Exhibit 1.A.(12)
Description of Pruco Life's Issuance, Increases
in or Addition of Insurance Benefits,
Transfer and Redemption Procedures for
Variable Universal Life Insurance Contracts
Pursuant to Rule 6e-3(T)(b)(12)(iii)
This document sets forth the administrative procedures that will be followed by
Pruco Life Insurance Company ("Pruco Life") in connection with the issuance of
its PruSelect III Variable Life Insurance Contract ("Contract"), the increase in
or addition of benefits, the transfer of assets held thereunder, and the
redemption by Contract owners of their interests in said Contracts. The document
also explains the method that Pruco Life will follow in making a cash adjustment
when a Contract is exchanged for a fixed benefit insurance Contract pursuant to
Rule 6e-3(T)(b)(13)(v)(B).
I. Procedures Relating to Issuance and Purchase of the Contracts and to the
Increase in or Addition of Benefits
A. Premium Schedules and Underwriting Standards
The Contract has Flexible Premiums - no premiums are required to be paid by a
certain date except for the minimum initial premium required to start the
Contract. The minimum initial premium for the Contract, and the charges from the
Contract Fund to reflect the cost of insurance, 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 commensurate
with the Insured's mortality risk as actuarially determined utilizing factors
such as age, sex (in most cases), smoking status, health and occupation. Uniform
premiums or charges for all Insureds would discriminate unfairly in favor of
those Insureds representing greater risks. However, for a given face amount of
insurance, Contracts issued on insureds in a given risk classification will have
the same minimum initial premium and charges.
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The underwriting standards and premium processing practices followed by Pruco
Life are similar to those followed in connection with the offer and sale of
fixed-benefit life insurance, modified where necessary to meet the requirements
of the federal securities laws.
B. Application and Initial Premium Processing
Upon receipt of a completed application form from a prospective owner, Pruco
Life will follow certain insurance underwriting (i.e., evaluation of risk)
procedures designed to determine whether the proposed Insured is insurable. The
process may involve such verification procedures as medical examinations and may
require that further information be provided by the proposed Insured before a
determination can be made. Pruco Life may in certain circumstances offer these
contracts on a guaranteed basis on certain individuals, such as employees of a
company, who meet certain criteria established by Pruco Life. In these cases the
underwriting will be simplified, i.e. no medical examination, and a short
question application form may be used. A Contract cannot be issued, i.e.,
physically issued through Pruco Life's computerized issue system, until this
underwriting procedure has been completed.
These processing procedures are designed to provide immediate benefits to every
prospective owner who pays the minimum initial premium at the time the
application is submitted. Since a Contract cannot be issued until after the
underwriting process has been completed, we will provide immediate insurance
coverage through use of a Limited Insurance Agreement. This coverage is for the
total death benefit applied for, up to the maximum described by the Limited
Insurance Agreement.
The Contract Date is the date as of which the insurance age of the proposed
Insured is determined. It represents the first day of the Contract year and
therefore determines the Contract anniversary and also the Monthly dates.
It also represents the commencement of the suicide and contestable periods for
purposes of the Basic Insurance Amount.
If the minimum initial premium is paid with the application and no medical
examination is required, the Contract Date will ordinarily be the date of the
application. If an unusual delay is encountered (for example, if a request for
further information is not met promptly), the Contract Date will be 21 days
prior to the date on which the Contract is physically issued. If a
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medical examination is required, the Contract Date will ordinarily be the date
the examination is completed, subject to the same qualification as that noted
above.
If the premium paid with the application is less than the minimum initial
premium, the Contract Date will be determined as described above. Upon receipt
of the balance of the minimum initial premium, the total premiums received will
be applied as of the date that the minimum initial premium was satisfied.
If no premium is paid with the application, the Contract Date will be the
Contract Date stated in the Contract, which will generally be the date the
minimum initial premium is received from the owner and the Contract is
delivered.
There is one principal variation from the foregoing procedure. If permitted by
the insurance laws of the state in which the Contract is issued, the Contract
may be back dated up to six months. In any event, the Contract may not be
backdated before the product introduction date.
In situations where the Contract Date precedes the date that the minimum initial
premium is received, charges due prior to the initial premium receipt date will
be deducted from the initial premium.
In general, the invested portion of the minimum initial premium will be placed
in the Contract Fund (as described under Premium Processing below) as of the
later of (1) the Contract Date and (2) the date we receive the premium.
C. Premium Processing
Whenever a premium is received, Pruco Life will subtract the front-end charges.
What is left will be invested in the selected investment option(s) after the
Right to Cancel Contract period has ended (see below). Premiums other than those
received prior to the Contract Date, will be invested (less front-end charges)
as of the date received (or, if that is not a business day, as of the next
business day).
The Contract has a Right to Cancel Contract provision which gives the Owners the
right to cancel the contract within ten days of its delivery (some states allow
a longer period of time). During this period, the premium (less front-end
charges) is invested in the Money Market Investment Option. At the end of this
period the funds are re-allocated in accordance with the Owner's current
allocation instructions
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D. Reinstatement
The Contract may be reinstated within five years after default (this period will
be longer if required by state law). The Contract will not be reinstated if it
was surrendered for its cash surrender value. A Contract will be reinstated upon
receipt by Pruco Life of a written application for reinstatement, production of
evidence of insurability satisfactory to Pruco Life and payment of at least (a)
any amount required to bring the cash value to zero on the date the Contract
went into default, plus (b) the deductions from the Contract Fund during the
grace period following the date of default, plus (c) a premium that would be
sufficient, after front-end charges, to cover the deductions from the Contract
Fund for three Monthly dates starting on the date of reinstatement. In addition,
any Contract debt (with interest to date) must be restored or paid back. If debt
with interest exceeds the value of a loan that we would otherwise permit on the
reinstated Contract, the excess must be paid back to Pruco Life at the time of
reinstatement.
Except for any such loan repayments, Pruco Life will treat the amount paid upon
reinstatement as a premium. It will deduct the front-end charges plus any amount
required to bring the cash value to zero on the date the Contract went into
default plus any deductions from the Contract Fund that would have been made
during the grace period. The Contract Fund of the reinstated Contract will,
immediately upon reinstatement, be equal to this net premium payment.
The reinstatement will take effect as of the Monthly date that coincides with or
next follows the date Pruco Life approves the request for reinstatement.
There is an alternative to this reinstatement procedure that applies only if
reinstatement is requested within three months after the Contract went into
default. In such a case evidence of insurability may not be required and the
amount of the required payment will be an amount Pruco Life estimates will keep
the Contract inforce for three months from the date of default.
E. Repayment of Loan
A loan made under the Contract may be repaid with an amount equal to the monies
borrowed plus interest which accrues daily at a fixed annual rate which depends
on whether the loan is a "regular loan" or "preferred loan" A regular loan is
available at any time and can equal up to the loan value (90% of the cash
value).
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The effective annual rate that we charge on regular loans is 5%. A preferred
loan is available starting on the tenth Contract anniversary, and can equal up
to the maximum amount that may still be borrowed (loan value less existing
loans) less cost basis (subject to a minimum of zero, premiums paid less total
withdrawals). The effective annual rate that we charge on preferred loans is
4.25%. A regular loan remains a regular loan - it will not automatically
rollover when a preferred loan is available. However, any capitalization of
interest on a regular loan will be treated as a preferred loan IF the conditions
for a preferred loan are met.
When a loan is made, Pruco Life will transfer an amount equal to the loan from
the investment option(s). While a loan is outstanding, the amount of Contract
Fund attributable to the outstanding loans, whether they are regular loans or
preferred loans, will be credited with interest at an annual rate of 4%. On each
Monthly date, we will increase the portion of the Contract Fund in the
investment options by interest credits accrued on the loan since the last
Monthly date. Pruco Life thus will realize the difference between that rate and
the fixed loan interest rate(s), which will be used to cover the loan investment
expenses, income taxes, if any, and processing costs.
Upon repayment of Contract debt, the loan portion of the payment (i.e., not the
portion of the payment for accrued interest which has not yet been made part of
the loan) will be added to the investment option(s) using the investment
allocation currently in effect for premium payments, as selected by the Contract
owner. Pruco Life reserves the right to change the manner in which it allocates
loan repayments.
F. Increases in or Addition of Insurance Benefits
After issue, Pruco Life may permit Owners to increase or add to the existing
insurance amounts in a way similar to our new business procedures outlined above
and in the prospectus.
II. Transfers
Currently, fifteen subaccounts are available for investment by Contract owners
of Pruco Life Variable Universal Account ("Account"), each of which is invested
in shares of a corresponding portfolio of The Prudential Series Fund, Inc. or
other such funds which we specify ("Funds"). The Funds are registered under the
1940 Act as open-end diversified management investment companies.
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Provided the Contract is not in default, the owner may, up to twelve times in
each Contract year, transfer amounts from one subaccount to another subaccount
without charge. Additional transfers are subject to an administrative charge
deducted from the Contract Fund of up to $25. Pruco Life currently charges $25.
All or a portion of the amount credited to a subaccount may be transferred.
In addition, we may restrict the number, timing, and amount of transfers in
accordance with our rules if we find the transfer activity to be disruptive to
the variable investment option or to the disadvantage of other Owners. We may
prohibit transfer requests made by an individual acting under a power of
attorney on behalf of more than one Owner.
Transfers among subaccounts will take effect at the end of the valuation period
in which a proper transfer request is received at a Pruco Life Home Office. The
request may be in terms of dollars, such as a request to transfer $5,000 from
one subaccount to another, or may be in terms of a percentage reallocation among
subaccounts. In the latter case, as with premium reallocations, the percentages
must be in whole numbers.
III. "Redemption" Procedures: Surrender and Related Transactions
A. Surrender for Cash Surrender Value
If the insured under a Contract is alive, Pruco Life will pay, within seven
days, the Contract's cash surrender value as of the date of receipt at its Home
Office of the Contract, a signed request for surrender, and any tax withholding
information required under federal or state law. Pruco Life reserves the right
to postpone paying that part of the cash surrender value that is to come from
any variable investment option (provided by a separate account registered under
the Investment Company Act of 1940) if; (1) the New York Stock Exchange is
closed; or (2) the SEC requires that trading be restricted or declares an
emergency. If this is done for more than thirty days, Pruco Life will pay
interest at the rate of 3% a year.
The Contract's cash surrender value is the Contract Fund, minus any Contract
debt. Also, if the contract is surrendered within four years of the Contract
Date, we will return 50% of any sales charges we deducted from premium paid
within 24 months prior to the date we received the surrender request.
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In lieu of the payment of the cash surrender value in a single sum upon
surrender of a Contract, an election may be made by the owner to apply all or a
portion of the proceeds under one of the fixed benefit settlement options
described in the Contract. The fixed benefit settlement options are subject to
the restrictions and limitations set forth in the Contract.
B. Withdrawals from the Contract Fund
A withdrawal from the Contract may be made only if the following conditions are
satisfied. First, Pruco Life must receive a request for the withdrawal in a form
that meets its need. Second, the cash surrender value after withdrawal may not
be less than or equal to zero after deducting any charges associated with the
withdrawal. Third, the amount withdrawn must be at least $500. Fourth, the basic
insurance amount after withdrawal must be at least equal to the minimum basic
insurance amount shown in the Contract. There is a fee of up to $25 for each
withdrawal. We currently charge the lesser of $25 and 2% of the withdrawal
amount. An amount withdrawn may not be repaid except as a premium subject to the
Contract charges.
Whenever a withdrawal is made, the death benefit payable will generally be
reduced by at least the amount of the withdrawal. This will not change the Basic
Insurance Amount (minimum face amount specified in the Contract) under a Type B
(variable) Contract or Type C (return of premium) Contract. However, under a
Type A (fixed) Contract, a withdrawal usually requires a reduction in the Basic
Insurance Amount. No withdrawal will be permitted under a Type A (fixed)
Contract if it would result in a Basic Insurance Amount less than the minimum
Basic Insurance Amount of $100,000.
The Contract Fund is reduced by the sum of the cash withdrawn and the fee for
the withdrawal. An amount equal to the reduction in the Contract Fund will be
withdrawn from the investment options.
C. Death Claims
Pruco Life will pay a death benefit to the beneficiary at the insured's death if
the Contract is in force at the time of that death. The proceeds will be paid
within seven days after receipt at Pruco Life's Home Office of proof of death of
the Insured and all other requirements necessary to make payment. State
insurance laws impose various requirements, such as receipt of a tax waiver,
before payment of the death benefit may be made. Pruco Life reserves the right
to postpone payment of that part of
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the proceeds that is to come from any variable investment option (provided by a
separate account registered under the Investment Company Act of 1940) if; (1)
the New York Stock Exchange is closed; or (2) the SEC requires that trading be
restricted or declares an emergency.
In addition, payment of the death benefit is subject to the provisions of the
Contract regarding suicide and incontestability. In the event Pruco Life should
contest the validity of a death claim, an amount up to the portion of the
Contract Fund in the variable investment options will be withdrawn, if
appropriate, and held in Pruco Life's general account.
If the Contract is not in default past its days of grace, the amount Pruco Life
will pay will be the death benefit determined as of the date of the Insured's
death reduced by any Contract debt.
There may be an additional amount payable from an extra benefit added to the
Contract by rider.
No death benefit is payable if the insured's death occurs past the grace period.
On any date, the death benefit under a Type A (fixed) Contract is the greater of
(1) the Basic Insurance Amount, and (2) the Contract Fund before deduction of
any monthly charges due on that date plus any return of sales charges,
multiplied by attained age factors. These factors vary by the insured's attained
age and are shown in the Contract.
On any date, the death benefit under a Type B (variable) Contract is the greater
of (1) the Basic Insurance Amount plus the Contract Fund before deduction of any
monthly charges due on that date, and (2) the Contract Fund before deduction of
any monthly charges due on that date plus any return of sales charges,
multiplied by attained age factors. These factors vary by the insured's attained
age and are shown in the Contract. For the purposes of this calculation, the
Contract Fund will be considered to be zero if it is less than zero.
On any date, the death benefit under a Type C (return of premium) Contract is
the greater of (1) the Basic Insurance Amount plus the total premiums paid minus
total withdrawals to the Contract both accumulated with interest at a rate
between 0% and 8% chosen by the Owner, and (2) the Contract Fund before
deduction of any
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monthly charges due on that date plus any return of sales charges, multiplied by
attained age factors. For the purposes of determining the Type C death benefit,
we will not consider any charge to reinstate the Contract.
The proceeds payable on death also will generally include interest (at a rate
determined by Pruco Life) from the date of death until the date of payment.
However, state insurance laws may impose additional or different requirements.
Pruco Life will make payment of the death benefit out of its general account,
and will transfer assets, if appropriate, from the Account to the general
account in an amount up to the Contract Fund.
In lieu of payment of the death benefit in a single sum, an election may be made
to apply all or a portion of the proceeds under one of the fixed benefit
settlement options described in the Contract or, with the approval of Pruco
Life, a combination of options. The election may be made by the owner during the
Insured's lifetime, or, at death, by the beneficiary. An option in effect at
death may not be changed to another form of benefit after death. The fixed
benefit settlement options are subject to the restrictions and limitations set
forth in the Contract.
D. Default and Options on Lapse
The Contract can go into default if either (1) the Contract debt ever grows to
be equal to or more than the cash value, or (2) on any Monthly date, the cash
value is equal to or less than zero. Monthly dates occur on the Contract Date
and in each later month on the same day of the month as the Contract Date. The
Contract provides for a grace period extending 61 days after the mailing date of
the notice of default. The insurance coverage continues in force during the
grace period, but if the Insured dies during the grace period, any charges due
to the date of the death are deducted from the amount payable to the
beneficiary.
E. Loans
The Contract provides that an owner may take out a loan at any time a loan value
is available providing (1) the Contract is assigned to Pruco Life as the only
security for the loan, (2) the Insured must be living, (3) the contract must not
be in default and (4) the resulting Contract debt must not be more than the loan
value (90% of the cash value).
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The investment options will be debited in the amount of the loan on the date the
loan is approved. The percentage of the loan withdrawn from each investment
option will normally be equal to the percentage of the value of such assets held
in the investment option unless otherwise requested and Pruco Life agreed. An
owner may borrow up to the Contract's full loan value. The loan provision is
described in the Contract and in the prospectus.
A loan does not affect charges. When a loan is made, the Contract Fund is not
reduced, but the value of the assets relating to the Contract held in the
investment option(s) is reduced. Accordingly, the daily changes in the cash
surrender value will be different from what they would have been had no loan
been taken. Cash surrender values, and possibly death benefits, are thus
permanently affected by any Contract debt, whether or not repaid.
On settlement, the amount of any Contract debt is subtracted from the insurance
proceeds. If Contract debt ever becomes equal to or more than the cash value,
all the Contract's benefits will end 61 days after notice is mailed to the owner
and any known assignee (when required by law), unless payment of an amount
sufficient to end the default is made within that period.
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