PARAGON LIFE INSURANCE COMPANY
DESCRIPTION OF ISSUANCE, TRANSFER
AND REDEMPTION PROCEDURES FOR
JOINT AND LAST SURVIVOR
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES
Pursuant to Rule 6e-3(T) (b) (12) (ii)
This document sets forth the administrative procedures that will be
followed by Paragon Life Insurance Company (the "Company") in connection with
the issuance of Joint and Last Survivor Flexible Premium Variable Life Insurance
Policies, the transfer of assets held thereunder, and the redemption by Owners
of their interests in such Policies.
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"). Payment of or electronic bank draft authorization for the initial
premium, together with a completed application, must be received by the Company
before a Policy will be issued. The Company requires that the initial premium
for a Policy be at least equal to one-twelfth (1/12) of the planned annual
premium. Minimum first year planned annual premiums will be established.
Following the initial premium, subject to the limitations described below,
premiums may be paid in any amount and at any interval. For the first Policy
year, the amount of the planned premiums can be no less than the minimum annual
premium. The Owner may establish a
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schedule of planned premiums which will be billed by the Company at regular
intervals. Those offered are annual premiums or monthly premiums via electronic
bank draft. Failure to pay planned premiums, however, will not itself cause the
Policy to lapse.
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.
Net premiums will be priced based upon the share price as of the close of
the day the premiums are 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
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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 Policy
incurs an insurance rate commensurate with its mortality risk. The mortality
risk is actuarially determined based on such factors as attained age, rate
class, and sex (except for Policies sold in Montana) of the persons insured
under the Policy. Accordingly, while not all Policies will be subject to the
same cost of insurance rate, there will be a single "rate" for all Policies in a
given actuarial category.
Current cost of insurance rates will be determined by the Company
based upon expectations as to future mortality experience. However, the cost of
insurance rates for Policies which are not in a substandard risk class are
guaranteed not to exceed rates based upon 100% of the Frasierized Commissioners'
male/female smoker/nonsmoker 1980 Standard Ordinary Mortality Tables, age
nearest birthday. Higher rates apply if the either Insured is determined to be
in a substandard risk class.
In two otherwise identical Policies, Insureds in the select standard
rate class will have a lower cost of insurance than Insureds in a rate class
involving higher mortality risk. Each rate class is also divided into two
categories: smokers and nonsmokers. Nonsmoker Insureds will generally incur a
lower cost of insurance than similarly situated Insureds who smoke.
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.
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B. Application and Initial Premium Processing
Upon receipt of a completed application, the Company will follow
certain insurance underwriting (e.g., evaluation of risks) procedures designed
to determine whether the applicants are insurable. This process may involve
such verification procedures as consulting the Medical Information Bureau and
may require that further information be provided by the proposed Insureds before
a determination can be made. A Policy will not be issued until the underwriting
procedure has been completed.
The Company currently may place Insureds into a select standard rate
class, a standard rate class, or into rate classes involving a higher mortality
risk. Acceptance of an application is subject to the Company's underwriting
rules, and the Company reserves the right to reject an application for any
reason.
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 either Insured's death and prior to any change in either
Insured's health as shown in the application. The issue date is used to
determine Policy anniversaries, Policy years, and Policy months.
The Company will allocate the net premiums among the Divisions of the
Separate Account according to the allocation indicated on the application for
insurance. The allocation of net premiums may be changed for future premium
receipts by the Owner's written request. Pricing of the initial premiums will
be as of the latter of the day received or the date of issue of the Policy.
During the period from the Issue Date to the end of the Right to Examine Policy
period, Net Premiums will automatically be allocated to the Division that
invests in the Money
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Market Fund. When this period expires, the Policy's Cash Value in that Division
will be transferred to the Divisions of the Separate Account in accordance with
the allocation requested in the application for the Policy, or any allocation
instructions received subsequent to the receipt of the application.
There is a minimum Face Amount of $250,000.
C. Reinstatement Procedures
The Policy may be reinstated within five years after lapse and before
the younger Insured reaches Attained Age 100 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 (including evidence of insurability of any person
covered by a rider to reinstate the rider) 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, and any loans paid at the time of reinstatement. 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.
II. REDEMPTION PROCEDURES: SURRENDER AND RELATED TRANSACTIONS
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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 either Insured and while a Policy
is in effect, the Owner may surrender the Policy by sending a written request to
the Company. At any time after the first Policy Year and during the lifetime of
either Insured while a Policy is in effect, the Owner may 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. Amounts payable 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. If the Policy cannot be returned, a lost
policy affidavit is required. Upon surrender, the Company will pay the Cash
Surrender Value (the cash value less any indebtedness) to the Owner. Surrender
proceeds will be paid in a single sum. If the request is received on a Monthly
Anniversary, the monthly deduction otherwise deductible will be included in the
amount paid. Coverage under a Policy will terminate as of the date of
surrender.
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After the first Policy year, an Owner may make partial withdrawals
from the Policy. The minimum amount of a partial withdrawal from any Division
of the Separate Account is $500 or the Policy's Cash Value in the Division if
smaller. The maximum amount that may be withdrawn, including the partial
withdrawal transaction charge (if any), is the Cash Surrender Value. A
transaction charge of $25 applies to each partial withdrawal or transfer after
twelve in a Policy Year.
The Owner may allocate the amount withdrawn, subject to the above
conditions, among the Divisions of the Separate Account. If no allocation is
specified, then the partial withdrawal will be allocated among the Divisions of
the Separate Account in the same proportion that the Policy's Cash Value in each
division 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.
The death benefit will be affected by a partial withdrawal. 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 partial withdrawal transaction charge. 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 that the partial withdrawal plus the
partial withdrawal transaction charge exceeds the difference between the death
benefit and the Face Amount. The death benefit will also be reduced in this
circumstance. 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 $25,000. Any request for a partial withdrawal that would reduce the
Face Amount below
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this amount will not be executed. Partial withdrawals will be applied first to
reduce the initial Face Amount and then to each increase in Face Amount in
order, starting with the first increase.
B. Change in Face Amount
An Owner may 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 decrease in the Face Amount.
An owner may not increase the Face Amount of a Policy. Any decrease 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 the minimum Face Amount of $250,000. If,
following the decrease in Face Amount, the Policy would not comply
with the 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.
C. Change in Death Benefit Option
After the first Policy Anniversary, the Owner may request in writing
to change the death benefit option. The Company reserves the right to limit the
number of changes in death benefit options to one each Policy Year. If the
request is to change from Option A to Option B,
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the Face Amount will be decreased by the amount of the Cash Value on the
effective date of the change. 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 the minimum. 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 on the effective date of the change.
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. A change in death
benefit option may have Federal Income Tax consequences.
D. Benefit Claims
While the Policy remains in force, the Company will pay the death
benefit proceeds 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 second Insured to die. 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 proceeds payable is determined at the
end of the Valuation Period during which the death of the second Insured to die
occurs. 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. The proceeds
will be reduced by any payment due under the Policy's grace period provision and
by any outstanding indebtedness. The proceeds will be increased by 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
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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 either Insured is living on the date on which the younger Insured
reaches (or would have reached) Attained Age 100, the death benefit will become
101% of the Cash Value.
Death benefit proceeds may be paid in a single-sum, or under one of
the settlement options that may be available. The election may be made by the
Owner during either 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, reduced by the amount of any existing loans and
interest payable on those loans, reduced by anticipated monthly deductions to
the next Anniversary, reduced by interest on the loan to the next Anniversary,
and increased by interest expected to be earned on the loan balance to the next
Anniversary. The minimum amount that may be borrowed is $500. Any amount due
to an owner under a loan
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ordinarily will be paid within seven days after the Company received a loan
request at its Home Office, although payments may be postponed under certain
circumstances.
When a Policy Loan is made, Cash Value equal to the amount of the loan
will be transferred to the "Loan Account" (part of the Company's general assets)
as security for the loan. Unless the Owner requests a different allocation,
amounts will be transferred from the Divisions of the Separate Account to the
Loan Account in the same proportion that the Policy's Cash Value in each
Division bears to the Policy's total Cash Value, less the cash value in the Loan
Account, at the end of the Valuation Period during which the request for a
Policy Loan is received. Cash Value transferred to the Loan Account to secure a
Policy Loan will accrue interest daily at an annual rate of 4%. The interest
rate charged will be 4.5% during Policy Years 1-10, 4.25% during Policy Years
11-20, and 4.15% thereafter.
A Policy loan may be repaid in whole or in part at any time prior to
the death of the Insured 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 in the same proportion that cash value in the Loan Account bears to the
cash value in each Loan division.
III. TRANSFERS
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 available with the Policy. Requests for transfers from or
among Divisions of the Separate
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Account must be in writing or, if approved by the Company, by telephone.
Transfers among Divisions of the Separate Account must be in amounts of at least
$500 or, if smaller, the Policy's Cash Value in a Division. Transfers to or from
the General Account may be further restricted. 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. There is a
charge of $25 for each transfer or partial withdrawal in excess of twelve in a
Policy Year.
Although the Company currently intends to continue to permit transfers
for the foreseeable future, the Policy provides that the Company may modify the
transfer privilege, by changing the minimum amount transferable, by altering the
frequency of transfers, by imposing a transfer charge, by prohibiting transfers,
or in such other manner as the Company may determine at its discretion.
IV. REFUNDS
A. Right to Examine Policy Period
An Owner may cancel a Policy within 10 days after receiving it or such
longer period required by state 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 or any different amount required by state law. To cancel the Policy,
the Owner must mail or deliver the Policy directly to the Company. A refund of
premiums paid by check may be delayed until the check has cleared the Owner's
bank.
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The Company will apply premiums to the Division that has the Money
Market Portfolio during the "free look" period. It will then allocate to the
Divisions of the Separate Account as initially requested after this period.
B. Suicide
In the event either insured commits suicide, whether sane or insane,
within two years of the issue date (or within the maximum period permitted by
the laws of the state in which the policy was delivered, if less than two
years), the amount payable will be limited to the return of premiums paid, less
any indebtedness and partial withdrawals. In the event of suicide within two
years of the effective date of any increase in Face Amount 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. 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, and Corrections
If the age or sex (except under any Policies sold in Montana) of either
Insured has been misstated in the application, the amount of the death benefit
will be that which the most recent cost of insurance charge would have purchased
for the correct age and sex.
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Any payment or Policy changes made by the Company in good faith, relying on
its records or evidence supplied with respect to such payment, will fully
discharge the Company's duty. The Company reserves the right to correct any
errors in the Policy.
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