EXHIBIT 6
THE MANUFACTURERS INSURANCE COMPANY (U.S.A.)
DESCRIPTION OF PURCHASE, TRANSFER AND REDEMPTION PROCEDURES
Variable Universal Life Insurance Policies
(1933 File Act No. 333-88748)
This document sets forth, as required by Rule 6e-3(T)(b)(12)(iii), the
administrative procedures that will be followed by The Manufacturers
Insurance Company (U.S.A.) (the "Company") and any office the Company
designates for the receipt of payments and processing of policyowner
requests (the "Service Office") in connection with the issuance of its
flexible premium variable universal life insurance policies described
in this registration statement (1933 Act file no. 333-88748) (the
"Policy"), the transfer of assets held thereunder, and the redemption
by policyowners of their interests in the Policy.
I. ISSUING A POLICY
A. Premiums
This Policy is a flexible premium variable universal life
insurance policy. The Policy permits the policyowner to pay
flexible premiums. After payment of the initial premium,
premiums may be paid at any time and in any amount during the
lifetime of the insured. A Policy must satisfy one of two
tests to qualify as a life insurance contract for purposes of
Section 7702 of the Internal Revenue Code of 1986. At the time
of application, the policy owner must choose either the Cash
Value Accumulation Test or the Guideline Premium Test. The
test may not be changed once the Policy is issued.
A Policy will be issued with a planned premium, which is based
on the amount of premium the policyowner wished to pay. If the
Policy is issued under the Guideline Premium Test, in no event
may the total of all premiums paid exceed the then-current
maximum premium limitations established by federal income tax
law for Policies that qualify as life insurance. If, at any
time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company
will only accept that portion of the premium which will make
the total premiums equal to the maximum. Any part of the
premium in excess of that amount will be returned and no
further premiums will be accepted until allowed by the
then-current maximum premium limitation. The Company also
reserves the right to request evidence of insurability of a
premium payment would result in an increase in the death
benefit that is greater than the increase in Policy Value.
B. Underwriting
The acceptance of an application is subject to the
Company's underwriting rules, and the Company reserves the
right to request additional information or to reject an
application for any reason. The Company will require
satisfactory evidence of insurability. This may include
medical exams and other information. Persons failing to meet
standard underwriting classification may be eligible for a
Policy with an additional rating assigned to it.
C. Application
To purchase a Policy, an applicant must submit a completed
application. A Policy will not be issued until the
underwriting process has been completed to the Company's
satisfaction.
Policies may be issued on a basis which does not distinguish
between the insured's sex, with prior approval from the
Company. Generally, a Policy will only be issued on the lives
of insureds from ages 0 through 90.
Each Policy is issued with a Policy Date, an Effective Date
and an Issue Date.
The Policy Date is the date coverage takes effect under the
Policy, provided the Company receives the minimum initial
premium at its Service Office, and is the date from which the
first monthly deductions are calculated and from which Policy
Years, Policy Months and Policy Anniversaries are determined.
The Effective Date is the date the underwriters approve
issuance of the Policy. If the Policy is approved without the
initial premium, the Effective date will be the date the
Company receives at least the minimum initial premium at its
Service Office. The Company will take the first Monthly
Deduction on the Effective Date.
The Issue Date is the date the Company issued the Policy. It
is the date from which the suicide and Incontestability
provisions are measured.
If an application accepted by the Company is not accompanied
by a check for the initial premium and no request to backdate
the Policy has been made:
(i) the Policy Date and the Effective Date will be the date
the Company receives the check at its Service Office;
(ii) the Issue Date will be the date the Company issues the
Policy.
The initial premium must be received within 60 days after the
Issue Date. If the premium is not paid or if the application
is rejected, the Policy will be canceled and any partial
premiums paid will be returned to the applicant.
D. Minimum Initial Face Amount
The Company will generally issue a Policy only if it has a
Face Amount of at least $100,000.
E. Backdating a Policy
Under limited circumstances, the Company may backdate a
Policy, upon request, by assigning a Policy Date earlier than
the date the application is signed. However, in no event will
a Policy be backdated earlier than the earliest date allowed
by state law, which is generally three months to one year
prior to the date of application for the Policy. Monthly
deductions will be made for the
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period the Policy Date is backdated. Regardless of whether or
not a policy is backdated, Net Premiums (premium paid less
premium load) received prior to the Effective Date of a Policy
will be credited with interest from the date of receipt at the
rate of return then being earned on amounts allocated to the
Money Market portfolio. As of the Effective Date, the premiums
paid plus interest credited, net of the premium load, will be
allocated among the Investment Accounts (as described below
under ("Policy Value - Investment Accounts") and/or Fixed
Account in accordance with the policyowner's instructions
unless such amount is first allocated to the Money Market
Trust for the duration of the Right to examine Period.
F. Temporary Insurance
In accordance with the Company's underwriting practices,
temporary insurance coverage may be provided under the terms
of a Temporary Insurance Agreement. Generally, temporary life
insurance may not exceed $1,000,000 and may not be in effect
for more than 90 days. This temporary insurance coverage will
be issued on a conditional receipt basis, which means that any
benefits under such temporary coverage will only be paid if
the life insured meets the Company's usual and customary
underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's
underwriting rules, and the Company reserves the right to
request additional information or to reject an application for
any reason.
Persons failing to meet standard underwriting classification
may be eligible for a Policy with an additional rating
assigned to it.
G. Right to Examine the Policy
A Policy may be returned for a refund within 10 days after it
is received. Some states provide a longer period of time to
exercise this right. The Policy will indicate if the
policyowner has a longer time. The Policy can be mailed or
delivered to the Company's agent who sold it or to the Service
Office. Immediately on such delivery or mailing, the Policy
shall be deemed void from the beginning. Within seven days
after receipt of the returned Policy at its Service Office,
the Company will refund to the policyowner an amount equal to
either:
(1) the amount of all premiums paid or
(2) (a) the difference between payments made and amounts
allocated to the Separate Account and the Fixed Account; plus
(b) the value of the amount allocated to the Separate
Account and the Fixed Account as of the date the
returned Policy is received by the Company; minus
(c) any partial withdrawals made and policy loans taken.
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Whether the amount described in (1) or (2) is refunded depends
on the requirements of the applicable state.
If a policyowner requests an increase in face amount which
results in new surrender charges, he or she will have the same
rights as described above to cancel the increase. If canceled,
the Policy Value and the surrender charges will be
recalculated to the amounts they would have been had the
increase not taken place. A policyowner may request a refund
of all or any portion of premiums paid during the free look
period, and the Policy Value and the surrender charges will be
recalculated to the amounts they would have been had the
premiums not been paid.
The Company reserves the right to delay the refund of any
premium paid by check until the check has cleared.
H. Premium Allocation
No premiums will be accepted prior to receipt of a completed
application by the Company. All premiums received prior to the
Effective Date of the Policy will be held in the general
account of the Company and credited with interest from the
date of receipt at the rate of return then being earned on
amounts allocated to the Money Market Trust.
On the later of the Effective Date or the date the premium is
received, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Fixed Account
in accordance with the policyowner's instructions, unless such
amount is first allocated to the Money Market Trust for the
duration of the Right to Examine Period.
All Net Premiums received on or after the Effective Date will
be allocated among Investment Accounts or the Fixed Account as
of the business day the premiums were received at the Service
Office. Monthly deductions are due on the Policy Date and at
the beginning of each policy month thereafter. However, if due
prior to the Effective Date, they will be taken on the
Effective Date instead of the dates they were due.
Premiums may be allocated to the Fixed Account for
accumulation at a rate of interest equal to at least 4% or to
one or more of the Investment Accounts for investment in the
Portfolio shares held by the corresponding sub-account of the
Separate Account. Allocations among the Investment Accounts
and the Fixed Account are made as a percentage of the premium.
The percentage allocation to any account may be any number
between zero and 100, provided the total allocation equals
100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take
effect on the date a written request for change satisfactory
to the Company is received at the Service Office. Changes may
also be made by telephone if a valid authorization form is on
file with us.
II. DEATH BENEFIT OPTION CHANGES
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The death benefit option may be changed once each Policy Year
after the first Policy Year. The change will occur on the
first day of the next Policy Month after a written request for
a change is received at the Service Office. The Company
reserves the right to limit a request for a change if the
change would cause the Policy to fail to qualify as life
insurance for tax purposes. The Company will not allow a
change in death benefit option if it would cause the Face
Amount to decrease below $100,000.
A change in the death benefit option will result in a change
in the Policy's Face Amount, in order to avoid any change in
the amount of the death benefit, as follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to
the change minus the Policy Value as of the date of the
change.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to
the change plus the Policy Value as of the date of the change.
No new Surrender Charges will apply to an increase in Face
Amount solely due to a change in the death benefit option.
III. FACE AMOUNT CHANGES
Subject to the limitations stated in this prospectus, a
policyowner may, upon written request, increase or decrease the
Face Amount of the Policy. The Company reserves the right to
limit a change in Face Amount so as to prevent the Policy from
failing to qualify as life insurance for tax purposes.
A. Increase in Face Amount
Increases in Face Amount may be made once each Policy Year
after the first Policy Year. Any increase in Face Amount must
be at least $50,000. An increase will become effective at the
beginning of the policy month following the date Manulife USA
approves the requested increase. Increases in Face Amount are
subject to satisfactory evidence of insurability. The Company
reserves the right to refuse a requested increase if the life
insured's Attained Age at the effective date of the increase
would be greater than the maximum issue age for new Policies at
that time.
B. New Surrender Charges for an Increase
An increase in face amount will usually result in the Policy
being subject to new surrender charges. The new surrender
charges will be computed as if a new Policy were being
purchased for the increase in Face Amount. The premiums
attributable to the new Face Amount will not exceed the
surrender charge premium limit associated with that increase.
There will be no new surrender charges associated with
restoration of a prior decrease in Face Amount. As with the
purchase of a Policy, a policyowner will have a free look right
with respect to any increase resulting in new surrender
charges.
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An additional premium may be required for a face amount
increase, and a new No-Lapse Guarantee Premium will be
determined, if the No-Lapse Guarantee is in effect at the time
of the face amount increase.
C. Increase with Prior Decreases
If, at the time of the increase, there have been prior
decreases in Face Amount, these prior decreases will be
restored first. The insurance coverage eliminated by the
decrease of the oldest Face Amount will be deemed to be
restored first. If a policyowner requests to change both the
Face Amount and the Death Benefit Option in the same month, the
Death Benefit Option change shall be deemed to occur first.
D. Decrease in Face Amount
Decreases in Face Amount may be made once each Policy Year
after the first Policy Year. Any decrease in Face Amount must
be at least $50,000. A written request from a policyowner for a
decrease in the Face Amount will be effective at the beginning
of the Policy Month following the date Manulife USA approves
the requested decrease. If there have been previous increases
in Face Amount, the decrease will be applied to the most recent
increase first and thereafter to the next most recent increases
successively. Under no circumstances should the sum of all
decreases cause the policy to fall below the minimum Face
Amount of $100,000. A decrease in Face Amount will be subject
to surrender charges. See "Charges and Deductions - Surrender
Charges."
E. Changing Both the Face Amount and the Death Benefit Option
If a policyowner requests to change both the Face Amount and
the Death Benefit Option in the same month, the Death Benefit
Option change shall be deemed to occur first.
IV. POLICY VALUE
A. Determination of the Policy Value
A Policy has a Policy Value, a portion of which is available to
the policyowner by making a policy loan or partial withdrawal,
or upon surrender of the Policy. The Policy Value may also
affect the amount of the death benefit. The Policy Value at any
time is equal to the sum of the values in the Investment
Accounts, the Fixed Account, and the Loan Account.
B. Investment Accounts
An Investment Account is established under each Policy for each
sub-account of the Separate Account to which net premiums or
transfer amounts have been allocated. Each Investment Account
under a Policy measures the interest of the Policy in the
corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number
of units of that sub-account credited to the Policy times the
value of such units.
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C. Fixed Account
Amounts in the Fixed Account do not vary with the investment
performance of any sub-account. Instead, these amounts are
credited with interest at a rate determined by Manulife USA.
For a detailed description of the Fixed Account, see "The
General Account - Fixed Account".
D. Loan Account
Amounts borrowed from the Policy are transferred to the Loan
Account. Amounts in the Loan Account do not vary with the
investment performance of any sub-account. Instead, these
amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan
Spread. (See "Policy Loans - Interested Credited to Loan
Account" below)
E. Units and Unit Values
Crediting and Canceling Units
Units of a particular sub-account are credited to a Policy when
net premiums are allocated to that sub-account or amounts are
transferred to that sub-account. Units of a sub-account are
canceled whenever amounts are deducted, transferred or
withdrawn from the sub-account. The number of units credited or
canceled for a specific transaction is based on the dollar
amount of the transaction divided by the value of the unit on
the Business Day on which the transaction occurs. The number of
units credited with respect to a premium payment will be based
on the applicable unit values for the Business Day on which the
premium is received at the Service Office, except for any
premiums received before the Effective Date. For premiums
received before the Effective Date, the values will be
determined on the Effective Date.
A Business Day is any day that the New York Stock Exchange is
open for business. A Business Day ends at the close of
regularly scheduled day-time trading of the New York Stock
Exchange (currently 4:00 p.m. Eastern Time) on that day.
Units are valued at the end of each Business Day. When an order
involving the crediting or canceling of units is received after
the end of a Business Day, or on a day which is not a Business
Day, the order will be processed on the basis of unit values
determined on the next Business Day. Similarly, any
determination of Policy Value, Investment Account value or
death benefit to be made on a day which is not a Business Day
will be made on the next Business Day.
Unit Values
The value of a unit of each sub-account was initially fixed at
$10.00 and $12.50 depending on the sub-account. For each
subsequent Business Day the unit value for that sub-account is
determined by multiplying the unit value for the immediately
preceding Business Day by the net investment factor for the
sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day
is equal to (a) divided by (b) where:
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(a) is the net asset value of the underlying Portfolio shares
held by that sub-account as of the end of such Business Day
before any policy transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares
held by that sub-account as of the end of the immediately
preceding Business Day after all policy transactions were
made for that day.
The value of a unit may increase, decrease, or remain the same,
depending on the investment performance of a sub-account from
one Business Day to the next.
V. TRANSFER OF POLICY VALUE
A. General Transfers
At any time, a policyowner may transfer Policy Value from one
sub-account to another or to the Fixed Account. Transfers
involving the Fixed Account are subject to certain limitations
noted below under "Transfers Involving Fixed Accounts."
Transfer requests must be in writing in a format satisfactory
to the Company, or by telephone if a currently valid telephone
transfer authorization form is on file.
The Company reserves the right to impose limitations on
transfers, including the maximum amount that may be
transferred. The Company also reserves the right to modify or
terminate the transfer privilege at any time in accordance with
applicable law. Transfers may also be delayed when any of the
events described under items (i) through (iii) in "Payment of
Proceeds" occur. Transfer privileges are also subject to any
restrictions that may be imposed by the Trust. In addition, we
reserve the right to defer the transfer privilege at any time
when we are unable to purchase or redeem shares of the Trust.
While the Policy is in force, the policyowner may transfer the
Policy Value from any of the Investment Accounts to the Fixed
Account without incurring transfer charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change
in the investment objectives of any of the sub-accounts or
within 60 days of the date of notification of such change,
whichever is later.
Such transfers will not count against the twelve transfers that
may be made free of charge in any Policy Year.
VI. POLICY SURRENDER AND PARTIAL WITHDRAWALS
A. Policy Surrender
A Policy may be surrendered for its Net Cash Surrender Value at
any time while the life insured is living. The Net Cash
Surrender Value is equal to the Policy
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Value less any surrender charges and outstanding monthly
deductions due (the "Cash Surrender Value") minus the Policy
Debt. If there have been any prior Face Amount increases, the
Surrender Charge will be the sum of the Surrender Charge for
the Initial Face Amount plus the Surrender Charge for each
increase. The Net Cash Surrender Value will be determined as of
the end of the Business Day on which Manulife USA receives the
Policy and a written request for surrender at its Service
Office. After a Policy is surrendered, the insurance coverage
and all other benefits under the Policy will terminate.
A policyowner may make a partial withdrawal of the Net Cash
Surrender Value once each Policy Month after the first Policy
Anniversary. The policyowner may specify the portion of the
withdrawal to be taken from each Investment Account and the
Fixed Account. In the absence of instructions, the withdrawal
will be allocated among such accounts in the same proportion as
the Policy Value in each account bears to the Net Policy Value.
For information on Surrender Charges on a Partial Withdrawal
see "Charges and Deductions - Surrender Charges."
Withdrawals will be limited if they would otherwise cause the
Face Amount to fall below $100,000.
If Death Benefit Option 1 is in effect when a partial
withdrawal is made and the death benefit equals the Face
Amount, the Face Amount of the Policy will be reduced by the
amount of the withdrawal plus any applicable Surrender Charge.
Otherwise, if the death benefit is the Minimum Death Benefit as
described under "Death Benefit - Minimum Death Benefit," the
Face Amount will be reduced by the amount, if any, by which the
withdrawal plus the pro-rata Surrender Charge exceeds the
difference between the death benefit and the Face Amount.
If Death Benefit Option 2 is in effect, partial withdrawals do
not affect the Face Amount of a Policy.
When the Face Amount of a Policy is based on one or more
increases subsequent to issuance of the Policy, a reduction
resulting from a partial withdrawal will be applied in the same
manner as a requested decrease in Face Amount, i.e., against
the Face Amount provided by the most recent increase, then
against the next most recent increases successively and finally
against the initial Face Amount.
B. Surrender Charges
The Company will deduct a Surrender Charge if during the first
10 years following the Policy Date, or the effective date of a
Face Amount increase:
- the Policy is surrendered for its Net Cash Surrender
Value,
- a partial withdrawal is made,
- there is a decrease in Face Amount, or
- the Policy lapses.
The surrender charge, together with a portion of the premium
charge, is designed to compensate the Company for some of the
expenses it incurs in selling and
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distributing the Policies, including agents' commissions,
advertising, agent training and the printing of prospectuses
and sales literature.
SURRENDER CHARGE CALCULATION
The Surrender Charge is determined by the following formula
(the calculation is also described in words below):
Surrender Charge = (Surrender Charge Rate) x (Face Amount
associated with the Surrender Charge / 1000) x
(Grading Percentage)
DEFINITIONS OF THE FORMULA FACTORS ABOVE
Face Amount of the Policy Associated with the Surrender Charge
The Face Amount associated with the Surrender Charge equals the
Face Amount for which the Surrender Charge is being applied.
The Face Amount may be increased or decreased as described
under "Changing the Face Amount" above.
Surrender Charge Rate (the calculation is also described in
words below)
Surrender Charge Rate = (X) + (80%) x (Surrender Charge
Premium)
Where "X" is equal to:
TABLE FOR RATE PER $1,000 OF FACE:
Age at Issue Rate per $1,000 Age at Issue Rate per $1,000
or Increase Of Face Value ($) or Increase of Face Value ($)
0 2.00 18 4.25
1 2.13 19 4.38
2 2.25 20 4.50
3 2.38 21 5.00
4 2.50 22 5.50
5 2.63 23 6.00
6 2.75 24 6.50
7 2.88 25 7.00
8 3.00 26 7.20
9 3.13 27 7.40
10 3.25 28 7.60
11 3.38 29 7.80
12 3.50 30 8.00
13 3.63 31 8.04
14 3.75 32 8.08
15 3.88 33 8.12
16 4.00 34 8.16
17 4.13 35 and over 8.20
The Surrender Charge Premium is the lesser of:
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a. the premiums paid during the first Policy Year per $1,000
of Face Amount at issue or following a Face Amount
increase, and
b. the Surrender Charge Premium Limit specified in the Policy
per $1,000 of Face Amount.
Grading Percentage
The grading percentages during the Surrender Charge Period and
set forth in the table below apply to the initial Face Amount
and to all subsequent Face Amount increases.
The grading percentage is based on the Policy Year in which the
transaction causing the assessment of the charge occurs as set
forth in the table below:
Surrender Surrender Charge
Charge Period Grading Percentage
1 100%
2 90%
3 80%
4 70%
5 60%
6 50%
7 40%
8 30%
9 20%
10 10%
11 0%
Within a Policy Year, grading percentages will be interpolated
on a monthly basis. For example, if the policyowner surrenders
the Policy during the fourth month of Policy Year 4, the
grading percentage will be 67.5%.
FORMULAS DESCRIBED IN WORDS
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender
Charge Rate by the Face Amount associated with the Surrender
Charge divided by 1000. The amount obtained is then multiplied
by the Grading Percentage, a percent which starts at 100% and
grades down each policy year to zero over a period not to
exceed 10 years.
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Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b)
where (a) equals "X" (see Table above) and (b) equals 80% times
the Surrender Charge Premium.
ILLUSTRATION OF MAXIMUM SURRENDER CHARGE CALCULATION
Assumptions
- 45 year old male (standard risks and nonsmoker status)
- Policy issued 7 years ago
- $ 7,785 in premiums have been paid annually on the Policy
over the 7 year period
- Surrender Charge Premium for the Policy is $ 14.07
- Face Amount of the Policy at issue is $500,000 and no
increases have occurred
- Policy is surrendered during the first month of the seventh
policy year.
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $3,891
determined as follows:
First, the Surrender Charge Rate is determined by applying the
Surrender Charge Rate formula as set forth below.
Surrender Charge Rate = (8.2) + (80 %) x (Surrender
Charge Premium)
$19.46= (8.20) + (80 %) x (14.07)
The Surrender Charge Rate is equal to $ 19.78
Second, the Surrender Charge Rate is entered into the Surrender
Charge formula and the Surrender Charge is determined as set
forth below.
Surrender Charge = (Surrender Charge Rate)x (Face Amount
of the Policy associated with the Surrender Charge x
1000)x (Grading Percentage)
$ 3,891 = (19.46) x ($500,000 / 1,000) x (40 %)
The maximum Surrender Charge is equal to $3,891.
Depending upon the Face Amount of the Policy, the age of the
insured at issue, premiums paid under the Policy and the
performance of the underlying investment options, the Policy
may have no Cash Surrender Value and therefore, the policyowner
may receive no surrender proceeds upon surrendering the Policy.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion
of the Surrender
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Charges to which the Policy is subject. The portion of the
Surrender Charges assessed will be based on the ratio of the
amount of the withdrawal to the Net Cash Surrender Value of the
Policy as at the date of the withdrawal. The Surrender Charges
will be deducted from the Policy Value at the time of the
partial withdrawal on a pro-rata basis from each of the
Investment Accounts and the Fixed Account. If the amount in the
accounts is not sufficient to pay the Surrender Charges
assessed, then the amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a
result of a partial withdrawal, the Policy's remaining
surrender charges will be reduced in the same proportion that
the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
SURRENDER CHARGE ON DECREASE IN FACE AMOUNT
If the Face Amount of insurance is decreased, a pro-rata
Surrender Charge will be deducted from the Policy Value. A
decrease in Face Amount caused by a change from Death Benefit
Option 1 to Option 2 will not incur a pro-rata Surrender
Charge.
Each time a pro-rata Surrender Charge is deducted for a Face
Amount decrease, the remaining Surrender Charge will be reduced
in the same proportion that the Surrender Charge deducted bears
to the total Surrender Charge immediately before the Face
Amount decrease.
VII. LAPSE AND REINSTATEMENT
A. Lapse
Unless the No-Lapse Guarantee is in effect, a Policy will go
into default if at the beginning of any Policy Month the
Policy's Net Cash Surrender Value would be zero or below after
deducting the monthly deduction then due. Therefore, a Policy
could lapse eventually if increases in Policy Value (prior to
deduction of Policy charges) are not sufficient to cover Policy
charges. A lapse could have adverse tax consequences as
described under "Tax Treatment of the Policy - Tax Treatment of
Policy Benefits - Surrender or Lapse." The Company will notify
the policyowner of the default and will allow a 61 day grace
period in which the policyowner may make a premium payment
sufficient to bring the Policy out of default. The required
payment will be equal to the amount necessary to bring the Net
Cash Surrender Value to zero, if it was less than zero on the
date of default, plus the monthly deductions due at the date of
default and payable at the beginning of each of the two Policy
Months thereafter, plus any applicable premium charge. If the
required payment is not received by the end of the grace
period, the Policy will terminate with no value.
Death During Grace Period
If the life insured should die during the grace period, the
Policy Value used in the calculation of the death benefit will
be the Policy Value as of the date of default and the insurance
benefit will be reduced by any outstanding Monthly Deductions
due at the time of death.
No-Lapse Guarantee
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In those states where it is permitted, as long as the No-Lapse
Guarantee Cumulative Premium Test is satisfied during the
No-Lapse Guarantee Period, as described below, the Company will
guarantee that the Policy will not go into default, even if
adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to fall to zero or below
during such period.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the
No-Lapse Guarantee Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any
Additional Rating and Supplementary Benefits, if applicable. It
is subject to change if (i) the Face Amount of the Policy is
changed, (ii) there is a Death Benefit Option change, (iii)
there is a decrease in the Face Amount of insurance due to a
partial withdrawal, (iv) there is any change in the
supplementary benefits added to the Policy or in the risk
classification of the life insured or (v) a temporary
Additional Rating is added (due to a Face Amount increase), or
terminated.
The No-Lapse Guarantee Period is described under "Definitions."
While the No-Lapse Guarantee is in effect, the Company will
determine at the beginning of the Policy Month that your policy
would otherwise be in default, whether the No-Lapse Guarantee
Cumulative Premium Test, described below, has been met. If the
test has not been satisfied, the Company will notify the
policyowner of that fact and allow a 61-day grace period in
which the policyowner may make a premium payment sufficient to
keep the policy from going into default. This required payment,
as described in the notification to the policyowner, will be
equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse
Guarantee Cumulative Premium Test at the date of default,
plus the Monthly No-Lapse Guarantee Premium due for the
next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value
to zero plus the monthly deductions due, plus the next two
monthly deductions plus the applicable premium charge.
If the required payment is not received by the end of the grace
period, the No-Lapse Guarantee and the Policy will terminate.
No-Lapse Guarantee Cumulative Premium Test
The No-Lapse Guarantee Cumulative Premium Test is satisfied if,
as of the beginning of the Policy Month that your Policy would
otherwise be in default, the sum of all premiums paid to date
less any gross withdrawals taken on or before the date of the
test and less any Policy Debt is equal to or exceeds the sum of
the Monthly No-Lapse Guarantee Premiums due from the Policy
Date to the date of the test.
Optional Extended No-Lapse Guarantee
In states where approved, an optional rider may be added to the
Policy that extends the No-Lapse Guarantee Period to the
earlier of: (a) termination of the Policy or the rider, (b)
subject to any applicable state limitations, the number of
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years selected by the Policyowner and (c) age 100 of the life
insureds. (The rider may be terminated at any time but cannot
be reinstated once terminated.) In order for the Extended
No-Lapse Guarantee to be applicable a Cumulative Premium Test
must be satisfied. This test is described in the rider. The
cost of the rider varies by issue age and Face Amount and a
change in the Face Amount of the Policy may affect the cost of
the rider. Neither the No-Lapse Guarantee nor the Extended
No-Lapse Guarantee apply to the Term Rider.
B. Reinstatement
A policyowner can reinstate a Policy which has terminated after
going into default at any time within 21 days following the
date of termination without furnishing evidence of
insurability, subject to the following conditions:
(a) The life insured's risk classification is standard or
preferred, and
(b) The life insured's Attained Age is less than 46.
A policyowner can, by making a written request, reinstate a
Policy which has terminated after going into default at any
time within the five-year period following the date of
termination subject to the following conditions:
(a) Evidence of the life insured's insurability, satisfactory
to the Company is provided to the Company;
(b) A premium equal to the amount that was required to bring
the Policy out of default immediately prior to termination,
plus the amount needed to keep the Policy in force to the
next scheduled date for payment of the Planned Premium must
be paid to the Company.
If the reinstatement is approved, the date of reinstatement
will be the later of the date the Company approves the
policyowner's request or the date the required payment is
received at the Company's Service Office. In addition, any
surrender charges will be reinstated to the amount they were at
the date of default. The Policy Value on the date of
reinstatement, prior to the crediting of any Net Premium paid
on the reinstatement, will be equal to the Policy Value on the
date the Policy terminated.
VIII. POLICY LOANS
While this Policy is in force and has an available loan value,
a policyowner may borrow against the Policy Value of the
Policy. The Policy serves as the only security for the loan.
Policy loans may have tax consequences, see "Tax Treatment of
Policy Benefits - Interest on Policy Loans After Year 10" and
"Tax Treatment of Policy Benefits - Policy Loan Interest."
A. Available Loan Value
The Maximum Loanable Amount is 90% of the Policy's Net Cash
Surrender Value. (In the state of Florida, the available loan
value on any date is the Net
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Cash Surrender Value, less estimated interest and Future
Monthly Deductions, due to the next anniversary.)
B. Interest Charged on Policy Loans
Interest on the Policy Debt will accrue daily and be payable
annually on the Policy Anniversary. During the first 10 Policy
Years, the rate of interest charged will be an effective annual
rate of 5.25%. Thereafter, the rate of interest charged will be
an effective annual rate of 4%, subject to the Company's
reservation of the right to increase the rate as described
under the heading "Tax Treatment of Policy Benefits - Interest
on Policy Loans After Year 10." If the interest due on a Policy
Anniversary is not paid by the policyowner, the interest will
be borrowed against the Policy.
Interest on the Policy Debt will continue to accrue daily if
there is an outstanding loan when monthly deductions and
premium payments cease when the life insured reaches age 100.
The Policy will go into default at any time the Policy Debt
exceeds the Cash Surrender Value. At least 61 days prior to
termination, the Company will send the policyowner a notice of
the pending termination. Payment of interest on the Policy Debt
during the 61 day grace period will bring the policy out of
default.
C. Loan Account
When a loan is made, an amount equal to the loan principal,
plus interest to the next Policy Anniversary, will be deducted
from the Investment Accounts or the Fixed Account and
transferred to the Loan Account. Amounts transferred into the
Loan Account cover the loan principal plus loan interest due to
the next Policy Anniversary. The policyowner may designate how
the amount to be transferred to the Loan Account is allocated
among the accounts from which the transfer is to be made. In
the absence of instructions, the amount to be transferred will
be allocated to each account in the same proportion as the
value in each Investment Account and the Fixed Account bears to
the Net Policy Value. A transfer from an Investment Account
will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the
Investment Account. However, since the Loan Account is part of
the Policy Value, transfers made in connection with a loan will
not change the Policy Value.
D. Interest Credited to the Loan Account
Interest will be credited to amounts in the Loan Account at an
effective annual rate of at least 4.00%. The actual rate
credited is equal to the rate of interest charged on the policy
loan less the Loan Interest Credited Differential, which is
currently 1.25% during the first ten policy years and 0%
thereafter, and is guaranteed not to exceed 1.25%. (The Loan
Interest Credited Differential is the difference between the
rate of interest charged on a policy loan and the rate of
interest credited to amounts in the Loan Account.) The Company
may change the Current Loan Interest Credited Differential as
of 90 days after sending you written notice of such change.
For a Policy that is not a Modified Endowment Contract ("MEC"),
the tax consequences associated with a loan interest credited
differential of 0% are unclear. A tax advisor should be
consulted before effecting a loan to evaluate the
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tax consequences that may arise in such a situation. If we
determine, in our sole discretion, that there is a substantial
risk that a loan will be treated as a taxable distribution
under federal tax law as a result of the differential between
the credited interest rate and the loan interest rate, we
retain the right to increase the loan interest rate to an
amount that would result in the transaction being treated as a
loan under federal tax law.
E. Loan Account Adjustments
On the first day of each Policy Anniversary the difference
between the Loan Account and the Policy Debt is transferred to
the Loan Account from the Investment Accounts or the Fixed
Account. Amounts transferred to the Loan Account will be taken
from the Investment Accounts and the Fixed Account in the same
proportion as the value in each Investment Account and the
Fixed Account bears to the Net Policy Value.
F. Loan Repayments
Policy Debt may be repaid in whole or in part at any time prior
to the death of the life insured, provided that the Policy is
in force. When a repayment is made, the amount is credited to
the Loan Account and transferred to the Fixed Account or the
Investment Accounts. Loan repayments will be allocated first to
the Fixed Account until the associated Loan Sub-Account is
reduced to zero and then to each Investment Account in the same
proportion as the value in the corresponding Loan Sub-Account
bears to the value of the Loan Account.
Amounts paid to the Company not specifically designated in
writing as loan repayments will be treated as premiums. Where
permitted by applicable state law, when a portion of the Loan
Account amount is allocated to the Fixed Account, the Company
may require that any amounts paid to it be applied to
outstanding loan balances.
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