EXHIBIT 99.A4
Exhibit 1.A.(11)
Memorandum describing issuance, transfer and redemption procedures
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO'S
ISSUANCE, REDEMPTION AND TRANSFER PROCEDURES
This document sets forth, as required by Rule 6e-3(T)(b)(12)(ii), the
administrative procedures that will be followed by Western Reserve Life
Assurance Co. of Ohio ("Western Reserve") in connection with the issuance of the
Individual Flexible Premium Variable Life Insurance Policy ("Policy") described
in this Registration Statement, the transfer of assets held thereunder, and the
redemption by Policyowners of their interest in the Policies.
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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 SCHEDULES AND UNDERWRITING STANDARDS
Premiums for the Policies will not be the same for all Policyowners.
Western Reserve will require the Policyowner to pay an initial premium that is
at least equal to a minimum monthly first year premium set forth in the Policy.
Policyowners will determine a planned periodic premium payment schedule that
provides for a level premium payable at a fixed interval for a specified period
of time. Payment of premiums in accordance with this schedule is not, however,
mandatory, and failure to make a planned periodic premium payment 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 minimum premium
amount(1), and the maximum premium limitation. If at any time a premium is paid
which would result in total premiums exceeding the current maximum premium
limitation set forth in the Policy, Western Reserve will accept only that
portion of the premium which will make total premiums equal that amount. Any
portion of the
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1 The minimum premium amount is currently $84.00.
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premium in excess of that amount will be returned to the Policyowner and no
further premiums will be accepted until allowed by the current maximum premium
limitations set forth in the Policy. The Policy will remain in force so long as
net surrender value is sufficient to pay certain monthly charges imposed in
connection with the Policy. Thus, the amount of a premium, if any, that must be
paid to keep the Policy in force depends upon the net surrender value of the
Policy, which in turn depends on such factors as the investment experience and
the cost of insurance charge. However, until the No Lapse Date shown on the
Policy Schedule Page, the Policy will remain in force and no grace period will
begin provided (1) no riders have been added since the Policy Date, including
the current month, and (2) the total of the premiums received (minus any
withdrawals, minus any outstanding loans and minus any pro rata Decrease Charge)
equals or exceeds the minimum monthly guarantee premium shown in the Policy
times the number of months since the Policy Date, including the current month.
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 the insured incurs an insurance rate commensurate with the
mortality risk which is actuarially determined based upon factors such as
attained age, sex, rate class and length of time a Policy is in force.
Accordingly, while not all insureds will be subject to the same cost of
insurance rate, there will be a single "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 premiums must
be based upon factors such as age, sex, health and occupation.
(b) APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application, Western Reserve will follow
certain insurance underwriting (I.E., evaluation of risks) procedures designed
to determine whether the proposed insureds are insurable. This process may
involve such verification procedures as medical examinations and may require
that further information be provided by the proposed insured before a
determination can be made. A Policy will not be issued until this underwriting
procedure has been completed.
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If a premium is paid with the application, the premium will be held by WRL
as part of its general account in a suspense account until the Policy Date. The
Policy Date is the date set forth in the Policy when Western Reserve deems all
underwriting requirements satisfied and insurance coverage is effective. On the
Policy Date, the premium will be allocated to the Money Market Sub-Account until
the Record Date and monthly deductions under the Policy will commence.
Once any additional requirements are met, the Policy will be issued, the
Free Look Period will begin, and the current value of the premium in the Money
Market Sub-Account will be reallocated to the Accounts as elected by the Owner
on the application. The date this occurs is called the Record Date. If the
Record Date is not a Valuation Date, premium will be allocated to the Accounts
on the first Valuation Date after the Record Date.
If Western Reserve determines to its satisfaction that on the date the
application is signed and submitted with an initial payment that the proposed
insured was insurable and acceptable under Western Reserve's underwriting rules
and that standards for insurance for the amount, plan and risk classification
applied for in the application are met, then the insurance protection applied
for, subject to the limits of liability and in accordance with the terms set
forth in the Policy and in the conditional receipt, will by reason of such
payment take effect on the later of the date of the application, or the
completion of all medical tests and examinations (I.E., the Policy Date), if
required.
Under Western Reserve's current rules, the minimum specified amount at
issue for Issue Ages 0-60 is $250,000 declining to $100,000 for Issue Ages above
60. Western Reserve 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 sub-accounts of the Series Account and the Fixed Account. Premiums
paid after the record date will be allocated in accordance with the
Policyowner's instructions in the application. The minimum percentage of each
premium that may be allocated to any account is currently 1%; percentages must
be in whole numbers. The allocation for future premiums may be changed at any
time by providing Western Reserve with written
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notification. However, Western Reserve reserves the right to limit the number of
changes of the allocation of premiums to one per Policy year quarter.
(d) REINSTATEMENT
A lapsed Policy may be reinstated any time within 5 years after the date of
lapse and before the maturity date by submitting the following items to Western
Reserve:
1. A written application for reinstatement from the Policyowner;
2. Evidence of insurability satisfactory to Western Reserve; and
3. A premium that is large enough to cover:
(a) one monthly deduction at the time of termination; (b) the
next two monthly deductions which will become due after the
time of reinstatement; and (c) an amount sufficient to cover
any surrender charge (as set forth in the Policy) calculated
from the Policy Date to the date of reinstatement.
Any indebtedness on the date of lapse will not be reinstated. The Cash Value of
the Loan Reserve on the date of reinstatement will be zero. The amount of Cash
Value on the date of reinstatement will be equal to the Net Premiums paid at
reinstatement, less the amounts paid in accordance with 3(a) and (c) above (that
is, the one monthly deduction and any surrender charge). Upon approval of the
application for reinstatement, the effective date of reinstatement will be the
first monthly anniversary on or next following the date of approval of the
application for reinstatement.
(e) REPAYMENT OF INDEBTEDNESS
A loan under the Policy will be subject to an interest rate of 5.2% payable
annually in advance (equivalent to an effective annual rate of 5.5%).
Outstanding indebtedness may be repaid at any time before the maturity date of
the Policy and while the Policy is in force. Payments made by the Policyowner
while there is indebtedness will be treated as premium payments unless the
Policyowner indicates that the payment should be treated as a loan repayment.
Under Western Reserve's current procedures, at each Policy anniversary, Western
Reserve will compare the amount of the outstanding loan (including interest in
advance until the next Policy Anniversary, if not paid) to the amount in the
loan reserve. Western
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Reserve will also make this comparison any time the Policyowner repays all or
part of the loan. At each such time, if the amount of the outstanding loan
exceeds the amount in the loan reserve, Western Reserve will withdraw the
difference from the accounts and transfer it to the loan reserve, in the same
manner as when a loan is made.
If the amount in the loan reserve exceeds the amount of the outstanding
loan, Western Reserve will withdraw the difference from the loan reserve and
transfer it to the accounts in the same manner as premiums are allocated.
Western Reserve will allocate the repayment of indebtedness at the end of the
valuation period during which the repayment is received.
(f) CORRECTION OF MISSTATEMENT OF AGE OR SEX
If Western Reserve discovers that the age or sex of any insured has been
misstated, Western Reserve will adjust the death benefits based on what the cost
of insurance charge for the most recent monthly deduction would have purchased
based on the correct age or sex.
2. "REDEMPTION PROCEDURES":
SURRENDER 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 from the redemption procedures for mutual funds and contractual plans.
(a) CASH VALUES
At any time before the earlier of the death of the insured or the maturity
date, the Policyowner may totally surrender or, after the first Policy year,
make a cash withdrawal from the Policy by sending a written request to Western
Reserve. The amount available for surrender is the net surrender value at the
end of the valuation period during which the surrender request is received at
Western Reserve's office. The net surrender value as of any date is equal to:
(1) the cash value as of such date; minus
(2) any surrender charge as of such date; minus
(3) any outstanding Policy loan; plus
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(4) any unearned loan interest.
A surrender charge as described in appendix A will be deducted if the
Policy is surrendered during the first 15 Policy years. Surrenders from the
Series Account will generally be paid within seven days of receipt of the
written request. Postponement of payments may, however, occur in certain
circumstances(2).
If the Policy is being totally surrendered, the Policy itself must be
returned to Western Reserve along with the request. A Policyowner may elect to
have the amount paid in a lump sum or under a settlement option.
For a cash withdrawal, the amount available may be limited to no less than
$500 and to no more than 10% of the net surrender value. The amount paid plus a
processing fee equal to the lesser of $25 or 2% of the amount withdrawn will be
deducted from the Policy's cash value at the end of the valuation period during
which the request is received. The amount will be deducted from the accounts in
the same manner as the current allocation instructions unless the Policyowner
directs otherwise. Cash withdrawals are allowed only once each Policy year after
the first Policy year.
In addition, when death benefit Option A is in effect, the specified amount
will be reduced by the cash withdrawal. No cash withdrawal will be permitted
which would result in a specified amount lower than the minimum specified amount
set forth in the Policy or would deny the Policy status as life insurance under
the Internal Revenue Code and applicable regulations.
(b) BENEFIT CLAIMS
As long as the Policy remains in force, Western Reserve will generally pay
a death benefit to the named beneficiary in accordance with the designated death
benefit option within seven days after Western Reserve receives due proof of
death of the insured, and Western Reserve receives proof that the insured died
while the Policy was in force, and verifies the validity of the claim. Payment
of death benefits may, however, be postponed under certain circumstances(3). In
particular, during the first two Policy years,
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2 Payment of any amount from the Series Account upon complete surrender, cash
withdrawal, policy loan, or benefits payable at death or maturity may be
postponed whenever: (i) the New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by the Commission; (ii) the Commission
by order permits postponement for the protection of Policyowners; or (iii)
an emergency exists, as determined by the Commission, as a result of which
disposal of securities in not reasonably practicable or it is not
reasonably practicable to determine the value of the Series Account's net
assets. Transfers may also be postponed under these circumstances. Western
Reserve further reserves the right to defer payment of transfer, cash
withdrawals or surrenders from the Fixed Account for up to six months.
Payments under the Policy of any amount paid by check may be postponed
until such time as the check has cleared the Policyowner's bank.
3 SEE note 3, SUPRA.
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and during the first two years after a Policy is reinstated, and in other
circumstances in which Western Reserve 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
insured dies. The death benefit proceeds payable under the designated death
benefit option will be reduced by any outstanding indebtedness and any due and
unpaid charges. The proceeds will be increased by any additional insurance
provided by rider and any unearned loan interest.
The amount of the death benefit is guaranteed not to be less than the
current specified amount of the Policy. These proceeds may be reduced by any
outstanding indebtedness and any due and unpaid charges. The death benefit may,
however, 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 cash value of the Policy. Under Death Benefit Option A, the
death benefit will only vary when the limitation percentage set forth in the
Policy times the cash value exceeds the specified amount of the Policy. Under
Death Benefit Option B, the death benefit will always vary with the cash value
because the death benefit equals either the specified amount plus the cash value
or the limitation percentage times the cash value.
The amount of the benefit payable at maturity is the net surrender value of
the Policy on the maturity date. These proceeds will be reduced by any
outstanding indebtedness. This benefit will only be paid if the insured is
living on the Policy's maturity date. The Policy will mature on the anniversary
nearest the insured's 95th birthday, if the insured is living and the Policy is
in force, unless the Policy stays in force through the Extended Maturity Date
provision.
(c) POLICY LOANS
After the first Policy year and so long as the Policy remains in force, the
Policyowner may borrow money from Western Reserve using the Policy as the only
security for the loan. The maximum amount that may be borrowed is an amount,
which, together with any loans already outstanding and any surrender charge, is
90% of the cash value. Indebtedness equals the total of all Policy loans less
any unearned loan interest on the loans. The loan value will be determined at
the end of the valuation period during which
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the loan request is received. Loans have priority over the claims of any
assignee or other person. The loan may be repaid all or in part at any time
before that maturity date and while the Policy is in force. Payments made by the
Policyowner while there is indebtedness will be treated as premium payments
unless the Policyowner indicates that the payment should be treated as a loan
repayment. The interest rate charged on Policy loans accrues daily. Interest
payments are payable annually in advance. If unpaid when due, interest will be
added to the amount of the loan and will become part of the loan and bear
interest at the same rate.
A Policyowner may allocate a Policy loan among the accounts. If no such
allocation is made, Western Reserve will allocate the loan in accordance with
the Policyowner's current allocation instructions. The loan amount will normally
be paid within seven days after receipt of a written request. Postponement of
loans may take place under certain circumstances(4).
Cash Value equal to the portion of the Policy loan plus interest in advance
until the next Policy anniversary allocated to each account will be transferred
from the account to the loan reserve, reducing the Policy's Cash Value in that
account. The loan reserve is a portion of the Fixed Account to which amounts are
transferred as collateral for Policy loans. As noted above, under Western
Reserve's current procedures, at each Policy anniversary, Western Reserve will
compare the amount of the outstanding loan (including interest in advance until
the next Policy anniversary, if not paid) to the amount in the loan reserve.
Western Reserve will also make this comparison any time the Policyowner repays
all or part of the loan. At each such time, if the amount of the outstanding
loan exceeds the amount in the loan reserve, Western Reserve will withdraw the
difference from the accounts and transfer it to the loan reserve, in the same
manner as when a loan is made. If the amount in the loan reserve exceeds the
amount of the outstanding loan, Western Reserve will withdraw the difference
from the loan reserve and transfer it to the accounts in the same manner as
premiums are allocated. Cash Value in the loan reserve will be credited with
guaranteed interest at 4% per year. Additional interest may be credited to this
Cash Value.
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4 SEE note 3, SUPRA.
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(d) POLICY LAPSE
Lapse will only occur where net surrender value is insufficient to cover
the monthly deduction, and a grace period expires without a sufficient payment.
If net surrender value on any Monthly Anniversary is insufficient to cover the
monthly deduction on such day, the Policyowner must, except as noted below, pay
during the grace period a payment at least sufficient to provide a net premium
to cover the sum of the monthly deductions due within the grace period. However,
until the No Lapse Date shown on the Policy Schedule Page, the Policy will
remain in force and no grace period will begin provided (1) the total premiums
received (minus any withdrawals, minus any outstanding loans and minus any pro
rata Decrease Charge) equals or exceeds the minimum monthly guarantee premium
shown in the Policy times the number of months since the Policy date, including
the current month, and (2) no riders have been added since the Policy Date,
including the current month. Should the Policyowner request the addition of any
rider after the Policy Date but prior to the No Lapse Date, the Policyowner will
be notified as to the effect on grace period processing prior to the date the
rider is effective.
If net surrender value is insufficient to cover the monthly deduction,
Western Reserve will notify the Policyowner and any assignee of record of the
minimum payment needed to keep the Policy in force. The Policyowner will then
have a grace period of 61 days, measured from the date notice is sent to the
Policyowner, to make sufficient payment. If Western Reserve does not receive a
sufficient payment within the grace period, lapse of the Policy will result. If
a sufficient payment is received during the grace period, any resulting premium
will be allocated among the accounts in accordance with the Policyowner's then
current instructions. If the insured dies during the grace period, the death
benefit proceeds will equal the amount of death benefit proceeds immediately
prior to the commencement of the grace period, reduced by any due and unpaid
charges. See Reinstatement, p.4.
3. TRANSFERS
The Series Account currently has sixteen sub-accounts. Each sub-account
invests exclusively in the shares of a corresponding portfolio of WRL Series
Fund, Inc., an open-end, diversified investment management company registered
with the Commission. Policyowners may transfer Cash Value among
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the sub-accounts of the Series Account or from the sub-accounts to the Fixed
Account, which is part of Western Reserve's general account. For transfers from
the Fixed Account to a sub-account, Western Reserve reserves the right to
require that transfer requests be in writing and received at Western Reserve's
administrative office within thirty days after a Policy anniversary. Under the
Policy, the amount that may be transferred is limited to the greater of (a) 25%
of the amount in the Fixed Account, or (b) the amount transferred in the prior
Policy year from the Fixed Account, unless Western Reserve consents otherwise.
The transfer will take place on the day Western Reserve receives the request. No
transfer charge will apply to transfers from the Fixed Account to a Sub-Account.
Amounts may be withdrawn from the Fixed Account for cash withdrawals and
surrenders only upon written request of the Policyowner, and are subject to any
applicable requirements for a signature guarantee. Western Reserve further
reserves the right to defer payment of transfers, cash withdrawals, or
surrenders from the Fixed Account for up to six months. In addition, Policy
provisions relating to transfers, cash withdrawals or surrenders from the Series
Account will also apply to Fixed Account transactions. Policyowners may make
transfer requests in writing or by telephone. Written requests must be in a form
acceptable to Western Reserve. Telephonic requests are permissible if the
Policyowner has previously authorized telephone transfers in writing. Western
Reserve may, at any time, revoke or modify the transfer privilege. Cash value
transferred from one sub-account into more than one sub-account counts as one
transfer. Western Reserve will effectuate transfers and determine all values in
connection with transfers at the end of the valuation period during which the
transfer request is received. Postponement of transfers may take place under
certain circumstances(5). Western Reserve reserves the right to impose a $10
transfer charge for each transfer in excess of one per Policy Month or twelve
per Policy year and will be deducted from each sub-account from which a transfer
is being made in an equal amount. Transfers resulting from policy loans, the
exercise of conversion rights, and the reallocation of cash value immediately
after the record date, will not be subject to a transfer charge.
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5 SEE note 3, SUPRA.
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4. CONVERSION PROCEDURE
At any time upon written request within 24 months of the Policy date, the
Policyowner may elect to transfer all sub-account values to the Fixed Account.
No transfer charge will be assessed.
5. PRO RATA DECREASE CHARGE
If, during the first 15 Policy years, the Specified Amount is decreased, a
pro rata Decrease Charge will be deducted from the Cash Value. Western Reserve
will determine the pro rata Decrease Charge by first calculating the Contingent
Deferred Surrender Charge that would apply if the Policy was being surrendered.
It wiTll then multiply the Contingent Deferred Surrender Charge by the ratio of
the requested decrease in Specified Amount to the initial full Specified Amount.
The pro rata Decrease Charge is equal to: (1) the amount of the Specified Amount
decrease; divided by (2) the full Specified Amount on the Policy Date;
multiplied by (3) the then current Contingent Deferred Surrender Charges, as of
the date of the decrease based on the Specified Amount on the Policy Date, as
determined under the Surrender Charge provision. The pro rata Decrease Charge
will not be deducted from the Cash Value when a Specified Amount decrease
results from (a) a change in the Death Benefit Option, or (b) a withdrawal when
the Death Benefit is Option A. The pro rata Decrease Charge is determined from
the Policy Date to the date of the decrease using the formula above, regardless
of whether there were any prior lapses and reinstatements or decreases in
Specified Amount. If a pro rata Decrease Charge is deducted due to a decrease in
Specified Amount, any future Contingent Deferred Surrender Charges incurred
during the fist fifteen Policy years will be reduced proportionately.
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APPENDIX A
SURRENDER CHARGE
During the first fifteen Policy years, a Surrender Charge will be incurred
upon surrender of the Policy. The Surrender Charge consists of the sum of an
Issue Charge and a Sales Charge.
(a) Issue Charge. The Issue Charge is a level charge of $5.00 per
thousand of Specified Amount at issue. See the table below
indicating the charges per thousand dollars of initial Specified
Amount.
(b) Sales Charge. The Sales Charge is (1) 26.5% of the sum of all
premiums paid up to the Surrender Charge Base Premium shown in
the Policy and (2) for the sum of all premiums paid in excess of
the first Surrender Charge Base Premium ("excess premium
charge"), a percentage which varies by the Issue Age and sex of
the Insured.
(c) Surrender Charge Factor. As stated above, the factor is applied
to the sum of the Issue Charge and Sales Charge due upon any
surrender of a Policy during the first fifteen Policy years. In
Policy years 1 - 10 this factor is 1.00 for male Insureds at
Issue Ages 0 - 65 and female Insureds at Issue Ages 1-70, then
declines at the rate of 0.20 per year until reaching zero at the
end of the fifteenth (15th) Policy year as shown below. For
Insureds with older Issue Ages, this factor is less than 1.00 at
the end of the tenth (10th) Policy year and declines to zero at
the end of the fifteenth (15th) Policy year. Therefore,
application of the factor to the sum of the Issue Charge and
Sales Charge in the event of any surrender during the eleventh
through fifteenth Policy years will result in reduced surrender
charges. If a surrender occurs after the fifteenth (15th) Policy
year, there are no Issue Charge or Sales Charge due. See the
example below.
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SURRENDER CHARGE FACTORS
MALES ISSUE AGES 0 - 65
FEMALES ISSUE AGES 0-70
SURRENDER CHARGE FACTOR
END OF POLICY YEAR* FACTOR
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At Issue...................................... 1.00
1-10.......................................... 1.00
11............................................ .80
12............................................ .60
13............................................ .40
14............................................ .20
15............................................ 0
16+........................................... 0
* THE FACTOR ON ANY DATE OTHER THAN ANNIVERSARY
WILL BE INTERPOLATED BETWEEN THE TWO END OF
YEAR FACTORS.
(c) Example (1): Assume a male insured purchases the Policy when age 35
for $250,000 of Specified Amount, paying the Surrender Charge Base Premium of
$2,518, and an additional premium amount of $482 in excess of the Surrender
Charge Base Premium, for a total premium of $3,000 per year for four years
($12,000 total for four years), and then surrenders the Policy. The Surrender
Charge would be calculated as follows:
(i) ISSUE CHARGE - [250 x $5.00]
($5.00/$1,000 of Initial Specified Amount at issue) = $1,250.00
(ii) SALES CHARGE:
(1) 26.5% of Surrender Charge Base Premium paid
[26.5% x $2,518], and = $ 667.27
(2) 8.4% of premiums paid in excess of Surrender Base
Premium [8.4% x $9,482] = $ 796.49
(iii) APPLICABLE SURRENDER CHARGE FACTOR
[(a)$1,250 + (b)($667.27 + $796.49)] x 1.00
SURRENDER CHARGES = [$1,250.00 + $1,463.76] x 1.00 = $2,713.76
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