Exhibit 11
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES
FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(l2)(III)
This document sets forth the administrative procedures that will be followed by
Security Life of Denver ("Security Life") in connection with the issuance of its
joint and survivor flexible premium variable universal life insurance policies
(the "policies") issued through Security Life Separate Account Ll (the "Separate
Account"), the transfer of assets held under the policies, and the redemption of
interests in policies.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
A. Offering of the Policy
The policy is offered on two lives to persons or entities who satisfy
certain suitability standards ("owners"). The policy may be purchased
to acquire insurance on the lives of two individuals (joint "insureds")
in whom the owner has an insurable interest. Security Life requires
satisfactory evidence of each of the insured's insurability, which may
include a medical examination. The available issue ages are 0 through
90. Age is determined on the insured's age as of the birthday nearest
the policy date. The joint equivalent age of the insured individuals is
based on the sum of both insured's ages divided by two. It cannot
exceed age 85 at time of issue, and must be at least 15.
For Estate Designer ("ED"), the minimum stated death benefit is $1,000;
however, the required minimum total death benefit is $500,000. The
total death benefit includes stated death benefit plus coverage
provided under a term rider.
Acceptance of an application depends on Security Life's underwriting
rules. Security Life reserves the right to reject an application for
any reason.
If a policy has more than one owner (joint owners), then transactions
under the policy except telephone transfers of account value require
the authorization of all owners.
B. Cost of Insurance Charges Structure, Payments and Underwriting
Standards
Security Life places the joint insureds in a premium class when the
policy is issued, based on underwriting. This original premium class
applies to the initial stated death benefit.
The current cost of insurance charge rate for a policy is based on the
age at issue, sex, and premium class of the insured, and on the policy
year, and therefore varies from time to time. Security Life currently
places insureds in the following premium classes, based on
underwriting: Standard Tobacco (ages 15-90); Standard Nontobacco (ages
15-90), or Preferred
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(ages 15-90). Or, insureds may be placed in a substandard rate class,
with a higher mortality risk than the standard tobacco or standard
nontobacco classes.
Additionally, an uninsurable rating may be assessed to an individual
that is rated higher than table P. The uninsurable rating will be
handled in the unideath calculation the same way a table rating is
except the percentage will be higher. The uninsurable rating is capped
at the later of age 65 or 15 years from issue.
Security Life guarantees that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the
maximum cost of insurance premiums set forth in the policies. The
guaranteed cost of insurance rate for standard classes are based on the
1980 Commissioners' Standard ordinary mortality Tables, Male or Female,
Smoker or Nonsmoker Mortality Premiums (1980 CSO Tables). The
guaranteed cost of insurance rates for substandard classes are based on
multiples of or additives to the 1980 CSO Tables.
Security Life's current cost of insurance may be less than the
guaranteed cost of insurance that is set forth in the policy. Current
cost of insurance rates will be determined based on Security Life's
expectations as to future mortality, investment earnings, expenses,
taxes, and persistency experience. These rates may change from time to
time.
Cost of insurance rates (whether guaranteed or current) for an insured
in a standard nontobacco class are equal to or lower than guaranteed
cost of insurance for an insured of the same age and sex in a standard
tobacco class. Cost of insurance rates (whether guaranteed or current)
for an insured in a standard nontobacco or tobacco class are generally
lower than guaranteed cost of insurance for an insured of the same age
and sex and tobacco status in a substandard class.
The cost of insurance for the policy will not be the same for all
owners. Insurance is based on the principle of pooling and distribution
of mortality risks which assumes that each owner is charged a cost of
insurance commensurate with the insured's mortality risk as actually
determined, reflecting factors such as age, sex, health, and
underwriting method. A uniform cost of insurance charge for all
insureds would discriminate unfairly in favor of those insureds
representing higher risks. Although there will be no uniform cost of
insurance charges for all insureds for a given stated death benefit
there will be a uniform cost of insurance charge for all insureds of
the same issue age, sex, policy duration and underwriting
classification.
If the insured's age or sex has been misstated in the application for
the policy or in any application for supplemental and/or rider
benefits, and if the misstatement becomes known during the lifetime of
the insured, then policy values will be adjusted to those based on the
correct monthly deductions (reflecting the correct age or sex) since
the policy date. If the policy's values are insufficient to cover the
monthly deduction on the prior monthly date, the grace period will be
deemed to have begun on such date, and notification will be sent to the
owner at least 61 days prior to the end of the grace period. See
"Policy Termination and Grace Period," below.
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The policy provides coverage on joint insureds named under the policy
and a Death Benefit payable upon the death of the second insured. The
policy will remain in force as long as the policy's cash surrender
value is sufficient to cover the charges due. Security Life guarantees
that a policy will remain in force during the special continuation
period, regardless of the sufficiency of the cash surrender value, if
the sum of the premiums paid to date, less any partial cash surrenders
and policy debt equals or exceeds the minimum monthly premium (shown in
the policy) multiplied by the number of complete policy months since
the policy date, including the current policy month. The special
continuation period is five years following the policy date.
The minimum monthly premium is calculated for each policy based on the
joint equivalent age, sex and premium class of each insured, the
requested stated death benefit and supplemental or rider benefits. The
minimum monthly premium may change as a result of changes to the stated
death benefit, the death benefit option, ratings, and supplemental or
rider benefits. Security Life will notify the owner of any change in
the minimum monthly premium.
On or after one year from the policy date, the owner may request a
reduction in the stated death benefit, by notice to Security Life,
subject to the following rules. If a change in the stated death benefit
would result in total premiums paid exceeding the premium limitations
prescribed under current tax law to qualify the policy as a life
insurance contract, Security Life will refund promptly to the owner the
excess above the premium limitations.
The minimum amount of a decrease in stated death benefit is $1,000. The
decrease in stated death benefit will become effective on the next
monthly processing date following the date that the decrease is
approved by Security Life. Security Life reserves the right to decline
a requested decrease in the stated death benefit if compliance with the
guideline premium limitations under current tax law resulting from this
decrease would result in immediate termination of the policy, or if to
effect the requested decrease, payments to the owner would have to be
made from the accumulated value for compliance with the guideline
premium limitations, and the amount of such payments would exceed the
cash surrender value under the policy.
At any time after issue the owner may request an increase in the stated
death benefit. An increase in the stated death benefit must be at least
$1,000 (unless the increase is effected pursuant to a rider providing
for automatic, scheduled increases in stated death benefit), and an
application must be submitted. An increase requires satisfactory
evidence of insurability and must meet Security Life's underwriting
rules. The increase in stated death benefit will become effective on
the next monthly processing date following the date the request is
approved. The account value will reflect a monthly deduction (as of the
effective date) based on the increased stated death benefit.
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Security Life will determine a cost of insurance rate for each increase
in coverage based on the joint equivalent age of the insureds at the
time of the increase. The following rules will apply for purposes of
determining the risk amount for each rate.
When an increase in stated death benefit is requested, Company conducts
underwriting before approving the increase (except as noted below) to
determine whether a different premium class will apply to the increase.
If the premium class for the increase has lower cost of insurance rates
than the original premium class, then the premium class for the
increase will also be applied to the initial stated death benefit. If
the premium class for the increase has higher cost of insurance rates
than the original premium class, the premium class for the increase
will apply only to the increase in stated death benefit, and the
original premium class will continue to apply to the initial stated
death benefit.
For the purposes of determining the risk amount associated with a
stated death benefit, Security Life will attribute the account value
solely to the initial stated death benefit unless the account value
exceeds the initial stated death benefit. If the account value exceeds
the initial stated death benefit, the excess will be considered
attributable to the increases in stated death benefit in the order of
the increases. If there is a decrease in stated death benefit after an
increase, a decrease is applied first to decrease prior increases in
stated death benefit, starting with the most recent increase.
The policy will be offered and sold pursuant to an established
mortality structure and underwriting standards in accordance with state
insurance laws. Where state insurance laws prohibit the use of
actuarial tables that distinguish between men and women in determining
premiums and policy benefits for their insured resident, Security Life
will comply.
C. Application and Payment Processing
To purchase a policy, an application must be completed and submitted
through an authorized Security Life agent. The initial premium payment
must be at least equal to the scheduled premiums from the policy date
through the investment date. The Policy Date is used to determine the
monthly processing date, coverage effective date and policy
anniversaries. The policy coverage is effective on the policy date. The
policy date is:
1) the date specified on the application;
2) the back-date of the policy to save age;
or, if neither 1) or 2) apply, it is the date all underwriting and
administrative requirements are met if the initial premium has been
received. Otherwise it is the date the initial premium is received by
Security Life.
The Investment Date is the date that Security Life allocates funds to
the Policy. It is the next valuation date following the date that we
have received the initial premium, approved the policy for issue and
have received all issue requirements. It generally is the same as the
policy date.
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As provided for under state insurance law, the owner, to preserve
insurance age, may be permitted to backdate the policy. In no case may
the policy date be more than six months prior to the date the
application was completed. Charges for the monthly deductions for the
backdated period are deducted on the policy date. Temporary life
insurance coverage may be provided prior to the policy date under the
terms of a temporary insurance agreement. In accordance with Security
Life's underwriting rules, temporary life insurance coverage may not
exceed $3,000,000 and will not remain in effect for more than ninety
(90) days.
Planned periodic premiums and unscheduled premiums that are not
underwritten will be credited to the policy and the net premium
invested on the valuation date they are received by the home office. If
an additional premium payment is rejected, Security Life will return
the premium payment promptly, without adjustment.
The policy date is the date from which policy months, years, and
anniversaries are measured. A policy month is a one-month period
beginning with a monthly date and ending with the day immediately
preceding the next following monthly processing date. The monthly
processing date is the same day as the policy date for each succeeding
month. The monthly deduction is deducted on each monthly processing
date.
A policy year is a period of twelve months commencing with the policy
date and ending with the day immediately preceding the next annual
date. The annual date is the same day in each policy year as the policy
date.
The issue date, if the same as the policy date, is the date from which
the suicide and contestable periods start. It is shown in the policy.
D. Allocation of Net Premiums
On the investment date, the account value is equal to the initial net
premium credited (initial premium payment less the premium expense
charges), less monthly deductions made as the policy date (up to six
months for backdated policies). On each investment date thereafter, the
account value is the sum of the variable account, the guaranteed
interest division, and the loan account. The account value will vary to
reflect the performance of the subdivisions to which amounts have been
allocated, interest credited on amounts allocated to the guaranteed
interest division, interest credited on amounts in the loan account,
charges, transfers, partial cash surrenders, loans and loan repayments.
The net account value is account value minus outstanding policy debt.
Cash surrender value is account value plus the applicable refund of
sales charge. Net cash surrender value is the cash surrender value
minus outstanding policy debt.
When applying for a policy, the owner selects a plan for paying level
premium payments at specified intervals, e.g., quarterly, semiannually
or annually, until the maturity date. If the owner elects, Security
Life will arrange for payment of planned period premiums on a monthly
basis under a pre-authorized bank draft. The owner is not required to
pay premium payments in accordance with these plans; rather, the owner
can pay more or less than planned or skip a
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planned periodic premium entirely. Currently, there is no minimum
amount for each premium. Security Life may establish a minimum amount
90 days after Security Life sends the owner a written notice of such
increase. Subject to certain limits (described below), the owner can
change the amount and frequency of planned periodic premiums whenever
the owner wishes by sending notice to the home office. However,
Security Life reserves the right to limit the amount of a premium
payment or the total premium payments paid.
In the application, the owner specifies the percentage of net premium
to be allocated to each variable investment option and to the
guaranteed interest division. Net premiums will generally be invested
on the valuation date that Security Life receives them and in
accordance with the allocations specified in the most recent
instructions received from the owner.
State guidelines regarding free look periods vary. Some states mandate
that if an owner exercises his/her free look right he/she is entitled
to a full premium refund. Other states mandate that should the owner
exercise his/her free look option he/she is entitled to receive the
value of the fund allocations plus the policy charges previously
deducted.
Amounts you designate for the guaranteed interest division will be
invested into that division on the investment date. If the owner's
state requires return of premium during the free look period, amounts
designated for the variable division are initially invested into the
Fidelity VIP Money Market Portfolio. Later these amounts are
transferred from the Money Market Portfolio to the selected variable
investment options, at the earlier of:
1) five days after we mailed your policy and your state free look
period has ended; or
2) you have actually received your policy, we have received your
delivery receipt and your state free look period has ended.
If the owner's state provides for return of account value during the
free look period or no free look period, amounts designated for the
variable division are invested directly into the selected variable
investment options.
The net premium allocation percentages specified in the application
will apply to subsequent premium payments until the owner instructs
otherwise. The minimum allocation percentage that may be specified for
investment option, including the guaranteed account is 1%, and all
allocation percentages must be whole numbers. The sum of allocations
must equal 100%. Security Life reserves the right to limit the number
of investment options (18) to which account value may be allocated. An
owner can change the allocation percentages at any time, by sending
notice to the home office or if telephone privileges are in effect, the
request can be received by phone. The change will apply to all premium
payments received with or after receipt of the owner's notice.
E. Additional Payment
Additional unscheduled premium payments can be made at any time while
the policy is in force. Premium payments after the initial premium
payment must be made to the home office.
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Security Life has the right to limit the number and amount of such
premium payments. Total premium payments paid in a policy year may not
exceed guideline premium payment limitations for life insurance set
forth in the Internal Revenue Code. Security Life will promptly refund
the portion of any premium payment that is determined to be in excess
of the premium payment limit established by law to qualify a policy as
a contract for life insurance.
Security Life reserves the right to reject a requested increase in
planned periodic premiums, or unscheduled premium. Security Life also
reserves the right to require satisfactory evidence of insurability
prior to accepting a premium which increases the risk amount of the
policy. No premium payment will be accepted after the maturity date.
The owner may specify that a specific unscheduled payment is to be
applied as a repayment of policy debt.
The payment of premiums may cause a policy to be a Modified Endowment
Contract under the Internal Revenue Code. If acceptance of a premium
paid would, in Security Life's view, cause the policy to become a
modified endowment contract, then to the extent feasible Security Life
will not accept that portion of the premium that would cause the policy
to become a modified endowment contract unless the owner confirms in
writing that it is his/her intent to convert the policy to a modified
endowment contract. Security Life may return that portion of the
payment pending receipt of instructions from the owner.
F. Policy Termination and Grace Period
The policy terminates at the earliest of the end of the grace period,
the surrender of the policy by the owner or the fulfillment of Security
Life's obligations under the policy (i.e., payment of the death benefit
proceeds).
If the cash surrender value on a monthly processing date is less than
the amount of the monthly deduction to be deducted and the special
continuation period is not in effect, the policy will be in default. In
addition, if on a monthly processing date the cash value less policy
debt exceeds the amount of the monthly deduction due for the following
policy month, the policy will be in default whether or not the special
continuation period is in effect. An owner, and any assignee of record,
will be sent notice of the default.
The special continuation period is the first five policy years. If the
special continuation period is in effect, Security Life guarantees that
the client's policy will not lapse, regardless of its net cash
surrender value, if on a monthly processing date the sum of all
premiums received minus partial withdrawals and loans taken is greater
than or equal to the sum of minimum monthly premiums from the inception
of the policy to the current date. At the end of the special
continuation period the client must pay enough premium to bring the net
cash surrender value to zero plus the amount needed to pay the
following two months' monthly deductions. If sufficient payment is not
made, the policy will lapse.
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If a policy goes into default, the owner will be allowed a 61-day grace
period to pay a premium payment sufficient to cover the monthly
deductions due during the grace period and for a period of two
additional months or a sufficient amount to avoid termination of the
policy due to excessive loans. Security Life will send notice of the
amount required to be paid during the grace period ("grace period
premium payment") to the owner's last known address and the address of
the assignee of record. The grace period will begin when the notice is
sent. An owner's policy will remain in effect during the grace period.
If the second insured person 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 insured's death and for
outstanding policy debt. If the grace period premium payment is not
paid before the grace period ends, the policy will lapse. It will have
no value and no benefits will be payable.
G. Reinstatement of a Policy Terminated for Insufficient Values
The policy may be reinstated within five years after lapse and before
the maturity date, subject to compliance with certain conditions,
including a necessary premium payment and submission of satisfactory
evidence of insurability.
H. Repayment of a Loan
An owner may repay all or part of his/her policy debt at any time while
at least one insured person is living and the policy is in force. Loan
repayments must be sent to the home office and will be credited as of
the date received. The owner may give Security Life notice that a
specific unscheduled payment made while a loan is outstanding is to be
applied as a loan repayment. When a loan repayment is made, account
value in the loan division, in an amount equivalent to the repayment,
is transferred from the loan division to the investment options in
accordance with the owner's current net premium allocation
instructions.
I. Policy Riders
Supplemental or rider benefits may be available to be added to the
policy. Monthly charges for these benefits or riders, if any, will be
deducted from the account value as part of the monthly deduction. The
following rider benefits may be available: Adjustable Term Insurance
Rider and Single Life Term Rider.
Additional rules and limits apply to these supplemental or rider
benefits, and are set forth in the applicable endorsement or rider.
II. TRANSFERS AMONG INVESTMENT DIVISIONS
Several investment options under the Separate Account are available for
allocation of Net Premiums paid under the policy, subject to certain
limitations set forth in the policy. Each
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investment option invests in shares or units of an underlying portfolio,
Available investment options of the Separate Account invest in portfolios
of AIM Variable Insurance Funds, Inc., The Alger American Fund, Fidelity
Variable Insurance Products Fund and Variable Insurance Products Fund II,
INVESCO Variable Investment Funds, Inc., Neuberger Berman Advisors
Management Trust and Van Eck Worldwide Insurance Trust. All Funds are
registered under the Investment Company Act of 1940 as an open-end
management investment company. Additional funds may be available in the
future.
After the free-look period and prior to the maturity date, the owner may
transfer all or part of the account value from investment options investing
in one portfolio to other investment options, including the guaranteed
interest division. An amount may be transferred from the guaranteed
interest to the variable investment options. Subject to some restrictions,
the minimum transfer amount is the lesser of $100 or the entire amount in
that investment option. A transfer request that would reduce the amount in
an investment option below $100 will be treated as a transfer request for
the entire amount. Transfers from the guaranteed interest division are
permitted only within the first 30 days of a policy year. Transfer requests
received within 30 days prior to a policy anniversary will be processed on
the policy anniversary. Such transfers are limited in amount to the
greatest of: 25% of the balance in the guaranteed interest division on the
policy anniversary; the total withdrawn in the prior policy year; or $100.
With the exception of the right to exchange (described below), Security
Life reserves the right to limit the number or frequency of transfers
permitted in the future.
Security Life will make the transfer as of the end of the valuation period
during which such transfer is received by Security Life. Currently, there
is a limit (12) on the number of free transfers that can be made between
investment options in a policy year. Currently, Security Life assesses an
excess transfer charge of $25 for each transfer during a policy year in
excess of the first twelve transfers. The excess transfer charge will be
deducted from the investment option from which the requested transfer is
being made, on a pro-rata basis.
Telephone transfers will be accepted by telephone, provided the appropriate
election has been provided to Security Life. Security Life reserves the
right to suspend telephone transfer privileges at any time, for any reason,
if Security Life deems such suspension to be in the best interests of
owners.
During the first twenty-four policy months following the policy date, and
within sixty days of the later of notification of a change in the
investment policy of the separate account or the effective date of such
change, the owner may exercise a one-time Right to Exchange the policy by
requesting that all of the variable account value be transferred to the
guaranteed interest division. Exercise of the Right to Exchange is not
subject to the excess transfer charge. Following the exercise of the Right
to Exchange, net premiums may not be allocated to, and transfers of account
value to the variable account will not be permitted. The other terms and
conditions of the policy will continue to apply.
Transfers may also be effected pursuant to a Dollar Cost Averaging Plan or
Auto Rebalancing Plan elected by the owner as described in the current
prospectus for the policies.
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III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS
A. Surrender for Cash Surrender Value
An owner may surrender the policy at any time for its net cash
surrender value by submitting notice to the home office. Security Life
may require return of the policy. A surrender request will be processed
as of the valuation date the surrender notice and all required
documents are received. Payment generally will be made within seven
calendar days. An owner's policy will terminate and cease to be in
force if it is surrendered. It cannot later be reinstated.
Security Life will make the payment out of its general account and, at
the same time, transfer assets from the Separate Account in an amount
equal to the sum of account value (applicable to the policy) held in
each variable investment option.
B. Death Claims
The death benefit proceeds are equal to the sum of the base death
benefit for each coverage segment under the death benefit option
selected, calculated on the date of the second insured's death, plus
supplemental or rider benefits, minus outstanding policy debt including
accrued but unpaid interest, minus unpaid monthly deductions incurred
prior to the date of death. If an insured's age or sex has been
misstated in the application for the policy or in an application for
supplemental or rider benefits, and if the misstatement becomes known
after the death of the second insured person, then the death benefit
under the policy or such supplemental or rider benefits will be that
which the cost of insurance charge which was deducted from the account
value on the last monthly processing date prior to the death of the
second insured would have purchased for the correct sex and age.
Security Life will pay interest at the rate declared by us or at a
higher rate required by law.
Security Life will usually pay the death benefit proceeds to the
beneficiary within seven days after receipt at its Home Office of due
proof of death of the second insured and all other requirements
necessary to make payment. If the payment of the death benefit of a
policy is contested, payment of proceeds may be delayed.
The death benefit payable depends on the death benefit option in effect
on the date of death. Subject to certain conditions, owners may change
the death benefit option. Under Option 1, the base death benefit is the
greater of the specified amount or the applicable percentage of account
value on the date of the second insured's death. Under Option 2, the
base death benefit is the greater of the specified amount plus the
account value, or the applicable percentage of the account value on the
date of the second insured's death. Under Option 3, the base death
benefit is the greater of the specified amount plus the sum of all
premiums received, minus partial withdrawals or the applicable
percentage of the account value on the date of the second insured's
death.
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The "Applicable Percentage" is the appropriate factor from the
Definition of Life Insurance factors shown in the policy's appendix A
or B. A table showing the applicable percentages for attained ages 0 to
100 is set forth in the policy.
On or after one year from the policy date, the owner may change the
death benefit option on the policy, by notice to Security Life, subject
to the following rules. A change in the Death Benefit Option may be
requested at least one day prior to a policy anniversary. After the
change, the specified death benefit amount must still comply with the
minimums set to issue a policy. The effective date of the change will
be the next monthly processing date following the day that Security
life approves the request for change. Security Life may require
satisfactory evidence of insurability for some changes.
An owner may change from death benefit option 1 to option 2, from
option 2 to option 1 or from option 3 to option 1. NO change from death
benefit option 1 or 2 to option 3, or option 3 to option 2 is
permitted.
When a change from Option 1 to Option 2 is made, the specified death
benefit amount after the change is effected will be the specified death
benefit before the change minus the account value on the effective date
of the change. When a change from Option 2 to Option 1 is made,
specified death benefit amount after the change will be the specified
death benefit before the change plus the account value on the effective
date of the change. When a change from Option 3 to Option 1 is made,
the specified death benefit after the change is effected will be the
specified death benefit before the change plus the sum of premiums
received, minus partial withdrawals taken as of the effective date of
the change.
Security Life will make payment of the death benefit proceeds from its
general account and, at the same time, will transfer the account value
applicable to the policy out of the separate account to the general
account.
C. Policy Loan
After the first monthly processing date and while at least one insured
is living, provided the policy is not in the grace period, the owner
may borrow against the policy by submitting a request to the home
office. The minimum amount of a loan is $100. The maximum loan amount
is the net cash surrender value less monthly deductions to the next
policy anniversary or 13 monthly deductions if the loan request is
received within 30 days prior to a policy anniversary. Maximum loan
amounts may be different if required by state law.
An outstanding loan reduces the amount available for a new loan. A loan
is processed as of the date the loan notice is approved. Loan proceeds
generally will be sent to the owner within seven calendar days.
When a policy loan is made, an amount sufficient to secure the loan is
transferred out of the investment options and into the policy's loan
division. Thus, a loan will have no immediate effect on the account
value, but other policy values, such as the cash surrender value and
the
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11
death benefit proceeds, will be reduced immediately by the amount
borrowed. This transfer is made from the-account value in each
investment option in proportion to the account value in each on the
date of the loan, unless the owner specifies that transfers be made
from a specific investment option. An amount equal to due and unpaid
loan interest which exceeds interest credited to the loan account will
be transferred to the loan account on each policy anniversary. Such
interest will be transferred from each investment option in the same
proportion that account value bears to the total unloaned account
value.
The loan account will be credited with interest at an effective annual
rate of not less than the annual loan interest rate of 3%. Loan
interest accrues daily at a compound annual interest rate of 3.75%.
Interest is due in arrears on each policy anniversary. Outstanding
loans (including unpaid interest added to the loan) plus accrued
interest not yet due equals the policy debt.
D. Partial Withdrawals
An owner may make partial cash surrenders (known as partial
withdrawals) from the policy at any time after the first policy
anniversary. An owner must submit a request to the home office. Each
partial withdrawal must be at least $100. The maximum partial
withdrawal is the amount which will leave $5OO as the net cash
surrender value. When a partial withdrawal is taken, the amount of the
withdrawal plus a service fee is deducted from the account value. This
service fee is 2% of the amount of the withdrawal up to a maximum fee
of $25. As of the date Security Life processes the partial withdrawal
request, the cash value will be reduced by the partial withdrawal
amount.
Unless the owner requests that a partial cash surrender be deducted
from specified investment options, it will be deducted from the
investment options pro-rata in proportion to the account value in each.
If death benefit Option 1 is in effect, Security life may reduce the
specified death benefit amount. Security Life may reject a partial
withdrawal request if it would reduce the specified death benefit
amount below the amount required to issue the policy, or if the partial
withdrawal would cause the policy to fail to qualify as a life
insurance contract under applicable tax laws, as interpreted by
Security Life.
Partial withdrawals will be processed as of the valuation date the
request is received by Security Life, and generally will be paid within
seven calendar days.
E. Monthly Charges
On each monthly processing date, Security Life will deduct from the
account value the monthly deductions due, commencing as of the policy
date. An owner's policy date is the date used to determine the
applicable monthly processing date. The monthly deduction consists of
(1) cost of insurance charges, (2) the monthly administrative charge,
and (3) charges for supplemental or rider benefits. The monthly
deduction is deducted from the investment options, including
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the guaranteed interest division pro rata based on the account value in
each, unless the owner has selected a designated deduction investment
option for the policy.
F. Continuation of Coverage
The maturity date is generally the insured's 100th birthday, and is
shown in the policy.
At the policy's maturity date, the owner may surrender the policy for
its net cash surrender value. Or, he/she may allow insurance coverage
to continue under the continuation of coverage feature. if the policy
is in effect and surrendered, the target death benefit, which includes
term rider coverage, becomes the specified death benefit amount. All
riders are terminated. Policies with death benefit options 2 or 3
become policies with death benefit option 1. A one-time fee of $400 is
deducted to cover all future costs of the policy and the account value
is transferred into the Guaranteed Interest Division. No further
premium payments can be made, however, loan and interest payments are
accepted. All variable investment features terminate. Loans and partial
withdrawals may be taken. The policy will continue until the death of
the second insured person so long as it does not lapse.
G. Settlement Options
During the insured's lifetime, the owner may elect that the Beneficiary
receive the death proceeds other than in one sum. If this election has
not been made, the Beneficiary may do so within 60 days after the
second insured person's death. The owner may also elect to take the net
cash surrender value under one of these options.
Option I: Payouts for a Designated Period: Payouts will be made in
1, 2, 4 or 12 installments per year as elected for a
designated period, which may be 5 to 30 years. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000 of Account Value applied is shown in
Settlement Option Table I in the Policy.
Option II: Life Income with Payouts Guaranteed for a Designated
Period: Payouts will be made in 1, 2, 4 or 12 installments
per year throughout the payee's lifetime, or if longer,
for a period of 5, 10, 15, or 20 years as elected. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000 of Account Value applied is shown in
Settlement Option Table II in the Policy. This option is
available only for ages shown in this Table.
Option III: Hold at Interest: Amounts may be left on deposit with us
to be paid upon the death of the payee or at any earlier
date elected. Interest on any unpaid balance will be at
the rate declared by us or at any higher rate required by
law. Interest may be accumulated or paid in 1, 2, 4 or 12
installments per year, as elected. Money may not be left
on deposit for more than 30 years.
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Option IV: Payouts of a Designated Amount: Payouts will be made until
proceeds, together with interest, which will be at the
rate declared by us or at any higher rate required by law,
are exhausted. Payouts will be made in 1, 2, 4, or 12
equal installments per year, as elected.
Option V: Other: The Owner may ask us to apply the money under any
other option that we make available at the time the
benefit is paid.
Payments under these options are not affected by the investment
experience of any Division of our Variable Account. Instead, interest
accrues pursuant to the options chosen. Payment options will also be
subject to our rules at the time of selection. These alternate payment
options are only available if the proceeds applied are $2000 or more
and a periodic payment will be at least $20.
The Beneficiary or any other person who is entitled to receive payment
may name a successor to receive any amount that we would otherwise pay
to that person's estate if that person died. The person who is entitled
to receive payment may change the successor at any time.
We must approve any arrangements that involve a payee who is not a
natural person (for example, a corporation), or a payee who is a
fiduciary. Also, the details of all arrangements will be subject to our
rules at the time the arrangements take effect. This includes rules on
the minimum amount we will pay under an option, minimum amounts for
installment payments, withdrawal or commutation rights (i.e., the
rights to receive payments over time, for which we may offer a lump sum
payment), the naming of people who are entitled to receive payment and
their successors, and the ways of proving Age and survival.
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