Aetna Life Insurance and Annuity Company's Redemption
and Transfer Procedure and Method of Computing
Adjustments on Payments and Cash Value Upon Conversion
to Fixed Benefit Policies
This document sets forth, as required by Rule 6e-3(T)(b)(12)(iii), the
administrative procedures that will be followed by Aetna Life Insurance and
Annuity Company (the "Company") in connection with the issuance of The Flexible
Premium Variable Life Insurance Policy on the Lives of Two Insureds (the
"Policy") described in this Registration Statement, the transfer of assets held
thereunder, and the redemption by Policyowners of their interests in the
Policies. This document also describes, as required by Rule
6e-3(T)(b)(13)(v)(B), the method that the Company will use in adjusting the
payments and cash values when the Policy is exchanged for a fixed benefit life
insurance policy.
1. PUBLIC OFFERING PRICE
Purchase and Related Transactions
Set out below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either
directly or indirectly, a "purchase" transaction. The summary shows that,
because of the insurance nature of the Policies, the procedures involved
necessarily differ in certain significant respects from the purchase
procedures for mutual funds and contractual plans.
a. Premium Levels and Underwriting Standards
Premiums for the Policies will not be the same for all Policyowners. The
Policy is a flexible premium life insurance Policy in that the Policyowner
has the right to decide when to make premium payments and in what amounts.
The Policy provides various premium levels at which the Policyowner may
make payments. As described in this Registration Statement, they are the
Planned Premium, the Basic Monthly Premium, and the Guaranteed Death
Benefit to the Younger Insured's Age 100 Premium. The Policyowner may make
any other premium payments as Additional Premiums. Payment of premiums in
accordance with the premium levels listed above is not mandatory and
failure to do so will not of itself cause the Policy to lapse. Instead,
Policyowners may make premium payments in any amount at any frequency,
subject only to the requirement that evidence of insurability be submitted
if the Additional Premium or the new Planned Premium would increase the
difference between the Death Benefit and the Total Account Value. If
satisfactory evidence of insurability is requested and not provided, the
Company will refund the increase in premium without interest and without
participation of such amounts in the Funds.
As described in this Registration Statement, the Basic Monthly Premium
provides for the No Lapse Coverage Provision for all Policies. The Basic
Monthly Premium also provides for the Guaranteed Death Benefit to the
Younger Insured's Attained Age 80 provision for all Policies except for
those Policies with Death Benefit Option 2 where one or both Insureds are
substandard table-rated or have an underwriting class of uninsurable. The
Guaranteed Death Benefit to the Younger Insured's Age 100 Premium provides
for the Guaranteed Death Benefit to the Younger Insured's Attained Age 100
provision for all Policies except for those Policies with Death Benefit
Option 2 where one or both Insureds are substandard table-rated or have an
underwriting class of uninsurable.
Under the No Lapse Coverage Provision, the Policy will not terminate
within the 5-year period after the Issue Date or the Issue Date of any
increase in Specified Amount if on every Monthly Deduction Day
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within that period the sum of premiums paid within that period equals or
exceeds the sum of the Basic Monthly Premiums for each policy month from
the start of the period, including the current month, plus any Partial
Surrenders, plus any increase in the Loan Account Value since the start of
the period. If on any Monthly Deduction Day within the 5-year period the
sum of premiums is insufficient to provide for the No Lapse Coverage
Provision, the Grace Period provision will apply. The Grace Period
provision is defined under Section 2.c. below.
Under the Guaranteed Death Benefit to the Younger Insured's Attained Age
80 provision, the Policy will remain in force until the later of the
Younger Insured's Attained Age 80 or for 10 Policy Years from the Issue
Date, even if the Total Account Value is insufficient to satisfy the
current Monthly Deduction, if on each Monthly Deduction Day the sum of all
premiums paid equals or exceeds the sum of all Basic Monthly Premiums for
each policy month from the Issue Date, including the current month, plus
any Partial Surrenders. If the Guaranteed Death Benefit to the Younger
Insured's Attained Age 80 provision is in place and the required premium
is not received within 61 days, the Guaranteed Death Benefit to the
Younger Insured's Attained Age 80 provision will terminate. If the Basic
Monthly Premiums have been paid, but outstanding Policy Loans have caused
the Policy to enter the Grace Period, the Guaranteed Death Benefit to the
Younger Insured's Attained Age 80 provision will not keep the Policy in
force beyond the Grace Period. The Basic Monthly Premium will continue to
be due and payable if the conditions of the Grace Period are met.
Under the Guaranteed Death Benefit to the Younger Insured's Attained Age
100 provision, the Policy will remain in force until the Younger Insured's
Attained Age 100, even if the Total Account Value is insufficient to
satisfy the current Monthly Deduction, if on each Monthly Deduction Day
the sum of all premiums paid equals or exceeds the sum of all the
Guaranteed Death Benefit to the Younger Insured's Age 100 Premiums for
each policy month from the Issue Date, including the current month, plus
any Partial Surrenders. If the Guaranteed Death Benefit to the Younger
Insured's Attained Age 100 provision is in place and the required premium
is not received within 61 days and it is determined that the conditions
for the Guaranteed Death Benefit to the Younger Insured's Age 80 provision
have been satisfied, the Guaranteed Death Benefit to the Younger Insured's
Age 100 provision will terminate and the conditions set forth in the
Guaranteed Benefit to the Younger Insured's Age 80 will be applicable. If
the Guaranteed Death Benefit to the Younger Insured's Age 100 Premiums
have been paid, but outstanding Policy Loans have caused the Policy to
enter the Grace Period, the Guaranteed Death Benefit to the Younger
Insured's Attained Age 100 provision will not keep the Policy in force
beyond the Grace Period. The Guaranteed Death Benefit to the Younger
Insured's Age 100 Premium will continue to be due and payable if the
conditions of the Grace Period are met.
In the absence of or upon expiration of the No Lapse Coverage Provision or
the Guaranteed Death Benefit to the Younger Insured's Attained Age 80 or
the Guaranteed Death Benefit to the Younger Insured's Attained Age 100
provisions (collectively known as the Guaranteed Death Benefit
provisions), the Policy will remain in force so long as the Surrender
Value is sufficient to pay for the Monthly Deduction on each Monthly
Deduction Day. The Grace Period will not begin so long as the Surrender
Value is sufficient to pay for the Monthly Deduction on the Monthly
Deduction Day.
The Cost of Insurance rate utilized in computing the Cost of Insurance
charge will not be the same for each Insured. The chief reason is that the
principle of pooling and distribution of mortality risks is based upon the
assumption that each Insured incurs an insurance rate commensurate with
his or her mortality risk which is actuarially determined based upon
factors such as issue age, attained age, sex, and underwriting class
(health, occupation, avocation, smoker/nonsmoker status). Accordingly,
while not all Insureds will be subject to the same Cost of Insurance rate,
there will be a single Cost of Insurance rate for all Insureds in a given
actuarial category.
The Policies will be offered and sold pursuant to established underwriting
standards and in accordance with State insurance laws. State insurance
laws prohibit unfair discrimination among Insureds but recognize that Cost
of Insurance rates must be based upon factors such as issue age, attained
age, health,
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"Procedures Manual" Page 2
and occupation. Most States also recognize that Cost of Insurance rates
must be based upon the sex of the Insured. However, for those States that
do not allow distinctions based on sex, the Company will use Cost of
Insurance rates that disregard the sex of the Insured.
b. Application and Initial Premium Processing
Upon receipt of a completed application form, the Company will follow
certain insurance underwriting procedures designed to determine whether
the proposed Insureds are insurable. This process may involve such
verification procedures as medical examinations and personal telephone
interviews with the proposed Insureds. The Policy will not be issued until
these underwriting procedures have been completed.
If a sufficient premium payment is made at the time of the application and
if the proposed Insureds have answered favorably questions relating to his
or her health, a temporary insurance agreement (where approved for use)
will be provided to the applicant (proposed Policyowner). This agreement
provides that insurance (up to $1,000,000 in approving States) equal to
the Specified Amount applied for will be provided until the applicant is
notified of acceptance or rejection of the application. Our standard
practice is then to make the Policy effective on the date of underwriting
approval for the Specified Amount applied for, and to apply the premium
payments as of that date. Under limited circumstances, the Company may
backdate a Policy, upon request, by assigning an Issue Date earlier than
the date the application is signed but no earlier than six months prior to
approval of the Policy. Backdating may be desireable, for example, so that
the policyowner can purchase a particular Policy Specified Amount for
lower Cost of Insurance Rates based on a younger insurance age. For a
backdated Policy, the policyowner may pay the premium for the period
between the Issue Date and the date the application is received in the
Home Office. Backdating of the Policy will not affect the date on which
the premium payments are credited to the Separate Account and credited
with Accumulation Units. The Policy cannot be credited with Accumulation
Units until the Net Premium is actually deposited in the Separate Account.
The above procedure is not followed in those States that do not allow the
Company to reflect performance of the Separate Account in the refund as a
result of exercising the Right of Policy Examination provision. In such
States, either no money will be accepted at the time of the application,
or the Policy may only be dated from the date of the underwriting
approval.
Under the Company's current rules, the minimum Specified Amount at issue
is $250,000. The Company reserves the right to revise its rules from time
to time to specify a different minimum Specified Amount at issue.
c. Premium Allocation
In the application for a Policy, the Policyowner can allocate premiums
among the variable options of the Separate Account. The premium will be
allocated (after its receipt) on the first Valuation Date on or following
the effective date of the insurance coverage under the Policy. Premiums
paid after the date of the application will be allocated according to the
Policyowner's instructions in effect at the time the premium payment is
received in the Company's Home Office. The allocation for future premium
payments may be changed at any time, free of charge. The change will be
effective as of the date of the next premium payment after the Policyowner
notifies the Company of the change.
d. Reinstatement of a Lapsed Policy
If the Policy lapses (terminates without value) as provided in the Grace
Period provision, it may be reinstated. To reinstate the Policy, the
following conditions must be met:
1. the Policy has not been fully surrendered;
2. the Policyowner must apply for reinstatement of a lapsed policy
within 5 years after the date of lapse and before the Maturity
Date of the Policy;
3. the Company must receive evidence of insurability, satisfactory
to the Company, on each Insured; and
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"Procedures Manual" Page 3
4. the Company must receive a premium payment sufficient to keep the
Policy in force for the current month plus two additional months.
If the Policy is reinstated while the No Lapse Coverage Provision would
have been in effect had the Policy not lapsed, the values including the
Loan Account Value will be reinstated to the point they were on the date
of lapse.
If the Policy is reinstated after the No Lapse Coverage Provision would
have expired had the Policy not lapsed, the Policy will be reinstated on
the Monthly Deduction Day following the Company's approval. The Policy's
Total Account Value at reinstatement will be the Net Premium paid less the
Monthly Deduction for that Monthly Deduction Day. Any Loan Account Value
will not be reinstated.
If the Policy's Total Account Value less and Loan Account Value including
accrued interest was not sufficient to cover the Full Surrender Charge at
the time of lapse, only the remaining portion of the Surrender Charge will
be reinstated. At the time of the Policy's reinstatement, the remaining
portion of the Surrender Charge will be proportionately reduced by the
same pattern as the original schedule of Surrender Charges.
Supplemental Benefits will be reinstated only with the Company's consent.
The Guaranteed Death Benefit provisions will not be reinstated.
e. Increases in Specified Amount
The administrative procedures in connection with Increases in Specified
Amount are specified in full under the Policy Changes provision in the
Policy Rights section of this Registration Statement.
f. Policy Loans
The administrative procedures in connection with Policy Loans are
specified in full under the Policy Loan provision in the Policy Rights
section of this Registration Statement.
g. Correction of Misstatement of Age and/or Sex
The administrative procedures in connection with the correction of
misstatement of age and/or sex are specified in full under the
Misstatement as to Age and/or Sex provision in the Miscellaneous Policy
Provisions section of this Registration Statement.
2. REDEMPTION PROCEDURES
Surrenders and Related Transactions
This Section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects form the redemption procedures for mutual funds and contractual
plans.
a. Full or Partial Surrender Value
The administrative procedures in connection with Full or Partial Surrender
of the Policy are specified in full under Full Surrenders provision and
Partial Surrenders provision of the Policy Rights section of this
Registration Statement.
b. Death or Maturity Benefit Claims
As long as the Policy remains in force, the Company will generally pay a
Death Benefit to the beneficiary in accordance with the terms of the
Policy, within seven days after the Company receives due proof of death of
the Surviving Insured and verifies the validity of the claim.
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Payment of Death Benefit may, however, be postponed under certain
circumstances. In particular, during the first two Policy Years after
either (a) the Issue Date, (b) an increase in Specified Amount or (c) a
Policy is reinstated, and in other circumstances in which the Company may
have a basis for contesting the claim, there can be a delay beyond the
seven day period. The amount of the Death Benefit is determined at the end
of the Valuation Period during which the Surviving Insured dies. The Death
Benefit payable under the selected Death Benefit Option will be reduced by
the amount necessary to repay the Loan Account Value in full and, if the
Policy is within the Grace Period, any payment required to keep the Policy
in force. The Death Benefit will be increased by any additional insurance
provided by rider.
The Death Benefit may exceed the Specified Amount of the Policy. The
amount by which the Death Benefit exceeds the Specified Amount depends
upon the Death Benefit Option in effect and the Total Account Value of the
Policy. Under Death Benefit Option 1, the Death Benefit will be the
greater of (a) the Specified Amount or (b) a percentage of the Total
Account Value. This Percentage is 1 divided by the Net Single Premium per
dollar of Specified Amount. If the Death Benefit is the Specified Amount,
the Death Benefit will be increased by any premium payment and gain in
investment earnings during the portion of the policy month preceding
death.
Under Death Benefit Option 2, the Death Benefit will be the greater of (a)
the Specified Amount plus the Total Account Value on the date of death or
(b) a percentage of the Total Account Value. This Percentage is 1 divided
by the Net Single Premium per dollar of Specified Amount. Death Benefit
Option 2 provides a varying Death Benefit which increases or decreases
over time, depending upon the amount of premium paid and the investment
performance of the Fund(s) chosen by the Policyowner.
The amount of the benefit payable at maturity is the Total Account Value
on the Maturity Date. These proceeds will be reduced by the Loan Account
Value and any unpaid accrued interest and are payable only if one or both
Insureds are living on the Maturity Date. The Maturity Date is the Policy
Anniversary on which the Younger Insured reaches Attained Age 100.
c. Policy Lapsation
If the Surrender Value is insufficient to allow a Monthly Deduction on the
Monthly Deduction Day and if the conditions of the No Lapse Coverage
provision or the Guaranteed Death Benefit provisions have been met, the
Company will allow the Policyowner 61 days of grace for payment of an
amount sufficient to allow the Monthly Deduction. The Company may require
payment of the amount equal to the lesser of (1) or (2) where (1) is the
amount necessary to meet the conditions of the No Lapse Coverage provision
or Guaranteed Death Benefit provisions and (2) is an amount sufficient to
cover the Monthly Deduction(s) that would result in the Surrender Value
being greater than zero.
If the conditions of the No Lapse Coverage provision or the Guaranteed
Death Benefit provisions have not been met and the Surrender Value is
insufficient to allow a Monthly Deduction on the Monthly Deduction Day,
the Company will allow 61 days of grace for payment of an amount
sufficient to allow the Monthly Deduction. The Company may require payment
of the amount necessary to keep the policy in force for the current month
plus two additional months.
Written notice will be mailed to the Policyowner's last known address,
according to the Company's records, not less than 61 days before
termination of the Policy. The notice will also be mailed to the last
known address of any assignee of record.
During the days of grace, the Policy will stay in force. If the Second
Death occurs during the days of grace, the Company will deduct an amount
required to keep the policy in force from the Death Benefit.
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If payment is not made within 61 days after the Monthly Deduction Day, the
Policy will terminate without value at the end of the Grace Period. The
termination will be effective on the Monthly Deduction Day for the first
unpaid Monthly Deduction.
3. TRANSFERS
There are currently 17 Variable Options of the Separate Account. The Company
reserves the right to limit the total number of Variable Options elected by
the Policyowner to 15 over the lifetime of the Policy. Each Variable Option
invests in an open-end management investment company (mutual fund) whose
shares are purchased by the Separate Account to fund the benefits provided by
the Policy. At any time prior to the Maturity Date, the Policyowner may
transfer all or part of value attributable to one Variable Option to the
value of any other Variable Option or to the Fixed Account Value. The Company
reserves the right to charge an administrative fee of $25 for more than 12
such transfers per Policy Year. This administrative fee, if imposed, will be
deducted on a pro rata basis in proportion to the values in each Variable
Option of the Separate Account. A transfer due to Automated Transfers (Dollar
Cost Averaging) or a Policy Loan will not count toward the transfers limit.
Within the 45 days following the Policy Anniversary, the Policyowner may
request a transfer of a portion of the Fixed Account Value to one or more of
the Variable Options. This type of transfer is allowed only once within this
45 day period, and the Company must receive the Policyowner's request at the
Home Office within the 45 day period. The transfer will be effective on the
Valuation Date that the Policyowner's request is received by the Home Office.
The amount of such transfer cannot exceed 25% of the Fixed Account Value.
However, if the Fixed Account Value is less than or equal to $500, the
policyowner may transfer all or a portion of the Fixed Account Value.
Accumulation Units for each Variable Option will be added to or subtracted
from the Separate Account Value, based on each Variable Option's Accumulation
Unit Value at the end of the Valuation Period when the request for such
transfer is received by the Company. A dollar amount will be added or
subtracted from the Fixed Account Value according to the terms of the request
for transfer.
4. CONVERSION PROCEDURES
At any time during the life of the Policy, this Flexible Premium Policy can
essentially be converted to a permanent life insurance contract by
transferring the entire Separate Account Value to the Fixed Account. As
required by Rule 6e-3(T)(b)(13)(v)(B), this conversion (transfer) will
provide the same death benefit or the same net amount at risk as the flexible
contract at the time of conversion and Cost of Insurance rates which are
based on the same issue age and underwriting class of the insureds as the
flexible contract. In order to retain a permanent life insurance contract,
all future Net Premiums must also be allocated to the Fixed Account. The
Company guarantees a minimum interest rate on amounts in the Fixed Account
and assumes the risk of investment gain or loss. The Company guarantees that,
at any time, the Fixed Account Value will not be less than the amount of
the Net Premiums allocated to the Fixed Account, plus interest at an annual
rate of not less than 4%, less the amount of any Partial Surrenders, Policy
Loans, or Monthly Deductions.
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