Exhibit 7
Memorandum describing GE Life & Annuity's Issuance,
Transfer, Redemption and Exchange Procedures for the Policies
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
PURSUANT TO RULE 6E-3(T)(B)(12)(III) UNDER THE INVESTMENT COMPANY ACT
OF 1940 FOR GE LIFE AND ANNUITY ASSURANCE COMPANY FLEXIBLE
PREMIUM VARIABLE LIFE INSURANCE POLICIES
This document sets forth the administrative procedures that will be
followed by GE Life and Annuity Assurance Company ("GE Life & Annuity", "we",
"us" or "our") in connection with the issuance of its Flexible Premium Joint and
Last Survivor Variable Life Insurance Policy ("Policy" or "Policies") and
acceptance of payments thereunder, the transfer of assets held thereunder, and
the redemption by owners of the Policy ("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 (File No. 333-82311) 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; APPLICATION; INITIAL PREMIUMS;
AND ISSUANCE
1. Offer of the Policies. The Policies will be offered and
issued for premiums pursuant to underwriting standards in
accordance with state insurance laws. Premiums for the
Policies will not be the same for all Owners selecting the
same Specified Amount. Insurance is based on the principle of
pooling and distribution of mortality risks, which assumes
that the Owner of each Policy pays a premium commensurate with
the Insureds' mortality risk as actuarially determined,
utilizing factors such as Age, gender, health and occupation.
A uniform cost of insurance for all Insureds would
discriminate unfairly in favor of those Insureds representing
greater risk. Although there will be no uniform cost of
insurance for all Insureds, there will be a uniform cost of
insurance for all Insureds of the same risk classification.
2. Application. Persons wishing to purchase a Policy must
complete an application and submit it to us through an
appropriately appointed, licensed insurance agent who is a
registered representative of a broker/dealer with which we
have a selling agreement. The applicant must specify the name
of the Insureds, and provide certain required information
about the Insureds. The applicant must pay an initial premium
of a sufficient amount which, if not submitted with the
application or during the underwriting period, must be
submitted when the Policy is delivered before the Policy will
be issued. The applicant may also specify a periodic premium
payment plan, which contemplates level premiums at specified
intervals, (annually, semi-annually, or quarterly), designate
Net Premium allocation percentages, select the initial
Specified Amount and name the Beneficiary (ies). The minimum
Specified Amount available is $250,000. Before an application
will be deemed complete so that underwriting will proceed, the
application must include the applicant's signature and the
Insureds' dates of birth, a signed authorization, and
suitability information.
3. Receipt of Application and Underwriting. Upon receipt of a
completed application from an applicant, we will follow
certain insurance underwriting (risk evaluation) procedures
designed to determine whether the proposed Insureds are
insurable. This process will involve such verification
procedures as medical examinations and may require that
further information be provided about the Insureds before a
determination can be made. An application may be rejected for
any lawful reason.
4. Issuance of Policy. When the underwriting procedure has
been completed, the application has been approved, and an
initial premium of sufficient amount has been received, the
Policy is issued. Coverage becomes effective on the Policy
Date. The Policy Date is used to measure Policy Months, Policy
Years, and Policy Anniversaries. Each Policy when issued is
assigned a Policy Date. The Policy Date will normally be a
date between the date the application is signed and the date
the Policy is issued; however, the Policy Date may be any
other date mutually agreeable to GE Life & Annuity and the
Owner. If the Policy Date would have occurred on the 29th,
30th or 31st day of any month, we will designate the 28th day
of the month as the Policy Date.
5. Initial Premium. The initial premium must meet certain
minimums for the Policy. The minimum premium amount sufficient
to fund the Policy depends on a number of factors, such as the
Age, gender (where appropriate) and rating class of the
proposed Insureds, the desired Specified Amount, and any
supplemental benefits. If the full first premium is included
with the application, we may give the Owner a conditional
receipt. This means that, subject to our underwriting
requirements and subject to a maximum limitation, the
insurance will become effective on the effective date
specified in the conditional receipt, provided the Insureds
are found to be, on the effective date, insurable at standard
premium rates for the plan and amount of insurance requested
in the applications. This effective date will be the latest of
(i) the date of completion of the application, (ii) the date
of completion of all medical exams and tests we require, and
(iii) the policy date requested by the Owner when that date is
later than the date the Owner completed the application. We
will accept as an initial premium, money from one contract
that qualified for a tax free exchange under Section 1035 of
the Code. We will accept 1035 exchanges even if there is an
outstanding loan on the other policy, so long as the
outstanding loan is no more than 40% of the rollover premium.
6. Additional Premiums.
a. Additional Premiums Permitted. Additional premiums may
be paid in any amount and at any time, subject to the
following limits:
o A planned periodic premium must be at least $25.
o We reserve the right to limit the number and amount of
any unscheduled premium payment.
o Total premiums paid in a Policy Year may not exceed
guideline premium limitations for life insurance set
forth in the Internal Revenue Code of 1986, as amended
(the "Code").
o We 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 Code.
7. Refund of Excess Premium Amount. We reserve the right to
reject any premium, or portion thereof, if at any time a
premium payment would result in the Policy being disqualified
as life insurance under the Code. We will refund any excess
premium along with interest accrued thereon.
8. Planned Premium. At the time of application, the Owner may
select a plan for paying premiums at specified annual,
semi-annual or quarterly intervals. The Owner is not required
to pay premiums in accordance with this plan. The Owner may
change the planned premium frequency (between annual,
semi-annual and quarterly) by providing satisfactory
instructions to our Home Office. Any such change must comply
with the premium limits for additional premiums discussed
above.
9. Crediting Premiums
a. Initial Premium. The initial premium will be
credited to the Policy on the later of the date the
application is approved or the date the Home Office
receives the payment.
b. Additional Premiums. Any additional premium received by
us will be credited to the Policy on the Valuation Day it
is received at our Home Office.
c. Electronic Funds Transfer. The Owner
may arrange with us to have annual, semi-annual,
quarterly or monthly premiums paid via pre-authorized,
automatic deductions from the Owner's bank account or
similar account acceptable to us. We will notify the
Owner's bank or account holder of the
automatic deduction, and funds will be deducted from
the Owner's account and credited to the Owner's
Policy on the next Valuation Day.
B. PREMIUMS UPON INCREASE IN SPECIFIED AMOUNT, PREMIUMS DURING A
GRACE PERIOD, AND PREMIUMS UPON REINSTATEMENT
1. Premiums Upon Increase in Specified Amount. Generally, the
payment of a premium will not be required for an increase in
Specified Amount. However, depending on Surrender Value at the
time of an increase in the Specified Amount and the amount of
the increase requested, an additional premium or change in the
amount of planned premiums may be necessary due to the
increase that will occur in the amount of the Monthly
Deduction based upon the increase in Specified Amount. Also,
during the Continuation Period an increase in the Specified
Amount will increase the Continuation Amount.
2. Premiums During a Grace Period. If the Surrender Value on a
Monthly Anniversary Day is less than the amount of the monthly
deduction due on that date, and the Continuation Period is not
in effect, the Policy will be in default and a grace period
will begin. During the Continuation Period, the Policy will
remain in force, regardless of the sufficiency of the
Surrender Value, if the Net Total Premium is at least equal to
the Continuation Amount. The Continuation Amount is a
cumulative minimum amount that is required to keep the Policy
in force during the Continuation Period. The Continuation
Amount is based in part on the gender, Age, and rating class
of the Insureds, the requested Specified Amount and any
supplemental benefits.
o The grace period will end 61 days after the date on which
we mail a grace period notice to the Owner's last known
address stating the amount required to be paid to prevent
the Policy from lapsing. The Policy will not lapse, and
the insurance coverage continues, until the expiration of
this grace period.
o If the grace period ends prior to the end of the
Continuation Period and the Policy is reinstated prior to
the end of the Continuation Period, the required premium
must equal,
o the Continuation Amount as of the date of reinstatement,
o minus the sum of monthly deductions that would
have been made during the period between
termination and reinstatement, divided by the Net
Premium factor,
o minus the Net Total Premium on the date of termination,
and
o plus the premium sufficient to keep the Policy in effect
for two months after the date of reinstatement.
o If the grace period ends prior to the end of the
Continuation Period and the Policy is reinstated after
the end of the Continuation Period, the required premium,
after multiplying by the Net Premium factor, must equal
o the surrender charge on the date of termination,
o plus the monthly deduction for two months after the
date of reinstatement,
o minus the Account Value on the date of termination.
o If the grace period ends after the end of the Continuation
Period and the Policy is reinstated, the required premium
must be large enough to keep the Policy in effect for at
least two months.
o Failure to make a sufficient payment within the grace
period will result in lapse of the Policy without value or
benefits payable.
o A Policy that lapses without value may be reinstated at
any time within three years after lapse by submitting: an
application for reinstatement, evidence of the Insureds'
insurability satisfactory to us, and payment of a required
premium.
C. ALLOCATIONS OF NET PREMIUMS TO THE VARIABLE ACCOUNT
1. Net Premium. The Net Premium is equal to the premium paid
times the Net Premium Factor.
2. Separate Account II. An Owner may allocate Net Premiums to
one or more of the Investment Subdivisions of GE Life &
Annuity Separate Account II ("Separate Account II"). Separate
Account II currently has thirty-eight Investment Subdivisions
available under the policy. Each Investment Subdivision
invests exclusively in shares representing an interest in a
separate corresponding portfolio of one of the ten funds (the
"Funds"). Each Fund is registered under the Investment Company
Act of 1940 as an open-end management investment company.
Additional Investment Subdivisions may be added from time to
time to invest in any of the portfolios of the Funds or any
other investment company.
When an Owner allocates an amount to an Investment
Subdivision (either by Net Premium allocation, transfer of
Account Value, transfer of loan interest from the General
Account or repayment of a Policy Loan, the Policy is credited
with units in that Investment Subdivision. The number of units
is determined by dividing the amount allocated to the
Investment Subdivision by the Investment Subdivision's unit
value for the Valuation Day when the allocation or transfer is
effected. An Investment Subdivision's unit value is determined
for each Valuation Period after the date of establishment (the
unit value for each Investment Subdivision was arbitrarily set
at $10 when the Investment Subdivision was established) by
multiplying the value of a unit for an Investment Subdivision
for the prior Valuation Period by the net investment factor
for the Investment Subdivision for the current Valuation
Period. The net investment factor is an index used to measure
the investment performance of an Investment Subdivision from
one Valuation Period to the next.
3. Allocations Among the Investment Subdivisions. Net Premiums
are allocated to the Investment Subdivisions in accordance
with the following procedures:
a. General. In the application for the Policy, the
Owner will specify the percentage of Net Premium to
be allocated to each Investment Subdivision of
Separate Account II. The percentage of each Net
Premium that may be allocated to any Investment
Subdivision must be a whole number, and the sum of
the allocation percentages must be 100%. Such
allocation percentages may be changed at any time by
the Owner submitting written instructions to our Home
Office, provided that the requirements described
above are met. An Owner may not allocate Net Premiums
and Account Value to more than seven Investment
Subdivisions at any given time.
b. Allocation During Free-Look Period. In general,
during the free-look period Net Premiums will be
allocated to the Investment Subdivisions based on the
Net Premium allocation percentages specified in the
application. For states requiring the refund of
premiums during the free-look period, all Net
Premiums will be allocated to the Investment
Subdivision investing in the Money Market Portfolio
of GE Investments Funds, Inc. Fifteen days following
this allocation, the Account Value is transferred to
and allocated to the Investment Subdivisions based on
the Net Premium allocation percentages then in
effect.
c. Allocation After Free-Look Period. Additional Net
Premiums received after the free-look period expires
will be credited to the Policy and allocated to the
Investment Subdivisions in accordance with the
allocation percentages in effect on the Valuation Day
that the premium is received at our Home Office.
Allocation percentages can be changed at any time.
D. POLICY DEBT REPAYMENTS AND INTEREST PAYMENTS
1. Repaying Policy Debt. The Owner may repay all or part of
the Policy Debt at any time during either Insured's life while
the Policy is in force. Policy Debt is equal to the sum of all
outstanding Policy loans plus any accrued interest. Loan
repayments must be sent to our Home Office and will be
credited as of the date received. Loan repayments will not be
subject to the current premium charge. If the Death Proceeds
become payable while Policy Debt is outstanding, the Death
Benefit will be reduced by outstanding Policy Debt to
determine the Death Proceeds payable.
2. Allocation for Repayment of Policy Debt. On the date we
receive a repayment of all or part of Policy Debt, an amount
equal to the repayment will be transferred from the General
Account to the Investment Subdivisions of Separate Account II
and allocated as directed by the Owner when submitting the
repayment. If no direction is provided, the amount will be
allocated in accordance with the Owner's current Net Premium
allocation percentages.
3. Interest on Policy Debt. A portion of Policy loans taken or
existing on or after the Preferred Loan Availability Date
(defined in the Policy data pages) will be designated as
Preferred Policy Debt. In Policy Years 11 and later, Preferred
Policy Debt will be that portion of Policy Debt which is at
least as large as the difference between the Account Value
(less any surrender charge that applies) and the sum of all
premium payments made. We redetermine the amount of Preferred
Policy Debt each Policy Month. We currently intend to credit
interest at an annual rate of 6% to that portion of Account
Value transferred to the General Account which is equal to
Preferred Policy Debt. We reserve the right to change, at our
sole discretion, the rate of interest credited to the amount
of Account Value transferred to the General Account and
guarantee that Preferred Policy Debt will earn at least a
minimum annual interest rate of 4%. An annual rate of 4% is
and will be credited to that portion of Account Value
transferred to the General Account which exceeds Preferred
Policy Debt.
II. TRANSFERS
A. TRANSFERS AMONG THE INVESTMENT SUBDIVISIONS
In general, after the Policy is issued the Owner may
transfer Account Value among the Investment Subdivisions by
written or telephone request to our Home Office (if we have
the Owner's telephone authorization on file). For states
requiring the refund of premiums during the free-look period,
no transfers may be made for fifteen days following the
initial Net Premium allocation to the Money Market Investment
Subdivision. In any Policy Year, the Owner may make an
unlimited number of transfers; however, we reserve the right
to limit the number of transfers to twelve each calendar year.
A $10 transfer charge is assessed for each transfer after the
first transfer in any calendar month. For purposes of the
transfer charge, each transfer request is considered one
transfer, regardless of the number of Investment Subdivisions
affected by the transfer. Any unused "free" transfers do not
carry over to the next calendar month.
We reserve the right to modify, restrict, suspend, or
eliminate the transfer privileges (including telephone
transfer privileges) at any time and for any reason.
B. DOLLAR COST AVERAGING
The dollar-cost averaging program permits Owners to
systematically transfer on a monthly or quarterly basis a set
dollar amount from the Investment Subdivision investing in the
Money Market Portfolio of GE Investments Funds, Inc. to any
combination of other Investment Subdivisions (so long as the
total number of Investment Subdivisions used does not exceed
the maximum number allowed under the Policy). Owners may elect
to participate in the dollar-cost averaging program by
completing a dollar-cost averaging agreement or calling our
Home Office. To use the dollar-cost averaging program, Owners
must transfer at least $100 from the Money Market Investment
Subdivision with each transfer. If any transfer would leave
less than $100 in the Money Market Investment Subdivision, we
will transfer the entire amount. Once elected, dollar-cost
averaging remains in effect from the date we receive the
Owner's request until the value of the Investment Subdivision
from which transfers are being made is depleted, or until the
Owner cancels the program by written request or by telephone
(if the Owner's telephone authorization is on file). If
elected at the time of application, the dollar cost averaging
program will begin on the 5th day of the month immediately
following the allocation of the Net Premium to the Investment
Subdivisions. There is no additional charge for dollar-cost
averaging. A transfer under this program does not count toward
the free transfer permitted each calendar month nor any limit
on the maximum number of transfers we may impose for a
calendar year. We reserve the right to discontinue offering or
modify the dollar-cost averaging program at any time and for
any reason.
C. PORTFOLIO REBALANCING
An Owner may instruct us to automatically rebalance
(on a quarterly, semi-annual or annual basis) the Account
Value to return to the percentages specified in the Owner's
allocation instructions. An Owner may elect to participate in
the portfolio rebalancing program at any time by completing
the portfolio rebalancing agreement. The percentage
allocations must be in whole percentages. Subsequent changes
to the percentage allocations may be made at any time by
written or telephone instructions to our Home Office (provided
the Owner's telephone authorization is on file). Once elected,
portfolio rebalancing remains in effect from the date an
Owner's written request is received until the Owner instructs
us to discontinue portfolio rebalancing. There is no
additional charge for using portfolio rebalancing, and a
portfolio rebalancing transfer is not considered a transfer
for purposes of assessing a transfer charge nor for
calculating any limit on the maximum number of transfers we
may impose for a calendar year. We reserve the right to
discontinue offering or to modify the portfolio rebalancing
program at any time and for any reason. Portfolio rebalancing
is not available while an Owner is participating in the
dollar-cost averaging program.
D. ASSET ALLOCATION
The asset allocation program will automatically
allocate all premium payments among the Investment
Subdivisions indicated by the model and the portfolios within
the model the Owner selects. The Owner may select from five
asset allocation model portfolios offered by us, or may use a
model offered by us as a guide to help the Owner develop their
own asset allocation program. Although the Owner may use only
one model at a time, they may elect to change their selection
as the Owner's tolerance for risk, needs, and/or objectives
change. The Owner may use a questionnaire that we offer to
determine the model that best meets their risk tolerance and
time horizons. Because each Investment Subdivision performs
differently over time, the portfolio mix may vary from its
initial allocations. The Owner may elect to have the
portfolios automatically rebalanced under our portfolio
rebalancing program. From time to time, we will review the
models and may find that allocation percentages among the
Investment Subdivisions or even some of the Investment
Subdivisions within a particular model need to be changed. We
will send the Owner a notice that such a change has been made.
Unless the Owner elects to participate in the new allocation
model the Owner will remain in his or her current designated
allocation model. This change will not be made automatically.
There is no additional charge for the asset allocation
program. We reserve the right to discontinue offering this
program at any time and for any reason.
E. TRANSFER ERRORS
In accordance with industry practice, GE Life &
Annuity will establish procedures to address and to correct
errors in amounts transferred among the Investment
Subdivisions, except for de minimis amounts. We will correct
non-de minimis errors we make and will assume any risk
associated with the error. Owners will not be penalized in any
way for errors made by us. We will take any gain resulting
from the error.
III. "REDEMPTION" PROCEDURES
A. FREE-LOOK RIGHTS
The Policy provides for an initial free-look right
during which an Owner may cancel the Policy by returning it to
our agent or us before the end of 10 days after the Owner
receives the Policy. The free-look period may be longer in
some states. Upon returning the Policy to us or to our
authorized agent for forwarding to our Home Office, the Policy
will be deemed void from the beginning. Within seven days
after we receive the cancellation request and Policy, we will
refund the amount required by state law. Depending on the
state, the amount of the refund may equal the total of all
premiums paid or an amount equal to the sum of the total
amount of monthly deductions made against Account Value and
any charges deducted from premiums paid (excluding portfolio
fees and charges and mortality and expense risk charges) plus
Account Value on the date we (or our agent) receive the
returned Policy.
B. SURRENDERS
1. Requests for Surrender Value. The Owner may surrender the
Policy at any time before the death of the Last Insured for
its Surrender Value. The Surrender Value on any Valuation Day
is the Account Value less any applicable surrender charge
minus any Policy Debt. The Surrender Value will be determined
by us on the Valuation Day our Home Office receives a
surrender request signed by the Owner and the Policy. The
surrender request must include the Policy number, signature of
the Owner, and clear instructions regarding the request. We
will cancel the Policy as of the date the written request is
received at our Home Office and we will ordinarily pay the
Surrender Value within seven days following receipt of the
request.
2. Surrender of Policy - Surrender Charge. If the Policy is
surrendered during the surrender charge period, we will deduct
a surrender charge. The surrender charge will depend upon
issue Age, gender (where applicable), and the rating class of
each Insured and by the number of months since the Policy
Date. The surrender charge is calculated by multiplying
surrender charge factors times the Specified Amount, divided
by $1,000. The surrender charge remains level for the first
six Policy Years and then decreases uniformly each Policy
month to zero over the next 10 Policy Years or to the younger
Insured's attained age 100, whichever is earlier. The
surrender charge will be deducted before the Surrender Value
is paid. The surrender charge will not exceed $60 per $1,000
of Specified Amount.
Increases in the Specified Amount (other than as a
result of a change from Death Benefit Option A to Death
Benefit Option B), result in an additional surrender charge
for another 16 Policy Years following the increase or to the
younger Insured's attained age 100, if earlier. The amount of
the additional surrender charge is based on the initial scale
of per $1,000 surrender charge factors calculated at the time
of issue.
Decreases in the Specified Amount during the period
that surrender charges apply (other than as a result of
partial surrenders or a change from Death Benefit Option B to
Death Benefit Option A), will be assessed a portion of the
surrender charges to which the Policy is subject. The amount
of the surrender charge will be deducted from Account Value,
and the charge among each Investment Subdivision will be
allocated in the same proportion that the Policy's Account
Value in each Investment Subdivision bears to the Account
Value in all Investment Subdivisions. The amount of surrender
charge will be based upon:
(1) first on any surrender charge in effect on the most
recent increase and the amount of reduction to this
increase caused by the decrease;
(2) then on any surrender charge in effect on the next
most recent increases successively and the amount of
any reduction to each of these increases caused by
the decrease; and
(3) finally on the surrender charge in effect on
coverage provided under the original application and
any reduction to this amount caused by the decrease.
The Policy's remaining surrender charges will be reduced to
reflect assessments made whenever a portion of the surrender
charges are deducted based upon a decrease in the Specified
Amount.
The total surrender charge for any given Policy Month is the
sum of:
o the surrender charge that applies to the initial
Specified Amount, adjusted for any decrease in
Specified Amount; plus
o the surrender charges that apply to any increases in
Specified Amount, adjusted for any decrease in Specified
Amount.
A surrender charge is not imposed for partial surrenders,
but a processing fee is assessed.
C. PARTIAL SURRENDERS
1. When Partial Surrenders are Permitted. The Owner may, by
submitting a written or telephone request to our Home Office,
withdraw a portion of the Surrender Value subject to the
following conditions:
o If the owner has elected Option A, a partial surrender is
permitted at any time. If Option B has been elected
partial surrenders may only be made after the first Policy
Year.
o The minimum partial surrender amount is $500.
o A partial surrender processing fee equal to the lesser of
$25 or 2% of the amount surrendered will be assessed when
each partial surrender is made. The partial surrender
processing fee will be deducted from the Account Value
along with the amount requested for the partial surrender.
o When the Owner requests a partial surrender, the Owner may
direct how it will be deducted from the Account Value. If
no directions are provided, the partial surrender will be
deducted proportionately from the Account Value in the
Investment Subdivisions.
o We generally will pay a partial surrender request within
seven days after receipt by our Home Office of all the
documents required for such a payment.
D. DELAYED PAYMENTS
We may delay making payment for partial or full
surrender if (1) the disposal or valuation of Separate Account
II's assets is not reasonably practicable because the New York
Stock Exchange is closed for other than a regular holiday or
weekend, trading is restricted by the SEC, or the SEC declares
that an emergency exists; or (2) the SEC by order permits
postponement of payment to protect our Policy Owners. We also
may defer making payments attributable to a check that has not
cleared.
E. LAPSES
If a sufficient premium has not been received by the
61st day after a grace period notice is sent, the Policy will
lapse without value and no amount will be payable to the
Owner.
F. MONTHLY DEDUCTION
On the Policy Date and each Monthly Anniversary Day,
redemptions in the form of deductions will be made from
Account Value for the Monthly Deduction, which is a charge
compensating us for the services and benefits provided, costs
and expenses incurred, and risks assumed by us in connection
with the Policy. The Monthly Deduction consists of five
components: (a) the cost of insurance charge; (b) a current
monthly policy charge of $5; (c) an expense charge of up to
$.20 per $1,000 of initial Specified Amount; (d) an expense
charge for any increases in Specified Amount of up to $ .20
per $1,000 of increase and (e) any charges for additional
benefits added by riders to the Policy. The Monthly Deduction
will be deducted from the Investment Subdivisions on a pro
rata basis.
1. Cost of Insurance Charge. The cost of insurance charge is
the primary charge for the Death Benefit provided by the
Policy. The cost of insurance charge is calculated monthly,
and depends on a number of variables, including each Insureds
Age, gender (where appropriate), policy duration and
applicable rating class. The charge varies from Policy to
Policy and from Monthly Anniversary Day to Monthly Anniversary
Day. The charge is calculated separately for the Specified
Amount at issue and for any increase in the Specified Amount.
The cost of insurance charge is equal to the net
amount at risk under the Policy divided by 1000 then
multiplied by our current cost of insurance rate for the
Insureds. The net amount at risk is calculated by dividing the
Death Benefit by 1.0032737, and then subtracting the Account
Value.
Our current cost of insurance rates may be less than
the guaranteed maximum rates permitted under the Policy.
Current cost of insurance rates will be determined based on
our expectations as to future mortality, interest,
persistency, taxes, and expenses. These rates may change from
time to time, but they will never be more than the guaranteed
maximum rates set forth in the Owner's Policy. These rates are
based on the Commissioners' 1980 Standard Ordinary Mortality
Table. We can change the rates without notice to Owners,
unless state law requires that we provide such notice. The
maximum cost of insurance rates are based on each Insureds'
Age nearest birthday to the start of the Policy Year, gender
(where appropriate), and, where appropriate, Nicotine use.
Modifications are made for rating classes other than standard.
2. Current Monthly Policy Charge. The current monthly Policy
charge is $5 per month.
3. Expense Charge. We will assess a monthly expense charge of
up to $.20 per $1,000 of initial Specified Amount. This charge
varies based on the issue Age of each Insured. We currently
deduct this charge only during the first ten Policy Years.
4. Expense Charge on Increase in Specified Amount. We will
assess a monthly expense charge (per increase) of up to $.20
per $1,000 of increase. This charge varies based on the issue
Age of each Insured. We currently deduct this charge only
during the first ten Policy Years following the increase.
5. Supplemental Benefit Charges. An Owner may add supplemental
benefits to the Policy. We make such benefits available
through riders to the Policy. If any additional benefits are
added to a Policy, charges for these benefits will be deducted
monthly as part of the Monthly Deduction.
G. DEATH BENEFITS
1. Payment of Death Proceeds. As long as the Policy remains in
force, we will pay the Death Proceeds to the Beneficiary upon
receipt at our Home Office of the Policy, due proof that both
Insureds died while the Policy was in effect and proof of
interest of the claimant. The Death Benefit is equal to the
Death Benefit determined under the Death Benefit Option in
effect on the date of death of the Last Insured, plus any
supplemental Death Benefit provided by riders, minus any
Policy Debt on that date and, if the date of death occurred
during a grace period, minus the premium that would have been
required to keep the Policy in force. The Death Benefit will
be paid to the Beneficiary in a lump sum generally within
seven days after the Valuation Day by which we have received
at our Home Office all materials necessary to constitute due
proof of death. If an Optional Payment Plan is elected, the
Death Benefit will be applied to the option within seven days
after the Valuation Day by which we received due proof of
death and payments will begin under that option when provided
by the option.
2. Death Benefit Options. The Owner can elect one of two Death
Benefit Options under the Policy. Under Option A, the Death
Benefit equals the greater of (1) the Specified Amount plus
the Account Value, or (2) the applicable corridor percentage
of the Account Value as determined using the table of
percentages set forth in the prospectus. Under Option B, the
Death Benefit equals the greater of (1) the Specified Amount,
or (2) the applicable corridor percentage of the Account
Value, as determined using the table of percentages set forth
in the prospectus. The corridor percentage is 250% until the
younger Insured attains Age 40 and declines thereafter as the
younger Insured's Attained Age increases. If the younger
Insured was the first to die, the corridor percentage will
depend on the Attained Age that he or she would have been if
still living. We may change the table if the table of
percentages currently in effect becomes inconsistent with any
federal income tax laws and/or regulations.
Under Option A, the Death Benefit will vary directly
with the investment performance of the Account Value. Under
Option B, the Death Benefit ordinarily will not change until
the applicable percentage amount of the Account Value exceeds
the Specified Amount or the Owner changes the Specified
Amount.
3. Changing the Death Benefit Option. The Death Benefit Option
is selected in the application for the Policy. The Owner, by
written request submitted to, and received by, our Home
Office, may change the Death Benefit Option on the Policy
subject to the following rules.
o The effective date of the change will be the Monthly
Anniversary Day after we receive the request;
o When a change from Death Benefit Option A to Death
Benefit Option B is made, the Specified Amount will
be increased by the Account Value on the effective date of
the change; and
o When a change from Death Benefit Option B to Death Benefit
Option A is made, the Specified Amount after the change
will be decreased by the Account Value on the effective
date of the change.
4. Changing the Specified Amount. The initial Specified Amount
is set at the time the Policy is issued. The Owner may
increase or decrease the Specified Amount after the first
Policy Year, subject to the following conditions.
Rules for Increases
o To increase the Specified Amount, both Insureds must be
living.
o To increase the Specified Amount, the Owner must send to
our Home Office a written request and the Policy, a
completed supplemental application, and evidence
satisfactory to us that each Insured is insurable at the
same or better rating class used when the Policy was
issued.
o There must be enough Surrender Value to make a Monthly
Deduction for the Policy Month following the increase.
o If approved, the increase in Specified Amount will become
effective on the date shown in the supplemental policy
data pages sent to the Owner.
o We will assess a monthly expense charge (per increase) of
up to $.20 per $1,000 of increase. We currently deduct
this charge only during the first ten Policy Years
following the increase.
o An increase in Specified Amount (other than as a result of
a change from Death Benefit Option A to Death Benefit
Option B) will subject the Owner to additional surrender
charges.
Rules for Decreases
o To decrease the Specified Amount, the Owner must submit a
written request and the Policy to our Home Office.
o The effective date of any decrease in Specified Amount
will be the Monthly Anniversary Day after the date the
written request is received by our Home Office.
o Any decrease will first be used to reduce the most recent
increase, then the next most recent increases
successively, then the initial Specified Amount.
o During the Continuation Period, we will not allow a
decrease unless the Account Value less any Policy Debt is
greater than the surrender charge.
o The Specified Amount following a decrease can never be
less than the minimum Specified Amount for the Policy when
it was issued.
o A surrender charge may be assessed in connection with a
decrease in Specified Amount.
o If decreases in Specified Amount cause premiums to exceed
new lower limitations required by federal tax
law, the excess will be withdrawn from Account Value and
refunded to the Owner so that the Policy will continue to
meet the requirements. Account Value so withdrawn and
refunded will be withdrawn from each Investment
Subdivision in the same proportion that the Account Value
in the Investment Subdivision bears to the total Account
Value in all Investment Subdivisions under the Policy at
the time of withdrawal (i.e. on a pro rata basis).
H. POLICY LOANS
1. Policy Loans. The Owner may obtain a Policy loan from us at
any time by submitting a written or telephone request to our
Home Office (if the Owner's telephone authorization is on
file). The Owner may borrow up to an amount equal to 90% of
the difference between (1) the Owner's Account Value at the
end of the Valuation Period during which the loan request is
received and (2) any surrender charges on the date of the
loan, less any outstanding Policy Debt. Policy loans will be
processed as of the Valuation Day the request is received and
loan proceeds generally will be sent to the Owner within seven
days thereafter.
2. Collateral for Policy Loans. When a Policy loan is made, an
amount equal to the loan proceeds is transferred from the
Account Value in the Investment Subdivisions to our General
Account. If the Owner does not direct an allocation for this
transfer when requesting the loan, we will make it on a pro
rata basis.
3. Interest on Policy Loans. We charge interest daily on any
outstanding Policy loan at an effective annual interest rate
of 6%. Interest is due and payable at the end of each Policy
Year while a Policy loan is outstanding. If, on any Policy
Anniversary, interest accrued since the last Policy
Anniversary has not been paid, the amount of the interest is
added to the loan and becomes part of the outstanding Policy
Debt. An amount equal to the unpaid amount of interest is
transferred to our General Account from each Investment
Subdivision on a pro-rata basis according to the respective
values in each Investment Subdivision.
4. Effect on Death Benefit. If the Death Benefit becomes
payable while a Policy loan is outstanding, Policy Debt will
be deducted from the Death Benefit. If Policy Debt exceeds the
Account Value less any applicable surrender charge on any
Monthly Anniversary Day and the Continuation Period is not in
effect, the Policy will lapse without payment of a required
loan payment. During the Continuation Period, if Policy Debt
on any Monthly Anniversary Day exceeds the Account Value less
any applicable surrender charge, and the Net Total Premium is
less than the Continuation Amount, the Policy will lapse
without payment of a required loan payment. In either event,
we will mail to the Owner notice of the amount required to be
paid to keep the Policy in force, and the Owner will have a
61-day grace period from the date we mail the notice to make
the required loan payment.
I. OPTIONAL PAYMENT PLANS
The Policy currently offers five optional payment plans as
alternatives to the payment of a Death Benefit or Surrender
Value in a lump sum. An optional payment plan can be selected
during either Insured's life in the application or by
notifying us in writing at our Home Office. Any proceeds left
with us for payment under an optional payment plan will be
transferred to our General Account. Payments under an optional
payment plan will not vary with the investment performance of
Separate Account II because they are all forms of
fixed-benefit annuities. Proceeds will earn interest at a
minimum annual rate of 3%. We reserve the right, however, to
credit a higher rate of interest. Certain conditions and
restrictions apply to payments received under an optional
payment plan.
The optional payment plans are described below.
o Income for a Fixed Period. We will make equal periodic
payments for a fixed period, not longer than 30 years.
Payments can be annual, semi-annual, quarterly or monthly.
o Life Income. We will make equal monthly payments for a
guaranteed minimum period. If the payee lives longer than
the minimum period, payments will continue for his or her
life. The minimum period can be 10, 15 or 20 years.
o Income of a Definite Amount. We will make equal periodic
payments of a definite amount. Payments can be annual,
semi-annual, quarterly or monthly.
o Interest Income. We will make periodic payments of
interest earned from the proceeds left with us. Payments
can be annual, semi-annual, quarterly or monthly, and will
begin at the end of the first period chosen.
o Joint Life and Survivor Income. We will make equal monthly
payments to two payees for a guaranteed minimum of 10
years. Each payee must be at least 35 years old when
payments begin. Payments will continue as long as either
payee is living.
J. LUMP SUM PAYMENTS
Lump sum payments of partial surrenders, surrenders,
loan proceeds or Death Proceeds will be ordinarily made within
seven days of the Valuation Day on which we receive the
request and all required documentation at our Home Office. We
may postpone the payment or processing of any such transaction
for any of the following reasons:
1. If the disposal or valuation of Separate Account II assets
is not reasonably practicable because the New York Stock
Exchange ("NYSE") is closed for trading other than for
customary holiday or weekend closings, trading on the NYSE is
otherwise restricted, or the Securities and Exchange
Commission ("SEC") declares that an emergency exists.
2. If the SEC by order permits postponement of payment for the
protection of Owners.
3. If the payment is attributable to a check that has not
cleared the bank on which it is drawn.
Any Death Proceeds that are paid in one lump sum will
include interest from the date of death to the date of
payment. Interest will be paid at a rate set by us, or by law
if greater. The minimum interest rate which will be paid is
2.5%. Interest will not be paid beyond one year or any longer
time set by law.
K. REDEMPTION ERRORS
In accordance with industry practice, we will
establish procedures to address and to correct errors in
amounts redeemed from the Investment Subdivisions, except for
de minimis amounts. We will assume the risk of any non de
minimis errors we cause.
L. MISSTATEMENT OF AGE OR GENDER
The Death Benefit will be adjusted if either
Insured's Age or gender has been misstated in the application.
The Death Benefit after the adjustment will be the sum of:
o the Account Value at the time of death of the Last Insured;
and
o the unadjusted Death Benefit, reduced by the Account Value
at the time of death of the Last Insured, and multiplied
by the ratio of (1) the most recent monthly deduction
based on each Age and gender shown in the application, to
(2) the most recent monthly deduction based on the true
Age or gender.
All amounts are those in effect, with respect to the Insureds,
in the Policy Month of the death of the Last Insured.
M. INCONTESTABILITY.
The Policy limits our right to contest the Policy as
issued or as increased, except for material misstatements
contained in the application or a supplemental application,
after it has been in force during each Insured's lifetime for
a minimum period, generally for two years from the Policy Date
or effective date of the increase. This provision does not
apply to riders that provide disability benefits.
N. SUICIDE EXCLUSION
If either Insured commits suicide while sane or
insane, within two years of the Policy Date, Death Proceeds
payable under the Policy will be limited to all premiums paid,
less outstanding Policy Debt and less amounts paid upon
partial surrender of the Policy.
If the first Insured to die commits suicide while
sane or insane, more than two years after the Policy Date but
within two years after the effective date of an increase in
the Specified Amount, we will reduce the Specified Amount to
the amount in effect before the increase. We will refund any
monthly deductions made with respect to the increase in a lump
sum to the Owner.
If the Last Insured commits suicide while sane or
insane, more than two years after the Policy Date but within
two years after the effective date of an increase in the
Specified Amount, we will reduce the Specified Amount to the
amount in effect before the increase. The amount payable with
respect to the increase will equal the monthly deductions that
were made for the increase. The amount payable will be treated
as Death Proceeds and paid to the Beneficiary under the came
conditions as the initial Specified Amount.