Exhibit 1.A.(12)
Description of Prudential'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)
and
Method of Computing Adjustments in
Payments and Cash Surrender Values Upon
Conversion to Fixed Benefit Policies
Pursuant to Rule 6e-3(T)(b)(13)(v)(B)
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This document sets forth the administrative procedures that will be followed by
The Prudential Life Insurance Company of America ("Prudential") in connection
with the issuance of its Variable Universal 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 Prudential 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
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Increase in or Addition of Benefits
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A. Premium Schedules and Underwriting Standards
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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
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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.
The underwriting standards and premium processing practices followed by
Prudential 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
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Upon receipt of a completed application form from a prospective owner,
Prudential will follow certain insurance underwriting (i.e., evaluation of risk)
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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. A Contract cannot be issued, i.e., physically issued
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through Prudential'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.
Benefits begin to vary in accordance with the investment performance of the
selected investment option(s) on the later of the Contract Date and the date the
minimum initial premium is paid.
If the minimum initial premium is paid with the application and no medical
examination is required, the Contract Date will
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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 an 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, provided that the backdating
results in a lower insurance age for the Insured. 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.
C. Premium Processing
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Whenever a premium is received, Prudential will subtract the front-end charges.
What is left will be invested in the selected investment option(s). 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).
D. Reinstatement
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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
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cash surrender value. A Contract will be reinstated upon receipt by Prudential
of a written application for reinstatement, production of evidence of
insurability satisfactory to Prudential 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 Prudential at the time of
reinstatement.
Except for any such loan repayments, Prudential 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 plus
the part of any surrender charge (consisting of a deferred sales charge and a
deferred administrative charge) deducted at the time of default which would have
been charged if the Contract were surrendered immediately after reinstatement.
The reinstatement will take effect as of the Monthly date that coincides with or
next follows the date Prudential 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 Prudential estimates will keep
the Contract inforce for three months from the date of default.
E. Repayment of Loan
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A loan made under the Contract may be repaid with an amount equal to the moneys
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 portion of
the cash value attributable to the variable investment options and 100% of the
balance of the cash value). The effective annual
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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 4.5%. 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, Prudential 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. Prudential 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. Prudential reserves the right to change the manner in which it allocates
loan repayments.
F. Increases in or Addition of Insurance Benefits
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After issue, Prudential 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
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Currently, fifteen subaccounts are available for investment by Contract owners
of The Prudential Variable Appreciable 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. In
addition, a fixed-rate option is available.
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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
or to the fixed-rate option without charge. Additional transfers are subject to
an administrative charge deducted from the Contract Fund of up to $25.
Prudential currently charges $25. All or a portion of the amount credited to a
subaccount may be transferred.
In addition, the entire amount of the Contract Fund may be transferred to the
fixed-rate option during the first two Contract years, or at any time
thereafter. Contract owners who wish to convert their variable contract to a
fixed-benefit contract in this manner must request a complete transfer of funds
to the fixed-rate option and should also change their allocation instructions
regarding any future premiums.
Transfers among subaccounts will take effect at the end of the valuation period
in which a proper transfer request is received at a Prudential 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.
Only one transfer from the fixed-rate option will be permitted during the
Contract year and the maximum amount which may be transferred out of the fixed-
rate option each year is the greater of (a) 25% of the amount in the fixed-rate
option; and (b) $2,000. These limits are subject to change in the future.
Prudential may waive these restrictions for limited periods of time in a non-
discriminatory way.
III. "Redemption" Procedures: Surrender and Related Transactions
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A. Surrender for Cash Surrender Value
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If the insured under a Contract is alive, Prudential 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. Prudential 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. Prudential reserves the right to postpone paying the remainder
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for up to six months. If this is done for more than thirty days, Prudential will
pay interest at the rate of 3% a year. The Contract's cash surrender value is
the Contract Fund, minus any surrender charge, consisting of a deferred sales
charge and a deferred administrative charge, minus any Contract debt.
The deferred sales charge and deferred administrative charge are described in
the prospectus. The deferred administrative charge is designed to recover the
administrative expenses, such as underwriting expenses, incurred in connection
with the issuance of a Contract. As a result, in the early months after issue,
there may be no cash surrender value.
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
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A withdrawal from the Contract may be made only if the following conditions are
satisfied. First, Prudential 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 $10 for each withdrawal. 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 immediately 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. However, under a Type A (fixed) Contract, the resulting
reduction in death benefit 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 $250,000.
The Contract Fund is reduced by the sum of the cash withdrawn, any surrender
charge resulting from the withdrawal, and the fee
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for the withdrawal. An amount equal to the reduction in the Contract Fund will
be withdrawn from the investment options.
C. Death Claims
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Prudential 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 Prudential'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.
Prudential reserves the right to postpone payment of that part of 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. Prudential reserves the right to postpone
paying the remainder for up to six months.
In addition, payment of the death benefit is subject to the provisions of the
Contract regarding suicide and incontestability. In the event Prudential 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 Prudential's general account.
If the Contract is not in default, the amount Prudential 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, 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
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charges due on that date, 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.
The proceeds payable on death also will generally include interest (at a rate
determined by Prudential) from the date of death until the date of payment.
However, state insurance laws may impose additional or different requirements.
Prudential 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
Prudential, 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
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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 UNLESS it remains in force under the Death
Benefit Guarantee. Monthly dates occur on the Contract Date and in each later
month on the same day of the month as the Contract Date. The Death Benefit
Guarantee will hold if the Contract has no excess Contract debt and if premiums
accumulated at 4% less withdrawals accumulated at 4% are greater than or equal
to values shown in the Contract (Limited Death Benefit Guarantee Values and
Lifetime Death Benefit Guarantee Values).
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.
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E. Loans
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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 Prudential as the only
security for the loan, (2) the Insured must be living, and (3) the resulting
Contract debt must not be more than the loan value (90% of the portion of the
cash value attributable to the variable investment options and 100% of the
balance of the cash value).
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 Prudential 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.
The guaranteed minimum death benefit is not affected by Contract debt. However,
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, unless payment of an amount sufficient to end the
default is made within that period.
IV. Cash Adjustment Upon Exchange of Contract
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As described previously, so long as the Contract is not in default, the Owner
may transfer all amounts in the variable investment options into the fixed-rate
option. This option is provided in lieu of the option to exchange to a
comparable fixed benefit life insurance contract.
This option is also available following any increase in or addition of benefits
under the Contract.
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