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Exhibit #4
GENERAL AMERICAN LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER
AND REDEMPTION PROCEDURES FOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Pursuant to Rule 6e-3(T)(b)(12)(ii)
and
METHOD OF COMPUTING ADJUSTMENTS IN
PAYMENTS AND CASH VALUES UPON
CONVERSION TO FIXED BENEFIT POLICIES
Pursuant to Rule 6e-3(T)(b)(13)(v)(B)
This document sets forth the administrative procedures that will be
followed by General American Life Insurance Company (the "Company") in
connection with the issuance of two types of Flexible Premium Variable Life
Insurance Policies, a single life policy ("VUL") and a joint and last survivor
policy ("JSVUL"). Each of these policies has a separate version designed for
use in connection with qualified pension plans ("Pension Policy"). All of the
policy forms are referred to collectively as the "Policies" or "Policy." This
document also addresses the transfer of assets held under the Policies and
the redemption by Owners of their interests in such Policies, and explains
the method that the Company will follow in making a cash adjustment when
a Policy is exchanged for a fixed benefit insurance policy pursuant to
Rule 6e-3(T)(b)(13)(v)(B).
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF POLICIES
A. Premium Payments and Underwriting
Premiums for the Policies will not be the same for all owners of
Policies ("Owners"). The Company must receive an initial premium, together
with a completed application, before a Policy will be issued. The Company
requires that the initial premium for a Policy be at least equal to 1/12 of a
specified annual minimum premium
Following the initial premium, subject to the limita-tions
described below, premiums may be paid in any amount and at any interval. An
Owner may establish a schedule of planned premiums, which will be billed by
the Company at regular
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intervals. For the first Policy year, the amount of the planned premiums can
be no less than the minimum annual premium. Failure to pay planned premiums,
however, will not itself cause the Policy to lapse.
An Owner may elect to pay premiums by means of a pre-authorized
check ("PAC") procedure. Under a PAC procedure, amounts will be deducted
each month, generally on the monthly anniversary, from the Owner's checking
account and applied as a premium under a Policy. The minimum payment
permitted under a PAC procedure is $10.
An Owner may make unscheduled premium payments at any time in any
amount, or skip planned premium payments, subject to the following
limitations. Every premium payment must be at least $10. In no event may
the total of all premiums paid in any Policy year exceed the current maximum
premium limitations for that year established by Federal tax laws. The
maximum premium limit for a Policy year is the largest amount of premium that
can be paid in that Policy year such that the sum of the premiums paid under
the Policy will not at any time exceed the guideline premium limitations
referred to in section 7702(c) of the Internal Revenue Code of 1986, as
amended, or any successor provision. If at any time a premium is paid which
would result in total premiums exceeding the current maximum premium
limitation, the Company will only accept that portion of the premium which
will make total premiums equal the maximum. Any part of the premium in
excess of that amount will be returned or applied as otherwise agreed and no
further premiums will be accepted until allowed by the current maximum
premium limitations prescribed by Federal tax law. The Company may require
additional evidence of insurability if any premium payment would cause an
increase in the Policy's death benefit exceeding the premium received.
A Policy will remain in force so long as the cash surrender value
is sufficient to pay the monthly deduction. Thus, the amount of a premium,
if any, that must be paid to keep the Policy in force depends upon the cash
value of the Policy, which in turn depends on such factors as the investment
experience and the cost of insurance charge. The cost of insurance rate
utilized in computing the cost of insurance charge will not be the same for
each insured. The chief reason is that the principle of pooling and
distribution of mortality risks is based on the assumption that each insured
incurs an insurance rate commensurate with his or her mortality risk. That
risk is actuarially determined based on such factors as attained age, sex
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(except under Policies sold in Montana and under the Pension Policy), and
rate class. Accordingly, while not all insureds will be subject to the same
cost of insurance rate, there will be a single "rate" for all insureds in a
given actuarial category.
The Company will determine current cost of insurance rates based
upon expectations as to future mortality experience. The cost of insurance
rates are guaranteed not to exceed rates based upon the Commissioners' 1980
Standard Ordinary Mortality Tables.
The Policies will be offered and sold pursuant to established
underwriting standards and in accordance with state insurance laws. State
insurance laws may prohibit unfair discrimination among insureds but
recognize that premiums may be based upon factors such as age, sex, health,
and occupation.
B. Application and Initial Premium Processing
Upon receipt of a completed application, the Company will follow
certain insurance underwriting (i.e., evaluation of risks) procedures
designed to determine whether the applicant is insurable. This 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. A Policy will not be issued until the
underwriting proce-dure has been completed.
Insurance coverage under a Policy will begin on the issue date,
which is the date as of which the Policy is delivered and the initial premium
has been received prior to the insured's death and prior to any change in
health as shown in the application. The issue date is used to determine
Policy anniversaries, Policy years and Policy months.
After the issue date the Company will allocate the net premium
received during the "right to examine policy period" to the division of the
General American Life Insurance Company Separate Account Eleven (the
"Separate Account") that invests in the Money Market Fund of General American
Capital Company. Upon expiration of this period, the cash value in that
division will be transferred to the divisions of the Separate Account and to
the Company's General Account in accordance with the Owner's alloca-tion
instructions.
The minimum face amount at issue is $50,000 for VUL Policies and
$100,000 for JSVUL Policies.
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C. Reinstatement Procedures
The Policy may be reinstated within five years after lapse and
during the lifetime of the person(s) insured under the Policy unless the
Policy has been surrendered. A Policy will be reinstated upon receipt by the
Company of a written application for reinstatement, production of evidence of
insurability satisfactory to the Company and payment of sufficient premium to
cover the monthly deductions due at the time of lapse, and two times the
monthly deduction due at the time of reinstatement. Any indebtedness must
also be paid or reinstated.
The amount of cash value on the date of reinstatement will be
equal to the amount of any loan reinstated, increased by the net premiums
paid at reinstatement, any loans paid at the time of reinstatement, and the
amount of any surrender charge paid at the time of lapse to the extent of the
face amount reinstated. The effective date of reinstatement will be the date
of approval by the Company of the application for reinstatement. There will
be a full monthly deduction for the Policy month that includes that date.
The surrender charge in effect at the time of reinstatement will equal the
surrender charge in effect at the time of lapse. If only a portion of the
coverage is reinstated, then only the prorated portion of the surrender
charge will be reinstated. The cash value following reinstatement will be
increased by the amount of the surrender charge imposed at the time of lapse,
to the extent of the surrender charge reinstated.
II. REDEMPTION PROCEDURES: SURRENDER AND RELATED TRANSACTIONS
Set forth below is a summary of the principal Policy provisions
and administrative procedures which might be deemed to constitute, either
directly or indirectly, a "redemption" transaction. The summary shows that
because of the insurance nature of the policies, the procedures involved
necessarily differ in certain significant respects from the redemption
procedures for mutual funds and contractual plans.
A. Surrenders and Partial Withdrawals
At any time during the lifetime of the insured and while a Policy
is in effect, the Owner may surrender, or make a partial withdrawal under,
the Policy by sending a written request to the Company. The amount available
for surrender is the cash surrender value at the end of the valuation period
during which the surrender request is received at the Company's home office.
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Amounts payable from the Separate Account upon surrender or a partial
withdrawal will ordinarily be paid within seven days of receipt of the
written request.
If the Policy is being surrendered, the Policy itself must be
returned to the Company along with the request. Upon surrender, the Company
will pay the cash surrender value (the cash value less any indebtedness and
less any surrender charge), increased by the cash value of any paid-up
additions, dividends due and dividend accumulations (if any), and any unpaid
accrued interest. Surrender proceeds may be paid in a single sum or under
one of the settlement options. Coverage under a Policy will terminate as of
the date of surrender.
After the first Policy year, an Owner may make up to twelve
partial withdrawals or fund transfers each Policy year from the Separate
Account or the General Account at no charge. The Company may impose a charge
not to exceed $25 for any partial withdrawal or transfer in excess of twelve
in a Policy year. The minimum amount of a partial withdrawal request, net of
any applicable surrender charges, must be at least $500 from a division, or
the Policy's cash value in a division, if smaller. The maximum amount that
may be withdrawn from a division is the Policy's cash value in that division.
The Owner may allocate the amount withdrawn, subject to the above
conditions, among the divisions of the Separate Account and the General
Account. If no allocation is specified, then the partial withdrawal will be
allocated among the divisions of the Separate Account and the General Account
in the same proportion that the Policy's cash value in each division and the
General Account bears to the total cash value of the Policy, less the cash
value in the Loan Account, on the date the request for the partial withdrawal
is received.
Generally, any surrender charge imposed in connection with a
partial withdrawal will be allocated among the divisions of the Separate
Account and the General Account in the same proportion as the partial
withdrawal is allocated. An Owner may request, however, that a surrender
charge applicable to an amount withdrawn from a division be paid from the
cash value in another division. No amount may be withdrawn that would result
in there being insufficient cash value to meet any surrender charge that
would be payable immediately following the withdrawal upon the surrender of
the remaining cash value.
The death benefit will be affected by a partial
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withdrawal, unless Death Benefit Option A or Option C is in effect and the
withdrawal is made under the terms of an Anniversary Partial Withdrawal
Rider. If Option A is in effect and the death benefit equals the face
amount, then a partial withdrawal will decrease the face amount by an amount
equal to the partial withdrawal plus the applicable surrender charge
resulting from the change in face amount. If the death benefit is based on a
percentage of the cash value, then a partial withdrawal will decrease the
face amount by the amount by which the partial withdrawal plus the applicable
surrender charge exceeds the difference between the death benefit and the
face amount. If Option B is in effect, the face amount will not change.
The face amount remaining in force after a partial withdrawal may
not be less than $50,000 for a VUL Policy, or $100,000 for a JSVUL Policy.
Any request for a partial withdrawal that would reduce the face amount below
these amounts will not be implemented. Partial withdrawals will be applied
first to reduce the initial face amount and then, in the case of a VUL
Policy, to each increase in face amount in order, starting with the first
increase. (The face amount of a JSVUL Policy may not be increased.)
If a Policy is surrendered, the surrender charge will be 45% of
one annual Target Premium on the base policy. The charge remains level over
the first five Policy years and then gradually decreases to zero (0) at the
end of ten Policy years. Additional surrender charges will be deducted if
the Policy is surrendered following one or more increases in face amount of a
VUL Policy. The surrender charge applicable to each increase will be 45% of
the Target Premium for that increase. The surrender charge applicable to an
increase in face amount of a VUL Policy remains level for the first five
Policy years that the increase is in effect, then gradually decreases to zero
at the end of ten Policy years. (The face amount of a JSVUL Policy may not
be increased.)
A surrender charge also will apply to any decrease in face
amount. The amount of the surrender charge assessed because of a decrease in
face amount is a portion of the surrender charge that would be deducted upon
surrender or lapse. The portion is based on the relationship between the
decrease in face amount and face amount before the decrease.
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B. Changes in Face Amount
An Owner may increase or decrease the face amount of a Policy
(without changing the death benefit option) once each Policy year after the
first Policy anniversary. A written request is required for a change in the
face amount. Any change is subject to the following conditions:
1. Any decrease will become effective on the monthly anniversary on
or next following receipt of the written request.
2. The minimum decrease allowed is $5,000, and the face amount may
not be decreased below $50,000 for a VUL Policy or $100,000 for a
JSVUL Policy. If, following the decrease in face amount, the Policy
would not comply with maximum premium limitations required by Federal
tax law, the decrease may be limited or cash value may be returned to
the Owner, at his or her election, to the extent necessary to meet
these requirements.
Any decrease will reduce the face amount in the following order:
a. The face amount provided by the most recent increase (VUL
Policies only);
b. The next most recent increases successively (VUL Policies
only); and
c. The initial face amount.
3. For an increase in the face amount of a VUL Policy, the Company
requires that a written request for the increase and satisfactory
evidence of insurability be submitted. If approved, the increase
will become effective as of the monthly anniversary coinciding with
or next following the approval. In addition, the insured must have
an attained age of not greater than 85 (70 for Pension Policies) on
the effective date of the increase. The increase may not be less
than $5,000 ($2,000 under the Pension Policy).
C. Change in Death Benefit Option
After the first Policy anniversary, the Owner may request in
writing to change the death benefit option. If the
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request is to change from Option A to Option B, the face amount will be
decreased by the amount of the cash value. Evidence of insurability
satisfactory to the Company will be required on a change from Option A to
Option B. This change cannot be made if it would result in a face amount of
less than $50,000, or $100,000 for a JSVUL Policy. If the request is to
change from Option B to Option A, the face amount will be increased by the
amount of the cash value. The effective date of a change will be the monthly
anniversary on or following the date the request for change is received by
the Company. The option may be changed once each Policy year.
D. Benefit Claims
While the Policy remains in force, the Company will pay a death
benefit to the named beneficiary in accordance with the designated death
benefit option within seven days after receipt in its home office of due
proof of death of the insured under a VUL Policy, or the death of both
insureds under a JSVUL Policy. Payment of death benefits may be postponed
under certain circumstances, such as the New York Stock Exchange being closed
for reasons other than customary weekend and holiday closings.
The amount of the death benefit is determined at the end of the
valuation period during which the insured under a VUL Policy or the last
insured under a JSVUL Policy dies. The amount of the death benefit will
never be less than the current face amount of the Policy as long as the
Policy remains in force and as long as the insured (or the younger insured in
the case of a JSVUL policy) has not yet reached attained age 100. The
proceeds will be reduced by any outstanding indebtedness. The proceeds will
be increased by any paid-up additions to the Policy, dividend accumulations
and dividends due (if any), and the amount of the monthly cost of insurance
for the portion of the month from the date of death to the end of the month.
The death benefit may exceed the face amount of the Policy depending on the
death benefit option in effect, the cash value of the Policy and the
applicable percentage in effect at the date of death. Under Option A, the
death benefit is the greater of the face amount or the cash value on the date
of death multiplied by the applicable percentage. Under Death Benefit Option
B, the death benefit is equal to the face amount plus the cash value on the
date of death or, if greater, the applicable percentage (as per Option A) of
the cash value on the date of death.
If the insured is living on the date on which the insured reaches
attained age 100 (or, in the case of a JSVUL
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policy, on the date on which the younger insured reaches attained age 100),
the death benefit will be equal to 101% of the accumulated cash value of the
Policy. By addition of and compliance with the terms of the Lifetime
Coverage Rider, the Owner may maintain the death benefit beyond age 100 at
the greater of the face amount or 101% of the cash value.
Death benefit proceeds may be paid in a single sum, or under one
of the settlement options described in the Policy. The election may be made
by the Owner during the insured's lifetime, or, if no election is in effect
at death, by the beneficiary. An option is available only if the proceeds to
be applied are $5,000 or more. The settlement options are subject to the
restrictions and limitations set forth in the Policy.
E. Policy Loans
The Owner may, by written request to the Company, borrow an
amount up to the loan value of the Policy, with the Policy serving as sole
security for such loan. The loan value is equal to the cash value of the
Policy on the date the Policy loan is requested, increased by interest
expected to be earned on the loan balance to the next Policy anniversary, and
reduced by interest on the borrowed amount to the next Policy anniversary,
the amount of any existing loans and interest on those loans, any surrender
charges, and any anticipated monthly deductions to the next Policy
anniversary charges. The minimum amount that may be borrowed is $500. Any
amount due to an Owner under a loan ordinarily will be paid within seven days
after the Company receives a loan request at its home office, although
payments may be postponed under certain circumstances.
When a loan is made, cash value equal to the amount of the loan
plus the interest due on the borrowed amount to the next Policy anniversary
will be transferred to the "Loan Account" (part of the General Account) as
security for the loan. Unless the Owner requests a different allocation,
amounts will be transferred from the divisions of the Separate Account and
the General Account in the same proportion that the Policy's cash value in
each division and the General Account, if any, bears to the total cash value,
less the cash value in the Loan Account. Cash value transferred to the Loan
Account will earn interest daily at a minimum annual rate of at least 4%.
The interest rate charged on loans will be 4.5% during the first ten Policy
years and 4.25% thereafter.
A Policy loan may be repaid in whole or in part at any
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time prior to the death of the insured (or the last insured under a JSVUL
Policy) and as long as a Policy is in effect. When a loan repayment is made,
an amount securing the indebtedness in the Loan Account equal to the loan
repayment will be transferred to the divisions of the Separate Account and
the General Account in the same proportion that cash value in the Loan
Account bears to the cash value in each Loan Subaccount.
III. TRANSFERS
The Separate Account currently has twenty-four divisions. Under
the Company's current rules, a Policy's cash value, except amounts credited
to the Loan Account, may be transferred among the divisions of the Separate
Account and between the General Account and the divisions. Requests for
transfers from or among divisions of the Separate Account may be made up to
twelve times in a Policy year at no charge. The company reserves the right
to charge a fee not to exceed $25 for transfers or partial withdrawals in
excess of twelve in a Policy year. Transfers must be in amounts of at least
$500 or, if smaller, the Policy's cash value in a division. The Company will
make transfers and determine all values in connection with transfers as of
the end of the valuation period during which the transfer request is
received.
The Company currently intends to continue to permit transfers for
the foreseeable future. The Policy provides that the Company may at any time
revoke or modify the transfer privilege, including the minimum amount
transferable.
IV. REFUNDS
A. Right to Examine Policy Period
An Owner may cancel a Policy within the latest of 20 days after
receiving it, 45 days after the application was signed, or 10 days of mailing
a notice of the cancellation right (or such longer time as may be required by
law). If a Policy is cancelled within this time period a refund will be
paid. The refund will equal all premiums paid under the Policy.
To cancel the Policy, the Owner must mail or deliver the Policy
to either the Company or the agent who sold it. A refund of premiums paid by
check may be delayed until the check has cleared the Owner's bank.
A request for an increase in Face Amount of a VUL
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Policy may also be cancelled. The request for cancellation must be paid
within the latest of 20 days from the date the Owner received the new Policy
specifications page for the increase, 45 days after the application for the
increase was signed, or 10 days of mailing the right to cancellation notice
(or such longer time as may be required by law).
Upon cancellation of an increase, the Owner may request that the
Company refund the amount of the additional charges deducted in connection
with the increase. This will equal the amount by which the monthly
deductions since the increase went into effect exceeded the monthly
deductions that would have been made absent the increase.
If no request is made, the Company will increase the Policy's
cash value by the amount of these additional charges. This amount will be
allocated among the divisions of the Separate Account and the General Account
in the same manner as it was deducted.
B. Suicide
In the event the insured commits suicide, whether sane or insane,
within two years of the issue date, the amount payable will be limited to the
return of premiums paid, less any indebtedness or partial withdrawals. In
the event of suicide within two years of the effective date of any increase
in face amount, the death benefit for that increase will be limited to the
amount of the monthly deductions for the increase.
C. Incontestability Clause
The Policy is incontestable after it has been in force for two
years from the issue date during the lifetime of the insured. An increase in
the face amount or addition of a rider after the issue date is incontestable
after such increase or addition has been in force for two years from its
effective date during the lifetime of the insured. Any reinstatement of a
Policy is incontestable, except for nonpayment of premiums, only after it has
been in force during the lifetime of the insured for two years after the
effective date of the reinstatement.
D. Misstatement of Age or Sex
If the age or sex (except under a Pension Policy or any Policies
sold in Montana) of the insured has been misstated in the application, the
amount of the death benefit will be that
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which the most recent cost of insurance charge would have purchased for the
correct age and sex.
V. METHOD OF COMPUTING EXCHANGE ADJUSTMENTS PURSUANT TO
PARAGRAPH (b)(13)(v)(B) OF RULE Ee-3(T) UNDER THE INVESTMENT
COMPANY ACT OF 1940
During the first 24 Policy months following the issuance of the
Policy, or the first 24 Policy months following the effective date of a
requested increase in face amount, the Owner may in effect convert any Policy
still in force to a guaranteed benefit life insurance policy by transferring
the Policy's cash value in the Separate Account to the General Account. If
an Owner elects to convert within 24 Policy months following an increase in
face amount, the Owner can elect to transfer any portion of the Policy to the
General Account for this purpose. Transfers made pursuant to this conversion
right will not affect the death benefit, face amount, net amount at risk,
rate class or issue age under a Policy. No charge will be imposed on any
transfers resulting from the exercise of this conversion privilege, and such
transfers will not count against the limitation on the amount and frequency
of transfer requests allowed in each Policy year.
The cash value of the new Policy on the exchange date will equal
the cash value of the Policy on the valuation date immediately prior to the
exchange date, plus the cash value provided by any net premium credited to
the new Policy on the exchange date less monthly deductions under the new
Policy. The same conditions and principles applicable to the exchange of an
entire policy are equally applicable to an exchange relating to an increase.
No further adjustments are made in cash values and payments upon
an exchange.