We capitalized the defined terms. |
| Comment 9.The Company (p. 14).Please identify the obligations of the general account. Disclose that |
| (1) unlike the separate account, the general account is not segregated or insulated from the claims of the |
| insurance company's creditors, and (2) investors are looking to the financial strength of the insurance |
| company for its obligations under the contract including, for example, the fixed account interest |
| obligations. |
| Response: On page 15, a new General Account section has been inserted with the following |
| language: |
| “Our general obligations and any guaranteed benefits under the Policy are supported by |
| Our General Account and are subject to the Company’s claims-paying ability. A Policy |
| Owner should look to the financial strength of the Company for its claims-paying ability. |
| Assets in the General Account are not segregated for the exclusive benefit of any |
| particular Policy or obligation. General account assets are also available to the insurer’s |
| general creditors and the conduct of its routine business activities, such as the payment of |
| salaries, rent and other ordinary business expenses. For more information about the |
| Company’s financial strength, You may review its financial statements and/or check its |
| current rating with one or more of the independent sources that rate insurance companies |
| for their financial strength and stability. Such ratings are subject to change and have no |
| bearing on the performance of the funds.” |
| Comment 10.Principal National Life Separate Account (p. 14).This section does not provide |
| enough context for readers to understand the cautionary paragraph about investments in the Money |
| Market Division. Please add general disclosure explaining how fund performance and contract charges |
| impact contract value and why positive returns do not always correspond to higher contract value (i.e., |
| impact of down markets). Readers should understand that assets allocated to any underlying fund are |
| subject to market risk and all underlying fund types can impact contract value. Given that the last |
| paragraph is specific to the Money Market Division, please move that information to the fund summary in |
| the next sub-section ("The Fund"). |
| Response: On page 15, in the Principal National Life Insurance Company Separate Account |
| section, we have removed the 2ndsentence in the 3rdparagraph and the entire 4thparagraph. We |
| also added a new 5thparagraph in The Funds section: |
| “There is no assurance that the value of Your Policy will equal the total of Your premium |
| payments. Even if a Division’s performance has positive yields, Your Policy Value may |
| still be less than the total of Your premium payments after deducting for applicable |
| Policy and rider charges.” |
| 5 |
| Comment 11.Premium Expense Charge (pp. 16-17).For clarity, please insert "current" between "the" |
| and "sales" in the first line of the first bullet point. Also, neither the fee table nor the narrative indicate |
| who bears the burden of tax rate increases. If the investor's tax expense could increase in this situation, |
| please state this directly. Finally, revise the related footnote so the point of the last sentence is clearer. |
| Please expressly state that contractowners could end up paying a higher premium expense tax than their |
| state requires because the fee is based on nationally averaged rates. |
| Response: On page 18, in the Premium Expense Charge section, “current” has been inserted |
| between “the” and “sales”. In addition, the last sentence in the footnote has been modified to |
| read: |
| “The actual premium taxes We pay vary from state to state. The expense charge is based |
| on the average tax rate We expect to pay nationwide, the premiums We receive from all |
| states and other expense assumptions. Therefore, Policy Owners could end up paying a |
| higher premium expense charge than their state requires.” |
| Comment 12.Net Policy Loan Charge (pp. 19, 39).Per Item 5(a), please include a brief description |
| stating the amount of the charge in the Charges and Deductions section on page 19 or provide the specific |
| page number for the cross-referenced section. Currently, the relevant information does not appear until |
| page 39. |
| Response: On page 21, the description for the Net Policy Loan Charge has been modified to |
| read: |
| “The net policy loan charge is 1.50% in Policy Years 1-10 and 0.00% thereafter. See |
| LOANS for more detail.” |
| Comment 13.Surrender Value Enhancement Rider (p. 20).Please clarify the reference to premium |
| paid in excess of target premium in policy years 1 through 7. Specifically, is the charge (i) only assessed |
| for the first 7 policy years; or (ii) only based on only the premium paid in excess of target premium during |
| years I -7 but charged for the life of the contract? |
| Response: The charge for the Surrender Value Enhancement Rider is only assessed during the |
| first 7 policy years. On page 22, we revised the description of the Surrender Value Enhancement |
| Rider charge to be more clear: |
| “The charge for this rider is an added sales charge of 3.00% (independent of the sales |
| charge applicable to all Policies) applied in Policy Years 1-7 on premium paid in excess |
| of Target Premium in Policy Years 1-7.” |
| 6 |
| Comment 14.Ljfe Paid-Up Rider (p. 25).The narrative states that Registrant reserves the right to begin | |
| the rider benefit when if the relevant conditions are satisfied and loan indebtedness reaches a particular | |
| percentage. Given that there is a charge deducted from policy value when the rider benefit begins, please | |
| provide additional information about the procedures Registrant will follow if it exercises this right. Will | |
| the trigger percentage be calculated on a regular basis (i.e., daily, weekly, monthly, etc.)? Will | |
| contractowners be notified in advance and given the opportunity to pay down the loan or add premium | |
| payments instead? If not, how can contractowners determine if their loan is close to the trigger mark? | |
| Response: The rider benefit will automatically trigger when the identified conditions are met. | |
| We assess whether the identified conditions are met on each monthly date. Contract owners will | |
| not be notified in advance, but they have the right to reject the change upon receiving | |
| correspondence and new data pages reflecting the change. Each year, the loan indebtedness is | |
| communicated to the client via the annual policy statement. On page 27, in the Life Paid-Up | |
| Rider (Overloan Protection) section, the description has been modified to be more clear: | |
| “Under certain circumstances, this rider can guarantee the Policy will not lapse when | |
| there is large Loan Indebtedness by converting the Policy to paid-up life insurance. The | |
| rider benefit will begin on any Monthly Date the following conditions are satisfied: | |
| • | the Loan Indebtedness is at least 92% of the Surrender Value; |
| • | there is sufficient Net Surrender Value to cover the one-time rider charge; |
| • | the insured’s attained age is 75 years or older; |
| • | the Policy has been in force for at least 15 Policy Years; and |
| • | premiums paid have been surrendered. |
| For Policies issued with the cash value accumulation test, We reserve the right to begin | |
| the rider benefit when the Loan Indebtedness is at least 86% of the Surrender Value and | |
| all other conditions are satisfied. The amount of Loan Indebtedness is stated in the | |
| annual policy statement You receive each Policy Year. | |
| Once the rider benefit begins: | |
| • | All values in the Divisions are immediately transferred to the Fixed Account where |
| they will earn interest. | |
| • | No further Monthly Policy Charges are deducted for the remaining paid-up death |
| benefit. | |
| • | No new premium payments, Face Amount adjustments, partial surrenders or loans are |
| allowed. | |
| • | If death benefit option 2 or 3 is in effect, Your death benefit option will change to |
| death benefit option 1 and You may no longer change the death benefit option. | |
| • | Your Loan Indebtedness remains and interest will continue to accrue on the Loan |
| Indebtedness. However, loan payments can be submitted. | |
| • | All optional riders, except the extended coverage rider, will automatically be |
| terminated. | |
| There is a one-time charge taken from the Policy Value on the date the rider benefit | |
| begins. We will send You new data pages reflecting the change. You have the right to | |
| reject this change by giving Us notice. The rider may be elected at any time prior to the | |
| Maturity Date. | |
| The Internal Revenue Service has not taken a position on the Life Paid-Up rider. You | |
| should consult Your tax advisor regarding this rider.” | |
| 7 |
| Comment 16.Surrender Value Enhancement Rider (p. 26).Please explain what "approved premium |
| financing cases" means and how a prospective purchaser can determine whether he or she is eligible (i.e., |
| how does someone know if they will qualify under the "then relevant underwriting guidelines"). The |
| prospectus must provide all material information necessary to make an informed investment decision |
| regarding all features offered. |
| Response: On page 28, language has been added to the Surrender Value Enhancement Rider |
| section to define premium financing cases: |
| “Premium financing involves the lending of money, typically by a third party finance |
| entity, to cover the cost of an insurance premium.” |
| Comment 17.Premium Limitations (p. 29).Please describe the general circumstances in which a |
| premium payment may increase the policies death benefit more than it would increase the contract value. |
| Response: On page 31, the 2ndparagraph of the Premium Limitations section has been modified |
| to read: |
| “If any premium payment increases the Policy’s death benefit by more than it increases |
| the Policy Value, We reserve the right to refund all or part of the premium payment. This |
| can occur when Your Policy’s death benefit is equal to the minimum death benefit as |
| described in DEATH BENEFITS AND POLICY VALUES – IRS Definition of Life |
| Insurance. If all or part of the premium payment is not refunded, We may require |
| satisfactory evidence of insurability.” |
| Comment 18.Policy Loans (p. 39).Please indicate the interest credited on amounts held in the loan |
| account and explain the effect of that interest on the interest charged for loan indebtedness. |
| Response: Interest credited on amounts held in the loan account is stated on page 42, 3rd |
| paragraph under the Loan Account. |
| “Your Loan Account earns interest from the date of transfer. The Loan Account interest |
| rate is 4.00% per year. Interest accrues daily and is paid at the end o the Policy Year.” |
| An additional paragraph has been added to this section on page 42 stating the following: |
| “The net policy loan charge is 1.50% in Policy Years 1-10 and 0.00% thereafter.” |
| Comment 19.Other Required Disclosure, Exhibits, and Representations.Any exhibits, financial |
| statements and other required disclosure not included in this registration statement must be filed in a |
| preeffective amendment to the registration statement. We note that a significant number of the required |
| exhibits are still pending and recommend that you provide them as soon as possible to provide the Staff |
| with adequate time to ensure they satisfy all regulatory requirements. We further urge all persons who are |
| responsible for the accuracy and adequacy of the disclosure in the filings reviewed by the staff to be |
| certain that they have provided all information investors require for an informed decision. Since the |
| insurance company and its management are in possession of all facts relating to the insurance company's |
| disclosure, they are responsible for the accuracy and adequacy of the disclosures they have made. |
| Response: The preeffective amendment filed concurrently with this letter includes additional |
| exhibits. We will file one more preeffective amendment, which will include all remaining |
| exhibits. |
| 8 |
| We understand that the Registrant is responsible for the accuracy and adequacy of the disclosure in the |
| filing and that staff comments or our changes to the disclosure in response to the staff comments do not |
| foreclose the Commission from taking any action with respect to the filing. In addition, the Registrant |
| may not assert staff comments as a defense in any proceeding initiated by the Commission or any person |
| under the federal securities laws of the United States. |
| Please call me at 515-246-5688 if you have any questions. |
| Sincerely, |
| /s/ Charles Schneider |
| Charles Schneider |
| Counsel for the Registrant |
| 9 |
