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EXHIBIT (A)(11)
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES FOR POLICIES
PURSUANT TO RULE 6E-3(T)(b)(12)(III)
FOR SENTINEL BENEFIT PROVIDER VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
INTENDED PRIMARILY FOR THE CORPORATE MARKET
ISSUED BY
NATIONAL LIFE INSURANCE COMPANY
This document sets forth the administrative procedures that will be followed by
National Life Insurance Company ("National Life") in connection with the
issuance of its Sentinel Benefit Provider variable universal life insurance
policy intended primarily for the corporate market ("Policy" or "Policies"), the
transfer of assets held thereunder, and the redemption by Policy owners
("Owners") of their interests in those Policies. Capitalized terms used herein
have the same meaning as in the prospectus for the Policy that is included in
the current registration statement on Form S-6 for the Policy as filed with the
Securities and Exchange Commission ("Commission" or "SEC").
I. PROCEDURES RELATING TO PURCHASE AND ISSUANCE OF THE POLICIES AND
ACCEPTANCE OF PREMIUMS
A. OFFER OF THE POLICIES, APPLICATIONS, INITIAL NET PREMIUMS, AND
ISSUANCE
1. Offer of the Policies. The Policies will be offered and sold
subject to established cost of insurance schedules and
underwriting standards in accordance with state insurance laws.
Owners may choose full medical underwriting, simplified issue (in
which three medical questions are asked about the Insured on the
application), and guaranteed issue. Insurance charges will not be
the same for all Owners selecting the same Face Amount. Insurance
is based on the principle of pooling and distribution of mortality
risks, which assumes that each Owner pays insurance charges
commensurate with the Insured's mortality risk as actuarially
determined utilizing factors such as age, sex and health and
occupation. A uniform insurance charge for all Insureds would
discriminate unfairly in favor of those Insureds representing
greater risk. Although there will be no uniform insurance charges
for all Insureds, there will be a uniform insurance rate for all
Insureds of the same Rate Class, age, sex and Policy duration, and
utilizing the same method of underwriting. A description of the
Monthly Deduction under the Policy, which includes charges for
cost of insurance, for the Policy Administration Charge, for the
Underwriting Charge, if applicable, and for the cost of the Term
Rider, is at Appendix A to this memorandum.
2. Application. Persons wishing to purchase a Policy must complete
an application and submit it to National Life through a National
Life authorized agent. This agent will also be a registered
representative of a securities broker-dealer registered with the
U.S. Securities and Exchange Commission, which broker-dealer will
be Equity Services, Inc., an indirect wholly-owned subsidiary of
National Life ("ESI"), or a broker-dealer which has entered into a
selling agreement with ESI. The applicant must specify the
Insured, and provide certain required information about the
Insured. An application will not be deemed to be complete unless
all required information, including without limitation age, sex,
and medical and other background information, has been provided in
the application.
3. Minimum Initial Premium. An applicant for a new Policy must pay
at least a Minimum Initial Premium, which if not submitted with
the application or during the underwriting period, must be
submitted when the Policy is delivered. (Generally, policy
coverage does not become
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effective until the application has been accepted and the Minimum
Initial Premium is received in good order at National Life's home
office ("Home Office"). National Life may specify the form in
which a premium payment must be made in order for the premium to
be in "good order." Ordinarily, a check will be deemed to be in
good order upon receipt, although National Life may require that
the check first be converted into federal funds. In addition, for
a premium to be received in "good order," it must be accompanied
by all required supporting documentation, in whatever form
required.
The Minimum Initial Premium per set of Policies purchased
at the same time and associated with a corporation or its
affiliates, a trust or a partnership, or for a Policy issued to an
individual, is $50,000. During the first five Policy Years, the
Policy will not lapse regardless of investment performance, if the
Cumulative Minimum Monthly Premium, which is the sum of the
Minimum Monthly Premiums in effect on each Monthly Policy Date
since the Date of Issue, have been paid. The Minimum Monthly
Premium for each Policy is stated in the Policy. The Minimum
Monthly Premium may change if, for example, a Face Amount Change
or Death Benefit Option Change is elected by the Owner.
4. Minimum Face Amount. The minimum Face Amount for which National
Life will issue a Policy is $5000.
5. Receipt of Application and Underwriting. Upon receipt of a
completed application in good order from an applicant, National
Life will, if the owner has elected full medical underwriting,
follow certain insurance underwriting (risk evaluation) procedures
designed to determine whether the proposed Insured is insurable.
This process may involve such verification procedures as medical
examinations and may require that further information be provided
about the proposed Insured before a determination can be made. The
Owner may also elect guaranteed issue, or simplified issue, in
which three medical questions are asked about the Insured.
The underwriting process determines the Rate Class to which
the Insured is assigned. This original Rate Class applies to the
Initial Face Amount. The Rate Class may change upon an increase in
Face Amount, as to the increase (see Death Benefits below).
A Policy cannot be issued until the initial underwriting
procedure has been completed, and any supplemental beneficiary
forms and forms required in accordance with state insurance laws
have been received. The Date of Issue occurs when the above steps
have been completed, the application has been accepted, the
Minimum Initial Premium has been received, and the computerized
issue system has generated a printed Policy.
National Life reserves the right to reject an application
for any reason permitted by law. If an application is rejected,
any premium received will be returned, without interest.
6. Acceptance of Application and Date of Issue. If an
application is accepted, insurance coverage under the Policy is
effective as of the Date of Issue. The Date of Issue is set forth
in the Policy.
The Date of Issue is used to determine Policy Years and
Monthly Policy Dates, as well as to measure suicide and
contestability periods.
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7. Premium Loads. A Premium Load will be deducted from each
premium payment. The Premium Load consists of the Distribution Charge and the
Premium Tax Charge.
The Distribution Charge is equal to, in Policy Year 1, 13% of premiums
paid during the Policy Year up to the Target Premium, and 0.5% of premiums paid
in excess of the Target Premium. In Policy Years 2 through 7, the Distribution
Charge is equal to 15% of premiums paid during a Policy Year up to the Target
Premium, and 2.5% of premiums paid in excess of the Target Premium in any such
Policy Year. In Policy Years 8 and thereafter, the Distribution Charge will be
5% of premiums paid during a Policy Year up to the Target Premium, and 2.5% of
premiums paid in excess of the Target Premium in any such Policy Year. For this
purpose, the Target Premium equals 1.25 times the annual whole life premium
which would be calculated for the Policy using the applicable 1980 Commissioners
Standard Ordinary Mortality Table and an interest rate of 3.5%.
The Premium Tax Charge will vary from state to state, and will be equal to the
actual amount of premium tax assessed in the jurisdiction in which the Policy is
sold. Currently all states impose a premium tax on life insurance policies sold
by Vermont-domiciled insurance companies. Premium taxes generally range from 2%
to 3.5%. Premium taxes may range up to 4% for certain cities in South Carolina
and 12% for certain jurisdictions in Kentucky.
B. ADDITIONAL PREMIUMS
1. Additional Premiums Permitted. Additional premiums may be paid
in any amount, frequency and time period, subject to the following
limits:
- A premium must be at least $300 and must be sent to the
Home Office. National Life may require satisfactory
evidence of insurability before accepting any premium if it
increases the Death Benefit more than it increases the
Accumulated Value. For Policies issued on the basis of
guaranteed issue underwriting, increases in Face Amount are
limited to a maximum of 10% without medical underwriting.
Automated annual increases in Face Amount of specified
percentages may be elected.
- Owners may elect at the time of Policy issue either the
guideline premium test or the cash value accumulation test
for federal income tax law compliance. If the guideline
premium test has been elected, then total premiums paid on
a cumulative basis also may not exceed guideline premium
limitations for life insurance set forth in the Internal
Revenue Code. If the cash value accumulation test has been
elected, no such limits on premium payments apply.
- No premium will be accepted after the Insured reaches
Attained Age 99 (although loan payments will be permitted
after Attained Age 99).
- National Life will monitor Policies and will attempt to
notify an owner on a timely basis if the Owner's Policy is
in jeopardy of becoming a modified endowment contract under
the Internal Revenue Code.
2. Refund of Excess Premium Amounts. If at any time a premium is
paid that would result in total premiums exceeding limits
established by law to qualify a Policy as a life insurance policy,
National Life will only accept that portion of the premium that
would make total premiums equal the maximum amount that may be
paid under the Policy. The excess will be promptly refunded, and
if paid by check, after such check has cleared. If there is an
outstanding loan on the Policy, the excess may instead be applied
as a loan repayment. Excess amounts under $10 will not be
refunded.
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3. Crediting Additional Premiums
Premiums will be credited to the Policy and the Net
Premiums will be invested as requested on the Valuation Date that
the premium is received in good order by the Home Office in
accordance with the procedures described below in Section I.F.
National Life may specify the form in which a premium payment must
be made in order for the premium to be in "good order."
Ordinarily, a check will be deemed to be in good order upon
receipt, although National Life may require that the check first
be converted into federal funds. In addition, for an additional
premium to be received in "good order," it must be accompanied by
all required supporting documentation in whatever form required.
C. OVERPAYMENTS AND UNDERPAYMENTS. In accordance with industry
practice, National Life will establish procedures to handle errors
in initial and additional premium payments to refund overpayments
and collect underpayments, except for amounts under $10, or such
other threshhold as may be established from time to time.
D. SPECIAL PREMIUMS -- PREMIUMS UPON INCREASE IN FACE AMOUNT, DURING
A GRACE PERIOD, OR UPON REINSTATEMENT
1. Upon Increase in Face Amount. Depending on the Accumulated
Value at the time of an increase in the Face Amount and the amount
of the increase requested, an additional premium may be advisable.
National Life will notify the Owner if a premium is necessary or
appropriate.
2. During a Grace Period. If the Cash Surrender Value is
insufficient to cover the Monthly Deductions and other charges
under the Policy and the Grace Period (as described below) expires
without a sufficient payment, the Policy will lapse. During the
first five Policy Years, however, the Policy will not lapse if the
Cumulative Minimum Monthly Premium has been paid
- The Policy provides for a 61-day Grace Period that is
measured from the date on which notice is sent by National
Life. Thus, the Policy does not lapse, and the insurance
coverage continues, until the expiration of this Grace
Period.
- In order to prevent lapse, the Owner must, during the Grace
Period, make a premium payment equal to the sum of any
amount by which the past Monthly Deductions have been in
excess of Cash Surrender Value, plus three times the
Monthly Deduction due the date the Grace Period began. This
amount will be identified in the notice sent out pursuant
to the immediately preceding paragraph.
- Failure to make a sufficient payment within the Grace
Period will result in lapse of the Policy without value.
3. Upon Reinstatement. A Policy that lapses without value may be
reinstated at any time within five years (or longer period if
required in a particular state) after the beginning of the Grace
Period by submitting evidence of the Insured's insurability
satisfactory to National Life and payment of an amount sufficient
to provide for two times the Monthly Deduction due on the date the
Grace Period began plus three times the Monthly Deduction due on
the effective date of reinstatement. The effective date of the
reinstatement will be the Monthly Policy Date on or next following
the date the reinstatement application is approved.
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- Upon reinstatement, the Accumulated Value will be based
upon the premium paid to reinstate the Policy and the
Policy will be reinstated with the same Date of Issue as it
had prior to the lapse.
- The five year no lapse guarantee may not be reinstated.
E. REPAYMENT OF A POLICY LOAN
1. Loan Repayments Permitted. While the Insured is living, the
Owner may repay all or a portion of a loan and accrued interest.
2. Repayment Crediting and Allocation. National Life will assume
that any payments made while there is an outstanding loan on the
Policy are premium payments, rather than loan repayments, unless
it receives written instructions that a payment is a loan
repayment. In the event of a loan repayment, the amount held as
collateral in the General Account will be reduced by an amount
equal to the repayment, and such amount will be transferred to the
Subaccounts of the Separate Account based on the net premium
allocations in effect at the time of the repayment.
F. ALLOCATIONS OF PREMIUMS AMONG THE ACCOUNTS
1. The Separate Account, Subaccounts, and General Account. The
variable benefits under the Policies are supported by
National Variable Life Insurance Account (the "Separate
Account"). The Separate Account currently consists of
sixty-eight Subaccounts, of which twenty are available for
the Policies. The assets of these subaccounts are used to
purchase shares of a designated corresponding mutual fund
Portfolio that is part of one of the following Funds: the
Market Street Fund, JP Morgan Series Trust II, American
Century VP Series, Neuberger & Berman Advisers Managers
Trust, Goldman Sachs Variable Insurance Trust, Strong
Variable Insurance Funds II and Strong Opportunity Fund II.
Each Fund is registered under the Investment Company Act of
1940 as an open-end management investment company.
Additional Subaccounts may be added from time to time to
invest in other portfolios.
2. Allocations Among the Accounts. Net Premiums are allocated
to the Subaccounts in accordance with the following
procedures.
a. General. The Net Premium equals the premium paid less
the Premium Load. In the application for the Policy, the
Owner will indicate how Net Premiums should be allocated
among the Subaccounts of the Separate Account. Such
allocations may be changed at any time by the Owner by
written notice to National Life's Third Party
Administrator, or if the telephone transaction privilege
has been elected, by telephone instructions. The
percentages of each Net Premium that may be allocated to
any Subaccount must be a whole number not less than 5%, and
the sum of the allocation percentages must be 100%.
b. Initial Premiums. Any portion of the initial Net Premium
and any subsequent premiums received by National Life
before the end of the free look period will be allocated to
the Money Market Subaccount. For this purpose National Life
will assume that the free look period will end on the
earliest of (a) the end of the tenth day following receipt
of the Policy by the Owner, if National Life receives at
the Home Office a signed delivery receipt for the Policy on
or before that date; (b) the end of the day on which
National Life receives at the Home
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Office a signed delivery receipt for the Policy, if on or
between the eleventh and nineteenth days after the date the
Policy is issued; or (c) 20 days after the date the Policy
is issued. On the first Valuation Date on or after the
earliest of the dates forth above, the amount in the Money
Market Subaccount (including investment experience) will go
to each of the chosen subaccounts based on your chosen
percentages.
c. Additional Premiums. Additional Net Premiums will be
allocated to the Accounts in accordance with the allocation
percentages then in effect on the Valuation Date that the
premium is received in good order at the Home Office or the
office of the Third Party Administrator, unless other
instructions accompany the premium, in which case the Net
Premium will be allocated in accordance with those
instructions. If those instructions do not comply with
National Life's allocation rules, crediting and allocation
will not be implemented until further instructions are
received from Owners.
II. TRANSFERS AMONG SUB-ACCOUNTS
A. TRANSFERS AMONG THE ACCOUNTS. The Owner may transfer the
Accumulated Value among the Subaccounts of the Separate Account by
making a written transfer request to the Third Party
Administrator.
Currently, an unlimited number of transfers are permitted without
charge, and National Life has no current intent to impose a
transfer charge in the foreseeable future. However, National Life
reserves the right to change this policy so as to deduct a
transfer charge of up to $25 from each transfer in excess of the
twelfth transfer during any one Policy Year. If such a charge is
adopted in the future, the following transfers will not be subject
to a transfer charge and will not count against the twelve free
transfers in any Policy Year: (1) transfers resulting from Policy
loans, (2) the exercise of the transfer right for change of
investment policy, and (3) the reallocation from the Money Market
Subaccount following the free look period after the Date of Issue.
All transfers requested during one Valuation Period are treated as
one transfer transaction.
III. "REDEMPTION" PROCEDURES: SURRENDERS, WITHDRAWALS, DEATH BENEFITS, AND
LOANS
A. "FREE-LOOK" PERIOD
The Policy provides for an initial "free-look" period. The Owner
may cancel the Policy within 10 days after the Owner receives the
Policy, or any longer period provided for by applicable state law.
Upon returning the Policy to National Life or to an agent of
National Life within such time with a written request for
cancellation, the Owner will receive a refund equal to the gross
premiums paid on the Policy.
B. REQUEST FOR CASH SURRENDER VALUE
1. Requests for Cash Surrender Value Permitted. At any time before
the death of the Insured, the Owner may surrender the Policy for
its Net Cash Surrender Value. The Net Cash Surrender Value is the
Account Value of the Policy (reflecting, in Policy Years 1 and 2,
the Distribution Charge Refund) minus any Policy loan and accrued
interest. The Net Cash Surrender Value will be determined by
National Life on the date it receives, at the Home Office or at
the office of the Third Party Administrator, a written surrender
request signed by the Owner, and the Policy. Coverage under the
Policy will end on the day the Owner mails or
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otherwise sends the written surrender request and the Policy to
National Life. Surrender proceeds will ordinarily be mailed by
National Life to the Owner within seven days of receipt of the
request, unless a payment option was selected (see Section III.H.
below).
2. Surrender of Policy - Distribution Charge Refund. If the owner
surrenders the Policy during Policy Years 1 or 2, an amount will
be added to the Account Value to determine the Net Cash Surrender
Value of the Policy. Such amount shall be equal to the lesser of
(a) the Premium Loads on all premiums paid in the first Policy
Year, less 2% of such premiums paid in the first Policy Year, or
(b) one third of the Premium Loads paid on all premiums paid in
the first Policy Year, plus 2% of such premiums, less the Premium
Tax Charge. The Distribution Charge Refund is zero at all times
after the first Policy Year.
3. Maturity. Policies issued in Texas and Maryland will mature on
the Policy Anniversary at which the Insured is Attained Age 99. At
that time, National Life will pay the Cash Surrender Value to the
Owner in one sum unless a Payment Option is chosen, and the Policy
will terminate. In other states, the Policy can remain in force
indefinitely. However, for a Policy to remain in force after the
Insured reaches Attained Age 99, if the Face Amount is greater
than the Account Value, the Face Amount will automatically be
decreased to the current Account Value. At Attained Age 99, Option
B automatically becomes Option A, and no premium payments are
permitted, although loan repayments are permitted.
C. REQUEST FOR WITHDRAWALS
1. When Withdrawals are Permitted. At any time before the death of
the Insured and after the first Policy Anniversary, the Owner may
withdraw a portion of the Policy's Net Account Value, subject to
the following conditions:
- The maximum Withdrawal is the Net Account Value minus three
times the Monthly Deduction for the most recent Monthly
Policy Date.
- Withdrawals may be requested only by sending a written
request, signed by the Owner, to the Third Party
Administrator
2. Allocation of Withdrawals. The Withdrawal will be taken from
the Subaccounts of the Separate Account based on the proportion
that each Subaccount's value bears to the total Account Value in
the Separate Account.
3. Effect of a Withdrawal on Face Amount. The effect of a
Withdrawal on the Death Benefit and Face Amount will vary
depending upon the Death Benefit Option and death benefit
compliance test in effect and whether the Death Benefit is based
on the applicable Death Benefit Factor times the cash Surrender
Value.
a. Guideline Premium Test and Option A. If the Face Amount
divided by the Death Benefit Factor times the Cash
Surrender Value exceeds the Account Value just after the
Withdrawal, a Withdrawal will reduce the Face Amount and
the Death Benefit by the lesser of such excess and the
amount of the Withdrawal, effective on the date of the
Withdrawal. If the Face Amount plus the Term Insurance
Amount divided by the applicable Death Benefit Factor times
the Cash Surrender Value does not exceed the Account Value
just after the Withdrawal, then the Face Amount is not
reduced. The
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Face Amount will be reduced by the lesser of such excess or
the amount of the Withdrawal.
b. Guideline Premium Test and Option B. The Face Amount
will never be decreased by a Withdrawal. A Withdrawal will,
however, always decrease the Death Benefit. If the Death
Benefit plus any outstanding loans and unpaid Monthly
Deductions equals the Face Amount plus the Account Value, a
Withdrawal will reduce the Account Value by the amount of
the Withdrawal, and thus the Death Benefit plus any
outstanding loans and unpaid Monthly Deductions will also
be reduced by the amount of the Withdrawal. If the Death
Benefit immediately prior to the Withdrawal is based on the
applicable Death Benefit Factor times the Cash Surrender
Value, the Death Benefit will be reduced to equal the
greater of (a) the Face Amount plus the Account Value after
deducting the amount of the Withdrawal and (b) the
applicable Death Benefit Factor times the Cash Surrender
Value after deducting the amount of the Withdrawal.
c. Cash Value Accumulation Test. If the Cash Value
Accumulation test for federal tax law compliance applies to
a Policy, a Withdrawal will decrease Face Amount by an
amount equal to the amount withdrawn times 1.00327374.
4. Other Effects of Withdrawals. Any decrease in Face Amount due
to a Withdrawal will first reduce any Term Insurance Amount, then
to the most recent increase in Face Amount, then the most recent
increases, successively, and lastly, the Face Amount on the Date
of Issue. Because a Withdrawal can affect the Face Amount (or
increase in Face Amount) and the Unadjusted Death Benefit as
described above, a Withdrawal may also affect the Net Amount(s) at
Risk that is used to calculate the Cost of Insurance Charge(s)
under the Policy. Since a Withdrawal reduces the Account Value,
the likelihood that the Policy will lapse is increased.
5. When a Withdrawal Is Not Permitted. A request for Withdrawal
may not be allowed if such Withdrawal would reduce the Face Amount
below $5000. Also, if a Withdrawal would result in cumulative
premiums exceeding the maximum premium limitations applicable
under the Code for life insurance, if the guideline premium test
applies to the Policy, National Life will not allow the
Withdrawal.
D. MONTHLY DEDUCTIONS
On the Date of Issue and on each Monthly Policy Date, a redemption
will be made from Account Value for the Monthly Deduction. The
Monthly Deduction consists of four components: (a) the Cost of
Insurance Charge, (b) the Policy Administration Charge, (c) for
Policies issued on the basis of full medical underwriting, the
Underwriting Charge, and (d) for Policies containing a Term Rider,
the charges associated with the Term Rider.. These charges are
discussed in more detail in Appendix A hereto. Because portions of
the Monthly Deduction, such as the Cost of Insurance Charge, can
vary from month to month, the Monthly Deduction may vary in amount
from month to month. The Monthly Deduction will be deducted on a
pro rata basis from the Subaccounts of the Separate Account.
E. DEATH BENEFITS
1. Payment of Death Benefit. As long as the Policy remains in
force, the Death Benefit of the Policy will, upon the Company's
receipt of due proof of the Insured's death (and fulfillment
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of certain other requirements), be paid to the named Beneficiary
in accordance with the designated Death Benefit Option, unless the
claim is contestable in accordance with the terms of the Policy.
The proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy. The Death Benefit payable under
Option A will be the greater of the Face Amount or the Death
Benefit Factor times the Cash Surrender Value on the date of
death; under Option B, the Death Benefit will be the greater of
the Face Amount plus the Account Value on the date of death, or
the Death Benefit Factor times the Cash Surrender Value on the
date of death, in each case plus any dividends payable, plus any
Supplemental Term Insurance Amount, less any outstanding Policy
loan and accrued interest, and less any unpaid Monthly Deductions.
2. Federal Income Tax Law Compliance Test Options. The Policy must
satisfy either of two death benefit compliance tests in order to
qualify as life insurance under section 7702 of the Internal
Revenue Code: the Cash Value Accumulation Test or the Guideline
Premium Test. Each test effectively requires that the Policy's
Death Benefit, plus any outstanding Policy loans and accrued
interest, and any unpaid Monthly Deductions, must always be equal
to or greater than the Cash Surrender Value multiplied by the
Death Benefit Factor. Thus, the Policy has been structured so that
the Death Benefit may increase above the Face Amount in order to
comply with the applicable test. The Death Benefit Factor for the
Guideline Premium Test varies only by age, as shown below:
Death Death
Attained Age Benefit Factor Attained Age Benefit Factor
------------ -------------- ------------ --------------
40 and under 250% 70 115%
45 215% 75-90 105%
50 185% 91 104%
55 150% 92 103%
60 130% 93 102%
65 120% 94 101%
95+ 100%
For Attained Ages not shown, the percentages will decrease by a
ratable portion of each full year.
The Death Benefit Factor for the Cash Value Accumulation Test
varies by age and sex, and generally such Death Benefit Factors
are different from those for the Guideline Premium Test.
The Owner must select and specify on the application which of the
two federal tax death benefit compliance tests will apply. Once
the Policy is issued, it may not be changed.
3. Death Benefit Options. The Policy provides two Death Benefit
Options: Option A and Option B. Policies which use the Guideline
Premium Test as the federal tax death benefit compliance test may
select either Death Benefit Option A or Option B. An Owner
designates the Death Benefit Option in the application, and may
change it, if the Guideline Premium Test has been elected. Only
Option A is available for Policies which use the Cash Value
Accumulation Test as the federal tax death benefit compliance
test.
Option A. The Death Benefit is equal to the greater of (a) the
Face Amount of the Policy and (b) the Cash Surrender Value on the
Valuation Date on or next following the
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Insured's date of death multiplied by the applicable Death Benefit
Factor, in each case less any outstanding Policy loan and accrued
interest thereon, and less any unpaid Monthly Deductions.
Option B. The Death Benefit is equal to the greater of (a)
the Face Amount of the Policy plus the Account Value and (b) the
Cash Surrender Value on the Valuation Date on or next following
the Insured's date of death multiplied by the applicable Death
Benefit Factor (shown in the table above), in each case less any
outstanding Policy loan and accrued interest thereon, and less any
unpaid Monthly Deductions.
4. Change in Death Benefit Option. After the first Policy Year,
the Death Benefit Option in effect may be changed by sending
National Life a written request. No charges will be imposed to
make a change in the Death Benefit Option. The effective date of
any such change will be the Policy Anniversary on or next
following the date National Life receives the written request.
Only one change in Death Benefit Option is permitted in any one
Policy Year.
- If the Death Benefit Option is changed from Option A
to Option B, on the effective date of the change,
the Death Benefit will not change but the Face
Amount will be decreased by the Account Value on
that date. However, this change may not be made if
it would reduce the Face Amount to less than $5000.
- If the Death Benefit Option is changed from Option B
to Option A, on the effective date of the change,
the Death Benefit will not change but the Face
Amount will be increased by the Account Value on
that date.
- A change in the Death Benefit Option may affect the
Net Amount at Risk over time which, in turn, would
affect the monthly Cost of Insurance Charge.
Changing from Option A to Option B will generally
result in a Net Amount at Risk that remains level.
Such a change will result in a relative increase in
the Cost of Insurance Charges over time because the
Net Amount at Risk will, unless the Death Benefit is
based on the applicable Death benefit Factor times
the Cash Surrender Value, remain level as cost of
insurance rates increase over time, rather than the
Net Amount at Risk decreasing as the Account Value
increases. Changing from Option B to Option A will,
if the Account Value increases, decrease the Net
Amount at Risk over time, thereby partially
offsetting the effect of increases and over time in
the Cost of Insurance Charge.
- If a change in the Death Benefit Option would result
in cumulative premiums exceeding the maximum premium
limitations under the Internal Revenue Code for life
insurance (for Guideline Premium Test Policies
only), National Life will not effect the change.
5. How the Death Benefit May Vary. The amount of the Death Benefit
may vary with the Account Value. The Death Benefit under Option A
will vary with the Account Value whenever the Death Benefit Factor
times the Cash Surrender Value exceeds the Face Amount of the
Policy. The Death Benefit under Option B will always vary with the
Account Value because the Death Benefit is based on the greater of
(a) the Face Amount plus the Account Value and (b) the Cash
Surrender Value multiplied by the Death Benefit Factor.
6. Ability to Adjust Face Amount. Subject to certain limitations,
an Owner may increase or decrease the Policy's Face Amount by
submitting a written application to National Life. The effective
date of an increase will be the Monthly Policy Date on or next
following National
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Life's approval of the request, and the effective date of a
decrease is the Monthly Policy Date on or next following the date
that National Life receives the written request. The effect of
changes in Face Amount on Policy charges, as well as other
considerations, are described below.
a. Increase. A request for an increase in Face Amount may
not be for less than $25,000, or such lesser amount
required in a particular state. The Owner may not increase
the Face Amount after the Insured's Attained Age 85
(Attained Age 65 in the case of guaranteed issue or
simplified issue underwriting). To obtain the increase, the
Owner must submit an application for the increase and
provide evidence satisfactory to National Life of the
Insured's insurability.
On the effective date of an increase, and taking the
increase into account, the Net Account Value must be
greater than the Monthly Deductions then due. If the Net
Account Value is not sufficient, the increase will not take
effect until the Owner makes a sufficient additional
premium payment to increase the Net Account Value to the
required level.
An increase in the Face Amount will generally have
the effect of increasing the total Net Amount at Risk,
which in turn will increase the monthly Cost of Insurance
Charges. In addition, the Insured may be in a different
Rate Class as to the increase in insurance coverage.
b. Decrease. The amount of the Face Amount after a decrease
may not be less than $5000. To the extent a decrease in the
Face Amount could result in cumulative premiums exceeding
the maximum premium limitations applicable for life
insurance under the Internal Revenue Code, National Life
will not effect the decrease.
A decrease in the Face Amount generally will decrease
the total Net Amount at Risk, which generally will decrease
an Owner's monthly Cost of Insurance Charges.
For purposes of determining the Cost of Insurance
Charge, any decrease in the Face Amount will reduce the
Face Amount in the following order: (a) the Face Amount
provided by the most recent increase; (b) the next most
recent increases, successively; and (c) the Face Amount on
the Date of Issue.
F. LOANS
1. When Loans are Permitted. An Owner may on any Valuation Date
borrow money from National Life using the Policy as the only
security for the loan. The Owner may obtain Policy loans in an
amount not exceeding the Policy's Net Account Value on the date of
the loan, minus three times the Monthly Deduction for the most
recent Monthly Policy Date. While the Insured is living, the Owner
may repay all or a portion of a loan and accrued interest. Loans
may be taken by making a written request to the Third Party
Administrator.
2. Interest Rate Charged. The interest rate charged on Policy
loans will be as follows:
Policy Years 1 - 7 : 4.60% per year
Policy Years 8 - 10 : 4.50% per year
Policy Years 11 - 20 : 4.40% per year
Policy Years 21 and thereafter: 4.35% per year
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Interest is charged from the date of the loan and will be added to
the loan balance at the end of the Policy Year and bear interest
at the same rate.
3. Allocation of Loans and Collateral. When a Policy loan is
taken, Account Value is transferred to and held in the Loan
Account as Collateral for the Policy loan. Account Value to be
held as Collateral is taken from the Subaccounts of the Separate
Account based on the proportion that each Subaccount's value bears
to the total Accumulated Value in the Separate Account.
The Collateral for a Policy loan will initially be equal to the
loan amount. Any loan interest due and unpaid will be added to the
Collateral for the Policy loan. National Life will take additional
Collateral for the loan interest so added pro rata from the
Subaccounts of the Separate Account, and hold the Collateral in
the Loan Account. At any time, the amount of the outstanding loan
under a Policy equals the sum of all loans (including due and
unpaid interest added to the loan balance) minus any loan
repayments.
4. Interest Credited to Amounts Held as Collateral. As long as the
Policy is in force, National Life will credit the amount in the
Loan Account as Collateral with interest at an effective annual
rate of 4%.
5. Effect of Policy Loan. Policy loans, whether or not repaid,
will have a permanent effect on the Account Value, and may
permanently affect the Death Benefit under the Policy. The effect
on the Account Value and Death Benefit could be favorable or
unfavorable, depending on whether the investment performance of
the Subaccounts is less than or greater than the interest being
credited on the amounts held as Collateral in the Loan Account
while the loan is outstanding. Compared to a Policy under which no
loan is made, values under a Policy will be lower when the
credited interest rate is less than the investment experience of
assets held in the Separate Account. The longer a loan is
outstanding, the greater the effect a Policy loan is likely to
have. The Death Benefit will be reduced by the amount of any
outstanding Policy loan.
G. SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an election
may be made to apply the amount under any one of the fixed benefit
Settlement Options provided in the Policy.
H. DELAY IN REDEMPTIONS OR TRANSFERS
Any amounts payable as a result of surrender, Withdrawal, or
Policy loan will ordinarily be paid within seven days of receipt
of written request by the Third Party Administrator. Generally,
the amount of a payment will be determined as of the date of
receipt by National Life of all required documents. However,
National Life may defer the determination or payment of such
amounts if the date for determining such amounts falls within any
period during which: (1) the disposal or valuation of a
Subaccount's assets is not reasonably practicable because the New
York Stock Exchange is closed or conditions are such that, under
the SEC's rules and regulations, trading is restricted or an
emergency is deemed to exist; or (2) the SEC by order permits
postponement of such actions for the protection of National Life
policyholders. National Life may postpone any payment under the
Policy derived from an amount paid by check or draft until
National Life is satisfied that the check or draft has been paid
by the bank upon which it was drawn.
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APPENDIX A
Charges will be deducted from the Account Value on the Date of Issue and
on each Monthly Policy Date. The Monthly Deduction consists of four components:
(a) the Cost of Insurance Charge, (b) the Policy Administration Charge, (c) for
Policies issued on the basis of full medical underwriting, the Underwriting
Charge, and (d) for Policies containing a Term Rider, the charges associated
with the Term Rider. Because portions of the Monthly Deduction, such as the Cost
of Insurance Charge, can vary from month to month, the Monthly Deduction may
vary in amount from month to month. The Monthly Deduction will be deducted on a
pro rata basis from the Subaccounts of the Separate Account.
Cost of Insurance Charge. The monthly Cost of Insurance Charge is
calculated by multiplying the cost of insurance rate or rates by the Net Amount
at Risk for each Policy Month. Because both the Net Amount at Risk and the
variables that determine the cost of insurance rate, such as the Insured's age
and the Duration of the Policy, may vary, the Cost of Insurance Charge will
likely be different from month to month.
(1) Net Amount At Risk. The Net Amount at Risk on any Monthly Policy
Date is approximately the amount by which the Death Benefit exceeds the Account
Value. It measures the amount that National Life would have to pay in excess of
the Policy's Account Value if the Insured died. The actual calculation uses the
Death Benefit divided by 1.00327234 to take into account assumed monthly
earnings at an annual rate of 4%. The Net Amount at Risk is determined
separately for the Face Amount on the Date of Issue and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount,
the Account Value is first applied to the Face Amount on the Date of Issue. If
the Account Value exceeds the Face Amount on the Date of Issue, the excess is
then applied to any increases in Face Amount in the order such increases took
effect.
If the Net Amount at Risk increases, your monthly Cost of Insurance
Charge will increase proportionately. The Net Amount at Risk may increase if,
for example, the Death Benefit is based on the Face Amount and the Account Value
decreases because of negative investment results. The Net Amount at Risk may
also increase if the Death Benefit is based on the Death Benefit Factor times
the Cash Surrender Value and the Account Value rises because of positive
investment results. The Net Amount at Risk may decrease in the opposite
situations, and if it does, your monthly Cost of Insurance Charge will decrease
proportionately.
(2) Cost of Insurance Rate. Policies may be issued
(a) after full medical underwriting of the proposed Insured,
(b) on a guaranteed issue basis, where no medical
underwriting is required prior to issuance of a Policy, or
(c) on a simplified underwriting basis, under which medical
underwriting is limited to requiring the proposed Insured to
answer three medical questions on the application.
Current cost of insurance rates for Policies issued on a guaranteed issue basis
or a simplified underwriting basis are higher than current standard cost of
insurance rates for healthy Insureds who undergo medical underwriting.
Guaranteed Rates. The guaranteed maximum cost of insurance rates are
set forth in the Policy, and will depend on the Insured's Attained Age, Rate
Class, and the applicable 1980
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Commissioners Standard Ordinary Smoker/Nonsmoker/Unismoker Mortality Table. If
you are based in Montana you must generally select a "unisex" Rate Class.
Current Rates and How They are Determined. The actual cost of
insurance rates used ("current rates") will depend on the Insured's Attained
Age, Rate Class, underwriting method, and Duration. These current cost of
insurance rates are set based on National Life's anticipated mortality
experience. Generally rates are higher for an older insured, if the Insured is a
smoker, or if the Insured is in a substandard rate class (usually because of a
health issue). Rates may also be higher for a Policy that has a longer Duration,
compared to another Policy with identical characteristics and a shorter
Duration. As noted above, rates for Policies issued on the basis of guaranteed
issue or simplified issue will generally be higher. We periodically review the
adequacy of our current cost of insurance rates and may adjust their level if
our anticipated mortality experience changes. However, our cost of insurance
ratess will never exceed guaranteed maximum cost of insurance rates. Any change
in the current cost of insurance rates will apply to all persons of the same
Issue Age, Rate Class, underwriting method, and with Policies of the same
Duration.
A cost of insurance rate is determined separately for the Face Amount on
the Date of Issue and any increases in Face Amount. In calculating the Cost of
Insurance Charge, the rate for the Rate Class on the Date of Issue is applied to
the Net Amount at Risk for the Face Amount on the Date of Issue (see "Rate
Class", below). For each increase in Face Amount, the rate for the Rate Class
applicable to the increase is used. If, however, the Death Benefit is based on
the Cash Surrender Value times the Death Benefit Factor, the rate for the Rate
Class for the Face Amount on the Date of Issue will be used for the amount of
the Death Benefit in excess of the total Face Amount.
Rate Class. The Rate Class of the Insured will affect the guaranteed
and current cost of insurance rates. National Life currently places Insureds
into, for each of guaranteed issue, simplified issue, and full medical
underwriting, male non-smoker, female non-smoker, unisex non-smoker, male
smoker, female smoker, unisex nonsmoker, unisex unismoker, male unismoker, and
female unismoker Rate Classes. For full medical underwriting cases, substandard
rate classes may also apply. Substandard, Smoker, male, guaranteed issue and
simplified issue Rate Classes reflect higher mortality risks. None of the unisex
Rate Classes are available in the state of Florida.
Term Rider Charge. For Policies which include the Term Rider, the charge
for the Term Rider will be the Supplemental Term Insurance Amount, divided by
1.00327234, times the same cost of insurance rates that apply to the Net Amount
at Risk for the Face Amount.
Policy Administration Charge. The Policy Administration Charge, which is
currently $5.50 per month, will be deducted from the Account Value on the Date
of Issue and each Monthly Policy Date as part of the Monthly Deduction. The
Policy Administration Charge may be increased, but is guaranteed never to exceed
$8.00 per month.
Underwriting Charge. Policies issued on the basis on full medical
underwriting will be assessed an Underwriting Charge, deducted monthly as part
of the Monthly Deduction. The Underwriting Charge totals $20 in Policy Year 1,
and $45 in each of the next four Policy Years. Policies issued on the basis of
guaranteed issue or simplified issue will not be assessed an Underwriting
Charge.
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