Section 500.850. Variable life insurance policy; mandatory provisions.

Rule 10. Every variable life insurance policy delivered or issued for delivery in this state shall contain, at a minimum, all of the following:

(a)   A cover page or pages corresponding to the cover page of each policy which shall contain all of the following items:

(i)    A prominent statement, either in contrasting color or in boldface type, that the amount or duration of death benefit may  be  variable  or fixed under specified conditions and that cash values may increase  or decrease in accordance  with   the  experience   of  the separate  account, subject to any specified minimum guarantees.

(ii)   A statement describing the minimum death benefit required pursuant to R 500.849(b).

(iii)    The method, or a reference to the policy provision which describes the method, for determining the amount of insurance payable at death.

(iv)    A captioned provision which   provides  that   the  policyholder   may return the variable life insurance policy to the insurer or agent within 45 days of the date of the execution of the application or within  10   days  of receipt of the policy by  the   policyholder,   whichever is   later,   and receive a refund of all premium payments for such policy.

(v)   Such other items as are currently required for fixed  benefit   life insurance policies and which are not inconsistent with this rule.

(b)   For scheduled premium policies, a provision for a grace period of not less than 31 days from the premium due date, which shall provide  that when the premium is paid within the grace period, policy values shall be the same, except for the deduction of any overdue premium,  as  if   the premium were paid on or before the due date.

(c)   For scheduled premium policies, a provision that the policy shall be reinstated at any time within 2 years from the date of default, unless the cash surrender value has been paid or the period of extended insurance has expired. Reinstatement shall be upon the written application of the insured with evidence of insurability, including  good  health,  which satisfies the insurer, the payment of any outstanding indebtedness arising subsequent to the end of the grace period following the date of  default together with accrued interest thereon to the date of reinstatement, and payment of an amount not exceeding the greater of either of the following:

(i)   All overdue premiums and any other indebtedness in effect at the end of the grace period following the date of default, with interest at a rate not exceeding the rate  charged  on comparable fixed benefit policies.

(ii)   110% of the increase in  cash  surrender   value   resulting   from reinstatement.

(d)   A full description of the benefit base and of the method of calculation and application  of any factors  used   to   adjust   variable benefits under the policy.

(e)    A provision designating the separate account to be used and stating all of the following:

(i)   Such separate account shall be used to fund only variable life insurance benefits, except to the extent permitted by R 500.852(c)(vi).

(ii)    The assets of such separate account shall be available to cover the liabilities of the general account of the insurer only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the variable life insurance policies supported   by the separate account.

(iii)    The assets of such separate account shall be valued as often as any policy benefits vary, but at least monthly.

(f)   For scheduled premium policies, a provision that at any time during the first 18 months of the variable life insurance policy, so  long   as premiums are duly paid, the owner may exchange the policy for a policy  of permanent fixed benefit life insurance on the life of the insured for the same initial amount of insurance as the variable life insurance policy.The insurer shall not require evidence of insurability for this exchange and the new policy shall satisfy all of the following requirements:

(i)   Bear the same date of issue and age as the  original  variable  life insurance policy.

(ii)    Be issued on a substantially comparable plan of permanent insurance offered in the state by the insurer or an affiliate on the date of issue and at the premium rates in effect on that date  for the   same   class   of insureds.

(iii)    Include such riders and incidental insurance benefits  as  were included in the original policy if such riders and incidental insurance benefits are issued with the fixed benefit policy.

(iv)    Be issued subject to an equitable premium or cash value adjustment that takes appropriate account of the premiums and cash values under the original and new policies. A detailed statement of the method of  computing such adjustment shall be filed with, and subject to the approval   of,   the commissioner.

(g)   A provision that the policy and any papers attached thereto by  the insurer, including the application, if  attached,   constitute   the  entire insurance contract.

(h)    A designation of the officers of the insurer who are empowered to make an agreement or representation on  behalf  of  the   insurer  and  an indication that statements by the insured, or on his or her behalf,  shall be considered as representations and not as warranties.

(i)   An identification of the owner of the insurance contract.

(j)    A provision setting forth conditions  or   requirements  as  to   the designation, or change of designation, of a beneficiary and a provision for disbursement of benefits in the absence of a beneficiary designation.

(k)   A statement of any conditions or requirements concerning  the assignment of the policy.

(l)    A description of any adjustments in policy values to be made in the event of misstatement of the age or sex of the insured.

(m)   A provision that the policy shall be incontestable by the insurer after it has been in force for 2 years during the lifetime of the insured.However, any increase in the amount of the policy's death  benefits subsequent to the policy issue date, which increase occurred  upon   a new application or request of the owner and was subject to satisfactory proof of the insured's insurability, shall be incontestable after any  such increase has been in force, during the lifetime of the   insured,   for  2 years from the date of issue of such increase.

(n)   A provision stating that in the  event  of  a  material  change  of investment policy of the separate account, any policyholder   who  objects  to such change shall have the option to

convert, without providing evidence of insurability, to a fixed benefit life  insurance   policy and that the insurer shall give proper notification of the options available to such objecting policyholder. The conversion options shall be equivalent   to  those  provided  by R 500.859(5)(b).

(o)   A provision that payment of variable death benefits in excess of the minimum death benefits, cash values, policy loans, or partial  withdrawals, except when used to pay premiums or partial surrenders, may be deferred  as follows:

(i)   For up to 6 months from the date of request if such payments are based on policy values which do not depend on the  performance  of   the separate account.

(ii)    For any period during which the New York stock exchange is closed for trading, except for normal holiday closings, or when the securities and exchange commission has determined that a state   of  emergency  exists which may make such payment impractical.

(p)   A description of the basis for computing the cash  value  and  the surrender value under the policy. In scheduled premium policies, such surrender value may be expressed as either of the following:

(i)   A schedule of cash value amounts per $1,000.00 of variable face amount at each attained age or policy year for not less than 20 years from issue or for the premium paying period if less than 20 years.

(ii)   One cash value schedule, as described in paragraph (i) of   this subdivision, for the death benefit, or for each $1,000.00 of death benefit, which would be in effect if the net investment return is always equal to the assumed investment rate, and a second schedule applicable  to any adjustments to the  death  benefit,   disregarding  the  minimum   death benefit guarantee and term insurance amounts, if the net investment return does not equal the assumed investment rate at each age for not less than 20 years from issue or for the premium paying period if it is less than 20 years.

(q)   Premiums or charges  for incidental  insurance   benefits   shall   be stated separately.

(r)   For flexible premium policies, a provision   for  a  grace  period beginning on the policy processing day when the total charges authorized by the policy that are necessary to keep the policy in force until the  next policy processing day exceed the amounts available under the policy to pay such charges in accordance with the terms of the policy. Such grace period shall end on a date not less than 61 days after the mailing date of the report to policyholders required by R 500.865(d). The death benefit payable during the grace period will equal the death benefit in effect immediately before such period, less  any  overdue charges. If the policy processing days  occur  monthly,  the  insurer   may require the payment of not more than 3 times the charges which were due on the policy processing day on which the amounts available  under  the  policy were insufficient to pay all charges authorized by  the   policy  that are necessary to keep such policy in force until the   next   policy  processing day.

(s)   If settlement options are provided, at least 1 such option shall be provided on a fixed benefit basis only.

(t)   For scheduled premium policies which permit the insurer to adjust premiums, a provision stating the frequency with  which  premium  will   be reviewed to determine whether an adjustment should be made.  Such  frequency shall be at least once every 3 policy years.

(u)   The policy shall describe how loans are charged against separate accounts and the effect on such accounts when a loan is made or repaid.

(v)   Any other required provisions, including other items currently required for  fixed benefit  life insurance policies   which    are   not inconsistent with this rule.

History: 1979 AC; 1988 AACS.