LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY
EXHIBIT NO. 6
PROCEDURES MEMORANDUM
PURSUANT TO RULE 6e-3(T)(b)12(ii)
DESCRIPTION OF LINCOLN BENEFIT'S PURCHASE,
REDEMPTION, AND TRANSFER PROCEDURES FOR POLICIES
This document sets forth the administrative procedures that will be followed by
Lincoln Benefit Life Company ("LBL") in connection with the issuance of its
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.
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,
issuance, transfer, and redemption procedures under flexible premium variable
life insurance policies to the extent necessary to comply with Rule 6e-3(T),
state administrative law or established administrative procedures of the life
insurance company. The summary shows that, because of the insurance nature of
the Policies, the procedures involved necessarily differ in certain significant
respects from the procedures for mutual funds and contractual plans. The
summary, while comprehensive, does not attempt to address each and every
procedure or variation which might occur.
A. PREMIUM SCHEDULES AND UNDERWRITING STANDARDS
Premiums for the Policies will not be the same for all Policyowners. LBL
will require the Policyowner to pay a required Premium for the first Policy
Year. Policyowners will also determine a planned periodic Premium payment
schedule that provides a level Premium payable at a fixed interval for a
specified period of time. Payment of Premium in accordance with this
schedule is not, however, mandatory and failure to do so will not of itself
cause the Policy to lapse. Instead, Policyowners may make Premium payments
in any amount in any frequency, subject only to the maximum Premium
limitation. If at any time a Premium is paid which would result in total
Premiums exceeding the current
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maximum Premium limitation, LBL will accept only that portion of the
Premium which will make total Premiums equal that amount. Any portion of
the 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 or unless the Policyowner increases the face
amount of the Policy.
The Policy will remain in force so long as the Net Surrender Value is
sufficient to pay certain monthly charges in connection with the Policy, or
if the total payments made, net of any loans or partial withdrawals, equal
or exceed cumulative monthly Safety Net premiums as defined in the Policy.
The amount of a Premium, if any, that must be paid to keep the Policy in
force depends upon the Net Surrender Value, which in turn depends on such
factors as the investment experience, the cost of insurance charge,
administrative charges, and surrender charges. In addition, if outstanding
loans are present, by definition, Policy Debt must be taken into account.
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, sex, duration, risk classification and face amount of
the Policy. Accordingly, while not all Policyowners will be subject to the
same cost of insurance rate, there will be a single "rate" for all
Policyowners 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 Policyowners, but recognize that
Premiums and charges must be based upon factors such as age, sex, health,
and occupation.
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The policy offered by LBL contains an exchange of policy provision under
which the owner can exchange the Policy for a fixed benefit policy. This
exchange will be implemented by transferring the policy value to the Fixed
Account and removing the Policyowner's future right to allocate funds to
the Separate Account.
The exchange shall be subject to the following rules:
(1) The exchange must be made within 24 months after the issuance of
the existing policy or within 24 months of an increase in face amount.
(2) We may require the Policyowner to return this contract to us to
amend before this exchange will be processed.
(3) No transfer fee will be assessed to complete the exchange.
(4) Premiums for the new Policy will be based on the same issue age
and risk classification of the Insured as the existing Policy.
(5) No evidence of insurability will be required at the time of the
exchange.
(6) The conversion will be subject to an equitable adjustment as
required by Rule 6e-3(T) to reflect variances, if any, in the payments
and Policy Values under the new policy.
B. APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application, LBL will follow certain insurance
underwriting (i.e., evaluation of risks) procedures designed to determine
whether the applicant is insurable. This process may involve such
verification procedures as medical examinations and may require that
further information be provided by the proposed applicant before a
determination can be made. A Policy will not be issued until this
underwriting procedure has been completed.
If the required minimum Premium for the policy is submitted with the
application, insurance coverage will ordinarily begin on the date that the
Underwriting
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Department approves the Policy as applied for, based on receipt of any
required medical examinations or other items requested in accordance with
LBL's underwriting requirements. If a minimum Premium is not paid with the
application, insurance coverage will ordinarily begin on the date the
policy is delivered to the Policyowner and the required Premium is
collected. Insurance coverage may also begin on any other date mutually
agreeable to LBL and the Policyowner as long as such date complies with all
applicable state and federal laws and regulations.
LBL will allocate Net Premiums from the Policy to the Lincoln Benefit Life
Variable Account ("Separate Account") and the Fixed Account on the date the
Premium is received.
The minimum face amount at issue is $100,000 under LBL's current rules.
LBL reserves the right to revise its rules from time to time to specify a
different minimum face amount at issue for subsequently issued policies.
C. PREMIUM ALLOCATION
In the application for a Policy, the Policyowner must allocate Net Premiums
(total Premiums less the Premium charge of 6% for years 1 through 10, 4%
for years 11 plus) among the Subaccounts of the Separate Account and the
Fixed Account. All net premium payments received before the Issue Date
will be held in LBL's General Account until the Issue Date. No earnings or
interest will be credited before the Issue Date. In most states, LBL will
allocate such net premiums, plus earnings and less monthly deductions, to
the Subaccounts and/or the Fixed Account the Policyowner has selected on
the Issue Date.
If a state requires us to refund premium payments during the free look
period, LBL will keep the net premiums in the Money Market Portfolio for
twenty days following the Issue Date (or longer if required by state law)
before allocating
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them (plus earnings and less monthly deductions)to the Subaccount(s) or
Fixed Account the Policyowner has selected.
The allocation for future Net Premium Payments may be changed at any time
by written notice (or by telephone notice, if authorized) to LBL without
payment of any fee or penalties.
D. REINSTATEMENT
A lapsed Policy may be reinstated any time within five years after the date
of lapse by submitting the following items to LBL:
(1) A written request for reinstatement;
(2) Evidence of insurability satisfactory to LBL;
(3) Payment of the monthly deductions for the Grace Period;
(4) Payment of a Premium sufficient to keep the Policy in force for
at least three months; and
(5) Payment or reinstatement of any loan.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the Monthly Deduction Day on or prior to the date of
approval.
E. REPAYMENT OF INDEBTEDNESS
Outstanding indebtedness may be repaid at any time. Upon repayment, the
Policy Value securing the repaid portion of the debt in the Loan Account
will be transferred to the Subaccounts of the Separate Account or the Fixed
Account using the same percentages used to allocate Net Premiums.
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F. CORRECTION OF MISSTATEMENT OF AGE OR SEX
If LBL discovers that the age or sex of the Insured has been misstated, LBL
will adjust the Death Benefit of the Policy to the amount which the initial
Safety Net Premium would have purchased at the correct age and 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. SURRENDER VALUES
As long as the Policy is in force, the policyowner may surrender the Policy
or make a partial withdrawal at any time by sending a written request to
LBL. The amount available for surrender ("Net Surrender Value") is the
Policy Value less any applicable surrender charge and Policy Debt at the
end of the Valuation Period during which the surrender request is received
at LBL's home office. Net Surrender Value will be determined on a daily
basis. This will enable LBL to pay a Net Surrender Value based on the next
computed value after a request is received. Surrenders from the Separate
Account will generally be paid within seven days of receipt of the written
request. A charge is imposed for surrenders, as explained in the
Surrender Value section of the Policy.
The Policyowner can obtain a portion of the Net Surrender Value by making a
partial withdrawal from the Policy.
A partial withdrawal may not reduce the Net Surrender Value below $500.
The minimum withdrawal at any time is $500. A Partial Withdrawal Service
Fee of $10 will be subtracted from the withdrawal proceeds. A partial
withdrawal will also affect the Policy Value and Death Benefit.
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OPTION 1. Partial withdrawals generally will affect both the Policy Value
and the life insurance proceeds payable under the Policy. The Policy Value
will be reduced to reflect the amount of the withdrawal. Moreover, life
insurance proceeds payable under the Policy will generally be reduced to
reflect the amount of the partial withdrawal. The face amount remaining
after a partial withdrawal may not be less than $50,000. If increases in
face amount previously have occurred, a partial withdrawal will first
reduce the face amount of the most recent increase, then the most recent
increases successively, then the coverage under the original Policy.
OPTION 2. Under Option 2, which provides for life insurance proceeds equal
to the face amount plus Policy Value, a reduction in Policy Value as a
result of a partial surrender will typically result in a dollar per dollar
reduction in the life insurance proceeds payable under the Policy.
The Policyowner must allocate a partial withdrawal among the Subaccounts of
the Separate Account and the Fixed Account. The Policyowner may not,
however, withdraw from the Fixed Account more than the total withdrawal
amount times the ratio of the Fixed Account to the total policy value
immediately prior to the withdrawal. Telephoned instructions for partial
withdrawals will be permitted, provided a proper telephone authorization
form is on file. Before any withdrawals can be made, a proper withholding
form must be on file.
The amount payable upon complete surrender of the Policy is the Net
Surrender Value which may be paid in a lump sum or under one of the
optional payment plans specified in the Policy. Proceeds will generally be
paid within seven days of receipt of a request for surrender.
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B. DEATH BENEFITS
So long as it remains in force, the Policy provides for the payment of life
insurance proceeds upon the death of the Insured. Proceeds will be paid to
a named Beneficiary or contingent Beneficiary. One or more Beneficiaries
or contingent Beneficiaries may be named. Life insurance proceeds may be
paid in a lump sum or under one of the optional payment plans specified in
the Policy. The amount of Death Benefit proceeds payable will be
determined at the end of the Valuation Period during which the Insured
dies.
Proceeds of the Policy will be reduced by any outstanding Policy debt and
any due and unpaid charges and increased by any benefits added by rider.
Proceeds will ordinarily be paid within seven days after LBL receives due
Proof of Death and all other requirements deemed necessary have been
satisfied.
The death benefit will be based on:
1. The death benefit option in effect on the date of death;
2. Any increases or decreases to the face amount.
While the insured is alive, the Policyowner may choose between two death
benefit options:
If Option 1 is selected, the Death Benefit will be the greater of:
1. The face amount; or
2. The Policy Value multiplied by the applicable corridor percentage as
described in the Policy.
If you select Option 2, the Death Benefit will be the greater of:
1. The face amount plus the policy value; or
2. The Policy Value multiplied by the applicable corridor percentage as
described in the Policy.
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Under Death Benefit Option 1, the Death Benefit will only vary whenever the
applicable percentage of Policy Value set forth in the Policy exceeds the
face amount of the Policy. Under Death Benefit Option 2, the Death Benefit
will always vary with the Policy Value since the Death Benefit equals the
face amount plus the Policy Value.
Subject to certain limitations, a Policyowner may increase or decrease the
face amount of a Policy. A change in face amount may affect the cost of
insurance rate and the net amount at risk, both of which may affect a
Policyowner's cost of insurance charge.
Any decrease in the face amount will become effective on the Monthly
Deduction Day on or following receipt of a written request. No decrease in
the face amount will be permitted during the first policy year. The face
amount remaining in force after any requested decrease may not be less than
$50,000. If following the decrease in face amount, the Policy would not
comply with the maximum Premium limitations required by Federal tax law,
the decrease may be limited (or if the Policyowner so elects, Policy Value
may be returned to the Policyowner) to the extent necessary to meet these
requirements. For purposes of determining the cost of insurance charge, a
decrease in the face amount will reduce the face amount in the following
order:
1. The face amount provided by the most recent increase;
2. The next most recent increases successively; and
3. The face amount when the Policy was issued.
For an increase in the face amount, a written application must be
submitted. LBL may also require that additional evidence of insurability
be submitted. The effective date of the increase will be the Monthly
Deduction Day on or following approval of the increase. An increase need
not be accompanied by an
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additional Premium; LBL may, however, deduct any charges associated with
the increase from existing Policy Value. The face amount may not be
increased more than once in any 12-month period.
Generally, the Death Benefit option in effect may be changed at any time by
sending LBL a written request for change. If the Death Benefit option is
changed from Option 2 to Option 1, the face amount will be increased by an
amount equal to the Policy Value on the effective date of change. The
effective date of such a change will be the Monthly Deduction Day on or
following receipt of the request.
If the Death Benefit option is changed from Option 1 to Option 2, the face
amount will be decreased by an amount equal to the Policy Value on the
effective date of change. This change may not be made if it would result
in a face amount less than $50,000. The effective date of such a change
will be the Monthly Deduction Day on or following the date the request is
received. LBL does not presently require evidence of insurability for a
change in Death Benefit options.
No charges will be imposed upon a change in Death Benefit option, nor will
such a change in and of itself result in an immediate change in the amount
of the Policy Value.
C. PREMIUM REFUNDS
LBL will not normally refund premium payments unless one of the
following situations occurs:
1. The Insured is rated substandard during the underwriting process
and the Owner does not accept the rating.
2. The proposed Insured is determined to be uninsurable by LBL's
standards.
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3. The premium paid is in permanent suspense because underwriting
requirements were never completed.
4. The delivery period has expired and delivery has not been
completed.
5. The Owner exercises the Free Look privilege in accordance with
state regulations.
6. The premium payment would disqualify the policy as life insurance
coverage as defined under the Internal Revenue Code.
7. In the event an application is declined by LBL, the initial
premium will be refunded.
D. POLICY LOANS
So long as the Policy remains in force, the Policyowner may borrow money
from LBL using the Policy as the only security for the loan. Loans have
priority over the claims of any assignee or any other person. The maximum
amount that may be borrowed at any time is 90 percent of the Surrender
Value at the end of the Valuation Period during which the loan request is
received. Policy Debt equals the total of all outstanding Policy loans and
any accrued interest on the loans. Policy Debt may be repaid all or in
part at any time. Interest on policy loans accrues daily and is due at the
end of each Policy Year. Any interest not paid when due becomes part of
the Policy Loan and will bear interest at the same rate.
When a policy loan is made, a portion of the Policy Value sufficient to
secure the loan will be transferred to the Loan Account, reducing the
Policy Value in the Separate Account and the Fixed Account. Any loan
interest that is due and unpaid will also be transferred. Amounts
transferred to the Loan Account will accrue interest at an annual rate of
4.0 percent. Policy loans will usually be allocated from the Subaccounts
and the Fixed Account in the percentages that the Policyowner specified for
the allocation of Premiums. However, we will not
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withdraw amounts from the Fixed Account equaling more than the total loan
multiplied by the ratio of the Fixed Account to the Policy Value
immediately preceding the loan. LBL will ordinarily disburse proceeds of
policy loans within seven days after receipt of a written request although
postponement of loans may take place under certain circumstances.
An amount equal to Policy Value less all premiums paid may be taken as a
Preferred Loan. The interest rate charged for Preferred Loans is 4.0
percent per year. A Standard Loan is the amount that may be borrowed from
the sum of premiums paid. The Standard Loan interest rate is 6.0 percent
per year.
If the Policyowner has a loan on a policy with another company, and he/she
is terminating that policy to buy one from LBL, usually the Policyowner
would repay the old loan during the process of surrendering the old policy.
Income taxes on the interest earned could be due. LBL will permit the
Policyowner to carry the old loan over to the new LBL Policy through a Tax
Code Section 1035 tax-free exchange, up to certain limits. The use of a
Section 1035 tax-free exchange can avoid income tax liability that would be
due if the old loan was extinguished.
If the Policyowner transfers a Policy Loan from another insurer as part of
Section 1035 tax-free exchange, LBL will treat a loan of up to 20% of the
Policy Value as a Preferred Loan. If the amount due is more than 20% of
the Policy Value, we will treat the excess as a Standard Loan. The
treatment of transferred Policy Loans is illustrated in the following
example:
Policy Value of Old Policy $190,000.00
Policy Loan 40,000.00
-----------
Surrender Value $150,000.00
20% of Policy Value $38,000.00
"Preferred" portion transferable $38,000.00
Remaining ("Standard") portion $2,000.00
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Policy Debt may not exceed the Surrender Value. If Policy Debt would
otherwise exceed the Surrender Value, LBL will notify the Policyowner and
any assignee of record. LBL will require a payment sufficient to keep the
policy in force for at least three more months. If such payment is not
received within the grace period, the Policy will lapse and terminate
without value (see "Policy Lapse," below). The Policy may, however, later
be reinstated (see "Reinstatement," page 5).
So long as the Policy remains in force, Policy Debt may be repaid in whole
or in part at any time during the Insured's life. If the Policyowner does
not designate the payment as a loan repayment, LBL will apply payments
received as premium payments. Upon repayment, the Policy Value securing
the repaid portion of the debt in the Loan Account will be transferred to
the Subaccounts of the Separate Account and the Fixed Account using the
same percentage used to allocate Net Premiums. Any outstanding Policy Debt
is subtracted from life insurance proceeds payable at the Insured's death
and from Surrender Value upon complete surrender.
E. POLICY LAPSE
The Policy will remain in force so long as the Net Surrender Value is
sufficient to pay the monthly deduction. In the event the Net Surrender
Value is insufficient to pay the monthly deduction, the Policyowner will be
given a sixty-one day period ("grace period") within which to make a
premium payment to avoid lapse. The premium required to avoid lapse must
be sufficient to keep the Policy in force for three months. The required
premium will be set forth in a written notice which LBL will send to the
Policyowner on the date that the Net Surrender Value is insufficient to
meet the monthly deduction. The Policy will continue in force through the
grace period, but if no payment is forthcoming, the Policy will terminate
at the end of the grace period.
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Notwithstanding the above, the Policy will not terminate if the Safety Net
Premium provision is in effect through payment of monthly Safety Net
premiums as defined in the Policy.
If the Insured dies during the grace period, the Death Benefit payable will
be reduced by the amount of the monthly deduction due and unpaid and the
amount of any outstanding Policy Debt. In addition, whenever the Policy
Debt exceeds the Surrender Value, the grace period provision will apply. A
lapsed Policy may be reinstated any time within 5 years after the date of
lapse (see "Reinstatement," page 5).
3. TRANSFERS
The Policyowner may transfer Policy Values among Subaccounts and the Fixed
Account by written request or telephone authorization. Currently, there is
no minimum transfer amount except in states where a minimum transfer amount
is required by law (or if a transfer is made as part of our Dollar Cost
Averaging program as described below). LBL reserves the right to impose a
minimum transfer amount in the future. We currently do not allow Policy
Value in more than twenty-one options, counting each Subaccount and the Fixed
Account as one option. Therefore, we will not allow transfers to exceed this
limit. In addition, there are additional restrictions on transfers from the
Fixed Account as described in the prospectus.
Under our automatic Dollar Cost Averaging program, the Policyowner may authorize
us to transfer a fixed dollar amount at fixed intervals from the Fixed Account
or a Subaccount they choose to up to eight investment options, including other
Subaccount or the Fixed Account. The interval between transfers may be monthly,
quarterly, or annually, as selected by the Policyowner. The transfers will be
made at the Accumulation Unit Value on the date of the transfer. The transfers
will continue until otherwise instructed, or until the chosen source of transfer
payments is exhausted.
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Currently, there is a minimum transfer amount of $100 per transfer. We may
change this minimum or grant exceptions.
Under Portfolio Rebalancing, the Policyowner may choose to have rebalances made
monthly, quarterly, semi-annually, or annually. No more than eight subaccounts,
or seven Subaccounts and the Fixed Account, can be included in a Portfolio
Rebalancing program at one time.
Telephone calls authorizing transfers must be completed by 4:00 p.m. Eastern
time on a Valuation Date in order to be effected at the price determined on such
date. Transfer authorizations whether written or by telephone, which are
received after 4:00 p.m., Eastern time, will be processed as of the next
Valuation Date. A proper telephone authorization form for transfers must be on
file. Also, the telephone transfer privilege may be suspended, modified, or
terminated at any time without notice.
LBL utilizes procedures that it believes provide reasonable assurance that
telephone authorized transfers are genuine. Such procedures include taping of
telephone conversations with persons purporting to authorize such transfers and
requesting identifying information from such persons. Accordingly, LBL
disclaims any liability for losses resulting from such transfers by reason of
their allegedly not having been properly authorized. However, if LBL does not
take reasonable steps to help ensure that such authorizations are valid, LBL may
be liable for such losses.
A transfer fee of $10 may be assessed on the second and each subsequent
transaction in each calendar month in which transfers are made from
Subaccount(s) to Subaccount(s). LBL is currently waiving this fee.
Transfers resulting from Policy Loans, the exercise of conversion rights, Dollar
Cost Averaging, Portfolio Rebalancing, and reallocations of Policy Value at the
expiration of the free-look period will not be subject to a transfer charge.
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(i) The Policy is structured to satisfy the definition of a life insurance
contract under the Internal Revenue Code. Accordingly, the maximum premium
limitation will be imposed to conform the Policy to certain restrictions on
Premiums contained in the Internal Revenue Code which are necessary to satisfy
the definition of life insurance.
(ii) Redemptions will be based on the net asset value next determined after
receipt of a request.
(iii) Payment 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 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 is not reasonably practicable or not reasonably
practicable to determine the value of the Separate Account's net assets.
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.
(iv) SEE note 3, SUPRA.
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