Mich. Admin. Code R. 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.

Notes

Mich. Admin. Code R. 500.850

1979 AC; 1988 AACS